As filed with the Securities and
Exchange Commission on January 28, 2013
Securities Act File
No. 33-26305
Investment
Company Act File No. 811-05742
SECURITIES
AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
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REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 269
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and/or
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REGISTRATION STATEMENT UNDER THE
INVESTMENT COMPANY ACT OF 1940
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Amendment No. 271
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(Check appropriate box or boxes)
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BLACKROCK
FUNDS
SM
(Exact Name of Registrant as Specified in Charter)
100 Bellevue Parkway
,
Wilmington, Delaware 19809
United States of America
(Address of Principal Executive Offices)
Registrant’s
Telephone Number, including Area Code:
(800) 441-7762
John M. Perlowski
BlackRock Funds
SM
55 East 52
nd
Street
New York, New York 10055
United States of America
(Name and Address of Agent for Service)
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Copies to:
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Counsel for the Fund:
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Frank P. Bruno, Esq.
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Benjamin Archibald, Esq.
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Sidley Austin LLP
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BlackRock Advisors, LLC
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787 Seventh Avenue
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55 East 52nd Street
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New York, New York 10019-6018
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New York, New York 10055
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It is proposed that this filing will
become effective (check appropriate box)
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Immediately upon filing pursuant to paragraph (b)
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On (date) pursuant to paragraph (b)
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60 days after filing pursuant to paragraph (a)(1)
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On (date) pursuant to paragraph (a)(1)
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75 days after filing pursuant to paragraph (a)(2)
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On (date) pursuant to paragraph (a)(2) of Rule 485
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If appropriate, check the following
box:
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This post-effective amendment designates a new effective date for a previously filed post-effective amendment.
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Title of Securities
Being Registered: Shares of beneficial interest, par value $.001 per share.
JANUARY 28,
2013
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PROSPECTUS
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BlackRock
Funds
SM
| Investor
and Institutional Shares
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>
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BlackRock Managed Volatility Portfolio
Investor
A: PCBAX • Investor B: CBIBX • Investor C: BRBCX • Institutional: PBAIX
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This Prospectus contains information
you should know before investing, including information about risks. Please read it before you invest and keep it for future
reference.
The Securities and Exchange
Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
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Not FDIC Insured • No Bank Guarantee • May
Lose
Value
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Fund Overview
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Key facts and details about the Fund including investment objective, principal strategies, risk factors, fee and expense information, and
historical performance information
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3
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3
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4
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5
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11
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13
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13
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13
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13
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13
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Details About the Fund
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14
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17
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30
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Account Information
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Information about account services, sales charges & waivers, shareholder transactions, and distribution and other
payments
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68
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70
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74
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75
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81
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82
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83
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83
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Management of the Fund
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Information about BlackRock and the Portfolio Manager
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85
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86
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86
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87
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88
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Financial Highlights
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90
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General Information
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94
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94
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95
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Glossary
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96
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For More Information
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Inside Back Cover
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Back Cover
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Fund Overview
The investment objective of BlackRock Managed Volatility
Portfolio, formerly BlackRock Asset Allocation Portfolio (“Managed Volatility Portfolio” or the “Fund”), a series of BlackRock
Funds
SM
(the “Trust”), is to seek total return.
Fees and Expenses of the
Fund
This table describes the fees and expenses that you may pay if you
buy and hold shares of Managed Volatility Portfolio. You may qualify for sales charge discounts if you and your family invest, or agree to invest in
the future, at least $25,000 in the fund complex advised by BlackRock Advisors, LLC (“BlackRock”). More information about these and other
discounts is available from your financial professional and in the “Details About the Share Classes” section on page 70 of the
Fund’s prospectus and in the “Purchase of Shares” section on page II-73 of the Fund’s statement of additional
information.
Shareholder Fees
(fees paid
directly from your investment)
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Investor A
Shares
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Investor B
Shares
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Investor C
Shares
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Institutional
Shares
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Maximum Sales Charge (Load) Imposed on Purchases
(as percentage of offering price)
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5.25
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%
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None
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None
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None
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Maximum Deferred Sales Charge (Load) (as percentage of
offering price or redemption proceeds, whichever
is lower)
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None
1
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4.50
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%
2
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1.00
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%
3
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None
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Annual Fund Operating Expenses
(expenses that you pay each year as a
percentage of the value of your investment)
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Investor A
Shares
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Investor B
Shares
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Investor C
Shares
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Institutional
Shares
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Management Fee
4
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0.55
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%
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0.55
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%
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0.55
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%
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0.55
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%
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Distribution and/or Service (12b-1) Fees
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0.25
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%
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1.00
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%
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1.00
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%
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None
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Other Expenses
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0.43
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%
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0.53
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%
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0.38
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%
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0.40
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%
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Interest Expense
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0.01%
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0.01%
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0.01%
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0.01%
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Miscellaneous Other Expenses
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0.42%
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0.52%
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0.37%
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0.39%
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Acquired Fund Fees and Expenses
5
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0.05
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%
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0.05
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%
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0.05
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%
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0.05
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%
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Total Annual Fund Operating Expenses
5
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1.28
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%
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2.13
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%
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1.98
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%
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1.00
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%
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Fee Waivers and/or Expense Reimbursements
6
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—
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—
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—
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(0.05
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)%
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Total Annual Fund Operating Expenses After Fee Waivers
and/or Expense
Reimbursements
6
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1.28
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%
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2.13
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%
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1.98
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%
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0.95
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%
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1
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A contingent deferred sales charge
(“CDSC”) of 0.75% is assessed on certain redemptions of Investor A Shares made within 18 months after purchase where no initial sales charge
was paid at time of purchase as part of an investment of $1,000,000 or more.
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2
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The CDSC is 4.50% if shares are redeemed in less
than one year. The CDSC for Investor B Shares decreases for redemptions made in subsequent years. After six years there is no CDSC on Investor B
Shares. (See the section “Details About the Share Classes — Investor B Shares” in the Fund’s prospectus for the complete schedule
of CDSCs.)
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3
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There is no CDSC on Investor C Shares after one
year.
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4
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The Management Fee payable by the Fund is
based on assets estimated to be attributable to the Fund’s direct investments in fixed-income and equity securities and instruments, including
exchange-traded funds (“ETFs”) advised by BlackRock or other investment advisers, other investments and cash and cash equivalents (including
money market funds). BlackRock has contractually agreed to waive the Management Fee on assets estimated to be attributed to the Fund’s investments
in other equity and fixed-income mutual funds managed by BlackRock or its affiliates (the “mutual
funds”).
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5
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The Total Annual Fund Operating Expenses do not
correlate to the ratio of expenses to average net assets given in the Fund’s most recent annual report which does not include the Acquired
Fund Fees and Expenses.
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6
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As described in the “Management of the
Fund” section of the Fund’s prospectus on pages 85-89, BlackRock has contractually agreed to waive and/or
reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend
Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) as a percentage of average daily net assets to 1.37% (for
Investor A Shares), 2.14% (for Investor B and Investor C Shares) and 0.89% (for Institutional Shares) until February 1,
2014. The Fund may have to repay some of these waivers and/or reimbursements to BlackRock in the following two years. The agreement may
be terminated upon 90 days’ notice by a majority of the non-interested Trustees of the Trust or by a vote of a majority of the outstanding voting
securities of the Fund.
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3
Example:
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the
Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would
be:
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1 Year
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3 Years
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5 Years
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10 Years
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Investor A Shares
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$
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649
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$
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910
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$
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1,190
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$
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1,989
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Investor B Shares
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$
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666
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$
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1,017
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$
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1,344
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$
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2,246
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Investor C Shares
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$
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301
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$
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621
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$
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1,068
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$
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2,306
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Institutional Shares
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$
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97
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$
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313
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$
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548
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$
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1,220
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You would pay the following expenses if you did not redeem your
shares:
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1 Year
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3 Years
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5 Years
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10 Years
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Investor B Shares
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$
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216
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$
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667
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$
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1,144
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$
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2,246
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Investor C Shares
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$
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201
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$
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621
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$
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1,068
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$
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2,306
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Portfolio Turnover:
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in
higher taxes when shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example,
affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was 324% of the
average value of its portfolio.
Principal Investment
Strategies of the Fund
Managed Volatility Portfolio uses an asset allocation strategy,
investing varying percentages of its portfolio in three major categories: stocks, bonds and money market instruments. The Fund has wide flexibility in
the relative weightings given to each category.
The Fund may also invest a significant portion of its assets in
affiliated and unaffiliated ETFs and mutual funds. See “Information About the ETFs and Mutual Funds.”
With respect to its equity investments, the Fund may invest in
ETFs, mutual funds or individual equity securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in common stock,
preferred stock, securities convertible into common stock, non-convertible preferred stock and depositary receipts. The Fund, the ETFs and the mutual
funds may invest in securities of both U.S. and non-U.S. issuers without limit, which can be U.S. dollar-based or non-U.S. dollar-based and may be
currency hedged or unhedged. The Fund, the ETFs and the mutual funds may invest in securities of companies of any market
capitalization.
With respect to its fixed-income investments, the Fund may invest
in ETFs, mutual funds or individual fixed-income securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in a portfolio
of fixed-income securities such as corporate bonds and notes, commercial and residential mortgage-backed securities (bonds that are backed by a
mortgage loan or pools of loans secured either by commercial property or residential mortgages, as applicable), collateralized mortgage obligations
(bonds that are backed by cash flows from pools of mortgages and may have multiple classes with different payment rights and protections),
collateralized debt obligations, asset-backed securities, convertible securities, debt obligations of governments and their sub-divisions (including
those of non-U.S. governments), other floating or variable rate obligations, municipal obligations and zero coupon debt securities. The Fund, the ETFs
and the mutual funds may also invest a significant portion of their assets in non-investment grade bonds (junk bonds or distressed securities),
non-investment grade bank loans, foreign bonds (both U.S. dollar- and non-U.S. dollar-denominated) and bonds of emerging market issuers. The Fund, the
ETFs and the mutual funds may invest in non-U.S. dollar-denominated bonds on a currency hedged or unhedged basis.
With respect to its cash investments, the Fund may hold high
quality money market securities, including short term U.S. Government securities, U.S. Government agency securities, securities issued by U.S.
Government-sponsored enterprises and U.S. Government instrumentalities, bank obligations, commercial paper, including asset-backed commercial paper,
corporate notes and repurchase agreements. The Fund may invest a significant portion of its assets in money market funds, including those advised by
BlackRock or its affiliates.
4
The Fund may invest in derivatives, including, but not limited to,
interest rate, total return and credit default swaps, indexed and inverse floating rate securities, options, futures, options on futures and swaps and
foreign currency transactions (including swaps), for hedging purposes, as well as to increase the return on its portfolio investments. The Fund may
seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may also use forward foreign currency exchange contracts
(obligations to buy or sell a currency at a set rate in the future) to hedge against movement in the value of non-U.S. currencies. The ETFs and the
mutual funds may, to varying degrees, also invest in derivatives.
The Fund may invest in U.S. and non-U.S. real estate investment
trusts (“REITs”), structured products (including, but not limited to, structured notes, credit linked notes and participation notes, or other
instruments evidencing interests in special purpose vehicles, trusts, or other entities that hold or represent interests in fixed-income securities)
and floating rate securities (such as bank loans).
The Fund incorporates a volatility control process that seeks to
reduce risk when portfolio volatility is expected to deviate from the Fund’s targeted total return volatility of 10% over a one-year period.
Volatility is a statistical measurement of the magnitude of up and down fluctuations in the value of a financial instrument or index over time.
Volatility may result in rapid and dramatic price swings. While BlackRock attempts to manage the Fund’s volatility exposure to stabilize
performance, there can be no guarantee that the Fund will reach its target volatility. The Fund will adjust its asset allocation in response to periods
of high or low expected volatility. The Fund may without limitation allocate assets into cash or short-term fixed-income securities, and away from
riskier assets such as equity and high yield fixed-income securities. When volatility decreases, the Fund may move assets out of cash and back into
riskier securities. At any given time, the Fund may be invested entirely in equities, fixed-income or cash. As part of its attempt to manage the
Fund’s volatility exposure, during certain periods the Fund may make significant investments in index futures or other
derivative instruments designed to reduce the Fund’s exposure to portfolio volatility. The Fund may engage in active and frequent
trading of portfolio securities to achieve its primary investment strategies.
Risk is inherent in all investing. The value of your investment in
Managed Volatility Portfolio, as well as the amount of return you receive on your investment, may fluctuate significantly from day to day and over
time. You may lose part or all of your investment in the Fund or your investment may not perform as well as other similar investments. The principal
risks set forth below are the principal risks of investing in the Fund and/or the ETFs and the mutual funds (each, an
“Underlying Fund”).
Principal Risks of the Fund’s Fund of Funds
Structure
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Affiliated Fund Risk
— In managing the Fund,
BlackRock will have authority to select and substitute ETFs or mutual funds. BlackRock may be subject to potential conflicts of interest in selecting
ETFs or mutual funds because the fees paid to BlackRock by some ETFs or mutual funds are higher than the fees paid by other ETFs or mutual funds.
However, BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selecting ETFs and mutual
funds.
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n
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Allocation Risk
— The Fund’s ability to
achieve its investment objective depends upon BlackRock’s skill in determining the Fund’s strategic asset class allocation and in selecting
the best mix of ETFs, mutual funds and direct investments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or
ETFs or mutual funds may be incorrect in view of actual market conditions.
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n
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Investments in ETFs and Other Mutual Funds Risk
— The Fund’s net asset value will change with changes in the value of the ETFs, mutual funds and other securities in which it invests. As
with other investments, investments in other investment companies, including ETFs, are subject to market risk and, for non-index strategies, selection
risk. In addition, if the Fund acquires shares of investment companies, including ETFs, shareholders bear both their proportionate share of expenses in
the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies. If the Fund acquires shares of affiliated
mutual funds, shareholders bear both their proportionate share of expenses in the Fund (excluding management and advisory fees) and, indirectly, the
expenses of the mutual funds. To the extent the Fund is held by an affiliated fund, the ability of the Fund itself to hold other investment companies
may be limited.
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One ETF or mutual fund may buy the same securities that another
ETF or mutual fund sells. In addition, the Fund may buy the same securities that an ETF or mutual fund sells, or vice-versa. If this happens, an
investor in the Fund would indirectly bear the costs of these transactions without accomplishing the intended investment purpose. Also, an investor in
the Fund may receive taxable gains from portfolio transactions by an ETF or mutual fund, as well as taxable gains from transactions in shares of the
ETF or mutual fund by the Fund. Certain of the ETFs or mutual funds may hold common portfolio securities, thereby reducing the diversification benefits
of the Fund.
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5
Principal ETF-Specific Risks
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n
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Cash Transaction Risk
— Certain ETFs intend to
effect creations and redemptions principally for cash, rather than primarily in-kind because of the nature of the ETF’s investments. Investments
in such ETFs may be less tax efficient than investments in ETFs that effect creations and redemptions in-kind.
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n
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Management Risk
— If an ETF does not fully
replicate the underlying index, it is subject to the risk that the manager’s investment management strategy may not produce the intended
results.
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n
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Passive Investment Risk
— ETFs purchased by the
Fund are not actively managed and may be affected by a general decline in market segments relating to their respective indices. An ETF typically
invests in securities included in, or representative of, its index regardless of their investment merits and does not attempt to take defensive
positions in declining markets.
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n
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Representative Sampling Risk
— When an ETF
deviates from a full replication indexing strategy to utilize a representative sampling strategy, the ETF is subject to an increased risk of tracking
error, in that the securities selected in the aggregate for the ETF may not have an investment profile similar to those of its index.
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n
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Shares of an ETF May Trade at Prices Other Than Net Asset
Value
— The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based on market supply and demand
rather than net asset value. The trading prices of an ETF’s shares may deviate significantly from net asset value during periods of market
volatility. Any of these factors may lead to an ETF’s shares trading at a premium or discount to net asset value. However, because shares can be
created and redeemed in Creation Units, which are aggregated blocks of shares that authorized participants who have entered into agreements with the
ETF’s distributor can purchase or redeem directly from the ETF, at net asset value, large discounts or premiums to the net asset value of an ETF
are not likely to be sustained over the long term. If a shareholder purchases at a time when the market price is at a premium to the net asset value or
sells at a time when the market price is at a discount to the net asset value, the shareholder may sustain losses.
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n
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Tracking Error Risk
— Imperfect correlation
between an ETF’s portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETF’s size, changes to the
index and regulatory requirements may cause tracking error, which is the divergence of an ETF’s performance from that of its underlying index.
This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result because an
ETF incurs fees and expenses while its underlying index does not.
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Other Principal Risks of Investing in the Fund and/or an Underlying Fund
|
n
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Collateralized Debt Obligations Risk
— The pool
of high yield securities underlying collateralized debt obligations is typically separated into groupings called tranches representing different
degrees of credit quality. The higher quality tranches have greater degrees of protection and pay lower interest rates. The lower tranches, with
greater risk, pay higher interest rates.
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n
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Concentration Risk
— To the extent that the
Fund’s or an Underlying Fund’s portfolio reflects concentration in the securities of issuers in a particular region, market, industry,
group of industries, country, group of countries, sector or asset class, the Fund or the Underlying Fund may be adversely affected by the
performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or
regulatory occurrences affecting that region, market, industry, group of industries, country, group of countries, sector or asset class.
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|
n
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Convertible Securities Risk
— The market value
of a convertible security performs like that of a regular debt security; that is, if market interest rates rise, the value of a convertible security
usually falls. In addition, convertible securities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and
their market value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’s
creditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, a convertible security is also subject
to the same types of market and issuer risks that apply to the underlying common stock.
|
|
n
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|
Corporate Loans Risk
— Commercial banks and
other financial institutions or institutional investors make corporate loans to companies that need capital to grow or restructure. Borrowers generally
pay interest on corporate loans at rates that change in response to changes in market interest rates such as the London Interbank Offered Rate
(“LIBOR”) or the prime rates of U.S. banks. As a result, the value of corporate loan investments is generally less exposed to the adverse
effects of shifts in market interest rates than investments that pay a fixed rate of interest. The market for corporate loans may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement periods. The corporate loans in which the Fund or an
Underlying Fund invests are usually rated below investment grade.
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|
n
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|
Counterparty Risk
— The counterparty to an
over-the-counter derivatives contract or a borrower of the Fund’s or an Underlying Fund’s securities may be unable or unwilling to
make timely principal, interest or settlement payments, or otherwise to honor its obligations.
|
6
|
n
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|
Credit Risk
— Credit risk refers to the
possibility that the issuer of a security will not be able to make payments of interest and principal when due. The degree of credit risk depends on
the issuer’s financial condition and on the terms of the securities.
|
|
n
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|
Debt Securities Risk
— Debt securities, such as
bonds, involve credit risk. Debt securities are also subject to interest rate risk.
|
|
n
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Derivatives Risk
— The Fund’s or an
Underlying Fund’s use of derivatives may reduce the Fund’s or the Underlying Fund’s returns and/or increase volatility.
Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period.
Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual
obligation. A risk of the Fund’s or an Underlying Fund’s use of derivatives is that the fluctuations in their values may not correlate
perfectly with the overall securities markets. The possible lack of a liquid secondary market for derivatives and the resulting inability of the Fund
or an Underlying Fund to sell or otherwise close a derivatives position could expose the Fund or the Underlying Fund to losses and could
make derivatives more difficult for the Fund or the Underlying Fund to value accurately. Derivatives may give rise to a form of leverage and may
expose the Fund or an Underlying Fund to greater risk and increase its costs. Recent legislation calls for new regulation of the derivatives
markets. The extent and impact of the regulation is not yet known and may not be known for some time. New regulation may make derivatives more costly,
may limit the availability of derivatives, or may otherwise adversely affect the value or performance of derivatives.
|
|
n
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|
Distressed Securities Risk
— Distressed
securities are speculative and involve substantial risks in addition to the risks of investing in junk bonds. The Fund and the Underlying Funds
will generally not receive interest payments on the distressed securities and may incur costs to protect its investment. In addition, distressed
securities involve the substantial risk that principal will not be repaid. These securities may present a substantial risk of default or may be in
default at the time of investment.
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n
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|
Dollar Rolls Risk
— Dollar rolls involve the
risk that the market value of the securities that the Fund or an Underlying Fund is committed to buy may decline below the price of the
securities the Fund or the Underlying Fund has sold. These transactions may involve leverage.
|
|
n
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|
Emerging Markets Risk
— Emerging markets are
riskier than more developed markets because they tend to develop unevenly and may never fully develop. Investments in emerging markets may be
considered speculative.
Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to
U.S. investors. In addition, many emerging securities markets have far lower trading volumes and less liquidity than developed markets.
|
|
n
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|
Equity Securities Risk
— Stock markets are
volatile. The price of equity securities fluctuates based on changes in a company’s financial condition and overall market and economic
conditions.
|
|
n
|
|
Extension Risk
— When interest rates rise,
certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these securities to fall.
|
|
n
|
|
Foreign Securities Risk
— Foreign investments
often involve special risks not present in U.S. investments that can increase the chances that the Fund or an Underlying Fund will lose money.
These risks include:
|
|
—
|
|
The Fund and the Underlying Funds generally hold
their foreign securities and cash in foreign banks and securities depositories, which may be recently organized or new to the foreign
custody business and may be subject to only limited or no regulatory oversight.
|
|
—
|
|
Changes in foreign currency exchange rates can affect the value of
the Fund’s or an Underlying Fund’s portfolio.
|
|
—
|
|
The economies of certain foreign markets may not compare favorably
with the economy of the United States with respect to such issues as growth of gross national product, reinvestment of capital, resources and balance
of payments position.
|
|
—
|
|
The governments of certain countries may prohibit or impose
substantial restrictions on foreign investments in their capital markets or in certain industries.
|
|
—
|
|
Many foreign governments do not supervise and regulate stock
exchanges, brokers and the sale of securities to the same extent as does the United States and may not have laws to protect investors that are
comparable to U.S. securities laws.
|
|
—
|
|
Settlement and clearance procedures in certain foreign markets may
result in delays in payment for or delivery of securities not typically associated with settlement and clearance of U.S.
investments.
|
7
|
—
|
|
The European financial markets have recently experienced
volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of several European countries. These events
have adversely affected the exchange rate of the Euro and may spread to other countries in Europe, including countries that do not use the Euro. These
events may affect the value and liquidity of certain of the Fund’s or an Underlying Fund’s investments.
|
|
n
|
|
High Portfolio Turnover Risk
— High portfolio
turnover (more than 100%) may result in increased transaction costs to the Fund or an Underlying Fund and potentially higher capital gains or
losses for shareholders. The effects of higher than normal portfolio turnover may adversely affect Fund or Underlying Fund
performance.
|
|
n
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|
Indexed and Inverse Securities Risk
— Certain
indexed and inverse securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Fund’s or
an Underlying Fund’s investment in such instruments may decline significantly in value if interest rates or index levels move in a way Fund
or Underlying Fund management does not anticipate.
|
|
n
|
|
Inflation Indexed Bonds Risk
— The principal
value of an investment is not protected or otherwise guaranteed by virtue of the Fund’s or an Underlying Fund’s investments in
inflation-indexed bonds.
|
Inflation-indexed bonds are fixed-income
securities whose principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal
value of inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a
smaller principal amount) will be reduced.
Repayment of the original bond principal
upon maturity (as adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar
guarantee, the adjusted principal value of the bond repaid at maturity may be less than the original principal value.
The value of inflation-indexed bonds is
expected to change in response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and
the rate of inflation. If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value
of inflation-indexed bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an
inflation-indexed bond will be considered taxable ordinary income, even though investors do not receive their principal until
maturity.
Periodic adjustments for inflation to
the principal amount of an inflation-indexed bond may give rise to original issue discount, which will be includable in the Fund’s or an
Underlying Fund’s gross income. Due to original issue discount, the Fund or an Underlying Fund may be required to make annual
distributions to shareholders that exceed the cash received, which may cause the Fund or the Underlying Fund to liquidate certain investments
when it is not advantageous to do so. Also, if the principal value of an inflation-indexed bond is adjusted downward due to deflation, amounts
previously distributed in the taxable year may be characterized in some circumstances as a return of capital.
|
n
|
|
Interest Rate Risk
— 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. In general, the
market price of debt securities with longer maturities will go up or down more in response to changes in interest rates than the market price of
shorter term securities.
|
|
n
|
|
Investment Style Risk
— Under certain market
conditions, growth investments have performed better during the later stages of economic expansion and value investments have performed better during
periods of economic recovery. Therefore, these investment styles may over time go in and out of favor. At times when the investment style used by the
Fund or Underlying Fund is out of favor, the Fund or Underlying Fund may underperform other funds that use different investment
styles.
|
|
n
|
|
Junk Bonds Risk
— Although junk bonds generally
pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that may cause income and principal losses for the
Fund or Underlying Fund.
|
|
n
|
|
Leverage Risk
— Some transactions may give rise
to a form of economic leverage. These transactions may include, among others, derivatives, and may expose the Fund or an Underlying Fund to
greater risk and increase its costs. The use of leverage may cause the Fund or an Underlying Fund to liquidate portfolio positions when it may
not be advantageous to do so to satisfy its obligations or to meet any required asset segregation requirements. Increases and decreases in the value of
the Fund’s or an Underlying Fund’s portfolio will be magnified when the Fund or the Underlying Fund uses leverage.
|
|
n
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|
Liquidity Risk
— Liquidity risk exists when
particular investments are difficult to purchase or sell. The Fund’s or an Underlying Fund’s investments in illiquid securities may
reduce the returns of the Fund or the Underlying Fund because it may be difficult to sell the illiquid securities at an advantageous time or
price. To the extent that the Fund’s or an Underlying Fund’s principal investment strategies involve derivatives or securities with
substantial market and/or credit
|
8
|
|
|
risk, the Fund or the Underlying Fund will tend to have the
greatest exposure to liquidity risk. Liquid investments may become illiquid after purchase by the Fund or an Underlying Fund, particularly
during periods of market turmoil. Illiquid investments may be harder to value, especially in changing markets, and if the Fund or the Underlying
Fund is forced to sell these investments to meet redemption requests or for other cash needs, the Fund or the Underlying Fund may suffer a
loss. In addition, when there is illiquidity in the market for certain securities, the Fund or an Underlying Fund, due to limitations on
illiquid investments, may be subject to purchase and sale restrictions.
|
|
n
|
|
Market Risk and Selection Risk
— Market risk is
the risk that one or more markets in which the Fund or an Underlying Fund invests will go down in value, including the possibility that the
markets will go down sharply and unpredictably. Selection risk is the risk that the securities selected by Fund or Underlying Fund management
will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment
strategies. This means you may lose money.
|
|
n
|
|
Mid-Cap Securities Risk
— The securities of
mid-cap companies generally trade in lower volumes and are generally subject to greater and less predictable price changes than the securities of
larger capitalization companies.
|
|
n
|
|
Mortgage- and Asset-Backed Securities Risks
—
Mortgage- and asset-backed securities represent interests in “pools” of mortgages or other assets, including consumer loans or receivables
held in trust. Mortgage- and asset-backed securities are subject to credit, interest rate, prepayment and extension risks. These securities also are
subject to risk of default on the underlying mortgage or asset, particularly during periods of economic downturn. Small movements in interest rates
(both increases and decreases) may quickly and significantly reduce the value of certain mortgage-backed securities.
|
|
n
|
|
Municipal Securities Risks
— Municipal
securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal
securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. These risks
include:
|
General Obligation Bonds Risks
— Timely payments depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax
base.
Revenue Bonds Risks
— These
payments depend on the money earned by the particular facility or class of facilities, or the amount of revenues derived from another
source.
Private Activity Bonds Risks
— Municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private
enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its faith, credit and taxing power for
repayment.
Moral Obligation Bonds Risks
— Moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet
its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
Municipal Notes Risks
—
Municipal notes are shorter term municipal debt obligations. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and
the Fund or an Underlying Fund may lose money.
Municipal Lease Obligations Risks
— In a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not pledge its
unlimited taxing power for payment of the lease obligation, the lease obligation is secured by the leased property.
|
n
|
|
Preferred Securities Risk
— Preferred
securities may pay fixed or adjustable rates of return. Preferred securities are subject to issuer-specific and market risks applicable generally to
equity securities.
|
|
n
|
|
Prepayment Risk
— When interest rates fall,
certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund or an Underlying Fund may have to
invest the proceeds in securities with lower yields.
|
|
n
|
|
Real Estate Related Securities Risks
— The main
risk of real estate related securities is that the value of the underlying real estate may go down. Many factors may affect real estate values. These
factors include both the general and local economies, the amount of new construction in a particular area, the laws and regulations (including zoning
and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate. The availability of mortgages and changes in
interest rates may also affect real estate values. If the Fund’s or an Underlying Fund’s real estate related investments are
concentrated in one geographic area or in one property type, the Fund or the Underlying Fund will be particularly subject to the risks
associated with that area or property type.
|
|
n
|
|
REIT Investment Risk
— Investments in REITs
involve unique risks. REITs may have limited financial resources, may trade less frequently and in limited volume and may be more volatile than other
securities.
|
9
|
n
|
|
Repurchase Agreements and Purchase and Sale Contracts
Risks
— If the other party to a repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the
Fund or an Underlying Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to
repurchase the security in either situation and the market value of the security declines, the Fund or an Underlying Fund may lose
money.
|
|
n
|
|
Reverse Repurchase Agreements Risk
— Reverse
repurchase agreements involve the risk that the other party to the reverse repurchase agreement may fail to return the securities in a timely manner or
at all. The Fund or an Underlying Fund could lose money if it is unable to recover the securities and the value of the collateral held by the
Fund or the Underlying Fund, including the value of the investments made with cash collateral, is less than the value of securities. These
events could also trigger adverse tax consequences to the Fund or an Underlying Fund.
|
|
n
|
|
Risks of Loan Assignments and Participations
—
As the purchaser of an assignment, the Fund or an Underlying Fund typically succeeds to all the rights and obligations of the assigning
institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the Fund or an Underlying Fund may not
be able unilaterally to enforce all rights and remedies under the loan and with regard to any associated collateral. Because assignments may be
arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Fund or an
Underlying Fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. In addition, if
the loan is foreclosed, the Fund or an Underlying Fund could become part owner of any collateral and could bear the costs and liabilities of
owning and disposing of the collateral. The Fund or an Underlying Fund may be required to pass along to a purchaser that buys a loan from the
Fund or the Underlying Fund by way of assignment a portion of any fees to which the Fund or the Underlying Fund is entitled under the
loan. In connection with purchasing participations, the Fund or an Underlying Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and the Fund or an Underlying
Fund may not directly benefit from any collateral supporting the loan in which it has purchased the participation. As a result, the Fund or an
Underlying Fund will be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling a participation, the Fund or an Underlying Fund may be treated as a general creditor of the lender and may not
benefit from any set-off between the lender and the borrower.
|
|
n
|
|
Second Lien Loans Risk
— Second lien loans
generally are subject to similar risks as those associated with investments in senior loans. Because second lien loans are subordinated or unsecured
and thus lower in priority of payment to senior loans, they are subject to the additional risk that the cash flow of the borrower and property securing
the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the
borrower.
|
|
n
|
|
Senior Loans Risk
—There is less readily
available, reliable information about most senior loans than is the case for many other types of securities. An economic downturn generally leads to a
higher non-payment rate, and a senior loan may lose significant value before a default occurs. Moreover, any specific collateral used to secure a
senior loan may decline in value or become illiquid, which would adversely affect the senior loan’s value. No active trading market may exist for
certain senior loans, which may impair the ability of the Fund or an Underlying Fund to realize full value in the event of the need to sell a
senior loan and which may make it difficult to value senior loans. Although senior loans in which the Fund or an Underlying Fund will invest
generally will be secured by specific collateral, there can be no assurance that liquidation of such collateral would satisfy the borrower’s
obligation in the event of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. To the extent that a
senior loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of the bankruptcy of the
borrower. Uncollateralized senior loans involve a greater risk of loss. The senior loans in which the Fund or an Underlying Fund invests are
usually rated below investment grade.
|
|
n
|
|
Small Cap and Emerging Growth Securities Risks
— Small cap or emerging growth companies may have limited product lines or markets. They may be less financially secure than larger, more
established companies. They may depend on a more limited management group than larger capitalized companies.
|
|
n
|
|
Sovereign Debt Risk
— Sovereign debt
instruments are subject to the risk that a governmental entity may delay or refuse to pay interest or repay principal on its sovereign debt, due, for
example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s
debt position in relation to the economy or the failure to put in place economic reforms required by the International Monetary Fund or other
multilateral agencies.
|
|
n
|
|
Structured Notes Risk
— Structured
notes and other related instruments purchased by the Fund or an Underlying Fund are generally privately negotiated debt obligations where the
principal and/or interest is determined by reference to the performance of a specific asset, benchmark asset, market or interest rate
(“reference measure”). The purchase of structured notes exposes the Fund or an Underlying Fund to the credit risk of the issuer of
the
|
10
structured product. Structured notes may be leveraged, increasing the volatility
of each structured note’s value relative to the change in the reference measure. Structured notes may also be less liquid and more
difficult to price accurately than less complex securities and instruments or more traditional debt securities.
|
n
|
|
Structured Products Risk
— Holders of
structured products bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund or an
Underlying Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the
issuer or the entity that sold the assets to be securitized. Certain structured products may be thinly traded or have a limited trading market. In
addition to the general risks associated with debt securities discussed herein, structured products carry additional risks, including, but not limited
to: the possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the
collateral may decline in value or default; and the possibility that the structured products are subordinate to other classes.
|
|
n
|
|
Supranational Entities Risk
— The Fund or an
Underlying Fund may invest in obligations issued or guaranteed by the International Bank for Reconstruction and Development (the World Bank). If
one or more stockholders of the World Bank fail to make necessary additional capital contributions, the entity may be unable to pay interest or repay
principal on its debt securities, and the Fund or an Underlying Fund may lose money on such investments.
|
|
n
|
|
Tender Option Bonds and Related Securities Risk
— Investments in tender option bonds, residual interest tender option bonds and inverse floaters expose the Fund or an Underlying Fund to
the same risks as investments in derivatives, as well as risks associated with leverage, described above, especially the risk of increased volatility.
An investment in these securities may be subject to the risk of loss of principal. Residual interest tender option bonds and inverse floaters generally
will underperform the market for fixed rate municipal securities in a rising interest rate environment.
|
|
n
|
|
U.S. Government Mortgage-Related Securities Risk
— There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities guaranteed by the Government National Mortgage Association
(“Ginnie Mae”) are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith
and credit of the United States. Ginnie Mae securities also are supported by the right of Ginnie Mae to borrow funds from the U.S. Treasury to make
payments under its guarantee. Mortgage-related securities issued by The Federal National Mortgage Association (“Fannie Mae”) or The Federal
Home Loan Mortgage Corporation (“Freddie Mac”) are solely the obligations of Fannie Mae or Freddie Mac, as the case may be, and are not
backed by or entitled to the full faith and credit of the United States but are supported by the right of the issuer to borrow from the U.S.
Treasury.
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|
n
|
|
U.S. Government Obligations Risk
— Certain
securities in which the Fund or an Underlying Fund may invest, including securities issued by certain U.S. Government agencies and U.S.
Government sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of the United States.
|
|
n
|
|
Variable and Floating Rate Instrument Risk
—
The absence of an active market for these securities could make it difficult for the Fund or an Underlying Fund to dispose of them if the issuer
defaults.
|
|
n
|
|
Warrants Risk
— If the price of the underlying
stock does not rise above the exercise price before the warrant expires, the warrant generally expires without any value and the Fund or an
Underlying Fund loses any amount it paid for the warrant. Thus, investments in warrants may involve substantially more risk than investments in
common stock.
|
|
n
|
|
Zero Coupon Securities Risk
— While interest
payments are not made on such securities, holders of such securities are deemed to have received income (“phantom income”) annually,
notwithstanding that cash may not be received currently. Some of these securities may be subject to substantially greater price fluctuations during
periods of changing market interest rates than are comparable securities that pay interest currently. Longer term zero coupon bonds are more exposed to
interest rate risk than shorter term zero coupon bonds.
|
Effective May 15, 2012, Managed Volatility Portfolio changed its
investment strategy to invest a significant portion of its assets in ETFs and, to a lesser extent, in mutual funds and directly in securities.
Performance for the periods prior to May 15, 2012 shown below is based on the investment strategy utilized by the Fund,
which focused on investing directly in securities.
On January 31, 2005, the Fund reorganized with the State Street
Research Asset Allocation Fund (the “SSR Fund”), which had investment objectives and strategies similar to the Fund. For periods prior to
January 31, 2005, the chart and table show performance information for the SSR Fund. The information shows you how the Fund’s performance has
varied year by year and provides some indication of the risks of investing in the Fund. The table compares the
11
Fund’s performance to that of
the MSCI All Country World Index (the “MSCI ACWI Index”), the Citigroup World Government Bond Index (hedged into
USD) (the “Citigroup WGBI (hedged into USD)”), the Barclays U.S. Aggregate Bond Index and
two customized weighted indices comprised of the returns of the
MSCI ACWI Index, the Citigroup WGBI (hedged into USD) and the Barclays U.S. Aggregate Bond Index in the percentages and
combinations set forth in the table. Effective May 15, 2012, the Fund changed one of the components making up the customized weighted
index from the Barclays U.S. Aggregate Bond Index to the Citigroup WGBI (hedged into USD). Fund management believes that the Citigroup WGBI (hedged
into USD) better reflects the Fund’s increasing global exposure. As with all such investments, past performance (before and after taxes) is
not an indication of future results. Sales charges are not reflected in the bar chart. If they were, returns would be less than those shown. However,
the table includes all applicable fees and sales charges. If BlackRock and its affiliates had not waived or reimbursed certain Fund expenses during
these periods, the Fund’s returns would have been lower. Updated information on the Fund’s results can be obtained by visiting
http://www.blackrock.com/funds or can be obtained by phone at (800) 882-0052.
Investor A Shares
ANNUAL TOTAL RETURNS
1
BlackRock Managed Volatility Portfolio
As of 12/31
During the ten-year period shown in the bar chart, the highest
return for a quarter was 13.66% (quarter ended September 30, 2009) and the lowest return for a quarter was –13.17% (quarter ended December 31,
2008).
As of
12/31/12
Average Annual Total Returns
|
|
|
|
1 Year
|
|
5 Years
1
|
|
10 Years
1
|
|
BlackRock Managed Volatility Portfolio — Investor A
|
|
Return Before Taxes
|
|
|
|
|
6.12
|
%
|
|
|
1.47
|
%
|
|
|
6.69
|
%
|
|
Return After Taxes on Distributions
|
|
|
|
|
4.80
|
%
|
|
|
0.84
|
%
|
|
|
5.75
|
%
|
|
Return After Taxes on Distributions and Sale of Shares
|
|
|
|
|
4.65
|
%
|
|
|
1.05
|
%
|
|
|
5.54
|
%
|
|
BlackRock Managed Volatility Portfolio — Investor B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
|
|
6.50
|
%
|
|
|
1.34
|
%
|
|
|
6.61
|
%
|
|
BlackRock Managed Volatility Portfolio — Investor C
|
|
Return Before Taxes
|
|
|
|
|
10.15
|
%
|
|
|
1.84
|
%
|
|
|
6.50
|
%
|
|
BlackRock Managed Volatility Portfolio — Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return Before Taxes
|
|
|
|
|
12.27
|
%
|
|
|
2.90
|
%
|
|
|
7.63
|
%
|
|
MSCI ACWI Index
(Reflects no deduction for fees, expenses or taxes)
|
|
|
|
|
16.13
|
%
|
|
|
(1.16
|
)%
|
|
|
8.11
|
%
|
|
Citigroup WGBI (hedged into USD)
(Reflects no deduction for fees, expenses or taxes)
|
|
|
|
|
4.50
|
%
|
|
|
4.68
|
%
|
|
|
4.41
|
%
|
|
Barclays U.S. Aggregate Bond Index
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
4.21
|
%
|
|
|
5.95
|
%
|
|
|
5.18
|
%
|
|
60% MSCI ACWI Index/40% Citigroup WGBI (hedged into USD)
(Reflects no deduction for fees,
expenses or taxes)
|
|
|
|
|
11.61
|
%
|
|
|
1.79
|
%
|
|
|
7.03
|
%
|
|
60% MSCI ACWI Index/40% Barclays U.S. Aggregate Bond Index
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
11.48
|
%
|
|
|
2.20
|
%
|
|
|
7.30
|
%
|
|
1
|
|
A portion of the Fund’s total return was
attributable to proceeds received in the fiscal year ended September 30, 2009 in settlement of litigation.
|
12
After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the
investor’s tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their shares
through tax-deferred arrangements such as 401(k) plans or individual retirement accounts. After-tax returns are shown for Investor A Shares only, and
the after-tax returns for Investor B, Investor C and Institutional Shares will vary.
Managed Volatility Portfolio’s investment manager is
BlackRock Advisors, LLC (previously defined as “BlackRock”). The Fund’s sub-advisers are BlackRock Financial Management, Inc., BlackRock
International Limited, BlackRock (Hong Kong) Limited and BlackRock (Singapore) Limited. Where applicable, “BlackRock” refers also to the
Fund’s sub-advisers.
Name
|
|
|
|
Portfolio Manager
of the Fund
Since
|
|
Title
|
|
Philip Green
|
|
|
|
2006
|
|
Managing Director of BlackRock, Inc.
|
Purchase and Sale of Fund
Shares
You may purchase or redeem shares of Managed Volatility Portfolio
each day the New York Stock Exchange is open. To purchase or sell shares you should contact your financial intermediary or financial professional, or,
if you hold your shares through the Fund, you should contact the Fund by phone at (800) 441-7762, by mail (c/o BlackRock Funds, P.O. Box 9819,
Providence, Rhode Island 02940-8019), or by the Internet at www.blackrock.com/funds. The Fund’s initial and subsequent investment minimums
generally are as follows, although the Fund may reduce or waive the minimums in some cases:
|
|
|
|
Investor A and
Investor C
Shares
|
|
Investor B Shares
|
|
Institutional Shares
|
|
Minimum Initial Investment
|
|
|
|
$1,000 for all accounts except:
• $250 for certain fee-based
programs.
• $100 for retirement plans.
• $50, if establishing an
Automatic Investment
Plan.
|
|
Available only through exchanges and dividend reinvestments by current holders and for purchase by certain
qualified employee benefit plans.
|
|
$2 million for institutions and individuals.
Institutional Shares are available to clients of registered
investment advisors who have $250,000 invested in the Fund.
|
|
Minimum Additional Investment
|
|
|
|
$50 for all accounts except certain retirement plans and payroll deduction programs may have a lower
minimum.
|
|
N/A
|
|
No subsequent minimum.
|
Managed Volatility Portfolio’s dividends and distributions
may be subject to Federal income taxes and may be taxed as ordinary income or capital gains, unless you are a tax-exempt investor or are investing
through a retirement plan, in which case you may be subject to Federal income tax upon withdrawal from such tax-deferred arrangements.
Payments to Broker/Dealers
and Other Financial Intermediaries
If you purchase shares of Managed Volatility Portfolio through a
broker-dealer or other financial intermediary, the Fund and BlackRock Investments, LLC, the Fund’s distributor, or its affiliates may pay the
intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or
other financial intermediary and your individual financial professional to recommend the Fund over another investment. Ask your individual financial
professional or visit your financial intermediary’s website for more information.
13
Details About the Fund
Included in this prospectus are sections that tell you about
buying and selling shares, management information, shareholder features of BlackRock Managed Volatility Portfolio (“Managed Volatility
Portfolio” or the “Fund”), a series of BlackRock Funds
SM
(the “Trust”), and your rights as a
shareholder.
Investment Objective
The investment objective of Managed Volatility Portfolio is to
seek total return.
Should the Trust’s Board of Trustees (the “Board”)
determine that the investment objective of the Fund should be changed, shareholders will be given at least 30 days’ notice before any such change
is made. However, such change can be effected without shareholder approval.
Investment Process
The Fund management team will tactically allocate to asset classes
around the world that are deemed to offer attractive levels of return relative to the level of expected risk. In selecting investments, the Fund
management team will identify global macro opportunities and position the Fund using a combination of exchange-traded funds (“ETFs”), equity,
fixed-income and money market funds advised by BlackRock and its affiliates (the “mutual funds”), individual securities and
derivatives.
ETFs, mutual funds and securities are selected to achieve asset
and sector allocations tactically set by the Fund management team. In selecting fixed-income investments, the Fund management team evaluates sectors of
the bond market including, but not limited to, U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities,
collateralized mortgage obligations, asset-backed securities and corporate bonds. The Fund management team may shift the Fund’s assets among these
various sectors based upon changing market conditions. Investments are made when the Fund management team believes that they have the potential for
above-average total return.
In selecting equity investments, the Fund management team
evaluates the attractiveness of countries and sectors as well as average market capitalization, and will assess each investment’s changing
characteristics relative to its contribution to portfolio risk within that discipline and will sell the investment when it no longer offers an
appropriate return-to-risk trade-off. The Fund will make investments that the Fund management team believes offer attractive returns through long-term
capital appreciation and income.
The Fund incorporates a volatility control process that seeks to
reduce risk when portfolio volatility is expected to deviate from the Fund’s targeted total return volatility of 10% over a one-year period.
Volatility is a statistical measurement of the magnitude of up and down fluctuations in the value of a financial instrument or index over time.
Volatility may result in rapid and dramatic price swings. While BlackRock attempts to manage the Fund’s volatility exposure to stabilize
performance, there can be no guarantee that the Fund will reach its target volatility. The Fund will adjust its asset allocation in response to periods
of high or low expected volatility. The Fund may allocate without limitation assets into cash or short-term fixed-income securities, and away from
riskier assets such as equity and high yield fixed-income securities. When volatility decreases, the Fund may move assets out of cash and back into
riskier securities. At any given time, the Fund may be invested entirely in equities, fixed-income securities or cash. As part of its attempt to
manage the Fund’s volatility exposure, during certain periods the Fund may make significant investments in index futures or
other derivative instruments designed to reduce the Fund’s exposure to portfolio volatility. The Fund may engage in active and frequent
trading of portfolio securities to achieve its primary investment strategies.
Principal Investment Strategies
The Fund uses an asset allocation strategy, investing varying
percentages of its portfolio in three major categories: stocks, bonds and money market instruments. The Fund has wide flexibility in the relative
weightings given to each category. The Fund may also invest a significant portion of its assets in affiliated and unaffiliated ETFs and mutual funds.
See “Information About the ETFs and Mutual Funds.”
14
With respect to its equity investments, the Fund may invest in
ETFs, mutual funds or individual equity securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in common stock,
preferred stock, securities convertible into common stock, non-convertible preferred stock and depositary receipts. Preferred stock is a class of stock
that often pays dividends at a specified rate and has preference over common stock in dividend payments and liquidation of assets. Convertible
securities typically pay current income as either interest (debt security convertibles) or dividends (preferred stock), and their value usually
reflects both the stream of current income payments and the market value of the underlying common stock. The Fund, the ETFs and the mutual funds may
invest in securities of both U.S. and non-U.S. issuers without limit, which can be U.S. dollar-based or non-U.S. dollar-based and may be currency
hedged or unhedged. The Fund, the ETFs and the mutual funds may invest in securities of companies of any market capitalization.
With respect to its fixed-income investments, the Fund may invest
in ETFs, mutual funds or individual fixed-income securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in a portfolio
of fixed-income securities such as corporate bonds and notes, commercial and residential mortgage-backed securities (bonds that are backed by a
mortgage loan or pools of loans secured either by commercial property or residential mortgages, as applicable), collateralized mortgage obligations
(bonds that are backed by cash flows from pools of mortgages and may have multiple classes with different payment rights and protections),
collateralized debt obligations, asset-backed securities, convertible securities, debt obligations of governments and their sub-divisions (including
those of non-U.S. governments), other floating or variable rate obligations, municipal obligations and zero coupon debt securities. The Fund, the ETFs
and the mutual funds may also invest a significant portion of their assets in non-investment grade bonds (junk bonds or distressed securities),
non-investment grade bank loans, foreign bonds (both U.S. dollar- and non-U.S. dollar-denominated) and bonds of emerging market issuers. The Fund, the
ETFs and the mutual funds may invest in non-U.S. dollar-denominated bonds on a currency hedged or unhedged basis.
Non-investment grade bonds acquired by the Fund, the ETFs or the
mutual funds will generally be in the lower categories of the major rating agencies at the time of purchase (BB or lower by Standard & Poor’s,
a division of The McGraw Hill Companies (“S&P”), or Ba or lower by Moody’s Investors Service, Inc. (“Moody’s”)) or
will be determined by the Fund management team to be of similar quality. Split-rated bonds will be considered to have the higher credit rating. The
average portfolio duration of the fixed-income investments held by the Fund will vary based on the Fund management team’s forecast of interest
rates and there are no limits regarding portfolio duration or average maturity.
With respect to its cash investments, the Fund may hold high
quality money market securities, including short term U.S. Government securities, U.S. Government agency securities, securities issued by U.S.
Government-sponsored enterprises and U.S. Government instrumentalities, bank obligations, commercial paper, including asset-backed commercial paper,
corporate notes and repurchase agreements. The Fund may invest a significant portion of its assets in money market funds, including those advised by
BlackRock or its affiliates.
The Fund may invest in derivatives, including, but not limited to,
interest rate, total return and credit default swaps, indexed and inverse floating rate securities, options, futures, options on futures and swaps and
foreign currency transactions (including swaps), for hedging purposes, as well as to increase the return on its portfolio investments. An option is the
right to buy or sell a security or an index of securities at a specific price on or before a specific date. A future is an agreement to buy or sell a
security or an index of securities at a specific price on a specific date. A credit default swap is an agreement whereby one party would pay a
counterparty a periodic stream of payments over the term of the contract, provided that no event of default on a specific bond has occurred. In return,
upon any event of default on such bond, the first party would receive from the counterparty a payment equal to the par (or other agreed-upon) value of
such bond. A swap is an agreement whereby one party exchanges its right to receive or its obligation to pay one type of interest or currency for
another party’s obligation to pay or its right to receive another type of interest or currency in the future or for a period of time. The Fund may
seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as reverse repurchase agreements or dollar rolls). A dollar roll transaction involves a sale by the Fund of a
mortgage-backed or other security concurrently with an agreement by the Fund to repurchase a similar security at a later date at an agreed-upon price.
The securities that are repurchased will bear the same interest rate and stated maturity as those sold, but pools of mortgages collateralizing those
securities may have different prepayment histories than those sold. The Fund may also use forward foreign currency exchange contracts (obligations to
buy or sell a currency at a set rate in the future) to hedge against movement in the value of non-U.S. currencies. The ETFs and the mutual funds may,
to varying degrees, also invest in derivatives.
The Fund may invest in U.S. and non-U.S. REITs, structured
products (including, but not limited to, structured notes, credit linked notes and participation notes, or other instruments evidencing interests in
special purpose vehicles, trusts, or other entities that hold or represent interests in fixed-income securities) and floating rate securities (such as
bank loans).
15
REITs can generally be classified as equity REITs, mortgage REITs
and hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive their income primarily from rents. Equity REITs
can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both equity REITs and mortgage REITs.
REITs are not taxed on income distributed to shareholders provided they comply with the requirements of the Internal Revenue Code of 1986, as amended
(the “Internal Revenue Code”).
The Fund is classified as diversified under the Investment Company
Act of 1940, as amended (the “Investment Company Act”).
Other Strategies Applicable to the Fund
In addition to the principal strategies discussed above, the Fund
may also invest or engage in the following investments/strategies:
|
n
|
|
Borrowing
— The Fund may borrow from banks in
amounts aggregating not more than 33
1
⁄
3
% of the value of its total assets.
The Fund may also borrow an additional 5% of its total assets without regard to the foregoing limitation for temporary purposes such as clearance of
portfolio transactions and share redemptions.
|
|
n
|
|
Closed-End Funds
— The Fund may invest in
closed-end investment companies. Closed-end funds generally do not continuously offer their shares for sale and such shares generally are not
redeemable. Closed-end funds sell a fixed number of shares, after which the shares typically trade on a secondary market with a price determined by the
market at a price that may be more or less that the shares’ net asset value.
|
|
n
|
|
Illiquid/Restricted Securities
— The Fund may
invest up to 15% of its net assets in illiquid securities that it cannot sell within seven days at approximately current value. The Fund may also
invest in restricted securities, which are securities that cannot be offered for public resale unless registered under the applicable securities laws
or that have a contractual restriction that prohibits or limits their resale (
i.e.
, Rule 144A securities). They may include private placement
securities that have not been registered under the applicable securities laws. Restricted securities may not be listed on an exchange and may have no
active trading market and therefore may be considered to be illiquid. Rule 144A securities are restricted securities that can be resold to qualified
institutional buyers but not to the general public and may be considered to be liquid securities.
|
|
n
|
|
Master Limited Partnerships
— The Fund may
invest in master limited partnerships (“MLPs”) that are generally in energy-related industries. MLPs are limited partnerships or limited
liability companies taxable as partnerships. MLPs may derive income and gains from the exploration, development, mining, production, processing,
refining, transportation (including pipelines transporting gas, oil or products thereof) or the marketing of any mineral or natural resources. MLPs
generally have two classes of owners, the general partner and limited partners. When investing in an MLP, the Fund intends to purchase publicly traded
common units issued to limited partners of the MLP. The general partner is typically owned by a major energy company, an investment fund, the direct
management of the MLP or is an entity owned by one or more of such parties. The general partner may be structured as a private or publicly traded
corporation or other entity.
|
|
n
|
|
“New Issues”
— From time to time, the
Fund and the ETFs may invest in shares of companies through initial public offerings (“IPOs”).
|
|
n
|
|
Securities Lending
—
The Fund may lend securities with a value up to 33
1
⁄
3
%
of its total assets to financial institutions that provide cash or securities issued or guaranteed by the U.S. Government
as collateral.
|
|
n
|
|
When-Issued and Delayed Delivery Securities and Forward
Commitments
— The purchase or sale of securities on a when-issued basis or on a delayed delivery basis or through a forward commitment
involves the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the future. The Fund enters
into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering into the transaction.
|
|
ABOUT THE PORTFOLIO MANAGER OF
MANAGED VOLATILITY PORTFOLIO
|
|
Philip Green is the portfolio manager of Managed Volatility Portfolio and is primarily responsible for the day-to-day management of the Fund.
Please see “Management of the Fund — Portfolio Manager Information” for additional information about the portfolio
manager.
|
16
This section contains a discussion of the general risks of
investing in Managed Volatility Portfolio. The “Investment Objective and Policies” section in the Statement of Additional Information (the
“SAI”) also includes more information about the Fund, its investments and the related risks. As with any fund, there can be no guarantee that
the Fund will meet its objective or that the Fund’s performance will be positive for any period of time. An investment in the Fund is not a
deposit in any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any bank or governmental
agency.
The Fund is subject to risks due to its structure as a fund of
funds, as well as the same risks as the ETFs and mutual funds in which it invests. The Fund is also subject to the risks associated with the securities
in which it invests directly. The Fund invests in ETFs and mutual funds which invest in fixed-income and equity securities. The principal risks set
forth below are the principal risks of investing in the Fund and/or the Underlying Funds.
Principal Risks of the Fund’s Fund of Funds
Structure
Affiliated Fund Risk
— In managing the Fund, BlackRock will have authority to select and substitute ETFs or mutual
funds. BlackRock may be subject to potential conflicts of interest in selecting ETFs or mutual funds because the fees paid to BlackRock by some ETFs or
mutual funds are higher than the fees paid by other ETFs or mutual funds. However, BlackRock is a fiduciary to the Fund and is legally obligated to act
in the Fund’s best interests when selecting ETFs and mutual funds. If an ETF or mutual fund holds interests in an affiliated fund, the Fund may be
prohibited from purchasing shares of that ETF or mutual fund.
Allocation Risk
— The Fund’s ability to
achieve its investment objective depends upon BlackRock’s skill in determining the Fund’s strategic asset class allocation and in selecting
the best mix of ETFs, mutual funds and direct investments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or
ETFs or mutual funds may be incorrect in view of actual market conditions. In addition, there is no guarantee that the ETFs or mutual funds will
achieve their investment objectives, and the ETFs and mutual funds’ performance may be lower than the performance of the asset class which they
were selected to represent. The ETFs and mutual funds may change their investment objectives or policies without the approval of the Fund. If an ETF or
mutual fund were to change its investment objective or policies, the Fund might be forced to withdraw its investment from the ETF or mutual fund at a
disadvantageous time and price.
Investments in ETFs and Other Mutual Funds Risk
— The Fund may invest a significant portion of its assets in ETFs and mutual funds, so the Fund’s investment performance is, in part, related
to the performance of the ETFs and mutual funds. The Fund’s net asset value will change with changes in the value of the ETFs, mutual funds and
other securities in which it invests. As with other investments, investments in other investment companies, including ETFs, are subject to market risk
and, for non-index strategies, selection risk. In addition, if the Fund acquires shares of investment companies, including ETFs, shareholders bear both
their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies.
If the Fund acquires shares of affiliated mutual funds, shareholders bear both their proportionate share of expenses in the Fund (excluding management
and advisory fees) and, indirectly, the expenses of the mutual funds. To the extent the Fund is held by an affiliated fund, the ability of the Fund
itself to hold other investment companies may be limited.
As the ETFs or mutual funds or the Fund’s allocations among
the ETFs or mutual funds change from time to time, or to the extent that the expense ratio of the ETFs or mutual funds changes, the weighted average
operating expenses borne by the Fund may increase or decrease.
Investing in an ETF will give the Fund exposure to the securities
comprising the index on which the ETF is based. Shares of ETFs are traded on an exchange throughout a trading day, and bought and sold based on market
values and not at the ETF’s net asset value. For this reason, shares of an ETF could trade at either a premium or discount to its net asset value.
However, the trading prices of index-based ETFs tend to closely track the actual net asset value of the ETF. The Fund will pay brokerage commissions in
connection with the purchase and sale of shares of ETFs, in addition to a spread (
i.e.
, the difference between what professional investors are
willing to pay for ETF shares (the “bid” price) and the price at which they are willing to sell ETF shares (the “ask”
price)).
One ETF or mutual fund may buy the same securities that another
ETF or mutual fund sells. In addition, the Fund may buy the same securities that an ETF or mutual fund sells, or vice-versa. If this happens, an
investor in the Fund would indirectly bear the costs of these transactions without accomplishing the intended investment purpose. Also, an investor in
the Fund may receive taxable gains from portfolio transactions by an ETF or mutual fund, as well as taxable gains from transactions in shares of the
ETF or mutual fund by the Fund. Certain of the ETFs or mutual funds may hold common portfolio securities, thereby reducing the diversification benefits
of the Fund.
17
Principal ETF-Specific Risks
Cash Transaction Risk
— Certain ETFs intend to effect creations and redemptions principally for cash, rather than
primarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficient than investments in ETFs that
effect creations and redemptions in-kind.
Management Risk
— If an ETF does not fully
replicate the underlying index, it is subject to the risk that the manager’s investment management strategy may not produce the intended
results.
Passive Investment Risk
— ETFs purchased by the
Fund are not actively managed and may be affected by a general decline in market segments relating to their respective indices. An ETF typically
invests in securities included in, or representative of, its index regardless of their investment merits and does not attempt to take defensive
positions in declining markets.
Representative Sampling Risk
— Representative
sampling is a method of indexing that involves investing in a representative sample of securities that collectively have a similar investment profile
to the index and resemble the index in terms of risk factors and other key characteristics. An ETF may or may not hold every security in the index.
When an ETF deviates from a full replication indexing strategy to utilize a representative sampling strategy, the ETF is subject to an increased risk
of tracking error, in that the securities selected in the aggregate for the ETF may not have an investment profile similar to those of its
index.
Shares of an ETF May Trade at Prices Other Than Net Asset
Value
— Shares of an ETF trade on exchanges at prices at, above or below their most recent net asset value. The per share net asset value
of an ETF is calculated at the end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the most
recent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based on market supply and demand rather
than net asset value. The trading prices of an ETF’s shares may deviate significantly from net asset value during periods of market volatility.
Any of these factors may lead to an ETF’s shares trading at a premium or discount to net asset value. However, because shares can be created and
redeemed in Creation Units, which are aggregated blocks of shares that authorized participants who have entered into agreements with the ETF’s
distributor can purchase or redeem directly from the ETF, at net asset value (unlike shares of many closed-end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not
likely to be sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’s shares normally trade
on exchanges at prices close to the ETF’s next calculated net asset value, exchange prices are not expected to correlate exactly with an
ETF’s net asset value due to timing reasons as well as market supply and demand factors. In addition, disruptions to creations and redemptions or
the existence of extreme market volatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at a
time when the market price is at a premium to the net asset value or sells at a time when the market price is at a discount to the net asset value, the
shareholder may sustain losses.
Tracking Error Risk
— Imperfect correlation
between an ETF’s portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETF’s size, changes to the
index and regulatory requirements may cause tracking error, which is the divergence of an ETF’s performance from that of its underlying index.
This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result because an
ETF incurs fees and expenses while its underlying index does not.
Other Principal Risks of Investing in the Fund and/or an
Underlying Fund
Collateralized Debt Obligations Risk
— The pool of high yield securities underlying collateralized debt obligations is
typically separated into groupings called tranches representing different degrees of credit quality. The higher quality tranches have greater degrees
of protection and pay lower interest rates. The lower tranches, with greater risk, pay higher interest rates.
Concentration Risk
— To the extent that the
Fund’s or an Underlying Fund’s portfolio reflects concentration in the securities of issuers in a particular region, market, industry,
group of industries, country, group of countries, sector or asset class, the Fund or the Underlying Fund may be adversely affected by the
performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or
regulatory occurrences affecting that region, market, industry, group of industries, country, group of countries, sector or asset
class.
Convertible Securities Risk
— The market value
of a convertible security performs like that of a regular debt security; that is, if market interest rates rise, the value of a convertible security
usually falls. In addition, convertible securities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and
their market value
18
may change based on changes in the issuer’s credit rating
or the market’s perception of the issuer’s creditworthiness. Since it derives a portion of its value from the common stock into which it may
be converted, a convertible security is also subject to the same types of market and issuer risks that apply to the underlying common
stock.
Corporate Loans Risk
— Commercial banks and
other financial institutions or institutional investors make corporate loans to companies that need capital to grow or restructure. Borrowers generally
pay interest on corporate loans at rates that change in response to changes in market interest rates such as LIBOR or the prime rates of U.S. banks. As
a result, the value of corporate loan investments is generally less exposed to the adverse effects of shifts in market interest rates than investments
that pay a fixed rate of interest. However, because the trading market for certain corporate loans may be less developed than the secondary market for
bonds and notes, the Fund or an Underlying Fund may experience difficulties in selling its corporate loans. Leading financial institutions often
act as agent for a broader group of lenders, generally referred to as a syndicate. The syndicate’s agent arranges the corporate loans, holds
collateral and accepts payments of principal and interest. If the agent develops financial problems, the Fund or an Underlying Fund may
not recover its investment or recovery may be delayed. By investing in a corporate loan, the Fund or an Underlying Fund may become a
member of the syndicate.
The corporate loans in which the Fund or an Underlying
Fund invests are subject to the risk of loss of principal and income. Although borrowers frequently provide collateral to secure repayment of
these obligations they do not always do so. If they do provide collateral, the value of the collateral may not completely cover the borrower’s
obligations at the time of a default. If a borrower files for protection from its creditors under the U.S. bankruptcy laws, these laws may limit the
Fund’s or an Underlying Fund’s rights to its collateral. In addition, the value of collateral may erode during a bankruptcy case. In
the event of a bankruptcy, the holder of a corporate loan may not recover its principal, may experience a long delay in recovering its investment and
may not receive interest during the delay.
Counterparty Risk
— The counterparty to an
over-the-counter derivatives contract or a borrower of the Fund’s or an Underlying Fund’s securities may be unable or unwilling to
make timely principal, interest or settlement payments, or otherwise to honor its obligations.
Credit Risk
— Credit risk refers to the
possibility that the issuer of a security will not be able to make principal and interest payments when due. Changes in an issuer’s credit rating
or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s or an Underlying Fund’s
investment in that issuer. The degree of credit risk depends on both the financial condition of the issuer and the terms of the
obligation.
Debt Securities Risk
— Debt securities, such as
bonds, involve credit risk. Debt securities are also subject to interest rate risk.
Derivatives Risk
— The Fund’s or an Underlying Fund’s use of derivatives may
reduce the Fund’s or the Underlying Fund’s returns and/or increase volatility. Volatility is defined as the
characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. A risk of
the Fund’s or an Underlying Fund’s use of derivatives is that the fluctuations in their values may not correlate
perfectly with the overall securities markets. Derivatives are also subject to counterparty risk, which is the risk that the
other party in the transaction will not fulfill its contractual obligation. In addition, some derivatives are more sensitive
to interest rate changes and market price fluctuations than other securities. The possible lack of a liquid secondary market
for derivatives and the resulting inability of the Fund or an Underlying Fund to sell or otherwise close a derivatives
position could expose the Fund or the Underlying Fund to losses and could make derivatives more difficult for the Fund or
the Underlying Fund to value accurately. The Fund or an
Underlying Fund could also suffer losses related to its derivatives
positions as a result of unanticipated market movements, which losses are potentially unlimited. Finally, BlackRock or the
investment manager of an Underlying Fund may not be able
to predict
correctly the
direction of securities
prices, interest rates and other economic
factors, which could cause the Fund’s
or the Underlying Fund’s derivatives positions to lose value. When a derivative is used as a hedge
against a position that the Fund or an Underlying Fund holds, any loss generated by the derivative generally should be
substantially offset by gains on the hedged investment, and vice versa. While hedging can reduce or eliminate losses, it can
also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching between the derivative and the underlying
security, and there can be no assurance that the Fund’s or an Underlying Fund’s hedging transactions will be
effective. The income from certain derivatives may be subject to Federal income tax. Swap agreements involve the risk that
the party with whom the Fund or an Underlying Fund has entered into the swap will default on its obligation to pay the Fund
or the Underlying Fund and the risk that the Fund or the Underlying Fund will not be able to meet its obligations to pay the
other party to the agreement. Credit default swaps involve special risks in addition to those mentioned above because they
are difficult to value, are highly susceptible to liquidity and credit risk, and generally pay a return to the party that
has paid the premium only in the event of an actual
default by the issuer of the underlying obligation (as opposed to a credit
downgrade or other indication of financial difficulty). Forward foreign currency exchange contracts do not eliminate
fluctuations in the value of non-U.S. securities but rather allow the Fund or an Underlying Fund to establish a fixed rate
of exchange for a future point in time. This strategy can
have the effect of reducing returns and minimizing opportunities for gain. Recent legislation calls for new
regulation of the
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derivatives markets. The extent and impact of the regulation is not yet known and may not be known for some time. New regulation may
make derivatives more costly, may limit the availability of derivatives, or may otherwise adversely affect the value or performance of
derivatives.
Distressed Securities Risk
— Distressed
securities are speculative and involve substantial risks in addition to the risks of investing in junk bonds. The Fund or an Underlying Fund
will generally not receive interest payments on the distressed securities and may incur costs to protect its investment. In addition, distressed
securities involve the substantial risk that principal will not be repaid. These securities may present a substantial risk of default or may be in
default at the time of investment. The Fund or an Underlying Fund may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal of or interest on its portfolio holdings. In any reorganization or liquidation proceeding relating to a
portfolio company, the Fund or an Underlying Fund may lose its entire investment or may be required to accept cash or securities with a value
less than its original investment. Distressed securities and any securities received in an exchange for such securities may be subject to restrictions
on resale.
Dollar Rolls Risk
— A dollar roll transaction
involves a sale by the Fund or an Underlying Fund of a mortgage-backed or other security concurrently with an agreement by the Fund or the
Underlying Fund to repurchase a similar security at a later date at an agreed-upon price. Dollar roll transactions involve the risk that the market
value of the securities the Fund or an Underlying Fund is required to purchase may decline below the agreed upon repurchase price of those
securities. If the broker/dealer to whom the Fund or an Underlying Fund sells securities becomes insolvent, the Fund’s or the Underlying
Fund’s right to purchase or repurchase securities may be restricted. Successful use of mortgage dollar rolls may depend upon the
adviser’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully
employed.
Emerging Markets Risk
— The risks of foreign
investments are usually much greater for emerging markets. Investments in emerging markets may be considered speculative. Emerging markets include
those in countries defined as emerging or developing by the World Bank, the International Finance Corporation or the United Nations. Emerging markets
are riskier than more developed markets because they tend to develop unevenly and may never fully develop. They are more likely to experience
hyperinflation and currency devaluations, which adversely affect returns to U.S. investors. In addition, many emerging markets have far lower trading
volumes and less liquidity than developed markets. Since these markets are often small, they may be more likely to suffer sharp and frequent price
changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. In addition,
traditional measures of investment value used in the United States, such as price to earnings ratios, may not apply to certain small markets. Also,
there may be less publicly available information about issuers in emerging markets than would be available about issuers in more developed capital
markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which
U.S. companies are subject.
Many emerging markets have histories of political instability and
abrupt changes in policies. As a result, their governments are more likely to take actions that are hostile or detrimental to private enterprise or
foreign investment than those of more developed countries, including expropriation of assets, confiscatory taxation, high rates of inflation or
unfavorable diplomatic developments. In the past, governments of such nations have expropriated substantial amounts of private property, and most
claims of the property owners have never been fully settled. There is no assurance that such expropriations will not reoccur. In such an event, it is
possible that the Fund or an Underlying Fund could lose the entire value of its investments in the affected market. Some countries have
pervasiveness of corruption and crime that may hinder investments. Certain emerging markets may also face other significant internal or external risks,
including the risk of war, and ethnic, religious and racial conflicts. In addition, governments in many emerging market countries participate to a
significant degree in their economies and securities markets, which may impair investment and economic growth. National policies that may limit the
Fund’s or an Underlying Fund’s investment opportunities include restrictions on investment in issuers or industries deemed sensitive
to national interests.
Emerging markets may also have differing legal systems and the
existence or possible imposition of exchange controls, custodial restrictions or other foreign or U.S. governmental laws or restrictions applicable to
such investments. Sometimes, they may lack or be in the relatively early development of legal structures governing private and foreign investments and
private property. In addition to withholding taxes on investment income, some countries with emerging markets may impose differential capital gains
taxes on foreign investors.
Practices in relation to settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in part because the Fund or an Underlying Fund will need to use brokers
and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable. The possibility of
fraud, negligence, undue influence being exerted by the issuer or refusal to recognize ownership exists in some emerging markets, and, along with other
factors, could result in ownership registration being completely lost. The Fund
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or an Underlying Fund would absorb any loss resulting from such registration
problems and may have no successful claim for compensation. In addition, communications between the United States and emerging market countries may be
unreliable, increasing the risk of delayed settlements or losses of security certificates.
Equity Securities Risk
— Common and preferred
stocks represent equity ownership in a company. Stock markets are volatile. The price of equity securities will fluctuate and can decline and reduce
the value of a portfolio investing in equities. The value of equity securities purchased by the Fund or an Underlying Fund could decline if the
financial condition of the companies the Fund or the Underlying Fund invests in decline or if overall market and economic conditions
deteriorate. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or an increase in production
costs and competitive conditions within an industry. In addition, they may decline due to general market conditions that are not specifically related
to a company or industry, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in
interest or currency rates or generally adverse investor sentiment.
Extension Risk
— When interest rates rise,
certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these securities to fall. Rising interest rates
tend to extend the duration of securities, making them more sensitive to changes in interest rates. The value of longer-term securities generally
changes more in response to changes in interest rates than shorter-term securities. As a result, in a period of rising interest rates, securities may
exhibit additional volatility and may lose value.
Foreign Securities Risk
— Securities traded in
foreign markets have often (though not always) performed differently from securities traded in the United States. However, such investments often
involve special risks not present in U.S. investments that can increase the chances that the Fund or an Underlying Fund will lose money. In
particular, the Fund or an Underlying Fund is subject to the risk that because there may be fewer investors on foreign exchanges and a smaller
number of securities traded each day, it may be more difficult for the Fund or the Underlying Fund to buy and sell securities on those
exchanges. In addition, prices of foreign securities may go up and down more than prices of securities traded in the United States.
Certain Risks of Holding Fund Assets
Outside the United States
— The Fund and the Underlying Funds generally hold their foreign securities and cash in
foreign banks and securities depositories. Some foreign banks and securities depositories may be recently organized or new to the foreign custody
business. In addition, there may be limited or no regulatory oversight of their operations. Also, the laws of certain countries limit the Fund’s
or an Underlying Fund’s ability to recover its assets if a foreign bank, depository or issuer of a security, or any of their agents, goes
bankrupt. In addition, it is often more expensive for the Fund or an Underlying Fund to buy, sell and hold securities in certain foreign markets
than in the United States. The increased expense of investing in foreign markets reduces the amount the Fund or an Underlying Fund can earn on
its investments and typically results in a higher operating expense ratio for the Fund or the Underlying Fund than for investment companies
invested only in the United States.
Currency Risk
— Securities
and other instruments in which the Fund or an Underlying Fund invests may be denominated or quoted in currencies other than the U.S. dollar. For
this reason, changes in foreign currency exchange rates can affect the value of the Fund’s or an Underlying Fund’s
portfolio.
Generally, when the U.S. dollar rises in
value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer U.S. dollars. Conversely,
when the U.S. dollar decreases in value against a foreign currency, a security denominated in that currency gains value because the currency is worth
more U.S. dollars. This risk, generally known as “currency risk,” means that a strong U.S. dollar will reduce returns for U.S. investors
while a weak U.S. dollar will increase those returns.
Foreign Economy Risk
— The
economies of certain foreign markets may not compare favorably with the economy of the United States with respect to such issues as growth of gross
national product, reinvestment of capital, resources and balance of payments position. Certain foreign economies may rely heavily on particular
industries or foreign capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or
countries, changes in international trading patterns, trade barriers and other protectionist or retaliatory measures. Investments in foreign markets
may also be adversely affected by governmental actions such as the imposition of capital controls, nationalization of companies or industries,
expropriation of assets or the imposition of punitive taxes. In addition, the governments of certain countries may prohibit or impose substantial
restrictions on foreign investments in their capital markets or in certain industries. Any of these actions could severely affect securities prices or
impair the Fund’s or an Underlying Fund’s ability to purchase or sell foreign securities or transfer the Fund’s or the
Underlying Fund’s assets or income back into the United States, or otherwise adversely affect the Fund’s or an Underlying Fund’s
operations.
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Other potential foreign market risks
include foreign exchange controls, difficulties in pricing securities, defaults on foreign government securities, difficulties in enforcing legal
judgments in foreign courts and political and social instability. Diplomatic and political developments, including rapid and adverse political changes,
social instability, regional conflicts, terrorism and war, could affect the economies, industries and securities and currency markets, and the value of
the Fund’s or an Underlying Fund’s investments, in non-U.S. countries. These factors are extremely difficult, if not impossible, to
predict and take into account with respect to the Fund’s or an Underlying Fund’s investments.
Governmental Supervision and
Regulation/Accounting Standards
— Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities
to the same extent as such regulations exist in the United States. They also may not have laws to protect investors that are comparable to U.S.
securities laws. For example, some foreign countries may have no laws or rules against insider trading. Insider trading occurs when a person buys or
sells a company’s securities based on material non-public information about that company. In addition, some countries may have legal systems that
may make it difficult for the Fund or an Underlying Fund to vote proxies, exercise shareholder rights, and pursue legal remedies with respect to
its foreign investments. Accounting standards in other countries are not necessarily the same as in the United States. If the accounting standards in
another country do not require as much detail as U.S. accounting standards, it may be harder for Fund or Underlying Fund management to
completely and accurately determine a company’s financial condition.
Settlement Risk
— Settlement
and clearance procedures in certain foreign markets differ significantly from those in the United States. Foreign settlement and clearance procedures
and trade regulations also may involve certain risks (such as delays in payment for or delivery of securities) not typically associated with the
settlement of U.S. investments.
At times, settlements in certain foreign
countries have not kept pace with the number of securities transactions. These problems may make it difficult for the Fund or an Underlying Fund
to carry out transactions. If the Fund or an Underlying Fund cannot settle or is delayed in settling a purchase of securities, it may miss
attractive investment opportunities and certain of its assets may be uninvested with no return earned thereon for some period. If the Fund or an
Underlying Fund cannot settle or is delayed in settling a sale of securities, it may lose money if the value of the security then declines or, if
it has contracted to sell the security to another party, the Fund or the Underlying Fund could be liable for any losses
incurred.
European Economic Risk
—
The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising
government debt levels of several European countries. These events have adversely affected the exchange rate of the Euro and may spread to other
countries in Europe, including countries that do not use the Euro. These events may affect the value and liquidity of certain of the Fund’s or an
Underlying Fund’s investments.
Responses to the financial problems
by European governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit
future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and others of their debt
could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, one or more countries may
abandon the Euro, the common currency of the European Union, and/ or withdraw from the European Union. The impact of these actions, especially if they
occur in a disorderly fashion, is not clear but could be significant and far reaching.
High Portfolio Turnover Risk
— The Fund or
an Underlying Fund may engage in active and frequent trading of its portfolio securities. High portfolio turnover (more than 100%) may result in
increased transaction costs to the Fund or the Underlying Fund, including brokerage commissions, dealer mark-ups and other transaction costs on
the sale of the securities and on reinvestment in other securities. The sale of Fund or Underlying Fund portfolio securities may result in the
realization and/or distribution to shareholders of higher capital gains or losses as compared to a fund with less active trading policies. These
effects of higher than normal portfolio turnover may adversely affect Fund or Underlying Fund performance.
Indexed and Inverse Securities Risk
— Certain
indexed and inverse securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Fund’s or
an Underlying Fund’s investment in such instruments may decline significantly in value if interest rates or index levels move in a way Fund
or Underlying Fund management does not anticipate.
Inflation Indexed Bonds Risk
— The principal
value of an investment is not protected or otherwise guaranteed by virtue of the Fund’s or an Underlying Fund’s investments in
inflation-indexed bonds.
Inflation-indexed bonds are fixed-income securities whose
principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced.
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Repayment of the original bond principal upon maturity (as
adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the
adjusted principal value of the bond repaid at maturity may be less than the original principal value.
The value of inflation-indexed bonds is expected to change in
response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation.
If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed
bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their principal until maturity.
Periodic adjustments for inflation to the principal amount of an
inflation-indexed bond may give rise to original issue discount, which will be includable in the Fund’s or an Underlying Fund’s gross
income. Due to original issue discount, the Fund or an Underlying Fund may be required to make annual distributions to shareholders that exceed
the cash received, which may cause the Fund or the Underlying Fund to liquidate certain investments when it is not advantageous to do so. Also,
if the principal value of an inflation-indexed bond is adjusted downward due to deflation, amounts previously distributed in the taxable year may be
characterized in some circumstances as a return of capital.
Interest Rate Risk
— Interest rate risk is the
risk that prices of fixed-income securities generally increase when interest rates decline and decrease when interest rates increase. Prices of
longer-term securities generally change more in response to interest rate changes than prices of shorter-term securities. The Fund or an Underlying
Fund may lose money if short-term or long-term interest rates rise sharply or otherwise change in a manner not anticipated by Fund or Underlying
Fund management.
Investment Style Risk
— Under certain market
conditions, growth investments have performed better during the later stages of economic expansion and value investments have performed better during
periods of economic recovery. Therefore, these investment styles may over time go in and out of favor. At times when the investment style used by the
Fund or an Underlying Fund is out of favor, the Fund or the Underlying Fund may underperform other funds that use different investment
styles.
Junk Bonds Risk
— Although junk bonds generally
pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that may cause income and principal losses for the
Fund or an Underlying Fund. The major risks of junk bond investments include:
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Junk bonds may be issued by less creditworthy issuers. Issuers of
junk bonds may have a larger amount of outstanding debt relative to their assets than issuers of investment grade bonds. In the event of an
issuer’s bankruptcy, claims of other creditors may have priority over the claims of junk bond holders, leaving few or no assets available to repay
junk bond holders.
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Prices of junk bonds are subject to extreme price fluctuations.
Adverse changes in an issuer’s industry and general economic conditions may have a greater impact on the prices of junk bonds than on other higher
rated fixed-income securities.
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Issuers of junk bonds may be unable to meet their interest or
principal payment obligations because of an economic downturn, specific issuer developments, or the unavailability of additional financing.
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Junk bonds frequently have redemption features that permit an
issuer to repurchase the security from the Fund or an Underlying Fund before it matures. If the issuer redeems junk bonds, the Fund or an
Underlying Fund may have to invest the proceeds in bonds with lower yields and may lose income.
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Junk bonds may be less liquid than higher rated fixed-income
securities, even under normal economic conditions. There are fewer dealers in the junk bond market, and there may be significant differences in the
prices quoted for junk bonds by the dealers. Because they are less liquid, judgment may play a greater role in valuing certain of the Fund’s or
an Underlying Fund’s securities than is the case with securities trading in a more liquid market.
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The Fund or an Underlying Fund may incur expenses to the
extent necessary to seek recovery upon default or to negotiate new terms with a defaulting issuer.
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The credit rating of a high yield security does not necessarily
address its market value risk. Ratings and market value may change from time to time, positively or negatively, to reflect new developments regarding
the issuer.
Leverage Risk
— Some transactions may give rise
to a form of economic leverage. These transactions may include, among others, derivatives, and may expose the Fund or an Underlying Fund to
greater risk and increase its costs. As an open-end investment company registered with the Securities and Exchange Commission (“SEC”), the
Fund and the Underlying Funds are subject to the federal securities laws, including the Investment Company Act, the rules
thereunder, and various SEC and SEC staff interpretive positions. In accordance with these laws, rules and positions, the Fund and the Underlying
Funds must “set aside” liquid assets (often referred to as “asset segregation”), or
23
engage in other SEC- or staff-approved measures, to
“cover” open positions with respect to certain kinds of instruments. The use of leverage may cause the Fund or an Underlying Fund to
liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet any required asset segregation
requirements. Increases and decreases in the value of the Fund’s or Underlying Fund’s portfolio will be magnified when the Fund or
Underlying Fund uses leverage.
Liquidity Risk
— Liquidity risk exists when
particular investments are difficult to purchase or sell. The Fund’s or an Underlying Fund’s investments in illiquid securities may
reduce the returns of the Fund or an Underlying Fund because it may be difficult to sell the illiquid securities at an advantageous time or
price. To the extent that the Fund’s or an Underlying Fund’s principal investment strategies involve derivatives or securities with
substantial market and/or credit risk, the Fund or the Underlying Fund will tend to have the greatest exposure to liquidity risk. Liquid
investments may become illiquid after purchase by the Fund or an Underlying Fund, particularly during periods of market turmoil. Illiquid
investments may be harder to value, especially in changing markets, and if the Fund or an Underlying Fund is forced to sell these investments to
meet redemption requests or for other cash needs, the Fund or the Underlying Fund may suffer a loss. In addition, when there is illiquidity in
the market for certain securities, the Fund or an Underlying Fund, due to limitations on illiquid investments, may be subject to purchase and
sale restrictions.
Market Risk and Selection Risk
— Market risk is
the risk that one or more markets in which the Fund or an Underlying Fund invests will go down in value, including the possibility that the
markets will go down sharply and unpredictably. Selection risk is the risk that the securities selected by Fund or Underlying Fund management
will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment
strategies. This means you may lose money.
Mid-Cap Securities Risk
— The securities of
mid-cap companies generally trade in lower volumes and are generally subject to greater and less predictable price changes than the securities of
larger capitalization companies.
Mortgage- and Asset-Backed Securities Risks
—
Mortgage-backed securities (residential and commercial) and asset-backed securities represent interests in “pools” of mortgages or other
assets, including consumer loans or receivables held in trust. Although asset-backed and commercial mortgage-backed securities (“CMBS”)
generally experience less prepayment than residential mortgage-backed securities, mortgage-backed and asset-backed securities, like traditional
fixed-income securities, are subject to credit, interest rate, prepayment and extension risks.
Small movements in interest rates (both increases and decreases)
may quickly and significantly reduce the value of certain mortgage-backed securities. The Fund’s or an Underlying Fund’s investments
in asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated
with the nature of the assets and the servicing of those assets. These securities also are subject to the risk of default on the underlying mortgage or
assets, particularly during periods of economic downturn. Certain CMBS are issued in several classes with different levels of yield and credit
protection. The Fund’s or an Underlying Fund’s investments in CMBS with several classes may be in the lower classes that have greater
risks than the higher classes, including greater interest rate, credit and prepayment risks.
Mortgage-backed securities may be either pass-through securities
or collateralized mortgage obligations (“CMOs”). Pass-through securities represent a right to receive principal and interest payments
collected on a pool of mortgages, which are passed through to security holders. CMOs are created by dividing the principal and interest payments
collected on a pool of mortgages into several revenue streams (“tranches”) with different priority rights to portions of the underlying
mortgage payments. Certain CMO tranches may represent a right to receive interest only (“IOs”), principal only (“POs”) or an amount
that remains after floating-rate tranches are paid (an “inverse floater”). These securities are frequently referred to as “mortgage
derivatives” and may be extremely sensitive to changes in interest rates. Interest rates on inverse floaters, for example, vary inversely with a
short-term floating rate (which may be reset periodically). Interest rates on inverse floaters will decrease when short-term rates increase, and will
increase when short-term rates decrease. These securities have the effect of providing a degree of investment leverage. In response to changes in
market interest rates or other market conditions, the value of an inverse floater may increase or decrease at a multiple of the increase or decrease in
the value of the underlying securities. If the Fund or an Underlying Fund invests in CMO tranches (including CMO tranches issued by government
agencies) and interest rates move in a manner not anticipated by Fund or Underlying Fund management, it is possible that the Fund or
the Underlying Fund could lose all or substantially all of its investment.
The mortgage market in the United States at times has experienced
difficulties that may adversely affect the performance and market value of certain of the Fund’s or an Underlying Fund’s
mortgage-related investments. Delinquencies and losses on mortgage loans (including subprime and second-lien mortgage loans) generally have
increased and may continue to increase, and a decline in or flattening of real estate values (as has been experienced and may continue to be
experienced in many housing markets) may exacerbate such delinquencies and losses. Also, a number of mortgage loan originators
24
have recently experienced serious financial difficulties or
bankruptcy. Reduced investor demand for mortgage loans and mortgage-related securities and increased investor yield requirements have caused limited
liquidity in the secondary market for mortgage-related securities, which can adversely affect the market value of mortgage-related securities. It is
possible that such limited liquidity in such secondary markets could continue or worsen.
Asset-backed securities entail certain risks not presented by
mortgage-backed securities, including the risk that in certain states it may be difficult to perfect the liens securing the collateral backing certain
asset-backed securities. In addition, certain asset-backed securities are based on loans that are unsecured, which means that there is no collateral to
seize if the underlying borrower defaults. Certain mortgage-backed securities in which the Fund or an Underlying Fund may invest may also
provide a degree of investment leverage, which could cause the Fund or the Underlying Fund to lose all or substantially all of its
investment.
Municipal Securities Risks
— Municipal
securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal
securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. These risks
include:
General Obligation Bonds Risks
— The full faith, credit and taxing power of the municipality that issues a general obligation bond secures payment of interest and repayment of
principal. Timely payments depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax
base.
Revenue Bonds Risks
—
Payments of interest and principal on revenue bonds are made only from the revenues generated by a particular facility, class of facilities or the
proceeds of a special tax or other revenue source. These payments depend on the money earned by the particular facility or class of facilities, or the
amount of revenues derived from another source.
Private Activity Bonds Risks
— Municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private
enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its full faith, credit and taxing power
for repayment. If the private enterprise defaults on its payments, the Fund or an Underlying Fund may not receive any income or get its money
back from the investment.
Moral Obligation Bonds Risks
— Moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet
its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
Municipal Notes Risks
—
Municipal notes are shorter term municipal debt obligations. They may provide interim financing in anticipation of, and are secured by, tax collection,
bond sales or revenue receipts. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund or an Underlying
Fund may lose money.
Municipal Lease Obligations Risks
— In a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. The issuer will generally appropriate
municipal funds for that purpose, but is not obligated to do so. Although the issuer does not pledge its unlimited taxing power for payment of the
lease obligation, the lease obligation is secured by the leased property. However, if the issuer does not fulfill its payment obligation it may be
difficult to sell the property and the proceeds of a sale may not cover the Fund’s or an Underlying Fund’s loss.
Tax-Exempt Status Risk
— In
making investments, the Fund, an Underlying Fund and their respective investment manager will rely on the opinion of issuers’ bond
counsel and, in the case of derivative securities, sponsors’ counsel, on the tax-exempt status of interest on Municipal Obligations and payments
under tax-exempt derivative securities. None of the Fund, an Underlying Fund or their respective investment manager will
independently review the bases for those tax opinions. If any of those tax opinions are ultimately determined to be incorrect or if events occur after
the security is acquired that impact the security’s tax-exempt status, the Fund, an Underlying Fund and their respective
shareholders could be subject to substantial tax liabilities. The Internal Revenue Service (the “IRS”) has generally not ruled on the
taxability of the securities. An assertion by the IRS that a portfolio security is not exempt from federal income tax (contrary to indications from the
issuer) could affect the Fund’s, an Underlying Fund’s and shareholder’s income tax liability for the current or past years and
could create liability for information reporting penalties. In addition, an IRS assertion of taxability may impair the liquidity and the fair market
value of the securities.
Preferred Securities Risk
— Preferred
securities may pay fixed or adjustable rates of return. Preferred securities are subject to issuer-specific and market risks applicable generally to
equity securities. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders
of its bonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bonds and other debt to actual or
perceived changes in the company’s financial condition or prospects. Preferred securities of smaller companies may be more vulnerable to adverse
developments than preferred stock of larger companies.
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Prepayment Risk
— When interest rates fall,
certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund or an Underlying Fund may have to
invest the proceeds in securities with lower yields. In periods of falling interest rates, the rate of prepayments tends to increase (as does price
fluctuation) as borrowers are motivated to pay off debt and refinance at new lower rates. During such periods, reinvestment of the prepayment proceeds
by the management team will generally be at lower rates of return than the return on the assets that were prepaid. Prepayment reduces the yield to
maturity and the average life of the security.
Real Estate Related Securities Risks
— The main
risk of real estate related securities is that the value of the underlying real estate may go down. Many factors may affect real estate values. These
factors include both the general and local economies, the amount of new construction in a particular area, the laws and regulations (including zoning
and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate. The availability of mortgages and changes in
interest rates may also affect real estate values. If the Fund’s or an Underlying Fund’s real estate related investments are
concentrated in one geographic area or in one property type, the Fund or the Underlying Fund will be particularly subject to the risks
associated with that area or property type.
REIT Investment Risk
— In addition to the risks
facing real estate related securities, such as a decline in property values due to increasing vacancies, a decline in rents resulting from
unanticipated economic, legal or technological developments or a decline in the price of securities of real estate companies due to a failure of
borrowers to pay their loans or poor management, investments in REITs involve unique risks. REITs may have limited financial resources, may trade less
frequently and in limited volume and may be more volatile than other securities.
Repurchase Agreements and Purchase and Sale Contracts
Risks
— If the other party to a repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the
Fund or an Underlying Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to
repurchase the security in either situation and the market value of the security declines, the Fund or the Underlying Fund may lose
money.
Reverse Repurchase Agreements Risk
— Reverse
repurchase agreements involve the sale of securities held by the Fund or an Underlying Fund with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that the other party to the reverse repurchase agreement
may fail to return the securities in a timely manner or at all. The Fund or an Underlying Fund could lose money if it is unable to recover the
securities and the value of the collateral held by the Fund or the Underlying Fund, including the value of the investments made with cash
collateral, is less than the value of securities. These events could also trigger adverse tax consequences to the Fund or an Underlying
Fund.
Risks of Loan Assignments and Participations
—
As the purchaser of an assignment, the Fund or an Underlying Fund typically succeeds to all the rights and obligations of the assigning
institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the Fund or an Underlying Fund may not
be able unilaterally to enforce all rights and remedies under the loan and with regard to any associated collateral. Because assignments may be
arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Fund or an
Underlying Fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. In addition, if
the loan is foreclosed, the Fund or an Underlying Fund could become part owner of any collateral and could bear the costs and liabilities of
owning and disposing of the collateral. The Fund or an Underlying Fund may be required to pass along to a purchaser that buys a loan from the
Fund or the Underlying Fund by way of assignment a portion of any fees to which the Fund or the Underlying Fund is entitled under the
loan. In connection with purchasing participations, the Fund or an Underlying Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and the Fund or an Underlying
Fund may not directly benefit from any collateral supporting the loan in which it has purchased the participation. As a result, the Fund or an
Underlying Fund will be subject to the credit risk of both the borrower and the lender that is selling the participation. In the event of the
insolvency of the lender selling a participation, the Fund or an Underlying Fund may be treated as a general creditor of the lender and may not
benefit from any set-off between the lender and the borrower.
Second Lien Loans Risk
— Second lien loans
generally are subject to similar risks as those associated with investments in senior loans. Because second lien loans are subordinated or unsecured
and thus lower in priority of payment to senior loans, they are subject to the additional risk that the cash flow of the borrower and property securing
the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. This
risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Second lien
loans generally have greater price volatility than senior loans and may be less liquid.
26
There is also a possibility that originators will not be able to
sell participations in second lien loans, which would create greater credit risk exposure for the holders of such loans. Second lien loans share the
same risks as other below investment grade securities.
Senior Loans Risk
— There is less readily
available, reliable information about most senior loans than is the case for many other types of securities. In addition, there is no minimum rating or
other independent evaluation of a borrower or its securities limiting the Fund’s or an Underlying Fund’s investments, and
the Fund’s or the Underlying Fund’s investment manager relies primarily on its own evaluation of a borrower’s credit
quality rather than on any available independent sources. As a result, the Fund or an Underlying Fund is particularly dependent on the
analytical abilities of its investment manager.
An economic downturn generally leads to a higher non-payment rate,
and a senior loan may lose significant value before a default occurs. Moreover, any specific collateral used to secure a senior loan may decline in
value or become illiquid, which would adversely affect the senior loan’s value.
No active trading market may exist for certain senior loans, which
may impair the ability of the Fund or an Underlying Fund to realize full value in the event of the need to sell a senior loan and which may make
it difficult to value senior loans. Adverse market conditions may impair the liquidity of some actively traded senior loans. To the extent that a
secondary market does exist for certain senior loans, the market may be subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods. See “Liquidity Risk.”
Although senior loans in which the Fund or an Underlying Fund
will invest generally will be secured by specific collateral, there can be no assurance that liquidation of such collateral would satisfy the
borrower’s obligation in the event of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. In the
event of the bankruptcy of a borrower, the Fund or an Underlying Fund could experience delays or limitations with respect to its ability to
realize the benefits of the collateral securing a senior loan. If the terms of a senior loan do not require the borrower to pledge additional
collateral in the event of a decline in the value of the already pledged collateral, the Fund or an Underlying Fund will be exposed to the risk
that the value of the collateral will not at all times equal or exceed the amount of the borrower’s obligations under the senior loans. To the
extent that a senior loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of the
bankruptcy of the borrower. Uncollateralized senior loans involve a greater risk of loss. Some senior loans are subject to the risk that a court,
pursuant to fraudulent conveyance or other similar laws, could subordinate the senior loans to presently existing or future indebtedness of the
borrower or take other action detrimental to lenders, including the Fund or an Underlying Fund. Such court action could under certain
circumstances include invalidation of senior loans.
If a senior loan is acquired through an assignment, the Fund or
an Underlying Fund may not be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated collateral. If
a senior loan is acquired through a participation, the Fund or an Underlying Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement against the borrower, and the Fund or an Underlying Fund may not directly benefit from the
collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund or an Underlying Fund will be
exposed to the credit risk of both the borrower and the institution selling the participation.
The senior loans in which the Fund or Underlying Fund
invests are usually rated below investment grade. As a result, the risks associated with senior loans are similar to the risks of below investment
grade securities, although senior loans are typically senior and secured in contrast to other below investment grade securities, which are often
subordinated and unsecured. See “Junk Bonds Risk.” The higher standing of senior loans has historically resulted in generally higher
recoveries in the event of a corporate reorganization. In addition, because their interest rates are typically adjusted for changes in short-term
interest rates, senior loans generally are subject to less interest rate risk than other below investment grade securities, which are typically fixed
rate.
Small Cap and Emerging Growth Securities Risks
— Small cap or emerging growth companies may have limited product lines or markets. They may be less financially secure than larger, more
established companies. They may depend on a small number of key personnel. If a product fails or there are other adverse developments, or if management
changes, the Fund’s or an Underlying Fund’s investment in a small cap company may lose substantial value. In addition, it is more
difficult to get information on smaller companies, which tend to be less well known, have shorter operating histories, do not have significant
ownership by large investors and are followed by relatively few securities analysts.
The securities of small cap or emerging growth companies generally
trade in lower volumes and are subject to greater and more unpredictable price changes than larger cap securities or the market as a whole. In
addition, small cap securities may be particularly sensitive to changes in interest rates, borrowing costs and earnings. Investing in small cap
securities requires a longer term view.
27
Sovereign Debt Risk
— Sovereign debt
instruments are subject to the risk that a governmental entity may delay or refuse to pay interest or repay principal on its sovereign debt, due, for
example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s
debt position in relation to the economy or the failure to put in place economic reforms required by the International Monetary Fund or other
multilateral agencies. If a governmental entity defaults, it may ask for more time in which to pay or for further loans. There is no legal process for
collecting sovereign debt that a government does not pay nor are there bankruptcy proceedings through which all or part of the sovereign debt that a
governmental entity has not repaid may be collected.
Structured Notes Risk
— Structured
notes and other related instruments purchased by the Fund or an Underlying Fund are generally privately negotiated debt obligations where the
principal and/or interest is determined by reference to the performance of a specific asset, benchmark asset, market or interest rate
(“reference measure”). The interest rate or the principal amount payable upon maturity or redemption may increase or decrease, depending upon changes in the value of the reference measure. The terms of a structured note may provide that, in certain circumstances, no principal is due at maturity and, therefore, may result in a loss of invested capital by the Fund or an Underlying Fund. The interest and/or principal payments that may be made on a structured product may vary widely, depending on a variety of factors, including the volatility of the reference measure.
Structured notes may be positively or negatively indexed, so the appreciation of the reference measure may produce an increase or a decrease in the interest rate or the value of the principal at maturity. The rate of return on structured notes may be determined by applying a multiplier to the performance or differential performance of reference measures. Application of a multiplier involves leverage that will serve to magnify the potential for gain and the risk of loss.
The purchase of structured notes exposes the Fund or an Underlying Fund to the credit risk of the issuer of the structured product. Structured notes may also be more volatile, less liquid, and more difficult to price accurately than less complex securities and instruments or more traditional debt securities.
Structured Products Risk
— Holders of
structured products bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund or an
Underlying Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the
issuer or the entity that sold the assets to be securitized. Certain structured products may be thinly traded or have a limited trading market. In
addition to the general risks associated with debt securities discussed herein, structured products carry additional risks, including, but not limited
to: the possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the
collateral may decline in value or default; and the possibility that the structured products are subordinate to other classes. Structured notes are
based upon the movement of one or more factors, including currency exchange rates, interest rates, referenced bonds and stock indices, and changes in
interest rates and impact of these factors may cause significant price fluctuations. Additionally, changes in the reference instrument or security may
cause the interest rate on the structured note to be reduced to zero.
Supranational Entities Risk
— The Fund or an
Underlying Fund may invest in obligations issued or guaranteed by the International Bank for Reconstruction and Development (the World Bank). The
government members, or “stockholders,” usually make initial capital contributions to the World Bank and in many cases are committed to make
additional capital contributions if the World Bank is unable to repay its borrowings. There is no guarantee that one or more stockholders of the World
Bank will continue to make any necessary additional capital contributions. If such contributions are not made, the entity may be unable to pay interest
or repay principal on its debt securities, and the Fund or an Underlying Fund may lose money on such investments.
Tender Option Bonds and Related Securities Risk
— Investments in tender option bonds, residual interest tender option bonds and inverse floaters expose the Fund or an Underlying Fund to
the same risks as investments in derivatives, as well as risks associated with leverage, described above, especially the risk of increased volatility.
An investment in these securities typically will involve greater risk than an investment in a municipal fixed rate security, including the risk of loss
of principal. Distributions on residual interest tender option bonds and inverse floaters will bear an inverse relationship to short-term municipal
security interest rates. Distributions on the residual interests and inverse floaters paid to the Fund or an Underlying Fund will be reduced or,
in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. Residual
interest tender option bonds and inverse floaters generally will underperform the market for fixed rate municipal securities in a rising interest rate
environment.
U.S. Government Mortgage-Related Securities Risk
— There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of
principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. Ginnie Mae securities also are
supported by the right of Ginnie Mae to borrow funds from the U.S. Treasury to
28
make payments under its guarantee. Mortgage-related securities issued by
Fannie Mae or Freddie Mac are solely the obligations of Fannie Mae or Freddie Mac, as the case may be, and are not backed by or entitled to the full
faith and credit of the United States but are supported by the right of the issuer to borrow from the U.S. Treasury.
U.S. Government Obligations Risk
— Obligations
of U.S. Government agencies, authorities, instrumentalities and sponsored enterprises have historically involved little risk of loss of principal if
held to maturity. However, not all U.S. Government securities are backed by the full faith and credit of the United States. Obligations of certain
agencies, authorities, instrumentalities and sponsored enterprises of the U.S. Government are backed by the full faith and credit of the United States
(
e.g.
, Ginnie Mae); other obligations are backed by the right of the issuer to borrow from the U.S. Treasury (
e.g.
, the Federal Home Loan
Banks) and others are supported by the discretionary authority of the U.S. Government to purchase an agency’s obligations. Still others are backed
only by the credit of the agency, authority, instrumentality or sponsored enterprise issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to any of these entities if it is not obligated to do so by law.
Variable and Floating Rate Instrument Risk
—
The absence of an active market for these securities could make it difficult for the Fund or an Underlying Fund to dispose of them if the issuer
defaults.
Warrants Risk
— If the price of the underlying
stock does not rise above the exercise price before the warrant expires, the warrant generally expires without any value and the Fund or an
Underlying Fund loses any amount it paid for the warrant. Thus, investments in warrants may involve substantially more risk than investments in
common stock. Warrants may trade in the same markets as their underlying stock; however, the price of the warrant does not necessarily move with the
price of the underlying stock.
Zero Coupon Securities Risk
— While interest
payments are not made on such securities, holders of such securities are deemed to have received income (“phantom income”) annually,
notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest payments is that a fixed
yield is earned not only on the original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit
reinvestment of earnings at a fixed rate eliminates the risk of being unable to invest distributions at a rate as high as the implicit yield on the
zero coupon bond, but at the same time eliminates the holder’s ability to reinvest at higher rates in the future. For this reason, some of these
securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are comparable securities
that pay interest currently. Longer term zero coupon bonds are more exposed to interest rate risk than shorter term zero coupon bonds. These
investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who
are willing to defer receipt of cash.
Other Risks of Investing in the Fund and/or the Underlying
Funds
The Fund and the Underlying Funds may also be subject to
certain other risks associated with their investments and investment strategies, including:
Borrowing Risk
— Borrowing may exaggerate
changes in the net asset value of Fund or Underlying Fund shares and in the return on the Fund’s or the Underlying Fund’s
portfolio. Borrowing will cost the Fund or an Underlying Fund interest expense and other fees. The costs of borrowing may reduce the
Fund’s or the Underlying Fund’s return. Borrowing may cause the Fund or an Underlying Fund to liquidate positions when it may
not be advantageous to do so to satisfy its obligations.
Expense Risk
— Fund or Underlying Fund
expenses are subject to a variety of factors, including fluctuations in the Fund’s or the Underlying Fund’s net assets.
Accordingly, actual expenses may be greater or less than those indicated. For example, to the extent that the Fund’s or the Underlying
Fund’s net assets decrease due to market declines or redemptions, the Fund’s or the Underlying Fund’s expenses will increase
as a percentage of Fund or Underlying Fund net assets. During periods of high market volatility, these increases in the Fund’s or the
Underlying Fund’s expense ratio could be significant.
Liquidity Risk
— Liquidity risk exists when
particular investments are difficult to purchase or sell. The Fund’s or an Underlying Fund’s investments in illiquid securities may
reduce the returns of the Fund or the Underlying Fund because it may be difficult to sell the illiquid securities at an advantageous time or
price. To the extent that the Fund’s or an Underlying Fund’s principal investment strategies involve derivatives or securities with
substantial market and/or credit risk, the Fund or the Underlying Fund will tend to have the greatest exposure to liquidity risk. Liquid
investments may become illiquid after purchase by the Fund or the Underlying Fund, particularly during periods of market turmoil. Illiquid
investments may be harder to value, especially in changing markets, and if the Fund or the Underlying Fund is forced to sell these investments
to meet redemption requests or for other cash needs, the Fund or the Underlying Fund may suffer a loss. In addition, when there is illiquidity
in the market for certain securities, the Fund or the Underlying Fund, due to limitations on illiquid investments, may be subject to purchase
and sale restrictions.
29
Master Limited Partnerships Risk
— The common
units of an MLP are listed and traded on U.S. securities exchanges and their value fluctuates predominantly based on prevailing market conditions and
the success of the MLP. Unlike owners of common stock of a corporation, owners of common units have limited voting rights and have no ability annually
to elect directors. In the event of liquidation, common units have preference over subordinated units, but not over debt or preferred units, to the
remaining assets of the MLP.
“New Issues” Risk
— “New
Issues” are IPOs of equity securities of U.S. and non-U.S. issuers. Investments in companies that have recently gone public have the
potential to produce substantial gains for the Fund or an Underlying Fund. However, there is no assurance that the Fund or an Underlying Fund
will have access to profitable IPOs and therefore investors should not rely on these past gains as an indication of future performances. The
investment performance of the Fund or an Underlying Fund during periods when it is unable to invest significantly or at all in IPOs may be lower
than during periods when the Fund or an Underlying Fund is able to do so. In addition, as the Fund or an Underlying Fund increases in size, the impact of IPOs
on the Fund’s or the Underlying Fund’s performance will generally decrease. Securities issued in IPOs are subject to
many of the same risks as investing in companies with smaller market capitalizations. Securities issued in IPOs have no trading history, and
information about the companies may be available for very limited periods. In addition, the prices of securities sold in IPOs may be highly volatile or
may decline shortly after the initial public offering. When an initial public offering is brought to the market, availability may be limited and the
Fund or an Underlying Fund may not be able to buy any shares at the offering price, or, if it is able to buy shares, it may not be able to buy
as many shares at the offering price as it would like.
Risks of Investing in Closed-End Funds
— The
shares of closed-end funds may trade at a discount or premium to, or at, their net asset value. To the extent that the Fund or an Underlying Fund
invests a portion of its assets in closed-end funds, those assets will be subject to the risks of the closed-end fund’s portfolio securities,
and a shareholder in the Fund or an Underlying Fund will bear not only his or her proportionate share of the expenses of the Fund or the
Underlying Fund, but also, indirectly, the expenses of the closed-end fund. The securities of closed-end funds in which the Fund or an
Underlying Fund may invest may be leveraged. As a result, the Fund or an Underlying Fund may be indirectly exposed to leverage through an
investment in such securities. An investment in securities of closed-end funds that use leverage may expose the Fund or an Underlying Fund to
higher volatility in the market value of such securities and the possibility that the Fund’s or an Underlying Fund’s long-term returns
on such securities (and, indirectly, the long-term returns of the shares) will be diminished.
When-Issued and Delayed Delivery Securities and Forward
Commitments Risks
— When-issued and delayed delivery securities and forward commitments involve the risk that the security the Fund or
an Underlying Fund buys will lose value prior to its delivery. There also is the risk that the security will not be issued or that the other party
to the transaction will not meet its obligation. If this occurs, the Fund or an Underlying Fund loses both the investment opportunity for the
assets it set aside to pay for the security and any gain in the security’s price.
Information About the ETFs
and Mutual Funds
The Fund may invest in any of the ETFs and mutual funds listed
below. The table sets forth (i) the names of the ETFs and mutual funds, and (ii) brief descriptions of their investment objectives and principal
investment strategies. The list of ETFs and mutual funds is subject to change at the discretion of BlackRock without notice to
shareholders.
Prospectuses for any of these ETFs and mutual funds can be
accessed at www.blackrock.com/prospectus or obtained by calling (800) 441-7762.
ETFs
BlackRock Fund Advisors (“BFA”), an affiliate of
BlackRock and each ETF’s investment adviser, uses a “passive” or indexing approach to try to achieve the ETF’s investment
objective. Unlike many investment companies, the ETF does not try to “beat” the index it tracks and does not seek temporary defensive
positions when markets decline or appear overvalued.
Indexing may eliminate the chance that the ETF will substantially
outperform the Underlying Index (as defined below) but also may reduce some of the risks of active management, such as poor security selection.
Indexing seeks to achieve lower costs and better after-tax performance by keeping portfolio turnover low in comparison to actively managed investment
companies.
For some ETFs, BFA may invest in all securities included in the
Underlying Index in roughly the same proportions as each security is weighted in such Underlying Index in an indexing strategy known as “full
replication.” For other ETFs, BFA uses a representative sampling indexing strategy to manage the ETFs. “Representative sampling” is an
indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the
Underlying Index. The securities selected are expected to have, in the aggregate, investment
30
characteristics (based on factors such as market
capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of
the Underlying Index. The Fund may or may not hold all of the securities in the Underlying Index. Funds that employ a representative sampling strategy
may incur tracking error risk to a greater extent than a fund that seeks to replicate an index.
An ETF will at all times invest at least 80% of its assets in the
securities of the Underlying Index or in depositary receipts representing securities in its Underlying Index. The ETF may invest the remainder of its
assets in other securities, including securities not in the Underlying Index, but which BFA believes will help track the Underlying Index. Certain ETFs
may also hold futures contracts, options on futures contracts, other types of options and swaps related to its Underlying Index, as well as cash and
cash equivalents, including shares of money market funds advised by BFA or its affiliates.
The Underlying Index is sponsored by an organization (the
“Index Provider”) that is independent of the ETF and BFA. The Index Provider determines the composition and relative weightings of the
securities in the Underlying Index and publishes information regarding the market value of the Underlying Index.
Each ETF will concentrate its investments (
i.e.
, hold 25%
or more of its total assets) in a particular industry or group of industries to approximately the same extent that the Underlying Index is
concentrated. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities) and repurchase
agreements collateralized by U.S. government securities are not considered to be issued by members of any industry.
31
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares MSCI All Country Asia ex Japan Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
All Country Asia ex Japan Index (the “Underlying Index”).
|
|
|
|
|
|
As of June 30, 2012, the Underlying Index is a free float-adjusted market capitalization
index designed to measure equity market performance of the following 12 developed and emerging market countries or regions: Australia, China,
Hong Kong, India, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan and Thailand. Components primarily
include consumer discretionary, financial, industrials and information technology companies. The components of the Underlying Index, and
the degree to which these components represent certain industries, may change over time.
|
|
iShares Barclays 1-3 Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. 1-3 Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury that have
a remaining maturity of greater than or equal to one year and less than three years. As of April 30, 2012, there were
69 issues in the Underlying Index.
|
|
iShares Barclays 7-10 Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. 7-10 Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury that have
a remaining maturity of greater than or equal to seven years and less than ten years. As of April 30, 2012, there were
20 issues in the Underlying Index.
|
|
iShares Core Total U.S. Bond Market ETF
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. Aggregate Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the total U.S. investment-grade bond
market. As of April 30, 2012, there were 7,929 issues in the Underlying Index.
|
|
iShares Barclays 20+ Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. 20+ Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury that have
a remaining maturity of 20 or more years. As of April 30, 2012, there were 18 issues in the Underlying
Index.
|
|
iShares Barclays Short Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. Short Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury that have
a remaining maturity of between one and 12 months. As of April 30, 2012, there were 64 issues in the Underlying
Index.
|
|
iShares Barclays 3-7 Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. 3-7 Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury that have
a remaining maturity of greater than or equal to three years and less than seven years. As of April 30, 2012, there were 88 issues in
the Underlying Index.
|
|
iShares Barclays MBS Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. MBS Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of investment grade mortgage-backed pass-through
securities issued by Ginnie Mae, Fannie Mae and Freddie Mac. The Underlying Index includes fixed-rate mortgage pass-through securities issued by Ginnie
Mae, Fannie Mae and Freddie Mac that have 30-, 20-, 15-year maturities as well as hybrid adjustable rate mortgages (“ARMs”). All securities
in the Underlying Index must have a remaining weighted average maturity of at least one year; hybrid ARMs must be at least one year away from initial
reset, must be investment grade, and must have $250 million or more of outstanding face value. In addition, the securities in the Underlying Index must
be denominated in U.S. dollars and must be non-convertible. The Underlying Index is market capitalization-weighted and the
securities in the Underlying Index are updated on the last calendar day of each month.
|
32
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares FTSE China 25 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
FTSE China 25 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is designed to track the performance of the largest companies
in the Chinese equity market that are available to international investors. The Underlying Index consists of 25 of the largest and most liquid Chinese
companies. Securities in the Underlying Index are weighted based on the total market value of their shares, so that securities with higher total market
values generally have a higher representation in the Underlying Index. Each security in the Underlying Index is a current constituent of the FTSE
All-World Index and all of the securities in the Underlying Index currently trade on the Hong Kong Stock Exchange.
Components primarily include financial, oil and gas, and telecommunications companies. The components of the Underlying Index, and the
degree to which these components represent certain industries, may change over time.
|
|
iShares Barclays Intermediate Credit Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. Intermediate Credit Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of investment-grade corporate debt and sovereign,
supranational, local authority and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater than or equal
to one year and less than ten years. As of April 30, 2012, there were 3,330 issues in the Underlying Index. Components
primarily include financial and industrials entities, and may change over time.
|
|
iShares S&P Latin America 40 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
companies in the Mexican and South American equity markets as represented by the S&P Latin America 40
TM
Index (the
“Underlying Index”).
|
|
|
|
|
|
The Underlying Index is comprised of selected equities trading on the exchanges of five Latin
American countries. The Underlying Index includes securities that Standard & Poor’s Financial Services LLC, a subsidiary of The
McGraw-Hill Companies considers to be highly liquid from major economic sectors of the Mexican and South American equity markets. Companies
from Brazil, Chile, Colombia, Mexico and Peru are represented in the Underlying Index. Components primarily include consumer staples, financial and
materials companies, and may change over time.
|
|
iShares MSCI ACWI Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
All Country World Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a free float-adjusted market capitalization index designed to measure
the combined equity market performance of developed and emerging markets countries. Components primarily include consumer discretionary,
consumer staples, energy, financial, industrials and information technology companies. The components of the Underlying Index, and the degree to which
these components represent certain industries, may change over time. As of June 30, 2012, the Underlying Index consisted of companies in the
following countries or regions: Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, the Czech Republic, Denmark, Egypt,
Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Mexico, Morocco, the
Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal, Russia, Singapore, South Africa, South Korea, Spain, Sweden,
Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and the United States.
|
|
iShares MSCI EAFE Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
EAFE
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. as an equity benchmark for its
international stock performance. The Underlying Index includes stocks from Europe, Australasia and the Far East and, as of June 30, 2012,
consisted of the following 22 developed market country indexes or regions: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong
Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom.
Components primarily include consumer staples, financial and industrials companies. The components of the Underlying Index, and the degree
to which these components represent certain industries, may change over time.
|
33
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares MSCI EAFE Minimum Volatility Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
EAFE Minimum Volatility Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. to measure the performance of
international equity securities that have lower absolute volatility. The Underlying Index begins with the MSCI EAFE Index, which is a
capitalization-weighted index, and then follows a rules-based methodology to determine weights for securities in the index that seeks to
minimize total risk of the MSCI EAFE Index. The Underlying Index includes stocks from Europe, Australasia, the Middle East and the Far
East and, as of June 30, 2012, consisted of the following 19 developed market country indexes or regions: Australia, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Portugal, Singapore, Spain, Sweden, Switzerland and the
United Kingdom. Components primarily include consumer staples, financial and healthcare companies. The components of the Underlying Index, and
the degree to which these components represent certain industries, may change over time.
|
|
iShares MSCI Emerging Markets Minimum Volatility Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Emerging Markets Minimum Volatility Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. to measure the performance of equity
securities in global emerging markets that have lower absolute volatility. The Underlying Index begins with the MSCI Emerging Markets
Index, which is a capitalization-weighted index, and then follows a rules-based methodology to determine optimal weights for securities in the
index with the lowest total risk. As of June 30, 2012, the Underlying Index consisted of companies in the following 19 countries:
Brazil, Chile, China, Colombia, the Czech Republic, Egypt, India, Indonesia, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Russia,
South Africa, South Korea, Taiwan and Thailand. Component companies include consumer staples, financials and telecommunication services
companies.
|
|
iShares MSCI USA Minimum Volatility Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
USA Minimum Volatility Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. to measure the performance of equity
securities in the top 85% by market capitalization of equity securities listed on stock exchanges in the United States that have lower
absolute volatility. The Underlying Index begins with the MSCI USA Index, which is a capitalization-weighted index, and then follows a rules-based
methodology to determine weights for securities in the index that seeks to minimize total risk of the MSCI USA Index. Components primarily
include consumer staples, healthcare and information technology companies. The components of the Underlying Index, and the degree to which
these components represent certain industries, may change over time.
|
|
iShares MSCI Pacific ex-Japan Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Pacific ex-Japan Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks from the following four countries: Australia, Hong
Kong, New Zealand and Singapore. Components primarily include consumer staples, financial, industrial and materials
companies.
|
|
iShares S&P National AMT-Free Municipal Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
S&P National AMT-Free Municipal Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the investment-grade segment of the U.S.
municipal bond market. As of April 30, 2012, there were 9,018 issues in the Underlying Index.
|
34
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares S&P U.S. Preferred Stock Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
S&P U.S. Preferred Stock Index
TM
(the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of a select group of preferred stocks listed on the
New York Stock Exchange, NYSE Arca, Inc., NYSE Amex, NASDAQ Global Select Market, NASDAQ Select Market or NASDAQ Capital Market. The Underlying Index
does not seek to directly reflect the performance of the companies issuing the preferred stock. The Underlying Index includes preferred stocks with a
market capitalization over $100 million that meet minimum price, liquidity, trading volume, maturity and other requirements determined
Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill Companies. The Underlying Index excludes certain
issues of preferred stock, such as those that are issued by special ventures (
e.g.
, toll roads or dam operators) or structured products that are
linked to indexes or other stocks.
|
|
iShares Barclays TIPS Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the inflation-protected public obligations of the
U.S. Treasury. Inflation-protected public obligations of the U.S. Treasury, commonly known as “TIPS,” are securities
issued by the U.S. Treasury that are designed to provide inflation protection to investors. TIPS are income-generating instruments whose
interest and principal payments are adjusted for inflation — a sustained increase in prices that erodes the purchasing power of money. The
inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation index, such as the
consumer price index. A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both the principal value
and the interest payments increase. This can provide investors with a hedge against inflation, as it helps preserve the purchasing power of
an investment. Because of this inflation adjustment feature, inflation-protected bonds typically have lower yields than conventional
fixed-rate bonds. As of December 31, 2011, there were 31 issues in the Underlying
Index.
|
|
iShares MSCI Australia Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Australia Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Australian Stock
Exchange. Components primarily include consumer staples, financial and materials companies.
|
|
iShares Barclays 1-3 Year Credit Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Barclays U.S. 1-3 Year Credit Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of investment grade corporate debt and
sovereign, supranational, local authority and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater than or
equal to one year and less than three years. As of April 30, 2012, there were 896 issues in the Underlying Index.
Components primarily include financial and industrials entities, and may change over time.
|
|
iShares MSCI Brazil Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Brazil Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the BM&FBOVESPA (the Brazilian
exchange). Components primarily include energy, financial and materials companies.
|
|
iShares MSCI Canada Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Canada Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Toronto Stock Exchange.
Components primarily include energy, financial and materials companies.
|
35
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Dow Jones Select Dividend Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow
Jones U.S. Select Dividend Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of a selected group of equity securities issued by
companies that have provided relatively high dividend yields on a consistent basis over time. Dividend yield is calculated using a stock’s
unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price. The Underlying Index is comprised of 100 of
the highest dividend-yielding securities (excluding REITs) in the Dow Jones U.S. Index, a broad-based index representative of the total market for U.S.
equity securities. To be included in the Underlying Index, the securities (i) must have a current year’s dividend per-share ratio which is greater
than or equal to their five year average dividend per-share ratio; (ii) must have an average five-year dividend payout ratio of 60% or less; and (iii)
must have a minimum three-month average trading volume of 100,000 shares a day. “Dividend payout ratio” reflects the percentage
of a company’s earnings paid out as dividends. A ratio of 60% would mean that the company issuing the security paid out approximately 60% of its
earnings as dividends. A company with a lower dividend payout ratio has more earnings to support dividends, and adjustments or changes in the level of
earnings are therefore less likely to significantly affect the level of dividends paid. Positive dividend growth rate is a measure of dividend
consistency, since it provides some indication of a company’s ability to continue to pay dividends. The Underlying Index is reviewed and
rebalanced annually.
|
|
iShares Dow Jones U.S. Real Estate Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the Dow
Jones U.S. Real Estate Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the real estate sector of the U.S. equity market.
The Underlying Index includes companies in the following industry groups: real estate holding and development and REITs. As of March 31,
2012, the Underlying Index was concentrated in the REITs industry group, which comprised 95.91% of the market capitalization of the
Underlying Index. Components primarily include REITs. The components of the Underlying Index, and the degree to which these components
represent certain industries, may change over time.
|
|
iShares MSCI Emerging Markets Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Emerging Markets Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is designed to measure equity market performance in the global emerging
markets. As of June 30, 2012, the Underlying Index consisted of the following 21 emerging market indexes:
Brazil, Chile, China, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland, Russia,
South Africa, South Korea, Taiwan, Thailand and Turkey. Components primarily include energy, financial, information technology
and materials companies.
|
|
iShares MSCI Germany Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Germany Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Frankfurt Stock Exchange.
Components primarily include consumer discretionary, financial and materials companies.
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
iBoxx
®
$ Liquid Investment Grade Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a rules-based index consisting of liquid, U.S. dollar-denominated,
investment grade corporate bonds for sale in the United States, as determined by the index provider. The Underlying Index is designed to provide a
broad representation of the U.S. dollar-denominated liquid investment grade corporate bond market. The Underlying Index is a modified market-value
weighted index with a cap on each issuer of 3%. There is no limit to the number of issues in the Underlying Index, but as of April 30,
2012 the Underlying Index included approximately 947 constituents. Components primarily include consumer services,
financials, and oil and gas entities, and may change over time.
|
|
iShares MSCI Japan Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Japan Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Tokyo Stock Exchange.
Components primarily include consumer discretionary, financial and industrial companies.
|
36
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares J.P. Morgan USD Emerging Markets Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
J.P.Morgan EMBI
SM
Global Core Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a broad, diverse U.S. dollar denominated emerging markets debt benchmark
which tracks the total return of actively traded external debt instruments in emerging market countries. The methodology is designed to distribute the
weight of each country within the Underlying Index by limiting the weights of countries with higher debt outstanding and reallocating this excess to
countries with lower debt outstanding.
|
|
iShares Cohen & Steers Realty Majors Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Cohen & Steers Realty Major Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of selected REITs. The objective of the Underlying Index is to
represent relatively large and liquid REITs that may benefit from future consolidation and securitization of the U.S. real estate industry. REITs are
selected for inclusion in the Underlying Index based on a rigorous review of several factors, including management, portfolio quality, and sector and
geographic diversification. The REITs selected for inclusion in the Underlying Index must meet minimum market capitalization and liquidity
requirements. The Underlying Index is weighted according to the total free float-adjusted market value of each REIT’s outstanding shares
and is adjusted quarterly so that no REIT represents more than 8% of the Underlying Index. Within the REIT market, the Underlying Index is diversified
across property sectors that represent the current market. Components primarily include REITs. The components of the Underlying Index, and the
degree to which these components represent certain industries, may change over time.
|
|
iShares Russell 1000 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Russell 1000 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization sector of the U.S.
equity market. The Underlying Index includes issuers representing approximately 92% of the market capitalization of all publicly-traded U.S. equity
securities. The Underlying Index is a float-adjusted capitalization-weighted index of equity securities used by the approximately 1,000 largest issuers
in the Russell 3000
®
Index. As of March 31, 2012, the Underlying Index represented approximately 93% of the total market capitalization
of the Russell 3000 Index. Total market capitalization reflects all equity shares outstanding, while total market value reflects float-adjusted
capitalizations based on equity shares available for general investment. Components primarily include consumer discretionary, financial and
technology companies, and may change over time.
|
|
iShares Russell 1000 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Russell 1000 Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization growth sector of the
U.S. equity market. It is a subset of the Russell 1000
®
Index, which measures the performance of the large-capitalization sector
of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately
76% of the total market value of the Russell 1000 Index. The Underlying Index measures the performance of equity securities of Russell
1000 Index issuers with relatively higher price-to-book ratios and higher forecasted growth. Components primarily include consumer discretionary,
producer durables and technology companies, and may change over time.
|
|
iShares Russell 1000 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Russell 1000 Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization value sector of the U.S.
equity market. It is a subset of the Russell 1000
®
Index, which measures the performance of the large-capitalization sector of
the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 74% of the total
market value of the Russell 1000 Index. The Underlying Index measures the performance of equity securities of Russell 1000 Index issuers with
relatively lower price-to-book ratios and lower forecasted growth. Components primarily include energy, financial, health care and utilities
companies, and may change over time.
|
37
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Russell 2000 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Russell 2000 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization sector of the U.S.
equity market. The Underlying Index includes issuers representing approximately 10% of the total market capitalization of all publicly-traded U.S.
equity securities. The Underlying Index is a float-adjusted capitalization-weighted index of equity securities issued by the approximately 2000
smallest issuers in the Russell 3000
®
Index. As of March 31, 2012, the Underlying Index represented approximately $1.4 trillion
of the total market capitalization of the Russell 3000 Index. Total market capitalization reflects all equity shares outstanding, while total market
value reflects float-adjusted capitalizations based on equity shares available for general investment. Components primarily include consumer
discretionary, financial, producer durables and technology companies, and may change over time.
|
|
iShares Russell 2000 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Russell 2000 Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization growth sector of the
U.S. equity market. It is a subset of the Russell 2000
®
Index, which measures the performance of the small-capitalization sector
of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 66% of the
total market value of the Russell 2000 Index. The Underlying Index measures the performance of equity securities of Russell 2000 Index issuers with
relatively higher price-to-book ratios and higher forecasted growth. Components primarily include consumer discretionary, health care and technology
companies, and may change over time.
|
|
iShares Russell 2000 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Russell 2000 Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization value sector of the U.S.
equity market. It is a subset of the Russell 2000
®
Index, which measures the performance of the small-capitalization sector of
the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately
63% of the total market value of the Russell 2000 Index. The Underlying Index measures the performance of equity securities of Russell
2000 Index issuers with relatively lower price-to-book ratios and lower forecasted growth. Components primarily include consumer discretionary,
financial and producer durables companies, and may change over time.
|
|
iShares Russell 3000 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 3000 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the broad U.S. equity market. As of March 31,
2012, the Underlying Index included issuers representing approximately 98% of the total market capitalization of all publicly-traded
U.S.-domiciled equity securities. The Underlying Index is a float-adjusted capitalization-weighted index of the largest issuers determined to
have the U.S. as their primary country of risk. Total market capitalization reflects all equity shares outstanding, while total market value
reflects float-adjusted capitalizations based on equity shares available for general investment. Components primarily include consumer
discretionary, financial and technology companies, and may change over time.
|
38
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Russell MidCap Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell Midcap Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization growth sector of
the U.S. equity market. It is a subset of the Russell Midcap
®
Index, which measures the performance of the mid-capitalization
sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 64% of the total
market value of the Russell Midcap Index. The Underlying Index measures the performance of equity securities of Russell Midcap Index issuers
with higher price-to-book ratios and higher forecasted growth. The Russell Midcap Index is a float-adjusted, capitalization-weighted index of
the 800 smallest issuers in the Russell 1000
®
and includes securities issued by issuers which range in size between
approximately $1.6 billion and $18.3 billion, although this range may change from time to time. Components primarily include consumer
discretionary, producer durables and technology companies, and may change over time.
|
|
iShares Russell MidCap Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell Midcap Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization value sector of
the U.S. equity market. It is a subset of the Russell Midcap
®
Index, which measures the performance of the mid-capitalization
sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 64% of the total market value of
the Russell Midcap Index. The Underlying Index measures the performance of equity securities of Russell Midcap Index issuers with relatively
lower price-to-book ratios and lower forecasted growth. The Russell Midcap Index is a float-adjusted, capitalization-weighted index of the 800
smallest issuers in the Russell 1000
®
and includes securities issued by issuers which range in size between approximately $1.6
billion and $18.3 billion, although this range may change from time to time. Components primarily include consumer discretionary, financial
and utilities companies, and may change over time.
|
|
iShares Russell Midcap Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
Russell Midcap Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization sector of the U.S. equity
market. The Underlying Index is a float-adjusted, capitalization-weighted index of the 800 smallest issuers in the Russell 1000
®
Index.
The Underlying Index includes equity securities issued by issuers which range in size between approximately 1.6 billion and
$18.3 billion, although this range may change from time to time. As of March 31, 2012, the Underlying Index
represented approximately 31% of the total market capitalization of all publicly-traded U.S. equity securities. Components primarily
include consumer discretionary, financial and producer durables companies, and may change over time.
|
|
iShares MSCI South Korea Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the MSCI
Korea Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Stock Market Division of the
Korean Exchange. Components primarily include consumer discretionary, financial, industrial and information technology
companies.
|
|
iShares S&P SmallCap 600 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
S&P SmallCap 600
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization sector of the U.S.
equity market. As of March 31, 2012, the Underlying Index included approximately 3% of the market capitalization of all U.S. equity
securities. The stocks in the Underlying Index have a market capitalization between $300 million and $1.4
billion (which may fluctuate depending on the overall level of the equity markets) and are selected for liquidity and industry group
representation. Components primarily include consumer discretionary, financial, industrials and information technology companies, and may change
over time.
|
39
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Core S&P Mid-Cap ETF
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
S&P MidCap 400
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization sector of the U.S. equity
market. As of March 31, 2012, the Underlying Index included approximately 8% of the market capitalization of all U.S. equity securities.
The stocks in the Underlying Index have a market capitalization between $1 billion and $4.4 billion (which may fluctuate
depending on the overall level of the equity markets) and are selected for liquidity and industry group representation. The Underlying Index
consists of stocks from a broad range of industries. Components primarily include financial, industrials and information technology companies, and
may change over time.
|
|
iShares S&P MidCap 400 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P MidCap 400
®
Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization value sector of the
U.S. equity market. It is a subset of the S&P MidCap 400
®
and consists of those stocks in the S&P MidCap 400
®
exhibiting the strongest value characteristics, as determined by Standard & Poor’s Financial Services LLC, a subsidiary of The
McGraw-Hill Companies, representing approximately 48% of the market capitalization of the S&P MidCap 400
®
as of March 31,
2012. The stocks in the Underlying Index have a market capitalization between $1 billion and $4.4 billion (which may fluctuate depending on the
overall level of the equity markets). The Underlying Index consists of stocks from a broad range of industries. Components primarily include
consumer discretionary, financial, industrials and information technology companies, and may change over time.
|
|
iShares S&P MidCap 400 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P MidCap 400
®
Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization growth sector of the
U.S. equity market. It is a subset of the S&P MidCap 400
®
and consists of those stocks in the S&P MidCap
400
®
exhibiting the strongest growth characteristics, as determined by Standard & Poor’s Financial Services LLC, a
subsidiary of The McGraw-Hill Companies, representing approximately 52% of the market capitalization of the S&P MidCap
400
®
as of March 31, 2012. The stocks in the Underlying Index have a market capitalization between $1 billion and $4.4
billion (which may fluctuate depending on the overall level of the equity markets). The Underlying Index consists of stocks from a broad range of
industries. Components primarily include consumer discretionary, health care, industrials, and information technology companies, and may change
over time.
|
|
iShares S&P SmallCap 600 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P SmallCap 600
®
Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization value sector of the
U.S. equity market. It is a subset of the S&P SmallCap 600
®
and consists of those stocks in the S&P SmallCap
600
®
exhibiting the strongest value characteristics, as determined by Standard & Poor’s Financial Services LLC, a
subsidiary of The McGraw-Hill Companies, representing approximately 49% of the market capitalization of the S&P SmallCap
600
®
as of March 31, 2012. The stocks in the Underlying Index have a market capitalization between $300 million and $1.4
billion (which may fluctuate depending on the overall level of the equity markets). Components primarily include consumer discretionary,
financial and industrials companies, and may change over time.
|
|
iShares S&P 100 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P’s 100
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization sector of the U.S.
equity market. It is a subset of the S&P 500
®
and consists of blue chip stocks from diverse industries in the S&P
500
®
with exchange listed options. As of March 31, 2012, the Underlying Index represented approximately 53% of the market
capitalization of U.S. equities. Components primarily include consumer staples, energy, financial and information technology companies, and may change
over time.
|
40
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares S&P 500 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P 500
®
Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization growth sector of the
U.S. equity market. It is a subset of the S&P 500
®
and consists of those stocks in the S&P 500
®
exhibiting the strongest growth characteristics, as determined by Standard & Poor’s Financial Services LLC, a subsidiary of The
McGraw-Hill Companies, representing approximately 55% of the market capitalization of the S&P 500
®
as of March 31, 2012. Components
primarily include consumer staples, health care and information technology companies, and may change over time.
|
|
iShares S&P 500 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P 500
®
Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization value sector of the
U.S. equity market. It is a subset of the S&P 500
®
and consists of those stocks in the S&P 500
®
exhibiting the strongest value characteristics, as determined by Standard & Poor’s Financial Services LLC, a subsidiary of The
McGraw-Hill Companies, representing approximately 45% of the market capitalization of the S&P 500
®
as of March 31, 2012.
Components primarily include consumer discretionary, energy, financial, industrials and information technology companies, and may change over
time.
|
|
iShares MSCI Taiwan Index Fund
|
|
|
|
The iShares MSCI Taiwan Index Fund (the “Fund”) seeks investment results that correspond generally to the price and yield
performance, before fees and expenses, of the MSCI Taiwan Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Taiwan Stock Exchange.
Components primarily include financial, information technology and materials companies.
|
|
iShares iBoxx $ High Yield Corporate Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of the
iBoxx
®
$ Liquid High Yield Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a rules-based index consisting of liquid U.S. dollar-denominated, high
yield corporate bonds for sale in the United States, as determined by the index provider. The Underlying Index is designed to provide a broad
representation of the U.S. dollar-denominated liquid high yield corporate bond market. The Underlying Index is a modified market-value
weighted index with a cap on each issuer of 3%. Bonds in the Underlying Index are selected using a rules-based criteria, as defined by the
index provider. There is no limit to the number of issues in the Underlying Index, but as of April 30,
2012 the Underlying Index included approximately 639 constituents. Components primarily include consumer services,
financial, industrials, oil and gas, and telecommunications entities, and may change over time.
|
|
SPDR Barclays International Treasury Bond ETF
|
|
|
|
The fund seeks to provide investment results that, before fees and expenses, correspond
generally to the price and yield performance of an index that tracks the fixed-rate local currency sovereign debt of investment grade countries outside
the United States. The Barclays Global Treasury Ex-US Capped Index (the “Underlying Index”) includes government bonds issued by investment
grade countries outside the United States, in local currencies, that have a remaining maturity of one year or more and are rated investment grade
(Baa3/BBB-/BBB-or higher using the middle rating of Moody’s Investors Service, Inc., Standard & Poor’s, Inc. and Fitch Inc.,
respectively). Each of the component securities in the Underlying Index is a constituent of the Barclays Global Treasury ex-US Index, screened such
that the following countries are included: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Greece, Italy, Japan, Mexico, Netherlands,
Poland, South Africa, Spain, Sweden, Taiwan, United Kingdom. In addition, the securities in the Underlying Index must be fixed-rate and have certain
minimum amounts outstanding, depending upon the currency in which the bonds are denominated. The Underlying Index is calculated by Barclays using a
modified “market capitalization” methodology. This design ensures that each constituent country within the Underlying Index is represented in
a proportion consistent with its percentage with respect to the total market capitalization of the Underlying Index. Component securities in each
constituent country are represented in a proportion consistent with their percentage relative to the other component securities in the constituent
country. Under certain conditions, however, the par amount of a component security within the Underlying Index may be adjusted to conform to
Internal Revenue Code requirements. As of September 30, 2012, there were approximately 668 securities in the Underlying Index and the modified adjusted
duration of securities in the Underlying Index was approximately 7.09 years.
|
41
EQUITY FUNDS
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
ACWI ex-US Index Master Portfolio
|
|
|
|
The investment objective of the fund is to match the performance of the MSCI All Country World ex-US Index (the “MSCI ACWI ex-US
Index”) in U.S. dollars with net dividends as closely as possible before the deduction of fund expenses. The fund employs a
“passive” management approach, attempting to invest in a portfolio of assets whose performance is expected to match approximately the
performance of the MSCI ACWI ex-USA Index. The fund will be substantially invested in equity securities in the MSCI ACWI ex-USA Index, and will
invest, under normal circumstances, at least 80% of its assets in securities or other financial instruments that are components of or have
economic characteristics similar to the securities included in the MSCI ACWI ex-USA Index. Equity securities consist primarily of common stock,
preferred stock, securities convertible into common stock and securities or other instruments whose price is linked to the value of common
stock.
|
|
|
|
|
|
The fund will invest in the common stocks represented in the MSCI ACWI ex-USA Index in roughly
the same proportions as their weightings in the MSCI ACWI ex-USA Index. The MSCI ACWI ex-USA Index is a free float-adjusted market
capitalization index designed to measure the combined equity market performance of developed and emerging market countries, excluding the United
States. The component stocks have a market capitalization between $69 million and $207 billion as of March 31, 2012. The fund may also engage in
futures transactions. At times, the fund may not invest in all of the common stocks in the MSCI ACWI ex-USA Index, or in the same weightings as
in the MSCI ACWI ex-USA Index. At those times, the fund chooses investments so that the market capitalizations, industry weightings and other
fundamental characteristics of the stocks chosen are similar to the MSCI ACWI ex-USA Index as a whole.
|
|
BlackRock All-Cap Energy & Resources Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term growth of capital. Under normal market conditions, the fund invests at
least 80% of its total assets in equity securities of global energy and natural resources companies and companies in associated businesses, as well as
utilities (such as gas, water, cable, electrical and telecommunications utilities). The fund will concentrate its investments (
i.e.
,
invest more than 25% of its assets) in energy or natural resources companies. The fund may invest without limit in companies located anywhere in the
world and will generally invest in at least three countries and in companies tied economically to a number of countries. The fund expects
to invest primarily in developed markets, but may also invest in emerging markets. The fund may invest in companies of any
size.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective, buy or sell options or
futures on a security or an index of securities and may buy options on a currency or a basket of currencies (commonly known as
derivatives).
|
|
Master Basic Value LLC
|
|
|
|
The investment objective of the fund is to seek capital appreciation and, secondarily, income.
|
|
|
|
|
|
The fund tries to achieve its investment objective by investing in securities, primarily equity securities, that fund
management believes are undervalued and therefore represent basic investment value.
|
|
|
|
|
|
The fund places particular emphasis on companies with below average price/earnings ratios that may pay above average
dividends. The fund purchases primarily common stock of U.S. companies in trying to meet its objectives. The fund management may also determine
a company is undervalued if its stock price is down because of temporary factors from which the fund management believes the company will
recover. The fund focuses its investments on companies with a market capitalization over $5 billion. The fund may invest up to 25% of its
total assets in the securities of foreign companies. The fund concentrates its foreign exposure on established companies in developed countries.
Although the fund may invest in emerging markets or underdeveloped countries from time to time, the fund does not speculate on such markets or
countries.
|
|
|
|
|
|
Fund management believes that favorable changes in market prices are more likely to occur when: (i) stocks are out of favor;
(ii) company earnings are depressed; (iii) price/earnings ratios are limited; (iv) there is no general interest in a security or
industry.
|
|
|
|
|
|
On the other hand, fund management believes that negative developments are more likely to occur
when: (i) investment expectations are generally high; (ii) stock prices are advancing or have advanced rapidly; (iii) price/earnings ratios have
been inflated; (iv) an industry or security continues to become popular among investors.
|
42
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Basic Value LLC (continued)
|
|
|
|
Fund management believes that stocks with relatively high price/earnings ratios are more
vulnerable to price declines from unexpected adverse developments. At the same time, stocks with relatively low price/earnings ratios are
more likely to benefit from favorable but generally unanticipated events. Thus, the fund may invest a large part of its net assets in stocks
that have weak research ratings. The fund may sell a security if, for example, the stock price increases to the high end of the range of its
historical price-book value ratio or if the fund determines that the issuer no longer meets the criteria fund management has established
for the purchase of such securities or if fund management thinks there is a more attractive investment opportunity in the same
category.
|
|
Bond Index Master Portfolio
|
|
|
|
The fund seeks to provide investment results that correspond to the total
return performance of fixed-income securities in the aggregate, as represented by the Barclays U.S. Aggregate Bond Index (the “Barclays U.S.
Aggregate Index”). The fund pursues its investment objective by seeking to match the total return performance of the Barclays U.S.
Aggregate Index, which is composed of approximately 8,000 fixed-income securities. The fixed-income securities that comprise the Barclays U.S.
Aggregate Index include U.S. government securities and corporate bonds, as well as mortgage-backed securities, asset-backed securities and
commercial mortgage-backed securities. All securities in the Barclays U.S. Aggregate Index are investment-grade. The fund maintains a weighted
average maturity consistent with that of the Barclays U.S. Aggregate Index, which generally ranges between 5 and 10 years. The fund invests in a
representative sample of these securities. Securities are selected for investment by the fund in accordance with their relative proportion
within the Barclays U.S. Aggregate Index as well as based on credit quality, issuer sector, maturity structure, coupon rates and callability, among
other factors. The fund’s manager considers investments that provide substantially similar exposure to securities in the Barclays
U.S. Aggregate Index to be investments comprising the fund’s benchmark index. The fund is managed by determining which securities are to be
purchased or sold to reflect, to the extent feasible, the investment characteristics of its benchmark index. Under normal circumstances, at least 90%
of the value of the fund’s assets, plus the amount of any borrowing for investment purposes, is invested in securities comprising the Barclays
U.S. Aggregate Index, which, for the fund, are considered bonds.
|
|
BlackRock Capital Appreciation Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term growth of capital. The fund tries to achieve its investment
objective by investing primarily in a diversified portfolio consisting of primarily common stock of U.S. companies that fund
management believes have shown above-average growth rates in earnings over the long-term. In other words, fund management tries to choose
investments that will increase in value over the long term. To a lesser extent the fund may also invest in securities convertible into common
stock and rights to subscribe to common stock of these companies. The fund emphasizes investments in companies with medium to large market
capitalization (currently, approximately $2 billion or more). The fund will generally invest at least 65% of its total assets
in common stock, convertible preferred stock, securities convertible into common stock,
and rights to subscribe to common stock. Of these securities the fund will generally invest in common stock.
|
|
|
|
|
|
Convertible securities generally are debt securities or preferred stock that may be
converted into common stock. Convertible securities typically pay current income as either interest (debt security convertibles) or dividends
(preferred stock). A convertible’s value usually reflects both the stream of current income payments and the market value of the underlying
common stock. The fund may purchase securities pursuant to the exercise of subscription rights, which allow an issuer’s existing shareholders to
purchase additional common stock at a price substantially below the market price of the shares.
|
43
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock China Fund
|
|
|
|
The investment objective of the fund is to seek to maximize total return. Total return means the combination of capital
appreciation and investment income. The fund seeks to achieve its objective by investing at least 80% of its total assets in equity
securities of companies domiciled, or exercising the predominant part of their economic activity, in China, including its special administrative
regions such as Hong Kong, or in instruments with similar economic characteristics. Equity securities include common stock, preferred stock,
securities convertible into common stock or securities or other instruments whose price is linked to the value of common stocks. A company
may be deemed to exercise a predominant part of its activity in China if (i) shares of such company are principally traded in China, (ii) such company
derives at least 50% of its revenues or profits from China, or (iii) such company has at least 50% of its assets in China.
|
|
|
|
|
|
Fund management anticipates that at least 70% of the fund’s total assets will be invested in shares designated H shares or Red
Chip shares, both of which are listed on the Hong Kong Stock Exchange. H shares are issued by companies that are incorporated in China. Red Chip shares
are issued by companies based in China but incorporated internationally.
|
|
|
|
|
|
The fund also invests in securities listed on the Shanghai and Shenzhen Stock Exchanges. These securities are divided into two
classes of shares: A shares, ownership of which is restricted to Chinese investors and to certain foreign investors under the Qualified Foreign
Institutional Investor structure, and B shares, which may be owned by both Chinese and foreign investors. The fund’s exposure to the A shares
market will be effected through investments in participation notes or other structured or derivative instruments that are designed to replicate, or
otherwise provide exposure to, the performance of A shares of Chinese companies. The fund expects to gain exposure to the B shares market through
direct investments in securities listed on the Shanghai and Shenzhen Stock Exchanges.
|
|
|
|
|
|
The fund is a non-diversified fund, which means that it can invest more of its assets in fewer companies than a diversified
fund.
|
|
|
|
|
|
The fund has a value orientation, although fund management recognizes that this style will
underperform at certain periods in the cycle and has the flexibility to adjust style risk accordingly. Fund management is based on
fundamental analysis, although it makes use of quantitative inputs. The fundamental analysis focuses on company specifics, such as valuation,
earnings sustainability, earnings revision and cash flow analysis. The quantitative inputs include a multi-factor screen and price action
criteria.
|
|
BlackRock Commodity Strategies Fund
|
|
|
|
The investment objective of the fund is to seek total return. The fund utilizes two strategies and under normal circumstances,
expects to invest approximately 50% of its total assets in each strategy; provided, however, that from time to time, fund management may alter the
weightings if it deems it prudent to do so based on market conditions, trends or movements or other similar factors.
|
|
|
|
|
|
One strategy focuses on investments in commodity-linked derivatives. To meet coverage and collateral requirements associated with
these derivative investments, and to invest excess cash, the fund holds a portion of its portfolio in investment-grade short-term fixed-income
securities. The other strategy focuses on equity investments in commodity-related companies, including, but not limited to, companies operating
in the mining, energy and agricultural sectors. The fund invests in equity securities of such companies in order to complement the commodity
exposures achieved through investments in commodity-linked derivatives. Taken together, these two strategies offer broad exposure to global
commodities market trends across asset classes, industries, sectors, and regions.
|
|
|
|
|
|
The fund manages the term structure of its commodity-linked derivative positions and has the flexibility to gain exposure to
futures maturities which differ from those in the fund’s benchmark, the Dow Jones-UBS Commodity Index Total Return
SM
. This is done in
an effort to achieve efficient investment results and minimize any adverse effects on returns caused by commodity term
structures.
|
|
|
|
|
|
Equity securities held by the fund may include common stocks, preferred stocks, convertible securities, warrants, depositary
receipts, and other instruments whose price is linked to the value of common stock, and equity interests in master limited partnerships. In
addition, the fund may also invest in fixed-income instruments (of any credit quality and any duration) of commodity-related
companies.
|
|
|
|
|
|
There are no restrictions on investment in terms of geography or market capitalization. As
such, the fund may invest in both U.S. and non-U.S. companies, including companies located in emerging markets, and in securities
denominated in both U.S. dollars and foreign currencies.
|
44
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Emerging Markets Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term capital appreciation by investing in securities, principally
equity securities, of issuers in countries having smaller capital markets.
|
|
|
|
|
|
Under normal conditions, the fund invests at least 80% of its total assets in equity securities of issuers located in countries with
developing capital markets. Equity securities consist primarily of common and preferred stocks and depositary receipts, and include securities
convertible into common stock, and securities or other instruments whose price is linked to the value of common stock. A developing capital market is
the market of any country that the World Bank, the International Finance Corporation, the United Nations or its authorities have determined to have a
low or middle income economy. Countries with developing capital markets can be found in regions such as Asia, Latin America, Eastern Europe and Africa.
For this purpose, developing capital markets include, but are not limited to, the markets of all countries that comprise the MSCI Emerging Markets
Index. The fund may also invest in fixed-income securities issued by companies and governments in these countries, as well as mezzanine investments.
The fund normally invests in at least three countries at any given time. The fund can invest in securities denominated in either U.S. dollars or
foreign currencies. Fund management anticipates that under most circumstances the fund’s investments will primarily be denominated in foreign
currencies. The fund has not established any rating or maturity criteria for the debt securities in which it may invest. From time to time the fund may
invest in shares of companies through initial public offerings.
|
|
|
|
|
|
Fund management may, when consistent with the fund’s investment objective, buy or sell
options or futures on a security or an index of securities, or enter into interest rate or foreign currency transactions, including swaps
(collectively, commonly known as derivatives). The fund’s exposure to certain markets may be effected through investments in participation notes
or other structured or derivative instruments that are designed to replicate, or otherwise provide exposure to, the performance of securities listed in
such markets.
|
|
BlackRock Energy & Resources Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term growth of capital. Under normal conditions, the fund invests at
least 80% of its total assets in equity securities of global energy and natural resources companies and companies in associated businesses, as well as
utilities (such as gas, water, cable, electrical and telecommunications utilities). Equity securities include common and preferred stock,
convertible securities, warrants, depositary receipts and securities or other instruments whose price is linked to the price of common stock.
The fund intends to emphasize small companies but may from time to time emphasize companies of other sizes. The fund will concentrate
its investments (
i.e.
, invest more than 25% of its assets) in energy or natural resources companies. The fund may invest without limit in
companies located anywhere in the world and will generally invest in at least three countries and in companies tied economically to a number of
countries. The fund expects to invest primarily in developed markets, but may also invest in emerging
markets.
|
|
|
|
|
|
Fund management may, when consistent with the fund’s investment
objective, buy or sell options or futures on a security or an index of securities and may buy options on a currency or a basket of
currencies (commonly known as derivatives).
|
|
BlackRock Equity Dividend Fund
|
|
|
|
The investment objective of the fund is to seek long-term total return and current income. The fund seeks to achieve its objective by
investing primarily in a diversified portfolio of equity securities. Under normal circumstances, the fund will invest at least 80% of its assets in
equity securities and at least 80% of its assets in dividend paying securities. The fund may invest in securities of companies
with any market capitalization, but will generally focus on large cap securities. The fund may also invest in convertible securities and
non-convertible preferred stock. Equity securities include common stock, preferred stock, securities convertible into common stock, or
securities or other instruments whose price is linked to the value of common stock.
|
|
|
|
|
|
The fund may invest up to 25% of its total assets in securities of foreign issuers. The fund
may invest in securities from any country. The fund may invest in securities denominated in both U.S. dollars and non-U.S. dollar currencies.
BlackRock chooses investments for the fund that it believes will both increase in value over the long term and provide current income, focusing
on investments that will do both instead of those that will favor current income over capital appreciation.
|
45
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock EuroFund
|
|
|
|
The investment objective of the fund is to seek capital appreciation primarily through investment in equities of corporations
domiciled in European countries. Under normal circumstances, the fund will invest at least 80% of its net assets in equity securities, including common
stock and convertible securities, of companies located in Europe.
|
|
|
|
|
|
For these purposes, “net assets” include any borrowings for investment purposes. Equity securities include common
stock, preferred stock, securities convertible into common stock or securities or other instruments whose price is linked to the value of common
stock.
|
|
|
|
|
|
Common stocks are securities representing shares of ownership of a corporation. Convertible securities are securities, such as
corporate bonds or preferred stock, that are exchangeable for shares of common stock of the issuer or another company. The fund currently
expects that a majority of the fund’s assets will be invested in equity securities of companies in Western European countries, but may also
invest in emerging markets in Eastern European countries. Within particular countries the fund considers the condition and growth potential of industry
sectors and selects what fund management believes are companies with attractive valuations or good prospects for earnings growth within
those sectors. The fund may invest in companies of any size.
|
|
|
|
|
|
Under normal circumstances, the fund anticipates it will allocate a substantial amount
(approximately 40% or more — unless market conditions are not deemed favorable by BlackRock, in which case the fund would invest at least 30%)
— of its total assets in foreign securities, which may include securities (i) of foreign government issuers, (ii) of issuers
organized or located outside the U.S., (iii) of issuers which primarily trade in a market located outside the U.S., or (iv) of issuers doing a
substantial amount of business outside the U.S., which the fund considers to be companies that derive at least 50% of their revenue or profits from
business outside the U.S. or have at least 50% of their sales or assets outside the U.S. The fund will allocate its assets among various regions and
countries (but in no less than three different foreign markets). For temporary defensive purposes the fund may deviate very substantially
from the allocation described above.
|
|
BlackRock Flexible Equity Fund
|
|
|
|
The investment objective of the fund is to seek to achieve long-term total return. Under normal circumstances,
the fund invests
at least 80% of
its net assets
(plus any borrowings
for investment
purposes) in equity
securities and
equity-like securities
and instruments
with similar economic
characteristics.
The fund seeks
to invest primarily
in securities issued
by North American
companies. The
fund may invest
in companies of
any capitalization
size, style or
sector. Equity
securities consist
primarily of common
stock, preferred
stock, securities
convertible into
common stock and
securities or other
instruments whose
price is linked
to the value of
common stock.
|
|
|
|
|
|
The fund may also invest in equity securities of foreign issuers, including
securities of companies in emerging market countries. The fund may invest directly in foreign securities or indirectly through
depositary receipts and similar instruments. The fund may invest in derivatives, including but not limited to, total return
and credit default swaps, options, futures, options on futures and swaps, and foreign exchange transactions, for hedging
purposes, as well as to enhance the return on its portfolio investments. The fund may invest up to 20% of its net assets
(plus any borrowings for investment purposes) in fixed income securities when, in the view of the portfolio manager, these
securities offer better risk-adjusted return potential than equity securities. The fund may invest in fixed income securities
of any rating, which may include high yield securities (commonly called “junk bonds”), and the fund may invest
up to 10% of its net assets in distressed securities that are in default or the issuers of which are in bankruptcy. The fund
may seek to provide exposure (up to 20% of the fund’s total assets) to the investment returns of real assets that trade
in the commodity markets through investment in commodity-linked derivative instruments and investment vehicles that exclusively
invest in commodities such as exchange traded funds, which are designed to provide exposure to commodity markets without
direct investment in physical commodities. The fund may gain such exposure to commodity markets by investing up to 20% of
its total assets in a wholly-owned subsidiary of the fund formed in the Cayman Islands, which invests primarily in commodity-related
instruments. In order to seek to mitigate risk or lower overall volatility, the fund may invest up to 20% of its net assets
in cash or cash equivalents.
|
46
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Focus Growth LLC
|
|
|
|
The fund’s investment objective is long-term capital appreciation. The fund is a non-diversified fund that tries to
achieve its investment objective by investing primarily in common stock of not less than 25 to approximately 35 companies that fund
management believes have strong earnings and revenue growth and capital appreciation potential (also known as “aggressive growth
companies”).
|
|
|
|
|
|
Companies selected through a process of both top-down macro-economic analysis of economic and business
conditions, and bottom-up analysis of the business fundamentals of individual companies. The fund will emphasize common stock of companies with mid to
large stock market capitalizations; however, the fund also may invest in the common stock of small companies. The stocks are selected
from a universe of companies that fund management believes have above average growth potential. Fund management will make investment decisions based on
judgments regarding several valuation parameters relative to anticipated rates of growth in earnings and potential rates of return on
equity.
|
|
|
|
|
|
The fund generally invests at least 65% of its total assets in equity securities. Equity securities consist of common stock and
American Depository Receipts (“ADRs”). The fund may invest without limitation in the securities of foreign companies in the form of
ADRs.
|
|
|
|
|
|
In addition to ADRs, the fund may also invest up to 20% of its total assets in other forms of
securities of foreign companies, including European Depositary Receipts, which are receipts typically issued in Europe evidencing an
ownership arrangement with the foreign company or other securities convertible into securities of foreign companies.
|
|
BlackRock Global Dividend Income Portfolio
|
|
|
|
The investment objective of the fund is to seek to provide a level of current income that exceeds the average yield on global stocks
generally.
|
|
|
|
|
|
Under normal circumstances, the fund will invest at least 80% of its net assets in dividend-paying equity securities and at least 40%
of its assets outside of the U.S. (unless market conditions are not deemed favorable by fund management, in which case the fund would invest at least
30% of its assets outside of the U.S.). The fund will primarily invest in common stock, preferred stock, securities convertible into common and
preferred stock and non-convertible preferred stock. The fund may invest in securities of non-U.S. issuers that can be U.S. dollar based or non-U.S.
dollar based. The fund may invest in securities of companies of any market capitalization, but intends to invest primarily in securities of large
capitalization companies. The combination of equity securities will be varied from time to time both with respect to types of securities and markets in
response to changing market and economic trends. The fund may invest in shares of companies through IPOs and “new
issues.”
|
|
|
|
|
|
The fund may invest up to 20% of total assets in global fixed-income securities, including corporate bonds, U.S. Government debt
securities, non-U.S. Government and supranational debt securities (an example of such an entity is the International Bank for Reconstruction and
Development (the World Bank)), asset-backed securities, mortgage-backed securities, corporate loans, emerging market debt securities and non-investment
grade debt securities (high yield or junk bonds). Investment in fixed-income securities will be made on an opportunistic basis. The fund may invest in
fixed-income securities of any duration or maturity.
|
|
|
|
|
|
The fund has no geographic limits in where it may invest and has no specific policy on the number
of different countries in which it will invest. The fund may invest in both developed and emerging markets. The fund may emphasize foreign securities
when fund management expects these investments to outperform U.S. securities. The fund may use derivatives, including options, futures, indexed
securities, inverse securities, swaps and forward contracts both to seek to increase the return of the fund or to hedge (or protect) the value of its
assets against adverse movements in currency exchange rates, interest rates and movements in the securities markets. The fund may enter into currency
transactions on a hedged or unhedged basis in order to seek total return.
|
47
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Global Dividend Income Portfolio (continued)
|
|
|
|
Under normal circumstances, the fund anticipates it will allocate a substantial amount (at least 40% or more — unless market
conditions are not deemed favorable by fund management, in which case the fund would invest at least 30%) — of its total assets in foreign
securities, which may include securities (i) of foreign government issuers, (ii) of issuers organized or located outside the U.S., (iii) of issuers
which primarily trade in a market located outside the U.S., (iv) of issuers doing a substantial amount of business outside the U.S., which the fund
considers to be companies that derive at least 50% of their revenue or profits from business outside the U.S. or have at least 50% of their sales or
assets outside the U.S. The fund will allocate its assets among various regions and countries, including the United States (but in no less than three
different countries). For temporary defensive purposes the fund may deviate very substantially from this allocation.
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its principal investment
strategies.
|
|
|
|
|
|
The fund is a non-diversified portfolio under the Investment Company
Act.
|
|
BlackRock Global Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term capital appreciation.
Under normal conditions,
the fund will invest
at least 75% of
its total assets
in global equity
securities of any
market capitalization,
selected for their
above-average return
potential. The
fund seeks to buy
primarily common
stock but may also
invest in preferred
stock and convertible
securities. The
fund may invest
up to 25% of its
total assets in
stocks of issuers
in emerging market
countries.
|
|
|
|
|
|
The fund may invest up to 25% of its total assets in global fixed income securities, including corporate
bonds, U.S. government
debt securities,
non-U.S. government
and supranational
debt securities,
asset-backed securities,
mortgage-backed
securities, emerging
market debt securities
and non-investment
grade debt securities
(high yield or
junk bonds). Investment
in fixed income
securities will
be made on an opportunistic
basis. Securities
will be identified
based on factors
such as relative
value and earnings
estimate revisions.
|
|
|
|
|
|
From time to time, the fund may invest in shares of companies through IPOs. The fund will invest in securities of non-U.S. issuers
that can be U.S.-dollar based or non-U.S.-dollar based on a hedged or unhedged basis. The fund may enter into currency transactions on a hedged or
unhedged basis in order to seek total return.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective, buy or sell
options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies, or enter into foreign currency
transactions, including swaps (collectively, commonly known as derivatives). The fund typically uses derivatives as a substitute for taking a
position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as currency risk. The fund may also use
derivatives to enhance returns, in which case their use would involve leveraging risk. The fund may seek to obtain market exposure to the securities in
which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase
agreements or dollar rolls). The fund may also use forward foreign currency exchange contracts (obligations to buy or sell a currency at a set rate
in the future).
|
48
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Global SmallCap Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term growth of capital by investing primarily in a portfolio of equity
securities of small cap issuers located in various foreign countries and in the United States. The fund invests in a diversified portfolio primarily
consisting of equity securities of small cap issuers in various foreign countries and in the United States. Equity securities consist primarily
of common and preferred stocks and depositary receipts, and include securities convertible into common stock, and securities or
other instruments whose price is linked to the value of common stock. Depositary receipts include American Depositary Receipts
(“ADRs”), European Depositary Receipts (“EDRs”), Global Depositary Receipts (“GDRs”) and unsponsored
Depositary Receipts.
|
|
|
|
|
|
ADRs are receipts typically issued by an American bank or trust company that evidence underlying securities issued by a foreign
corporation. EDRs (issued in Europe) and GDRs (issued throughout the world) each evidence a similar ownership arrangement. In addition, the fund may
invest in derivative securities or instruments, such as options and futures, the value of which is based on a common stock or a group of common
stocks. The fund may use derivatives to hedge its investment portfolio against market, interest rate and currency risks or to seek to enhance
its return. The derivatives that the fund may use include indexed and inverse securities, options, futures, swaps and forward foreign exchange
transactions.
|
|
|
|
|
|
Under normal circumstances, the fund invests at least 80% of its assets in equity securities of small cap issuers. Small cap
issuers are those whose market capitalization is similar to the market capitalization of companies in the MSCI All Country World Small Cap
Index
SM
at the time of the fund’s investment. As of September 28, 2012, the MSCI All Country World Small Cap
Index
SM
included companies with free float market capitalizations between $16.7 million and $5.984 billion. The market
capitalizations of companies in the index change with market conditions and the composition of the MSCI All Country World Small Cap
Index
SM
. The fund will invest in securities of issuers from a variety of countries, including those in emerging markets.
The fund may also invest in equity securities issued by emerging growth companies, which are companies of any market capitalization
without a long or consistent history of earnings but that fund management believes have the potential for earnings growth over an extended
period of time.
|
|
|
|
|
|
Under normal circumstances, the fund anticipates it will allocate a substantial amount
(approximately 40% or more — unless market conditions are not deemed favorable by fund management, in which case the fund would
invest at least 30%) — of its total assets in foreign securities which may include securities (i) of foreign government issuers,
(ii) of issuers organized or located outside the U.S., (iii) of issuers which primarily trade in a market located outside the U.S., (iv) of issuers
doing a substantial amount of business outside the U.S., which the fund considers to be companies that derive at least 50% of their revenue or profits
from business outside the U.S. or have at least 50% of their sales or assets outside the U.S. The fund will allocate its assets among various regions
and countries, including the United States (but in no less than three different countries). The fund may invest in securities denominated in any
currency. For temporary defensive purposes the fund may deviate very substantially from the allocation described above.
|
|
BlackRock Health Sciences Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term growth of equity capital. Under normal
market conditions, the fund invests at least 80% of total assets in securities, primarily common stock, of companies in health sciences and
related industries. The health sciences sector can include companies in health care equipment and supplies, health care providers and services,
biotechnology, and pharmaceuticals. Health Sciences and related industries can include, but are not limited to, businesses
involved in the development, production, and distribution or delivery of medical and pharmaceutical products and services, companies engaged in
biotechnology and medical research and development, companies that may design, manufacture or distribute medical, dental and optical equipment and
supplies, including diagnostic equipment, and companies that may also provide diagnostic services or operate health facilities and hospitals, or
provide related administrative, management and financial support. The fund will concentrate its investments (
i.e.
, invest more than 25% of its
assets) in health sciences or related industries, and may invest in companies located in non-U.S. countries.
|
|
|
|
|
|
The fund reserves the right to invest up to 20% of total assets in other types of securities. These may include stocks of companies
not associated with health sciences.
|
|
|
|
|
|
The fund is classified as non-diversified under the Investment Company Act.
|
49
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock India Fund
|
|
|
|
The investment objective of the fund is to seek to maximize total return from a portfolio of equity securities of Indian companies or
instruments with similar economic characteristics. Total return means the combination of capital appreciation and investment
income.
|
|
|
|
|
|
The fund seeks to achieve its investment objective by investing at least 80% of its total assets in equity securities of Indian
companies or in instruments with similar economic characteristics. An Indian company is a company which is organized under the laws of, or with a
principal office in, or for which the principal trading market for its securities is, India; or derives 50% or more of its total revenue or
profit from either goods or services produced or sales made in India; or has 50% or more of its assets in India.
|
|
|
|
|
|
The fund may invest in companies of any size, and may invest a significant portion of its assets in equity securities of smaller
companies. Equity securities include common stock, preferred stock, securities convertible into common stock or securities or other
instruments whose price is linked to the value of common stocks.
|
|
|
|
|
|
Fund management may, when consistent with the fund’s investment objective, buy or sell options or futures on a security or an
index of securities (commonly known as derivatives). The primary purpose of using derivatives is to attempt to reduce risk to the fund as a whole
(hedge), but they may also be used to maintain liquidity and commit cash pending investment. Fund management also may, but under normal market
conditions generally does not, intend to use derivatives for speculation to increase returns.
|
|
|
|
|
|
The fund will invest primarily in the common stocks of companies that are selected for their
growth potential and which are valued at a reasonable price. However, the fund may also invest in value stocks. Fund management seeks to maximize total
return by constructing the portfolio to reflect fund management’s views of the macro-economic environment as well as by using a “bottom
up” approach, which entails the fundamental analysis of individual stocks and companies.
|
|
BlackRock International Fund
|
|
|
|
The investment objective of the fund is to seek long-term capital growth through investments primarily in a diversified portfolio of
equity securities of companies located outside the United States. The fund invests primarily in stocks of companies located outside the U.S. The fund
may purchase common stock, preferred stock, convertible securities and other instruments. The fund may invest in securities issued by companies of all
sizes but will focus mainly on medium and large companies. Companies will be located in developed countries of Europe and the Far East, and in
countries with emerging capital markets anywhere in the world. The fund may invest up to 25% of its total assets in global fixed-income securities,
including corporate bonds, U.S. government debt securities, non-U.S. government and supranational debt securities, asset-backed securities,
mortgage-backed securities, emerging market debt securities and non-investment grade debt securities (high yield or junk
bonds).
|
|
|
|
|
|
Fund management selects companies that it believes are undervalued or have good prospects for earnings growth. The fund
chooses investments predominantly using a “bottom up” investment style using a global sector-based investment process. The fund’s
allocations to particular countries are based on fund management’s evaluation of individual companies.
|
|
|
|
|
|
Under normal circumstances, the fund will allocate a substantial amount (approximately 40% or more — unless market conditions
are not deemed favorable by fund management, in which case the fund would invest at least 30%) of its total assets in securities (i) of foreign
government issuers, (ii) of issuers organized or located outside the U.S., (iii) of issuers which primarily trade in a market located outside the U.S.,
or (iv) of issuers doing a substantial amount of business outside the U.S., which the fund considers to be companies that derive at least 50% of their
revenue or profits from business outside the U.S. or have at least 50% of their sales or assets outside the U.S. The fund will allocate its assets
among various regions and countries, including the United States (but in no less than three different countries). For temporary defensive purposes the
fund may deviate very substantially from the allocation described above.
|
|
|
|
|
|
Fund management may, when consistent with the fund’s investment objective, buy
or sell options or futures on a security or an index of securities, or enter into interest rate or foreign currency transactions, including swaps
(collectively, commonly known as derivatives).
|
50
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master International Index Series
|
|
|
|
The investment objective of the fund is to match the performance of the MSCI EAFE Index (Europe, Australasia, Far East) in
U.S. dollars with net dividends as closely as possible before the deduction of fund expenses. The fund will not attempt to buy or sell
securities based on the economic, financial or market analysis of the investment manager, but will instead employ a “passive”
investment approach. This means that the investment manager will attempt to invest in a portfolio of assets whose performance is expected to match
approximately the performance of the index before deduction of expenses. The fund will buy or sell securities only when the investment manager
believes it is necessary to do so in order to match the performance of the index. Accordingly, it is anticipated that the fund’s portfolio
turnover and trading costs will be lower than those of an “actively” managed fund. However, the fund has operating and other expenses,
while an index does not. Therefore, the fund may tend to underperform its target index to some degree over time.
|
|
|
|
|
|
The fund will be substantially invested in securities in the index, and will invest, under normal circumstances, at least 80%
of its assets in securities or other financial instruments that are components of or have economic characteristics similar to the securities included
in the index. This policy is a non-fundamental policy of the fund and may not be changed without 60 days’ prior notice to interestholders.
The fund may change its target index if the investment manager believes a different index would better enable the fund to match the performance
of the market segment represented by the current index and, accordingly, the investment objective of the fund may be changed without
interestholder approval.
|
|
|
|
|
|
The fund will, under normal circumstances, invest in all of the countries represented in the
EAFE Index. The fund may not, however, invest in all of the companies within a country represented in the EAFE Index, or in the same
weightings as the EAFE Index. Instead, the fund may invest in a sample of equity securities included in the EAFE Index and in derivative
instruments correlated with components of the EAFE Index as a whole based on the investment manager’s optimization process, a statistical
sampling technique that aims to create a portfolio that will match approximately the performance of the index with fewer transaction costs than
would be incurred through full replication.
|
|
BlackRock International Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to seek long-term capital appreciation.
Under normal market conditions,
the fund invests
at least 80% of
its net assets
in equity securities
issued by foreign
companies of any
market capitalization.
The fund may invest
up to 40% of its
net assets in stocks
of issuers in emerging
market countries.
The fund seeks
to buy primarily
common stock but
can also invest
in preferred stock
and convertible
securities. From
time to time the
fund may invest
in shares of companies
through IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective,
buy or sell options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies,
or enter into foreign currency transactions, including swaps. The fund typically uses derivatives as a substitute for taking
a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as currency
risk. The fund may also use derivatives to enhance returns, in which case their use would involve leveraging risk. The fund
may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as reverse repurchase agreements or dollar rolls). The fund
may also use forward foreign currency exchange contracts (obligations to buy or sell a currency at a set rate in the future).
|
51
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Large Cap Core Portfolio
|
|
|
|
The investment objective of the fund is long-term capital growth. In other words, the fund tries to choose investments that will
increase in value. Current income from dividends and interest will not be an important consideration in selecting portfolio
securities.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing at least 80% of its assets (which for this
purpose means net assets plus any borrowings for investment purposes) in equity securities, primarily common stock, of large cap
companies located in the United States that BlackRock selects from among those that are, at the time of purchase, included in the Russell
1000
®
Index. Equity securities consist primarily of common stock, preferred stock, securities convertible into common stock and
securities and other instruments whose price is linked to the value of common stock. Large cap companies are companies that at the time of
purchase have a market capitalization equal to or greater than the top 80% of the companies that comprise the Russell 1000
®
Index. As of June 22, 2012, the most recent rebalance date, the lowest market capitalization in this group was
$1.4 billion. The market capitalizations of companies in the index change with market conditions and the composition of the index.
BlackRock uses a multi-factor quantitative model to look for companies within the applicable Russell 1000
®
Index that, in its opinion,
are consistent with the investment objective of the fund.
|
|
Master Large Cap Growth Portfolio
|
|
|
|
The investment objective of the fund is long-term capital growth. In other words, the fund tries to choose investments that will
increase in value. Current income from dividends and interest will not be an important consideration in selecting portfolio
securities.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing at least 80% of its assets (which for this
purpose means net assets plus any borrowings for investment purposes) in equity securities, primarily common stock, of large cap
companies located in the United States that BlackRock selects from among those that are, at the time of purchase, included in the Russell
1000
®
Growth Index. Equity securities consist primarily of common stock, preferred stock, securities convertible into common
stock and securities and other instruments whose price is linked to the value of common stock. Large cap companies are companies that at the
time of purchase have a market capitalization equal to or greater than the top 80% of the companies that comprise the Russell
1000
®
Index. As of June 22, 2012, the most recent rebalance date, the lowest
market capitalization in this group was $1.4 billion. The market capitalizations of companies in the index change with market conditions
and the composition of the index. BlackRock uses a multi-factor quantitative model to look for companies within the applicable Russell
1000
®
Index that, in its opinion, are consistent with the investment objective of the fund.
|
|
Master Large Cap Value Portfolio
|
|
|
|
The investment objective of the fund is long-term capital growth. In other words, the fund tries to choose investments that will
increase in value. Current income from dividends and interest will not be an important consideration in selecting portfolio
securities.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing at least 80% of its assets (which for this
purpose means net assets plus any borrowings for investment purposes) in equity securities, primarily common stock, of large cap
companies located in the United States that BlackRock selects from among those that are, at the time of purchase, included in the Russell
1000
®
Value Index. Equity securities consist primarily of common stock, preferred stock, securities convertible into common
stock and securities and other instruments whose price is linked to the value of common stock. Large cap companies are companies that at the
time of purchase have a market capitalization equal to or greater than the top 80% of the companies that comprise the Russell
1000
®
Index. As of June 22, 2012, the most recent rebalance date, the
lowest market capitalization in this group was $1.4 billion. The market capitalizations of companies in the index change with
market conditions and the composition of the index. BlackRock uses a multi-factor quantitative model to look for companies within the applicable
Russell 1000
®
Index that, in its opinion, are consistent with the investment objective of the fund.
|
52
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Latin America Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term capital appreciation by investing primarily in Latin American
equity and debt securities.
|
|
|
|
|
|
Under normal market conditions, the fund will invest at least 80% of its total assets in Latin American
securities. The fund emphasizes equity securities of companies of any market capitalization located in Latin America.
The fund will not seek to invest in a large number of countries in Latin America.
|
|
|
|
|
|
Fund management chooses securities using a combination of “top down” and “bottom up” investment styles.
“Top down” means that the fund seeks to allocate its investments to markets that fund management believes have the potential to
outperform other markets due to economic factors such as government fiscal policies and the direction of interest rates and currency
movements. “Bottom up” means that the fund also selects investments based on fund management’s assessment of the earnings
prospects of individual companies.
|
|
|
|
|
|
The fund can invest in securities denominated in the currencies of Latin American countries or
in other countries. Fund management may, when consistent with the fund’s investment objective, buy or sell options or futures on a security or an
index of securities, or enter into interest rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). From
time to time the fund may invest in shares of companies through initial public offerings.
|
|
BlackRock Long-Horizon Equity Fund
|
|
|
|
The investment objective of the fund is to provide high total investment return. The fund seeks to achieve its investment objective
through a fully managed investment policy utilizing global equity securities. The fund will, under normal circumstances, invest at least 80% of its net
assets (plus any borrowings for investment purposes) in equity securities. Equity securities include common stock, preferred stock, convertible
securities, and securities or other instruments whose price is linked to the value of common stock. The combination of equity securities will be varied
from time to time both with respect to types of securities and markets and in response to changing market and economic trends. In selecting equity
investments, the fund mainly seeks securities that fund management believes are undervalued. When choosing investments, fund management considers
various factors, including opportunities for equity investments to increase in value, expected dividends, and interest rates. The fund may invest in
the securities of companies of any market capitalization. The fund may invest a portion of its assets in securities directly or indirectly secured by
real estate or interests therein or issued by companies that invest in real estate or interests therein such as stock, bonds or convertible bonds
issued by REITs.
|
|
|
|
|
|
The fund has no geographic limits in where it may invest. The fund may invest in both developed
and emerging markets. When choosing investment markets, fund management considers various factors, including economic and political conditions,
potential for economic growth and possible changes in currency exchange rates. In addition to investing in foreign securities, the fund actively
manages its exposure to foreign currencies through the use of forward currency contracts and other currency derivatives. The fund may own foreign cash
equivalents or foreign bank deposits as part of the fund’s investment strategy. The fund will also invest in non-U.S. currencies. The fund may
underweight or overweight a currency based on the fund management team’s outlook. As part of its principal investment strategies, the fund may
invest without limitation in cash, cash equivalents, money market securities, such as U.S. Treasury and agency obligations, other U.S. Government
securities, short term debt obligations of corporate issuers, certificates of deposit, bankers’ acceptances, commercial paper (short term,
unsecured, negotiable promissory notes of a domestic or foreign issuer) or other high quality fixed-income securities.
|
53
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Mid-Cap Growth Equity Portfolio
|
|
|
|
The investment objective of the fund is long-term capital appreciation. The fund normally invests at least 80% of its net assets in
equity securities issued by U.S. mid-capitalization growth companies which fund management believes have above-average earnings growth potential.
Equity securities consist primarily of common stock, preferred stock, securities convertible into common stock and securities or other
instruments whose price is linked to the value of common stock. Although a universal definition of mid-capitalization companies does not exist, the
fund generally defines these companies, at the time of the fund’s investment, as those with market capitalizations comparable in size to the
companies in the Russell Midcap
®
Growth Index (between approximately $1.275 billion and $19.075
billion as of June 30, 2012, the most recent rebalance date). In the future, the fund may define
mid-capitalization companies using a different index or classification system. The fund primarily buys common stock but also can invest in preferred
stock and convertible securities. From time to time the fund may invest in shares of companies through “new issues” or
IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective, buy or sell
options or futures on a security or an index of securities (commonly known as derivatives). The primary purpose of using
derivatives is to attempt to reduce risk to the fund as a whole (hedge), but they may also be used to maintain liquidity and commit cash pending
investment. Fund management also may, but under normal market conditions generally does not intend to, use derivatives for speculation to increase
returns.
|
|
BlackRock Mid Cap Value Opportunities Fund
|
|
|
|
The investment objective of the fund is to seek capital appreciation and, secondarily, income, by investing in securities, primarily
equity securities that fund management believes are undervalued and therefore represent an investment value.
|
|
|
|
|
|
In seeking to meet its objective, the fund normally invests at least 80% of its assets in equity securities of mid cap
companies. Equity securities include common stock, preferred stock, securities convertible into common stock, or securities or other instruments whose
price is linked to the value of common stock. Mid cap companies are companies that at the time of purchase have market capitalizations in the range of
companies included in the Standard & Poor’s MidCap Value 400 Index (generally between $580 million and $8.6
billion as of March 31, 2012). This definition of mid-capitalization companies may be changed in response to changes in the market. The
fund purchases securities that fund management believes have long term potential to grow in size or become more profitable or that the stock market may
value more highly in the future.
|
|
|
|
|
|
Fund management places particular emphasis on stocks trading at the low end of one or more
valuation measures, such as price/book value, or price/sales, price/earnings or price/cash flow ratios. Such companies also may have particular
qualities that affect the outlook for such companies, including an attractive market niche. The fund purchases primarily common stock of U.S. companies
in trying to meet its investment objective. The fund may also invest up to 30% of its total assets in the securities of foreign companies. The fund may
invest in securities denominated in currencies other than the U.S. dollar.
|
54
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Natural Resources Trust
|
|
|
|
The investment objective of the fund is to seek long-term growth of capital and to protect the
purchasing power of shareholders’ capital by investing in a portfolio of equity securities of domestic and foreign companies with substantial
natural resource assets. The fund seeks to achieve its objective by investing primarily in equity securities of companies
with substantial natural resource assets. Under normal circumstances, the fund will invest at least 80% of its assets in companies
with substantial natural resource assets or in securities the value of which is related to the market value of some natural resource asset. Equity
securities include common stock, preferred stock, securities convertible into common stock or securities or other instruments whose price is
linked to the value of common stock. Natural resource assets include materials with economic value that are derived from natural sources, either
directly or indirectly, such as metals, fuels, timber, underdeveloped land and agricultural products (e.g., fertilizer and chemicals). The fund
normally invests in a portfolio consisting of companies in a variety of natural resource related sectors, such as energy, chemicals, oil, gas,
paper, mining, steel or agricultural products. Under certain circumstances, however, the fund may concentrate its investments in one or more
of these sectors or in one or more issuers in the natural resources related industries. The fund focuses on investments in companies that
provide exposure to commodities where existing, and projected, capacity is forecast to approach levels that represent full utilization of that
capacity based upon supply and demand forecasts for the commodity. The fund is a non-diversified fund, which means that it can invest more of
its assets in fewer companies than a diversified fund. The fund will normally invest in both U.S. and non-U.S. companies, including
companies located in emerging markets, and in securities denominated in both U.S. dollars and foreign currencies. The fund may invest in
securities of issuers with any market capitalization.
|
|
BlackRock Pacific Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term capital appreciation primarily through investment in equity securities of
corporations domiciled in Far Eastern or Western Pacific countries, including Japan, Australia, Hong Kong, Taiwan, Singapore, South Korea and
India.
|
|
|
|
|
|
Under normal circumstances, the fund will invest at least 80% of its assets in a
portfolio of equity securities of companies located in Far Eastern or Western Pacific countries. For the most part, these securities will
be common stock. Many of the companies in which the fund invests are located in markets generally considered to be emerging markets. The
fund may also invest in convertible securities. The fund invests in companies it believes are undervalued relative to the market. Current income from
dividends and interest will not be an important factor in selecting the securities in which the fund will invest.
|
|
Russell 1000
®
Index Master Portfolio
|
|
|
|
The investment objective of the fund is to match the performance of the Russell 1000
®
Index as closely as
possible before the deduction of fund expenses. The fund employs a “passive” management approach, attempting to invest in a portfolio of
assets whose performance is expected to match approximately the performance of the Russell 1000. The fund will be substantially invested in equity
securities in the Russell 1000, and will invest, under normal circumstances, at least 80% of its assets in securities or other financial instruments
that are components of or have economic characteristics similar to the securities included in the Russell 1000.
|
|
|
|
|
|
The fund will invest in the common stocks represented in the Russell 1000 in roughly the same proportions as their weightings in the
Russell 1000. As of May 31, 2011, the most recent rebalance date, the companies in the Russell 1000 have a market
capitalization ranging from $1.624 billion to $411.18 billion. The fund may also engage in futures transactions. At times, the fund may not invest
in all of the common stocks in the Russell 1000, or in the same weightings as in the Russell 1000. At those times, the fund chooses investments so that
the market capitalizations, industry weightings and other fundamental characteristics of the stocks chosen are similar to the Russell 1000 as a
whole.
|
|
|
|
|
|
The fund may lend securities with a value up to 33
1
⁄
3
% of its total assets to financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as collateral. The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a
particular industry or group of industries to approximately the same extent that the Russell 1000 is concentrated.
|
55
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
S&P 500 Stock Master Portfolio
|
|
|
|
The fund seeks to provide investment results that correspond to the total return performance of the
publicly-traded common stocks in the aggregate, as represented by the Standard & Poor’s 500
®
Index. The fund
pursues its investment objective by seeking to replicate the total return performance of the S&P 500 Index, which is composed of 500 selected
common stocks, most of which are listed on the New York Stock Exchange. The S&P 500 Index is a capitalization-weighted index from a broad range of
industries chosen for market size, liquidity and industry group representation. The component stocks are weighted according to the total float-adjusted
market value of their outstanding shares (i.e. they are weighted according to public float which is the total market value of their outstanding shares
readily available to the general marketplace for trading purposes). The percentage of the fund’s assets invested in a given stock is approximately
the same as the percentage such stock represents in the S&P 500 Index.
|
|
|
|
|
|
The fund is managed by determining which securities are to be purchased or sold to reflect, to the
extent feasible, the investment characteristics of its benchmark index. Under normal circumstances, at least 90% of the value of the fund’s
assets, plus the amount of any borrowing for investments purposes, is invested in securities comprising the S&P 500 Index.
|
|
Master S&P 500 Index Series
|
|
|
|
The investment objective of the fund is to match the performance of the Standard & Poor’s 500
®
Index (the “S&P 500”) as closely as possible before the deduction of fund expenses.
|
|
|
|
|
|
The fund will not attempt to buy or sell securities based on the economic, financial or market analysis of the
investment manager, but will instead employ a “passive” investment approach. This means that the investment manager will attempt to invest
in a portfolio of assets whose performance is expected to match approximately the performance of the index before deduction of expenses. The fund will
buy or sell securities only when the investment manager believes it is necessary to do so in order to match the performance of the index.
Accordingly, it is anticipated that the fund’s portfolio turnover and trading costs will be lower than those of an “actively”
managed fund. However, the fund has operating and other expenses, while an index does not. Therefore, the fund may tend to underperform
its target index to some degree over time.
|
|
|
|
|
|
The fund will be substantially invested in securities in the index, and will invest, under
normal circumstances, at least 80% of its assets in securities or other financial instruments that are components of or have economic
characteristics similar to the securities included in the index. This policy is a non-fundamental policy of the fund and may not be changed
without 60 days’ prior notice to interestholders. The fund may change its target index if the investment manager believes a
different index would better enable the fund to match the performance of the market segment represented by the current index and, accordingly,
the investment objective of the fund may be changed without interestholder approval. The fund may invest in all 500 stocks in the S&P
500 in roughly the same proportions as their weightings in the S&P 500. For example, if 2% of the S&P 500 is made up of the stock of a
particular company, the fund will normally invest approximately 2% of its assets in that company. This strategy is known as “full
replication.” However, if the investment manager believes it would be cost efficient, the investment manager is authorized to
deviate from full replication and instead invest in a statistically selected sample of the 500 stocks in the S&P 500 based on the
investment manager’s optimization process, a statistical sampling technique that aims to create a portfolio that has aggregate investment
characteristics, such as average market capitalization and industry weightings, similar to the S&P 500 as a whole, but which involves lower
transaction costs than would be incurred through full replication. The fund may continue to hold stock dividends and other non-cash
distributions from S&P 500 stocks held by the fund if the investment manager believes it would be advantageous to do so. The investment
manager may also purchase stocks not included in the S&P 500 when it believes that it would be a cost efficient way of approximating
the S&P 500’s performance.
|
56
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Science & Technology Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term capital appreciation. Under normal market conditions, the
fund invests at least 80% of its net assets in equity securities issued by U.S. and non-U.S. science and technology companies in all market
capitalization ranges, selected for their rapid and sustainable growth potential from the development, advancement and use of science and/or use of
technology. The fund may invest up to 25% of its net assets in emerging market countries.
|
|
|
|
|
|
Some of the industries likely to be represented in the fund’s portfolio holdings include: application software, IT consulting
and services, internet software and services, networking equipment, telecom equipment, computer hardware, computer storage and peripherals, electronic
equipment and instruments, semiconductors and equipment, aerospace and defense, electrical components and equipment, biotechnology, pharmaceuticals,
healthcare equipment and supplies, healthcare distribution and services, healthcare facilities, industrial gases, specialty chemicals, advanced
materials, integrated telecom services, alternative carriers and wireless telecommunication services.
|
|
|
|
|
|
The fund primarily invests in common stock but may also invest in preferred stock and convertible securities. The fund may also
invest in Rule 144A securities, which are privately placed securities purchased by qualified institutional buyers. From time to time the fund may
invest in shares of companies through IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective, buy or sell
options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies, or enter into foreign currency
transactions, including swaps (collectively, commonly known as derivatives). The fund typically uses derivatives as a substitute for taking a
position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as currency risk. The fund may also use
derivatives to enhance returns, in which case their use would involve leveraging risk. The fund may seek to obtain market exposure to the securities in
which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase
agreements or dollar rolls). The fund may also use forward foreign currency exchange contracts (obligations to buy or sell a currency at a set rate
in the future). The fund may, but under normal market conditions generally does not intend to, use derivatives for speculation to increase
returns.
|
|
BlackRock Small Cap Growth Equity Portfolio
|
|
|
|
The investment objective of the fund is long-term capital appreciation.
The fund normally invests at least 80% of its net assets in equity securities issued by U.S. small capitalization companies
which fund management believes offer superior prospects for growth. Equity securities consist primarily of common stock,
preferred stock, securities convertible into common stock and securities or other instruments whose price is linked to the
value of common stock. The fund management team focuses on U. S. small capitalization emerging growth companies. Although
a universal definition of small-capitalization companies does not exist, the fund generally defines these companies, at the
time of the fund’s investment, as those with market capitalizations comparable in size to the companies in the Russell
2000
®
Growth Index (between approximately $53 million and $3.771 billion as of June 30, 2012, the most recent
rebalance date). In the future, the fund may define small-capitalization companies using a different index or classification
system. The fund seeks to buy primarily common stock but also can invest in preferred stock, convertible securities and other
equity securities. From time to time the fund may invest in shares of companies through “new issues” or IPOs.
|
57
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Small Cap Index Series
|
|
|
|
The investment objective of the fund is to match the performance of the Russell 2000
®
as closely as possible
before the deduction of fund expenses.
|
|
|
|
|
|
The fund will not attempt to buy or sell securities based on the economic, financial or market analysis of the investment
manager, but will instead employ a “passive” investment approach. This means that the investment manager will attempt to invest in a
portfolio of assets whose performance is expected to match approximately the performance of the index before deduction of expenses. The fund
will buy or sell securities only when the investment manager believes it is necessary to do so in order to match the performance of the
index. Accordingly, it is anticipated that the fund’s portfolio turnover and trading costs will be lower than those of an
“actively” managed fund. However, the fund has operating and other expenses, while an index does not. Therefore, the fund may tend to
underperform its target index to some degree over time.
|
|
|
|
|
|
The fund will be substantially invested in securities in the index, and will invest, under
normal circumstances, at least 80% of its assets in securities or other financial instruments that are components of or have economic
characteristics similar to the securities included in the index. This policy is a non-fundamental policy of the fund and may not be changed
without 60 days’ prior notice to interestholders. The fund may change its target index if the investment manager believes a different
index would better enable the fund to match the performance of the market segment represented by the current index and, accordingly, the
investment objective of the fund may be changed without interestholder approval. The fund may not invest in all of the common stocks in the
Russell 2000, or in the same weightings as in the Russell 2000. Instead, the fund might invest in a sample of the stocks included in the
Russell 2000 based on the investment manager’s optimization process, a statistical sampling technique that aims to create a portfolio that
will match approximately the performance of the index with fewer transaction costs than would be incurred through full replication. The fund
will choose investments so that the market capitalizations, industry weightings and other fundamental characteristics of the stocks and
derivative instruments in its portfolio are similar to the Russell 2000 as a whole.
|
|
BlackRock U.S. Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term capital appreciation. Under normal market conditions,
the fund invests
at least 80% of
its net assets
in equity securities
issued by U.S.
emerging capitalization
companies with
relatively attractive
earnings growth
potential and valuation.
Although a universal
definition of emerging
capitalization
companies does
not exist, the
fund generally
defines these companies,
at the time of
the fund’s
investment, as
those with market
capitalizations
comparable in size
to those within
the universe of
the Russell Midcap
®
Index stocks
(between approximately
$1.35 billion and
$17.40 billion
as of June 22,
2012, the most
recent rebalance
date). In the future,
the fund may define
emerging capitalization
companies using
a different index
or classification
system.
|
|
|
|
|
|
The fund seeks to buy primarily common stock but can also invest in preferred stock and convertible
securities. From
time to time the
fund may invest
in shares of companies
through IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objectives,
buy or sell options or futures on a security or an index of securities (collectively, commonly known as derivatives). The
primary purpose of using derivatives is to attempt to reduce risk to the fund as a whole (hedge), but they may also be used
to maintain liquidity and commit cash pending investment. The fund may also use derivatives to enhance returns, in which
case their use would involve leveraging risk.
|
58
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Value Opportunities LLC
|
|
|
|
The investment objective of the fund is to seek long term growth of capital by investing in a diversified portfolio of securities,
primarily common stock, of relatively small companies that management of the fund believes have special investment value and emerging growth companies
regardless of size.
|
|
|
|
|
|
The fund tries to choose investments for capital appreciation — that is, investments that will increase in value. The fund
invests in a diversified portfolio primarily consisting of equity securities of small cap and emerging growth companies. Small
cap companies are those whose market capitalization is similar to the market capitalization of companies in the Russell 2000
®
or
the S&P SmallCap 600
®
at the time of the fund’s investment. Companies whose capitalization no longer meets this
definition after purchase continue to be considered small market capitalization companies. As of March 31, 2012, the Russell
2000
®
included companies with capitalizations up to $3.623 billion and the S&P SmallCap 600
®
included
companies with capitalizations up to $3.186 billion. The market capitalizations of companies in each index change with market conditions and the
composition of the index. Emerging growth companies are defined as companies of any market capitalization without a long or consistent history
of earnings but that fund management believes have the potential for earnings growth over an extended period of time. The equity securities in
which the fund may invest include: (i) common stock; (ii) preferred stock; (iii) securities into common stock; (iv) index securities that are
based on a group of common stocks. The fund may invest in derivative instruments, such as options and futures, the values of which are based on a
common stock or group of common stocks. The fund may use derivatives to hedge its investment portfolio against market and currency risks as
well as to increase the return on its portfolio investments. The derivatives that the fund may use include, but are not limited to, futures,
forwards, options, and indexed securities.
|
|
|
|
|
|
The fund will invest primarily in U.S. companies that do most of their business in the United
States, but may invest a portion of its assets in foreign companies. It is anticipated that in the immediate future, the fund will invest not
more than 30% of its total assets in the securities of foreign issuers, including issuers in emerging markets.
|
|
BlackRock World Gold Fund
|
|
|
|
The investment objective of the fund is to seek to maximize total return. Total return means the combination of capital
appreciation and investment income.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing primarily in equity securities of gold-related companies. A company is
considered a “gold-related company” when, at the time of purchase, at least 50% of the non-current assets, capitalization, gross
revenues or operating profits of the company in the most recent or current fiscal year are involved in or result from (directly or indirectly
through subsidiaries) gold-mining and/or other related activities, including but not limited to, exploring for, extracting, refining or
processing gold. Under normal circumstances, the fund will invest at least 80% of its net assets, plus any borrowings for investment purposes,
in equity securities of gold-related companies. For purposes of this policy, investments in exchange traded funds (“ETFs”) that invest
primarily in physical gold or in equity securities of gold-related companies will be treated as investments in equity securities of
gold-related companies. Equity securities include common stock, preferred stock, securities convertible into common stock or securities
or other instruments whose price is linked to the value of common stock. The fund may also invest in the equity securities of companies whose
predominant economic activity is the mining of other precious metals, minerals or base metals and in related ETFs. The fund generally does not
hold physical gold or other precious metals.
|
|
|
|
|
|
The fund may seek to provide exposure to the investment returns of gold and other precious
metals that trade in the commodity markets through investments designed to provide this exposure without direct investment in gold or other
precious metals or futures contracts related thereto. Such exposure may be obtained through investments in derivative instruments linked to
gold and other precious metals and investment vehicles, such as ETFs, that exclusively invest in gold and other precious metals. The fund may
make such investments directly or through investments in a wholly-owned subsidiary of the fund formed in the Cayman Islands, which invests
primarily in instruments related to gold or other precious metals, including through certain derivatives transactions. The fund will not invest
more than 25% of its total assets (measured at the time of investment) in the subsidiary.
|
59
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock World Gold Fund (continued)
|
|
|
|
The fund is a non-diversified fund, which means that it can invest more of its assets in fewer
companies than a diversified fund. The fund will normally invest in both U.S. and non-U.S. companies, including companies located in
emerging markets, such as Russia, and in securities denominated in both U.S. dollars and foreign currencies. The fund may invest in
securities of issuers of any market capitalization. The fund seeks to invest in companies that offer the best exposure to metals and minerals
prices within an acceptable risk level. The fund attempts to identify inefficiencies in the market by constructing the portfolio to reflect
fund management’s views of the macro-economic environment (relating to the precious metals sector) as well as by using a
“bottom up” approach, which entails the fundamental analysis of individual stocks and companies.
|
FIXED-INCOME FUNDS
|
|
|
|
|
|
BlackRock Core Bond Portfolio
|
|
|
|
The investment objective of the fund is to seek to maximize total return, consistent with income generation and
prudent investment management. The fund normally invests at least 80% of its assets in bonds and maintains an average portfolio duration that is
within ±20% of the duration of the benchmark. As of December 31, 2011, the average duration of the benchmark, the Barclays U.S. Aggregate
Bond Index, was 4.36 years, as calculated by BlackRock.
|
|
|
|
|
|
The fund may invest up to 10% of its assets in non-dollar denominated bonds of issuers located outside of the United States,
including but not limited to emerging market issuers. The fund’s investment in non-dollar denominated bonds may be on a currency hedged or
unhedged basis.
|
|
|
|
|
|
The fund only buys securities that are rated investment grade at the time of purchase by at least one major rating agency or
determined by the management team to be of similar quality. Split rated bonds will be considered to have the higher credit
rating.
|
|
|
|
|
|
The management team evaluates sectors of the bond market and individual securities within these sectors. The management team selects
bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, CMOs, asset-backed
securities and corporate bonds.
|
|
|
|
|
|
The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and interest
rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund may use derivative instruments to hedge
its investments or seek to enhance returns. The fund may seek to obtain market exposure to the securities in which it primarily invests by entering
into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or dollar
rolls).
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
principal investment strategies.
|
|
BlackRock Emerging Market Local Debt Portfolio
|
|
|
|
The fund seeks maximum long term total return. The fund invests primarily in a
global portfolio of fixed-income securities and derivatives of any maturity of issuers located in emerging markets that may be denominated in any
currency (on a hedged or unhedged basis). Fixed-income securities are debt obligations such as bonds and debentures, U.S. Government securities,
debt obligations of domestic and non-U.S. corporations, debt obligations of non-U.S. governments and their political subdivisions, asset-backed
securities, various mortgage-backed securities (both residential and commercial), other floating or variable rate obligations, municipal obligations
and zero coupon debt securities. Emerging markets include, but are not limited to, countries that are included in the J.P. Morgan EMBI
Global Index. The fund will invest at least 80% of its assets in fixed-income securities issued by governments, their political subdivisions
(states, provinces and municipalities), agencies and companies tied economically to an emerging market. Fund management considers securities to be tied
economically to an emerging market if (1) the issuer is organized under the laws of or maintains its principal place of business in an emerging market
country, (2) the issuer’s securities are traded principally in an emerging market country or (3) the issuer, during its most recent fiscal year,
derived at least 50% of its revenues or profits from goods produced or sold, investments made, or services performed in an emerging market country or
has at least 50% of its assets in an emerging market country. The full spectrum of available investments, including non-investment grade (high yield or
junk) securities (including distressed securities), securities of small cap issuers and derivatives may be utilized. It is possible that up to
100% of the fund’s assets may be invested in non-investment grade (high yield or junk) securities. Many of the countries in which the fund invests
will have sovereign ratings that are below investment grade or will be unrated.
|
60
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Emerging Market Local Debt Portfolio (continued)
|
|
|
|
The fund may gain exposure to currencies, through cash, synthetic currency investments or synthetic fixed income instruments of
emerging market issuers denominated in any currency.
|
|
|
|
|
|
The management team may, when consistent with the fund’s investment objective, buy or sell options or futures, or enter
into credit default swaps and interest rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The
fund typically uses derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce
exposure to other risks, such as interest rate or currency risk. The fund may also use derivatives to enhance returns, in which case their use
would involve leveraging risk. The fund may seek to obtain market exposure to the securities in which it primarily invests by entering into
a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or dollar rolls,
which involve a sale by a fund of a mortgage-backed or other security concurrently with an agreement by the fund to repurchase a similar
security at a later date at an agreed-upon price).
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The fund may invest up to 10% of its assets in equity securities.
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BlackRock Floating Rate Income Portfolio
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The primary investment objective of the fund is to seek to provide high current income, with a secondary objective of long-term
capital appreciation.
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The fund normally invests at least 80% of its assets in floating rate investments and investments that are the economic
equivalent of floating rate investments, which effectively enables the fund to achieve a floating rate of income. These investments may include but are
not limited to, any combination of the following securities: (i) senior secured floating rate loans or debt; (ii) second lien or other subordinated or
unsecured floating rate loans or debt; and (iii) fixed-rate loans or debt with respect to which the fund has entered into derivative
instruments to effectively convert the fixed-rate interest payments into floating rate interest payments. The fund may also
purchase, without limitation, participations or assignments in senior floating rate loans or second lien floating rate loans. For purposes of the
fund’s investments, the term debt includes investments in convertible or preferred securities.
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The fund may invest in securities of any credit quality without limitation, including securities rated below investment grade. The
fund anticipates that, under current market conditions, substantially all of its portfolio will consist of securities rated below investment grade,
which are commonly referred to as “junk bonds.”
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The fund may invest up to 20% of its assets in fixed-income securities with respect to which the fund has not entered into derivative
instruments to effectively convert the fixed-rate interest payments into floating-rate interest payments. Such fixed-income securities include, but are
not limited to, corporate bonds, preferred securities, convertible securities, mezzanine investments, collateralized loan obligations, senior loans,
second lien loans, structured products and U.S. government debt securities.
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The fund’s investments in any floating rate and fixed-income securities may be of any duration or maturity. The Fund may invest
in securities of foreign issuers, including issuers located in emerging markets, without limitation. The fund may also invest up to 15% of its
assets in illiquid securities. The fund may also invest in companies whose financial condition is uncertain, where the borrower has defaulted in
the payment of interest or principal or in the performance of its covenants or agreements, or that may be involved in bankruptcy proceedings,
reorganizations or financial restructurings.
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The fund may invest up to 10% of its assets in common stocks or other equity securities. In addition, the fund may acquire and hold
such securities (or rights to acquire such securities) in unit offerings with fixed-income securities, in connection with an amendment, waiver,
conversion or exchange of fixed-income securities, in connection with the bankruptcy or workout of a distressed fixed-income security, or upon the
exercise of a right or warrant obtained on account of a fixed-income security.
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The fund may buy or sell options or futures on a security or an index of securities, buy or sell
options on futures or enter into credit default swaps and interest rate or foreign currency transactions, including swaps and forward contracts
(collectively, commonly known as derivatives). The fund may use derivatives for hedging purposes, as well as to increase the total return on its
portfolio investments. The fund may engage in active and frequent trading of portfolio securities to achieve its primary investment
strategies.
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61
Fund Name
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Investment Objective and
Principal Investment Strategies
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BlackRock GNMA Portfolio
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The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent
investment management. Under normal circumstances, the fund normally invests at least 80% of its assets in Ginnie Mae securities. Ginnie Mae
securities represent interests in pools of residential mortgage loans originated by private lenders and pass income from the initial debtors
(homeowners) through intermediaries to investors. Ginnie Mae securities are backed by the full faith and credit of the United States and are
supported by the right of Ginnie Mae to borrow funds from the U.S. Treasury to make payments under its guarantee. The fund invests primarily in
securities issued by Ginnie Mae as well as other U.S. Government securities in the five to ten year maturity
range.
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Securities purchased by the fund are rated in the highest rating category (AAA or Aaa) at the time of purchase by at least one major
rating agency or are determined by the fund management team to be of similar quality. The fund measures its performance against the Barclays GNMA MBS
Index (the benchmark).
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The management team will normally attempt to structure the fund’s portfolio to have comparable duration to its
benchmark.
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The fund also makes investments in residential and commercial mortgage-backed securities and other asset-backed
securities.
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The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and interest
rate transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market exposure to the securities
in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse
repurchase agreements or dollar rolls).
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The fund may engage in active and frequent trading of portfolio securities to achieve its primary
investment strategies.
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BlackRock High Yield Bond Portfolio
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The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent
investment management.
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The fund invests primarily in non-investment grade bonds with maturities of ten years or less. The fund normally invests at least 80%
of its assets in high yield bonds. The high yield securities (commonly called “junk bonds”) acquired by the fund will generally
be in the lower rating categories of the major rating agencies (BB or lower by S&P or Ba or lower by Moody’s) or will be determined by the
fund management team to be of similar quality. Split rated bonds will be considered to have the higher credit rating. The fund may invest up to
30% of its assets in non-dollar denominated bonds of issuers located outside of the United States. The fund’s investment in
non-dollar denominated bonds may be on a currency hedged or unhedged basis. The fund may also invest in convertible and preferred securities.
Convertible securities will be counted toward the fund’s 80% policy to the extent they have characteristics similar to the securities included
within that policy.
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To add additional diversification, the management team can invest in a wide range of securities including corporate bonds, mezzanine
investments, collateralized bond obligations, bank loans and mortgage-backed and asset-backed securities.
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The fund can also invest, to the extent consistent with its investment objective, in non-U.S. and emerging market
securities and currencies. The fund may invest in securities of any rating, and may invest up to 10% of its assets (measured at the time of investment)
in distressed securities that are in default or the issuers of which are in bankruptcy. The fund may buy or sell options or futures on a
security or an index of securities, or enter into credit default swaps and interest rate or foreign currency transactions, including swaps
(collectively, commonly known as derivatives). The fund may use derivative instruments to hedge its investments or to seek to enhance returns. The fund
may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as reverse repurchase agreements or dollar rolls).
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The fund may engage in active and frequent trading of portfolio securities to achieve its primary
investment strategies.
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62
Fund Name
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Investment Objective and
Principal Investment Strategies
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BlackRock Inflation Protected Bond Portfolio
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The investment objective of the fund is to seek to maximize real return, consistent with preservation of real capital
and prudent investment management. Under normal circumstances, the fund invests at least 80% of its assets in inflation-indexed bonds of varying
maturities issued by the U.S. and non-U.S. governments, their agencies or instrumentalities, and U.S. and non-U.S.
corporations.
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The fund maintains an average portfolio duration that is within ±20% of the duration of the Barclays Global Real: U.S. TIPS
Index.
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The fund may invest up to 20% of it assets in non-investment grade bonds (high yield or junk bonds) or securities of emerging market
issuers. The fund may also invest up to 20% of its assets in non-dollar denominated securities of non-U.S. issuers, and may invest without limit in
U.S. dollar denominated securities of non-U.S. issuers.
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The fund is non-diversified under the Investment Company Act, which means that it may concentrate its assets in a smaller
number of issuers than a diversified fund.
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The fund also makes investments in residential and commercial mortgage-backed securities and other asset-backed securities.
Non-investment grade bonds acquired by the fund will generally be in the lower rating categories of the major rating agencies (BB or lower by S&P
or Ba or lower by Moody’s) or will be determined by the management team to be of similar quality. Split rated bonds will be considered to have the
higher credit rating. The fund may buy or sell options or futures, or enter into credit default swaps and interest rate or foreign currency
transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market exposure to the securities in
which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase
agreements or dollar rolls).
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The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
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BlackRock International Bond Portfolio
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The fund seeks to maximize total return, consistent with income generation and prudent investment
management.
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The fund invests primarily in non-dollar denominated bonds of issuers located outside of the United States in the five to fifteen
year maturity range. The fund normally invests at least 80% of its assets in bonds and at least 65% of its assets in bonds of a diversified group of
non-U.S. issuers from at least three developed countries. The fund may invest more than 25% of its assets in the securities of issuers located in
Canada, France, Germany, Japan and the United Kingdom. The fund may from time to time invest in investment grade bonds of issuers in emerging market
countries. The fund will also invest in non-U.S. currencies, and the fund may underweight or overweight a currency based on the fund management
team’s outlook. The fund may only buy securities rated investment grade at the time of purchase by at least one major rating agency or determined
by the management team to be of similar quality. Split rated bonds will be considered to have the higher credit rating.
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The fund considers non-U.S. issuers to include (i) foreign government issuers, (ii) issuers organized or located outside the U.S.,
(iii) issuers which primarily trade in a market located outside the U.S., or (iv) issuers doing a substantial amount of business outside the U.S.,
which the fund considers to be companies that derive at least 50% of their revenue or profits from business outside the U.S. or have at least 50% of
their sales or assets outside the U.S. The fund will allocate its assets among various regions and countries (but in no less than three different
countries). For temporary defensive purposes the fund may deviate very substantially from the allocation described above.
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The management team will normally attempt to structure the fund’s portfolio to have comparable duration to its
benchmark.
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The management team may, when consistent with the fund’s investment objective, buy or sell
options or futures, or enter into credit default swaps and interest rate or foreign currency transactions, including swaps (collectively, commonly
known as derivatives). The fund typically uses derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy
designed to reduce exposure to other risks, such as interest rate or currency risk. The fund may also use derivatives to enhance returns, in which case
their use would involve leveraging risk. The fund may seek to obtain market exposure to the securities in which it primarily invests by entering into a
series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or dollar rolls, which involves
the sale by a fund of a mortgage-backed or other security concurrently with an agreement by the fund to repurchase a similar security at a later date
at an agreed-upon price).
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63
Fund Name
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Investment Objective and
Principal Investment Strategies
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BlackRock Long Duration Bond Portfolio
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The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent
investment management. Under normal circumstances, the fund invests at least 80% of its assets in bonds and maintains an average portfolio duration
that is within ±20% of the duration of the Barclays U.S. Government/Credit Index.
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Fund management evaluates sectors of the U.S. and non-U.S. bond market and individual securities within these sectors. The fund
selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, CMOs,
pass-throughs, asset-backed securities, corporate bonds and taxable and tax-exempt municipal bonds. The fund may also invest in preferred
stock.
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The fund invests primarily in dollar-denominated investment grade bonds, but may invest up to 20% of its assets in any combination of
non-investment grade bonds (high yield or junk bonds), non-dollar denominated bonds and bonds of emerging market issuers. The fund’s investment
in non-dollar denominated bonds may be on a currency hedged or unhedged basis. Non-investment grade bonds acquired by the fund will generally be in
the lower rating categories of the major rating agencies (BB or lower by S&P or Ba or lower by Moody’s) or will be determined by the
management team to be of similar quality. The fund may invest in securities rated in the category C and above or determined by the management team to
be of comparable quality. Split rated bonds will be considered to have the higher rating.
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The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and interest
rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market
exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment
techniques (such as reverse repurchase agreements or dollar rolls).
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The fund may engage in active and frequent trading of portfolio securities to achieve its primary
investment strategies.
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BlackRock Low Duration Bond Portfolio
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The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent
investment management. The fund invests primarily in investment grade bonds and maintains an average portfolio duration that is within ±1% of
the duration of the benchmark. The benchmark has an average duration between 1 and 3 years.
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The fund normally invests at least 80% of its assets in debt securities.
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The fund may invest up to 10% of its assets in each of non-investment grade bonds (high yield or junk bonds), non-dollar denominated
bonds of issuers located outside of the United States and emerging market debt securities.
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The management team evaluates sectors of the bond market and individual securities within these sectors. The
management team selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential
mortgage-backed securities, CMOs, asset-backed securities and corporate bonds. The fund may buy or sell options or futures on a security or an index of
securities, or enter into credit default swaps and interest rate or foreign currency transactions, including swaps (collectively, commonly known as
derivatives). The fund may use derivative instruments to hedge its investments or to seek to enhance returns. The fund may seek to obtain market
exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment
techniques (such as reverse repurchase agreements or dollar rolls).
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The fund may engage in active and frequent trading of portfolio securities to achieve its
principal investment strategies.
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BlackRock Secured Credit Portfolio
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The investment objective of the fund is to seek to provide high current income, with a
secondary objective of long-term capital appreciation. The fund normally invests at least 80% of its assets in secured instruments,
including bank loans and bonds, issued primarily, but not exclusively, by below investment grade (below the fourth highest rating of the major
rating agencies) issuers. The fund may invest in instruments of any credit quality without limitation, including instruments rated below
investment grade. The fund anticipates that, under current market conditions, substantially all of its portfolio will consist of instruments
rated below investment grade (or determined by the management team to be of similar quality), which are commonly referred to as “junk
bonds.”
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64
Fund Name
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Investment Objective and
Principal Investment Strategies
|
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BlackRock Secured Credit Portfolio (continued)
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Collateral supporting the secured instruments generally includes, but is not limited to, all the tangible and intangible
assets of the borrower and, in some cases, specific assets of the borrower. The fund will typically invest in senior secured loans and bonds;
however, to a lesser extent the fund may invest in subordinated loans and bonds and unsecured debt.
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The fund may invest in floating rate and fixed income securities of any duration or maturity. The fund may invest in
securities of foreign issuers, including issuers located in emerging markets, without limitation.
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The fund may also invest in companies whose financial condition is uncertain, where the borrower has defaulted in the payment
of interest or principal or in the performance of its covenants or agreements, or that may be involved in bankruptcy proceedings,
reorganizations or financial restructurings.
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The fund may also invest up to 15% of its assets in illiquid securities.
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The fund may invest up to 20% of its assets in corporate bonds, commercial and residential mortgage-backed securities,
mezzanine investments, CBOs, CDOs, CMOs, asset-backed securities, convertible bonds, U.S. Government mortgage-related securities, U.S.
Treasuries and agency securities, preferred securities, and equity securities or derivatives tied to the performance of these
securities.
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The fund may use derivatives for hedging purposes, as well as to increase the total return on its portfolio
investments.
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The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
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Master Total Return Portfolio
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The primary objective of the fund is to realize a total return that exceeds that of the Barclays U.S. Aggregate Bond
Index.
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The fund invests primarily in a diversified portfolio of fixed-income securities, such as corporate bonds and notes,
mortgage-backed and asset-backed securities, convertible securities, preferred securities and government debt
obligations.
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The fund normally invests more than 90% of its assets in fixed-income securities.
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The fund may use derivatives, including, but not limited to, interest rate, total return and
credit default swaps, indexed and inverse floating rate securities, options, futures, and options on futures and swaps, for hedging purposes, as
well as to increase the return on its portfolio investments. Derivatives are financial instruments whose value is derived from another
security or an index such as the Barclays Aggregate Bond Index or the CSFB High Yield Index. The fund may also invest in credit-linked notes,
credit-linked trust certificates, structured notes, or other instruments evidencing interests in special purpose vehicles, trusts, or other
entities that hold or represent interests in fixed-income securities.
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BlackRock U.S. Government Bond Portfolio
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The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent
investment management. Under normal circumstances, the fund invests at least 80% of its assets in bonds that are issued or guaranteed by the U.S.
Government and its agencies. These include debt securities issued by eligible financial institutions and guaranteed by the Federal Deposit Insurance
Corporation under its Temporary Liquidity Guarantee Program. The fund invests primarily in the highest rated government and agency bonds and maintains
an average portfolio duration that is within ±20% of the Barclays U.S. Government/Credit Index.
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Securities purchased by the fund generally are rated in the highest rating category (AAA or Aaa) at the time of purchase by at least
one major rating agency or are determined by the fund management team to be of similar quality. In addition, the fund’s dollar-weighted average
maturity will be between 3 and 10 years.
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The fund evaluates sectors of the bond market and individual securities within these sectors. The fund selects bonds from several
sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, collateralized mortgage obligations,
asset-backed securities and corporate bonds.
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The fund invests primarily in dollar-denominated bonds, but may invest up to 10% of its assets in non-dollar denominated bonds of
issuers located outside of the United States. The fund’s investment in non-dollar denominated bonds may be on a currency hedged or unhedged
basis.
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The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and interest
rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market exposure to
the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as
reverse repurchase agreements or dollar rolls).
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The fund may engage in active and frequent trading of portfolio securities to achieve its primary
investment strategies.
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65
Fund Name
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Investment Objective and
Principal Investment Strategies
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BlackRock U.S. Mortgage Portfolio
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The investment objective of the fund is to seek high total return. The fund invests primarily in mortgage-related securities. The
securities in which the fund may invest include U.S. government securities, U.S. government agency securities, securities issued by U.S.
government instrumentalities and U.S. government-sponsored enterprises, and other mortgage-backed securities or mortgage-related securities
issued by the U.S. government or by private issuers. Under normal circumstances, the fund will invest at least 80% of its assets in
mortgage-backed securities and other mortgage-related securities that are issued by issuers located in the United
States.
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The fund seeks to achieve its investment objective by selecting securities of any maturity issued or guaranteed by the U.S.
government, by various agencies of the U.S. government, by various instrumentalities that have been established or sponsored by the U.S. government, or
securities issued by banks or other financial institutions. Some of these securities are issued and/or guaranteed by the U.S. government and are
supported by the full faith and credit of the United States. Other securities are issued or guaranteed by Federal agencies or government-sponsored
enterprises and are not direct obligations of the United States, and are not backed by the full faith and credit of the United States, but involve
sponsorship or guarantees by government agencies or enterprises.
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The fund may invest in non-agency securities issued by banks and other financial institutions, including
non-agency mortgage-related securities. Non-agency securities are not backed by the full faith and credit of the United States and do not
involve sponsorship or guarantees by government agencies or enterprises. The fund may invest a substantial portion of its assets in non-agency
mortgage-related securities that are rated below investment grade. For purposes of determining a bond’s credit rating, split rated bonds
will be considered to have the higher credit rating. The fund may also participate in TBA Transactions and enter into dollar rolls. A TBA
Transaction is a method of trading mortgage-backed securities where the buyer and seller agree upon general trade parameters such as agency,
settlement date, par amount and price at the time the contract is entered into but the mortgage-backed securities are delivered in the
future, generally 30 days later. The actual pools of mortgage-backed securities delivered in a TBA Transaction typically are not determined
until two days prior to settlement date.
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A dollar roll transaction involves a sale by the Fund of a mortgage-backed or other security
concurrently with an agreement by the fund to repurchase a similar security at a later date at an agreed-upon price. The securities that are
repurchased will bear the same interest rate and stated maturity as those sold, but pools of mortgages collateralizing those securities may have
different prepayment histories than those sold.
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BlackRock World Income Fund, Inc.
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The fund seeks high current income by investing in a global portfolio of fixed income securities denominated in various
currencies, including multi-national currency units. The fund mainly invests in bonds and other fixed income securities,
including preferred stock, that periodically pay interest or dividends. Fixed income securities are securities that represent an
obligation by the issuer to pay a specified rate of interest or dividend at specified times. These securities may be denominated and pay interest in
U.S. dollars or other currencies and may be issued by U.S. or foreign governments or corporations.
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The fund will spread its investments among different types of fixed income securities and different countries based
upon fund management’s analysis of the yield, maturity and currency considerations affecting these securities. The fund may invest in U.S. and
foreign government and corporate fixed income securities, including junk bonds and unrated securities. The fund normally will invest at
least 90% of its assets in fixed income securities, and may invest up to 100% of its assets in securities classified as junk
bonds.
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Under normal circumstances, the fund anticipates it will allocate a substantial amount
(approximately 40% or more — unless market conditions are not deemed favorable by BlackRock, in which case the fund would invest at least 30%)
— of its total assets in securities (i) of foreign government issuers, (ii) of issuers organized or located outside the U.S., (iii) of issuers
which primarily trade in a market located outside the U.S., or (iv) of issuers doing a substantial amount of business outside the U.S., which the fund
considers to be companies that derive at least 50% of their revenue or profits from business outside the U.S. or have at least 50% of their sales or
assets outside the U.S. The fund will allocate its assets among various regions and countries, including the United States (but in no less than three
different countries). For temporary defensive purposes the fund may deviate very substantially from the allocation described
above.
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66
Fund Name
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Investment Objective and
Principal Investment Strategies
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BlackRock World Income Fund, Inc. (continued)
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The fund may invest in securities of any maturity or duration. The average maturity of the fund’s portfolio securities will vary
based upon BlackRock’s view of economic and market conditions. However, the fund does not expect the average maturity of its portfolio to exceed
fifteen years.
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Fund management presently expects that the fund will invest primarily in securities denominated in the currencies represented
in the J. P. Morgan Global Government Bond Broad Index, but the fund also can invest in securities denominated in other currencies. Issuers of
securities may not always be located in the country in whose currency the securities are denominated. The fund’s investments ordinarily
will be denominated in at least three currencies. No set portion of the fund’s investments is required to be denominated in any particular
currency. Substantially all of the fund’s investments may be denominated in a single currency, including U.S.
dollars.
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The fund may invest in several different kinds of securities issued by the U.S. Government. These include U.S. Treasury
obligations (bills, notes and bonds) that have different interest rates and maturities and are issued at different times. These securities are
backed by the full faith and credit of the U.S. Government. The fund also may invest in obligations issued or guaranteed by U.S. Government
agencies or other U.S. Government organizations. These include but are not limited to government guaranteed mortgage-related or asset-backed
securities. Some of these securities may be backed by the full faith and credit of the U.S. Treasury, some may be supported by the right of
the issuer to borrow from the U.S. Treasury, and some are backed only by the credit of the issuer itself.
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The obligations of foreign governments and their related organizations have various kinds of government support. These
obligations may or may not be supported by the full faith and credit of a foreign government. The fund may invest in securities issued by
international organizations designated or supported by governments or government agencies to promote economic reconstruction or development. The
debt securities in which the fund invests may include credit-linked notes, credit-linked trust certificates, structured notes or other
instruments evidencing interests in special purpose vehicles, trusts or other entities that hold or represent interests in debt securities. In
addition, the fund may invest in corporate loans.
|
|
|
|
|
|
The fund may use a variety of portfolio strategies to hedge its portfolio against interest rate
and currency risk, or to seek to enhance its return. These strategies include the use of derivatives, such as options on portfolio positions
or currencies, financial and currency futures and options on these futures, forward foreign currency transactions, indexed and inverse
securities, interest rate swaps and credit default swaps. Derivatives are financial instruments whose value is derived from another security or
an index such as the J. P. Morgan Global Government Bond Broad Index.
|
MONEY MARKET FUND
|
|
|
|
|
|
TempFund
|
|
|
|
The investment objective of the fund is to seek as high a level of current income as is consistent
with liquidity and stability of principal. The fund invests in a broad range of U.S. dollar-denominated money market instruments, including government,
U.S. and foreign bank, commercial obligations and repurchase agreements. The fund may also invest in mortgage- and asset-backed securities, short-term
obligations issued by or on behalf of states, territories and possessions of the United States, the District of Columbia, and their respective
authorities, agencies, instrumentalities and political subdivisions and derivative securities such as beneficial interests in municipal trust
certificates and partnership trusts, variable and floating rate instruments and when-issued and delayed delivery securities. The fund seeks to maintain
a net asset value of $1.00 per share. The securities purchased by the fund are subject to the quality, diversification and other requirements of Rule
2a-7 under the Investment Company Act, and other rules of the SEC.
|
67
Account Information
How to Choose the Share Class
that Best Suits Your Needs
Managed Volatility Portfolio currently offers multiple share
classes (Investor A, Investor B, Investor C and Institutional Shares in this prospectus), each with its own sales charge and expense structure,
allowing you to invest in the way that best suits your needs. Each share class represents an ownership interest in the same investment portfolio of the
Fund. When you choose your class of shares, you should consider the size of your investment and how long you plan to hold your shares. Either your
financial professional or your selected securities dealer, broker, investment adviser, service provider or industry professional (“financial
intermediary”) can help you determine which share class is best suited to your personal financial goals. Investor A Shares, Investor B Shares and
Investor C Shares are sometimes referred to herein collectively as “Investor Shares.”
For example, if you select Institutional Shares of the Fund, you
will not pay any sales charge. However, only certain investors may buy Institutional Shares. If you select Investor A Shares of the Fund, you generally
pay a sales charge at the time of purchase and an ongoing service fee of 0.25% per year. You may be eligible for a sales charge reduction or
waiver.
If you select Investor C Shares of the Fund, you will invest the
full amount of your purchase price, but you will be subject to a distribution fee of 0.75% per year and a service fee of 0.25% per year under a plan
adopted pursuant to Rule 12b-1 under the Investment Company Act. Because these fees are paid out of the Fund’s assets on an ongoing basis, over
time these fees increase the cost of your investment and may cost you more than paying other types of sales charges. In addition, you may be subject to
a deferred sales charge when you sell Investor C Shares. Classes with lower expenses will have higher net asset values and dividends relative to other
share classes.
Investor B Shares are offered on a very limited basis as described
below. Investor B Shares are subject to ongoing service and distribution fees and may be subject to a deferred sales charge.
The Fund’s shares are distributed by BlackRock Investments,
LLC (the “Distributor”), an affiliate of BlackRock.
68
The table below summarizes key features of each of
the share classes offered by this prospectus.
Share Classes at a Glance
1
|
|
|
|
Investor A Shares
|
|
Investor B Shares
|
|
Investor C
Shares
2,3
|
|
Institutional Shares
|
|
Availability
|
|
|
|
Generally available through financial intermediaries.
|
|
Available only through exchanges and dividend reinvestments by current holders and for purchase by certain
qualified employee benefit plans.
|
|
Generally available through financial intermediaries.
|
|
Limited to certain investors, including:
·
Current Institutional shareholders that meet certain requirements.
· Certain
retirement plans.
· Participants in certain programs sponsored by BlackRock or
its affiliates or other financial intermediaries.
· Certain employees and
affiliates of BlackRock or its affiliates.
|
|
Minimum Investment
|
|
|
|
$1,000 for all accounts except:
· $250 for
certain fee-based programs.
· $100 for retirement plans.
· $50, if establishing an Automatic Investment Plan.
|
|
Investor B Shares are not generally available for purchase (see above).
|
|
$1,000 for all accounts except:
· $250 for
certain fee-based programs.
· $100 for retirement plans.
· $50, if establishing an Automatic Investment Plan.
|
|
$2 million for institutions and individuals.
Institutional Shares are available to clients of registered
investment advisors who have $250,000 invested in the Fund.
|
|
Initial Sales Charge?
|
|
|
|
Yes. Payable at time of purchase. Lower sales charges are available for larger
investments.
|
|
No. Entire purchase price is invested in shares of the Fund.
|
|
No. Entire purchase price is invested in shares of the Fund.
|
|
No. Entire purchase price is invested in shares of the Fund.
|
|
Deferred Sales Charge?
|
|
|
|
No. (May be charged for purchases of $1 million or more that are redeemed within eighteen
months).
|
|
Yes. Payable if you redeem within six years of purchase.
|
|
Yes. Payable if you redeem within one year of purchase.
|
|
No.
|
|
Distribution and Service (12b-1) Fees?
|
|
|
|
No Distribution Fee.
0.25% Annual Service Fee.
|
|
0.75% Annual Distribution Fee.
0.25% Annual Service Fee.
|
|
0.75% Annual Distribution Fee.
0.25% Annual Service Fee.
|
|
No.
|
|
Redemption Fees?
|
|
|
|
No.
|
|
No.
|
|
No.
|
|
No.
|
|
Conversion to Investor A Shares?
|
|
|
|
N/A
|
|
Yes, automatically after approximately eight years.
|
|
No.
|
|
No.
|
|
Advantage
|
|
|
|
Makes sense for investors who are eligible to have the sales charge reduced or eliminated or who have a
long-term investment horizon because there are no ongoing distribution fees.
|
|
No up-front sales charge so you start off owning more shares.
|
|
No up-front sales charge so you start off owning more shares. These shares may make sense for investors who
have a shorter investment horizon relative to Investor A Shares.
|
|
No up-front sales charge so you start off owning more shares.
|
|
Disadvantage
|
|
|
|
You pay a sales charge up-front, and therefore you start off owning fewer shares.
|
|
Limited availability.
You pay ongoing distribution fees each year you own Investor B Shares, which means
that over the long term you can expect higher total fees per share than Investor A Shares and, as a result, lower total performance.
|
|
You pay ongoing distribution fees each year you own shares, which means that over the long term you can
expect higher total fees per share than Investor A Shares and, as a result, lower total performance.
|
|
Limited availability.
|
|
1
|
|
Please see “Details About the Share
Classes” for more information about each share class.
|
|
2
|
|
If you establish a new account directly with the
Fund and do not have a financial intermediary associated with your account, you may only invest in Investor A Shares. Applications without a financial
intermediary that select Investor C Shares will not be accepted.
|
|
3
|
|
The Fund will not accept a purchase order of
$500,000 or more for Investor C Shares. Your financial intermediary may set a lower maximum for Investor C Shares.
|
69
The following pages will cover the additional details of each
share class, including the Institutional Share requirements, the sales charge table for Investor A Shares, reduced sales charge information, Investor B
and Investor C Share CDSC information, and sales charge waivers. More information about existing sales charge reductions and waivers is available free
of charge in a clear and prominent format via hyperlink at www.blackrock.com and in the SAI, which is available on the website or on
request.
Details About the Share
Classes
Investor A Shares — Initial Sales Charge
Option
The following table shows the front-end sales charges that you may
pay if you buy Investor A Shares. The offering price for Investor A Shares includes any front-end sales charge. The front-end sales charge expressed as
a percentage of the offering price may be higher or lower than the charge described below due to rounding. Similarly, any contingent deferred sales
charge paid upon certain redemptions of Investor A Shares expressed as a percentage of the applicable redemption amount may be higher or lower than the
charge described below due to rounding. You may qualify for a reduced front-end sales charge. Purchases of Investor A Shares at certain fixed dollar
levels, known as “breakpoints,” cause a reduction in the front-end sales charge. Once you achieve a breakpoint, you pay that sales charge on
your entire purchase amount (and not just the portion above the breakpoint). If you select Investor A Shares, you will pay a sales charge at the time
of purchase as shown in the following table.
Your Investment
|
Sales Charge
as a % of
Offering Price
|
Sales Charge
as a % of Your
Investment
1
|
Dealer
Compensation
as a % of
Offering Price
|
|
Less than $25,000
|
5.25
|
%
|
5.54
|
%
|
5.00
|
%
|
|
$25,000 but less than $50,000
|
4.75
|
%
|
4.99
|
%
|
4.50
|
%
|
|
$50,000 but less than $100,000
|
4.00
|
%
|
4.17
|
%
|
3.75
|
%
|
|
$100,000 but less than $250,000
|
3.00
|
%
|
3.09
|
%
|
2.75
|
%
|
|
$250,000 but less than $500,000
|
2.50
|
%
|
2.56
|
%
|
2.25
|
%
|
|
$500,000 but less than $750,000
|
2.00
|
%
|
2.04
|
%
|
1.75
|
%
|
|
$750,000 but less than $1,000,000
|
1.50
|
%
|
1.52
|
%
|
1.25
|
%
|
|
$1,000,000 and over
2
|
0.00
|
%
|
0.00
|
%
|
—
|
2
|
|
1
|
|
Rounded to the nearest one-hundredth
percent.
|
|
2
|
|
If you invest $1,000,000 or more in Investor A
Shares, you will not pay an initial sales charge. In that case, BlackRock compensates the financial intermediary from its own resources. However, if
you redeem your shares within 18 months after purchase, you may be charged a deferred sales charge of 0.75% of the lesser of the original cost of the
shares being redeemed or your redemption proceeds. Such deferred sales charge may be waived in connection with certain fee-based programs.
|
No initial sales charge applies to Investor A Shares that you buy
through reinvestment of Fund dividends or capital gains.
Sales Charges Reduced or Eliminated for Investor A
Shares
There are several ways in which the sales charge can be reduced or
eliminated. Purchases of Investor A Shares at certain fixed dollar levels, known as “breakpoints,” cause a reduction in the front-end sales
charge (as described above in the “Investor A Shares — Initial Sales Charge Option” section). Additionally, the front-end sales charge
can be reduced or eliminated through one or a combination of the following: a Letter of Intent, right of accumulation, the reinstatement privilege
(described under “Account Services and Privileges”), or a waiver of the sales charge (described below).
Reductions or eliminations through the Letter of Intent
or right of accumulation will apply to the value of all qualifying holdings in shares of mutual funds sponsored and advised by BlackRock or its
affiliates (“BlackRock Funds”) owned by (a) the investor, or (b) the investor’s spouse and any children and a trust, custodial account
or fiduciary account for the benefit of any such individuals. For this purpose, the value of an investor’s holdings means the offering price of
the newly purchased shares (including any applicable sales charge) plus the current value (including any sales charges paid) of all other shares the
investor already holds taken together.
|
Qualifying Holdings:
|
|
Investor Shares, Institutional Shares (in most BlackRock Funds)
and investments in the BlackRock CollegeAdvantage 529 Program
|
Qualifying Holdings may include shares held in accounts held at a
financial intermediary, including personal accounts, certain retirement accounts, UGMA/UTMA accounts, Joint Tenancy accounts, trust accounts and
Transfer on Death accounts, as well as shares purchased by a trust of which the investor is a beneficiary. For purposes of the right
of
70
accumulation and Letter of Intent the investor may not combine with the
investor’s other holdings shares held in pension, profit sharing or other employee benefit plans if those shares are held in the name of a nominee
or custodian.
In order to receive a reduced sales charge, at the time an
investor purchases shares of Managed Volatility Portfolio, the investor should inform the financial professional, financial intermediary and/or
BlackRock Funds of any other shares of the Fund or any other BlackRock Fund that qualify for a reduced sales charge. Failure by the investor to notify
the financial professional, financial intermediary or BlackRock Funds may result in the investor not receiving the sales charge reduction to which the
investor is otherwise entitled.
The financial professional, financial intermediary or BlackRock
Funds may request documentation — including account statements and records of the original cost of the shares owned by the investor, the
investor’s spouse and/or children — showing that the investor qualifies for a reduced sales charge. The investor should retain these
records because — depending on where an account is held or the type of account — the Fund and/or the investor’s financial professional,
financial intermediary or BlackRock Funds may not be able to maintain this information.
For more information, see the SAI or contact your financial
intermediary.
Letter of Intent
An investor may qualify for a reduced front-end sales charge
immediately by signing a “Letter of Intent” stating the investor’s intention to buy a specified amount of Investor A, Investor C and/or
Institutional Shares and/or make an investment through the BlackRock CollegeAdvantage 529 Program in one or more BlackRock Funds within the next 13
months that would, if bought all at once, qualify the investor for a reduced sales charge. The initial investment must meet the minimum initial
purchase requirement. The 13-month Letter of Intent period commences on the day that the Letter of Intent is received by the Fund, and the investor
must tell the Fund that later purchases are subject to the Letter of Intent. Purchases submitted prior to the date the Letter of Intent is received by
the Fund are not counted toward the sales charge reduction. During the term of the Letter of Intent, the Fund will hold Investor A Shares representing
up to 5% of the indicated amount in an escrow account for payment of a higher sales load if the full amount indicated in the Letter of Intent is not
purchased. If the full amount indicated is not purchased within the 13-month period, and the investor does not pay the higher sales load within 20
days, the Fund will redeem enough of the Investor A Shares held in escrow to pay the difference.
Right of Accumulation
Investors have a “right of accumulation” under which the
current value of (i) an investor’s existing BlackRock Funds Investor A and A1, Investor B, B1, B2 and B3, Investor C, C1, C2 and C3 and
Institutional Shares and/or (ii) the investment in the BlackRock CollegeAdvantage 529 Program by the investor or by or on behalf of the investor’s
spouse and children may be combined with the amount of the current purchase in determining whether an investor qualifies for a breakpoint and a reduced
front-end sales charge. Financial intermediaries may value current holdings of their customers differently for purposes of determining whether an
investor qualifies for a breakpoint and a reduced front-end sales charge, although customers of the same financial intermediary will be treated
similarly. In order to use this right, the investor must alert BlackRock to the existence of any previously purchased shares.
Other Front-End Sales Charge Waivers
The following persons may also buy Investor A Shares without
paying a sales charge:
|
n
|
|
Authorized qualified employee benefit plans or savings
plans;
|
|
n
|
|
Rollovers of current investments through authorized qualified
employee benefit plans or savings plans, provided the shares are transferred to the same BlackRock Fund as either a direct rollover, or subsequent to
distribution, the rolled-over proceeds are contributed to a BlackRock IRA through an account directly with the Fund;
|
|
n
|
|
Persons investing through an authorized payroll deduction
plan;
|
|
n
|
|
Persons investing through an authorized investment plan for
organizations that operate under Section 501(c)(3) of the Internal Revenue Code;
|
|
n
|
|
Registered investment advisers, trust companies and bank trust
departments exercising discretionary investment authority with respect to amounts to be invested in the Fund;
|
|
n
|
|
Persons participating in a fee-based program (such as a wrap
account) under which they (i) pay advisory fees to a broker-dealer or other financial institution or (ii) pay fees to a broker-dealer or other
financial institution for providing transaction processing and other administrative services, but not investment advisory services;
|
71
|
n
|
|
Financial intermediaries who have entered into an agreement with
the Distributor and have been approved by the Distributor to offer Fund shares to self-directed investment brokerage accounts that may or may not
charge a transaction fee;
|
|
n
|
|
Persons associated with the Fund, the Fund’s
manager, the Fund’s sub-advisers, transfer agent, Distributor, fund
accounting agents, Barclays PLC (“Barclays”) and their respective affiliates (to the extent permitted by these firms) including: (a)
officers, directors and partners; (b) employees and retirees; (c) employees of firms who have entered into selling agreements to distribute shares of
BlackRock-advised funds; (d) immediate family members of such persons; and (e) any trust, pension, profit-sharing or other benefit plan for any of the
persons set forth in (a) through (d); and
|
|
n
|
|
Certain state sponsored 529 college savings plans.
|
Investor A Shares at Net Asset Value
If you invest $1,000,000 or more in Investor A Shares, you will
not pay any initial sales charge. However, if you redeem your Investor A Shares within 18 months after purchase, you may be charged a deferred sales
charge of 0.75% of the lesser of the original cost of the shares being redeemed or your redemption proceeds. For a discussion on waivers see
“Contingent Deferred Sales Charge Waivers.”
If you are eligible to buy both Investor A and Institutional
Shares, you should buy Institutional Shares since Investor A Shares are subject to a front end sales charge and an annual 0.25% service fee, while
Institutional Shares are not. The Distributor normally pays the annual Investor A Shares service fee to dealers as a shareholder servicing fee on a
monthly basis.
Investor B and Investor C Shares — Deferred Sales Charge
Options
Investor B Shares are currently available for purchase only
through exchanges and dividend reinvestments by current holders of Investor B Shares and for purchase by certain employee benefit plans. If you select
Investor C Shares, you do not pay an initial sales charge at the time of purchase. However, if you redeem your Investor B Shares within six years after
purchase or your Investor C Shares within one year after purchase, you may be required to pay a deferred sales charge. The charge will apply to the
lesser of the original cost of shares being redeemed or the proceeds of your redemption. No deferred sales charge applies to shares that you buy
through reinvestment of dividends or capital gains. You will also pay distribution fees of 0.75% and service fees of 0.25% for both classes of shares
each year. Because these fees are paid out of the Fund’s assets on an ongoing basis, over time these fees increase the cost of your investment and
may cost you more than paying other types of sales charges. The Distributor uses the money that it receives from the deferred sales charges and the
distribution fees to cover the costs of marketing, advertising and compensating the financial intermediary who assists you in purchasing Fund
shares.
The Distributor currently pays dealers a sales concession of 4.00%
of the purchase price of Investor B Shares from its own resources at the time of sale. The Distributor also normally pays the annual Investor B Shares
service fee to dealers as a shareholder servicing fee on a monthly basis. The Distributor normally retains the Investor B Shares distribution
fee.
The Distributor currently pays dealers a sales concession of 1.00%
of the purchase price of Investor C Shares from its own resources at the time of sale. The Distributor pays the annual Investor C Shares distribution
fee and the annual Investor C Shares service fee as an ongoing concession and as a shareholder servicing fee, respectively, to dealers for Investor C
Shares held for over a year and normally retains the Investor C Shares distribution fee and service fee during the first year after purchase. For
certain qualified employee benefit plans, the Distributor will pay the full Investor C Shares distribution fee and service fee to dealers beginning in
the first year after purchase in lieu of paying the sales concession.
72
Investor B Shares
If you redeem Investor B Shares within six years after purchase,
you may be charged a deferred sales charge. No deferred sales charge applies to shares that you buy through reinvestment of dividends or capital gains.
When you redeem Investor B Shares, the redemption order is processed so that the lowest deferred sales charge is charged. Investor B Shares that are
not subject to the deferred sales charge are redeemed first. After that, the Fund redeems the shares that have been held the longest. The amount of the
charge gradually decreases as you hold your shares over time, according to the following schedule:
Years Since Purchase
|
|
|
|
Sales Charge
1
|
|
0 – 1
|
|
|
|
4.50%
|
|
1 – 2
|
|
|
|
4.00%
|
|
2 – 3
|
|
|
|
3.50%
|
|
3 – 4
|
|
|
|
3.00%
|
|
4 – 5
|
|
|
|
2.00%
|
|
5 – 6
|
|
|
|
1.00%
|
|
6 and thereafter
|
|
|
|
0.00%
|
|
1
|
|
The percentage charge will apply to the lesser of
the original cost of the shares being redeemed or the proceeds of your redemption. Not all BlackRock Funds have identical deferred sales charge
schedules. If you exchange your shares for shares of another BlackRock Fund, the original deferred sales charge schedule will apply.
|
Any CDSC paid on a redemption of Investor B Shares expressed as a
percentage of the applicable redemption amount may be higher or lower than the charge described due to rounding.
Your Investor B Shares convert automatically into Investor A
Shares approximately eight years after purchase. Any Investor B Shares received through reinvestment of dividends paid on converting shares will also
convert pro rata based on the amount of shares being converted. Investor A Shares are subject to lower annual expenses than Investor B Shares. The
conversion of Investor B Shares to Investor A Shares is not a taxable event for Federal income tax purposes.
Different conversion schedules apply to Investor B Shares of
different BlackRock Funds. For example, Investor B Shares of fixed-income funds typically convert approximately ten years after purchase compared to
approximately eight years for equity funds. If you acquire your Investor B Shares in an exchange from another BlackRock Fund with a different
conversion schedule, the conversion schedule that applies to the shares you acquire in the exchange will apply. The length of time that you hold both
the original and exchanged Investor B Shares in both funds will count toward the conversion schedule. The conversion schedule may be modified in
certain other cases as well.
Investor C Shares
If you redeem Investor C Shares within one year after purchase,
you may be charged a deferred sales charge of 1.00%. The charge will apply to the lesser of the original cost of the shares being redeemed or the
proceeds of your redemption. When you redeem Investor C Shares, the redemption order is processed so that the lowest deferred sales charge is
charged. Investor C Shares that are not subject to the deferred sales charge are redeemed first. In addition, you will not be charged a deferred sales
charge when you redeem shares that you acquire through reinvestment of Fund dividends or capital gains. Any CDSC paid on the redemptions of Investor C
Shares expressed as a percentage of the applicable redemption amount may be higher or lower than the charge described due to rounding.
Investor C Shares do not offer a conversion
privilege.
Contingent Deferred Sales Charge Waivers
The deferred sales charge relating to Investor Shares may be
reduced or waived in certain circumstances, such as:
|
n
|
|
Redemptions of shares purchased through authorized qualified
employee benefit plans or savings plans and rollovers of current investments in the Fund through such plans;
|
|
n
|
|
Exchanges pursuant to the exchange privilege, as described in
“How to Exchange Shares or Transfer your Account”;
|
|
n
|
|
Redemptions made in connection with
minimum required distributions from IRA or 403(b)(7) accounts due to the shareholder reaching the age of 70
1
⁄
2
;
|
|
n
|
|
Certain post-retirement withdrawals
from an IRA or other retirement plan if you are over 59
1
⁄
2
years old;
|
|
n
|
|
Redemptions made with respect to certain retirement plans
sponsored by the Fund, BlackRock or an affiliate;
|
73
|
n
|
|
Redemptions resulting from shareholder death as long as the waiver
request is made within one year of death or, if later, reasonably promptly following completion of probate (including in connection with the
distribution of account assets to a beneficiary of the decedent);
|
|
n
|
|
Withdrawals resulting from shareholder disability (as defined in
the Internal Revenue Code) as long as the disability arose subsequent to the purchase of the shares;
|
|
n
|
|
Involuntary redemptions made of shares in accounts with low
balances;
|
|
n
|
|
Certain redemptions made through the Systematic Withdrawal Plan
offered by the Fund, BlackRock or an affiliate;
|
|
n
|
|
Redemptions related to the payment of BNY Mellon Investment
Servicing Trust Company custodial IRA fees; and
|
|
n
|
|
Redemptions when a shareholder can demonstrate hardship, in the
absolute discretion of the Fund.
|
More information about existing sales charge reductions and
waivers is available free of charge in a clear and prominent format via hyperlink at www.blackrock.com and in the SAI, which is available on the
website or on request.
Institutional Shares
Institutional Shares are not subject to any sales charge. Only
certain investors are eligible to buy Institutional Shares. Your financial professional or other financial intermediary can help you determine whether
you are eligible to buy Institutional Shares. The Fund may permit a lower initial investment for certain investors if their purchase, combined with
purchases by other investors received together by the Fund, meets the minimum investment requirement.
Eligible Institutional investors include the
following:
|
n
|
|
Investors who currently own Institutional Shares of the Fund may
make additional purchases of Institutional Shares of the Fund directly from the Fund;
|
|
n
|
|
Institutional and individual retail investors with a minimum
investment of $2 million who purchase directly from the Fund;
|
|
n
|
|
Certain qualified retirement plans;
|
|
n
|
|
Investors in selected fee-based programs;
|
|
n
|
|
Clients of registered investment advisers who have $250,000
invested in the Fund;
|
|
n
|
|
Trust department clients of PNC Bank and Bank of America, N.A. and
their affiliates for whom they (i) act in a fiduciary capacity (excluding participant directed employee benefit plans); (ii) otherwise have investment
discretion; or (iii) act as custodian for at least $2 million in assets;
|
|
n
|
|
Unaffiliated banks, thrifts or trust companies that have
agreements with the Distributor;
|
|
n
|
|
Holders of certain Merrill Lynch & Co., Inc. (“Merrill
Lynch”) sponsored unit investment trusts (“UITs”) who reinvest dividends received from such UITs in shares of the Fund; and
|
|
n
|
|
Employees, officers and directors/trustees of BlackRock Inc.,
BlackRock Funds, The PNC Financial Services Group, Inc. (“PNC”), Merrill Lynch, Barclays or their respective affiliates.
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Distribution and Service
Payments
The Trust, on behalf of Managed Volatility Portfolio, has adopted
a plan (the “Plan”) with respect to the Investor Shares that allows the Fund to pay distribution fees for the sale of its shares under Rule
12b-1 of the Investment Company Act and shareholder servicing fees for certain services provided to its shareholders.
Plan Payments
Under the Plan, Investor B and Investor C Shares pay a
distribution fee (“distribution fees”) to the Distributor and/or its affiliates, including PNC and its affiliates, for distribution and sales
support services. The distribution fees may be used to pay the Distributor for distribution services and to pay the Distributor and affiliates of
BlackRock and PNC for sales support services provided in connection with the sale of Investor B and Investor C Shares. The distribution fees may also
be used to pay brokers, dealers, financial institutions and industry professionals (including BlackRock, PNC and their respective affiliates) (each a
“Financial Intermediary”) for sales support services and related expenses. All Investor B and Investor C Shares pay a maximum distribution
fee per year that is a percentage of the average daily net asset value of the Fund attributable to Investor B and Investor C Shares. Institutional and
Investor A Shares do not pay a distribution fee.
Under the Plan, the Trust also pays shareholder servicing fees
(also referred to as shareholder liaison services fees) on behalf of the Fund to Financial Intermediaries for providing support services to their
customers who own Investor Shares. The shareholder servicing fee payment is calculated as a percentage of the average daily net asset value
of
74
Investor Shares of the Fund. All Investor Shares pay this
shareholder servicing fee. Institutional Shares do not pay a shareholder servicing fee.
In return for the shareholder servicing fee, Financial
Intermediaries (including BlackRock) may provide one or more of the following services to their customers who own Investor Shares:
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Responding to customer questions on the services performed by the
Financial Intermediary and investments in Investor A, Investor B and Investor C Shares;
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Assisting customers in choosing and changing dividend options,
account designations and addresses; and
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Providing other similar shareholder liaison services
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The shareholder servicing fees payable pursuant to the Plan are
paid to compensate Financial Intermediaries for the administration and servicing of shareholder accounts and are not costs which are primarily intended
to result in the sale of the Fund’s shares. Because the fees paid by the Fund under the Plan are paid out of Fund assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. In addition, the distribution
fees paid by Investor B and Investor C Shares may over time cost investors more than the front-end sales charge on Investor A Shares. For more
information on the Plan, including a complete list of services provided thereunder, see the SAI.
Other Payments by the Fund
In addition to, rather than in lieu of, fees that the Fund may pay
to a Financial Intermediary pursuant to the Plan and fees the Fund pays to its transfer agent, BNY Mellon Investment Servicing (US) Inc. (the
“Transfer Agent”), BlackRock, on behalf of the Fund, may enter into non-Plan agreements with a Financial Intermediary pursuant to which the
Fund will pay a Financial Intermediary for administrative, networking, recordkeeping, sub-transfer agency and shareholder services. These non-Plan
payments are generally based on either (1) a percentage of the average daily net assets of Fund shareholders serviced by a Financial Intermediary or
(2) a fixed dollar amount for each account serviced by a Financial Intermediary. The aggregate amount of these payments may be
substantial.
Other Payments by BlackRock
The Plan permits BlackRock, the Distributor and their affiliates
to make payments relating to distribution and sales support activities out of their past profits or other sources available to them (and not as an
additional charge to the Fund). From time to time, BlackRock, the Distributor or their affiliates also may pay a portion of the fees for
administrative, networking, recordkeeping, sub-transfer agency and shareholder services described above at its or their own expense and out of its or
their legitimate profits. BlackRock, the Distributor and their affiliates may compensate affiliated and unaffiliated Financial Intermediaries for the
sale and distribution of shares of the Fund or for these other services to the Fund and shareholders. These payments would be in addition to the Fund
payments described in this prospectus and may be a fixed dollar amount, may be based on the number of customer accounts maintained by the Financial
Intermediary or may be based on a percentage of the value of shares sold to, or held by, customers of the Financial Intermediary. The aggregate amount
of these payments by BlackRock, the Distributor and their affiliates may be substantial. Payments by BlackRock may include amounts that are sometimes
referred to as “revenue sharing” payments. In some circumstances, these revenue sharing payments may create an incentive for a Financial
Intermediary, its employees or associated persons to recommend or sell shares of the Fund to you. Please contact your Financial Intermediary for
details about payments it may receive from the Fund or from BlackRock, the Distributor or their affiliates. For more information, see the
SAI.
How to Buy, Sell, Exchange
and Transfer Shares
The chart on the following pages summarizes how to buy, sell,
exchange and transfer shares through your financial professional or financial intermediary. You may also buy, sell, exchange and transfer shares
through BlackRock if your account is held directly with BlackRock. To learn more about buying, selling, exchanging or transferring shares
through BlackRock, call (800) 441-7762. Because the selection of a mutual fund involves many considerations, your financial professional or other
financial intermediary may help you with this decision.
Managed Volatility Portfolio may reject any purchase order, modify
or waive the minimum initial or subsequent investment requirements for any shareholders and suspend and resume the sale of any share class of the Fund
at any time for any reason. In addition, the Fund may waive certain requirements regarding the purchase, sale, exchange or transfer of shares described
below.
Under certain circumstances, if no activity occurs in an account
within a time period specified by state law, a shareholder’s shares in the Fund may be transferred to that state.
75
How to Buy Shares
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Your Choices
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Important Information for
You to Know
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Initial Purchase
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First, select the share class appropriate for you
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Refer to the “Share Classes at a Glance” table in this prospectus (be sure to read this prospectus carefully). When you
place your initial order, you must indicate which share class you select (if you do not specify a share class and do not qualify to purchase
Institutional Shares, you will receive Investor A Shares).
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Certain factors, such as the amount of your investment, your time frame for investing and your
financial goals, may affect which share class you choose. Your financial intermediary can help you determine which share class is
appropriate for you.
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Next, determine the amount of your investment
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Refer to the minimum initial investment in the “Share Classes at a Glance” table of this prospectus. Be sure to note the
maximum investment amounts in Investor C Shares.
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See “Account Information — Details About the Share Classes” for information on a
lower initial investment requirement for certain Fund investors if their purchase, combined with purchases by other investors received together by the
Fund, meets the minimum investment requirement.
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Have your financial intermediary submit your purchase order
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The price of your shares is based on the next calculation of the Fund’s net asset value after your order is placed. Any purchase
orders placed prior to the close of business on the New York Stock Exchange (the “Exchange”) (generally 4:00 p.m. Eastern time) will be
priced at the net asset value determined that day. Certain financial intermediaries, however, may require submission of orders prior to that time.
Purchase orders placed after that time will be priced at the net asset value determined on the next business day. A broker-dealer or financial
institution maintaining the account in which you hold shares may charge a separate account, service or transaction fee on the purchase or sale of Fund
shares that would be in addition to the fees and expenses shown in the Fund’s “Fees and Expenses” table.
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The Fund may reject any order to buy shares and may suspend the sale of shares at any time.
Financial intermediaries may charge a processing fee to confirm a purchase.
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Or contact BlackRock (for accounts held directly with BlackRock)
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To purchase shares directly from BlackRock, call (800) 441-7762 and request a new account
application. Mail the completed application along with a check payable to “BlackRock Funds” to the Transfer Agent at the address on the
application.
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Add to Your Investment
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Purchase additional shares
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For Investor A and Investor C Shares, the minimum investment for additional purchases is generally
$50 for all accounts except that certain retirement plans and payroll deduction programs may have a lower minimum for additional purchases.
Institutional Shares have no minimum for additional purchases.
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Have your financial intermediary submit your purchase order for additional
shares
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To purchase additional shares you may contact your financial intermediary. For more details
on purchasing by Internet see below.
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Or contact BlackRock (for accounts held directly with BlackRock)
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Purchase by Telephone:
Call (800) 441-7762 and speak with one of our representatives. The Fund has the right to reject any
telephone request for any reason.
Purchase in Writing:
You may send a written request to BlackRock at the address on the back cover of this
prospectus.
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Purchase by VRU:
Investor Shares may also be purchased by use of the Fund’s automated
voice response unit service (“VRU”) at (800) 441-7762.
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76
How to Buy Shares (continued)
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Your Choices
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Important Information for
You to Know
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Add to Your Investment (continued)
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Or contact BlackRock (for accounts held directly with BlackRock) (continued)
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Purchase by Internet:
You may purchase your shares and view activity in your account by logging onto the BlackRock website at
www.blackrock.com/funds. Purchases made on the Internet using the Automated Clearing House Network (“ACH”) will have a trade date that is the
day after the purchase is made. Certain institutional clients’ purchase orders of Institutional Shares placed by wire prior to the close of
business on the Exchange will be priced at the net asset value determined that day. Contact your financial intermediary or BlackRock for further
information. The Fund limits Internet purchases in shares of the Fund to $25,000 per trade. Different maximums may apply to certain institutional
investors.
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Please read the On-Line Services Disclosure Statement and User Agreement, the Terms and Conditions page and the Consent to Electronic
Delivery Agreement (if you consent to electronic delivery), before attempting to transact online.
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The Fund employs reasonable procedures to confirm that transactions entered over the Internet are
genuine. By entering into the User Agreement with the Fund in order to open an account through the website, the shareholder waives any right to reclaim
any losses from the Fund or any of its affiliates incurred through fraudulent activity.
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Acquire additional shares by reinvesting dividends and capital gains
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All dividends and capital gains distributions are automatically reinvested without a sales charge.
To make any changes to your dividend and/or capital gains distributions options, please call (800) 441-7762, or contact your financial professional (if
your account is not held directly with BlackRock).
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Participate in the Automatic Investment Plan (AIP)
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BlackRock’s Automatic Investment Plan (“AIP”) allows you to invest a specific amount on a periodic basis from your
checking or savings account into your investment account.
Refer to the “Account Services and Privileges” section of this prospectus for additional
information.
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How to Pay for Shares
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Making payment for purchases
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Payment for an order must be made in Federal funds or other immediately available funds by the time specified by your financial
intermediary, but in no event later than 4:00 p.m. (Eastern time) on the third business day (in the case of Investor Shares) or the first
business day (in the case of Institutional Shares) following BlackRock’s receipt of the order. If payment is not received by this time, the order
will be canceled and you and your financial intermediary will be responsible for any loss to the Fund.
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For shares purchased directly from the Fund, a check payable to BlackRock Funds which bears the
name of the Fund you are purchasing must accompany a completed purchase application. There is a $20 fee for each purchase check that is returned due to
insufficient funds. The Fund does not accept third-party checks. You may also wire Federal funds to the Fund to purchase shares, but you must call
(800) 441-7762 before doing so to confirm the wiring instructions.
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77
How to Sell Shares
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Your Choices
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Important Information for
You to Know
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Full or Partial Redemption of Shares
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Have your financial intermediary submit your sales order
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You can make redemption requests through your financial intermediary. Shareholders should indicate whether they are
redeeming Investor A, Investor B, Investor C or Institutional Shares. The price of your shares is based on the next calculation of the Fund’s net
asset value after your order is placed. For your redemption request to be priced at the net asset value on the day of your request, you must submit
your request to your financial professional or financial intermediary prior to that day’s close of business on the Exchange (generally 4:00 p.m.
Eastern time). Certain financial intermediaries, however, may require submission of orders prior to that time. Any redemption request placed after that
time will be priced at the net asset value at the close of business on the next business day.
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Financial intermediaries may charge a fee to process a redemption of shares. Shareholders should
indicate which class of shares they are redeeming. The Fund may reject an order to sell shares under certain circumstances.
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Selling shares held directly with BlackRock
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Methods of Redeeming
Redeem by Telephone:
You may sell Investor Shares held directly with BlackRock by telephone request if certain conditions are
met and if the amount being sold is less than (i) $100,000 for payments by check or (ii) $250,000 for payments through ACH or wire transfer. Certain
redemption requests, such as those in excess of these amounts, must be in writing with a medallion signature guarantee. For Institutional Shares,
certain redemption requests may require written instructions with a medallion signature guarantee. Call (800) 441-7762 for details. You can obtain a
medallion signature guarantee stamp from a bank, securities dealer, securities broker, credit union, savings and loan association, national securities
exchange or registered securities association. A notary public seal will not be acceptable.
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The Fund, its administrators and the Distributor will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund and its service providers will not be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such procedures. The Fund may refuse a telephone redemption request if it
believes it is advisable to do so. During periods of substantial economic or market change, telephone redemptions may be difficult to complete. Please
find alternate redemption methods below.
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Redeem by VRU:
Investor Shares may also be redeemed by use of the Fund’s automated VRU service. Payment for Investor
Shares redeemed by VRU may be made for non-retirement accounts in amounts up to $25,000, either through check, ACH or wire.
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Redeem by Internet:
You may redeem in your account by logging onto the BlackRock website at
www.blackrock.com/funds. Proceeds from Internet redemptions may be sent via check, ACH or wire to the bank account of record. Payment for Investor
Shares redeemed by Internet may be made for non-retirement accounts in amounts up to $25,000, either through check, ACH or wire. Different maximums may
apply to investors in Institutional Shares.
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78
How to Sell Shares (continued)
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Your Choices
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Important Information for
You to Know
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Full or Partial Redemption of Shares (continued)
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Selling shares held directly with BlackRock (continued)
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Redeem in Writing:
You may sell shares held with BlackRock by writing to BlackRock, P.O. Box 9819, Providence, Rhode Island
02940-8019, or for overnight delivery, 4400 Computer Drive, Westborough, Massachusetts 01588. All shareholders on the account must sign the letter. A
medallion signature guarantee will generally be required but may be waived in certain limited circumstances. You can obtain a medallion signature
guarantee stamp from a bank, securities dealer, securities broker, credit union, savings and loan association, national securities exchange or
registered securities association. A notary public seal will not be acceptable. If you hold stock certificates, return the certificates with the
letter. Proceeds from redemptions may be sent via check, ACH or wire to the bank account of record.
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Payment of Redemption Proceeds
Redemption proceeds may be paid by check or, if the Fund has verified banking information
on file, through ACH or by wire transfer.
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Payment by Check:
BlackRock will normally mail redemption proceeds within seven days following receipt of a properly completed
request. Shares can be redeemed by telephone and the proceeds sent by check to the shareholder at the address on record. Shareholders will pay $15 for
redemption proceeds sent by check via overnight mail. You are responsible for any additional charges imposed by your bank for this
service.
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Payment by Wire Transfer:
Payment for redeemed shares for which a redemption order is received before 4:00 p.m. (Eastern time)
on a business day is normally made in Federal funds wired to the redeeming shareholder on the next business day, provided that the Fund’s
custodian is also open for business. Payment for redemption orders received after 4:00 p.m. (Eastern time) or on a day when the Fund’s custodian
is closed is normally wired in Federal funds on the next business day following redemption on which the Fund’s custodian is open for business. The
Fund reserves the right to wire redemption proceeds within seven days after receiving a redemption order if, in the judgment of the Fund, an earlier
payment could adversely affect the Fund.
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If a shareholder has given authorization for expedited redemption, shares can be redeemed by Federal wire transfer to a single
previously designated bank account. Shareholders will pay $7.50 for redemption proceeds sent by Federal wire transfer. You are responsible for any
additional charges imposed by your bank for this service. No charge for wiring redemption payments with respect to Institutional Shares is imposed by
the Fund.
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The Fund is not responsible for the efficiency of the Federal wire system or the shareholder’s firm or bank. To change the name
of the single, designated bank account to receive wire redemption proceeds, it is necessary to send a written request to the Fund at the address on the
back cover of this prospectus.
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Payment by ACH:
Redemption proceeds may be sent to the shareholder’s bank account (checking or savings) via ACH. Payment
for redeemed shares for which a redemption order is received before 4:00 p.m. (Eastern time) on a business day is normally sent to the redeeming
shareholder the next business day with receipt at the receiving bank within the next two business days (48-72 hours), provided that the Fund’s
custodian is also open for business. Payment for redemption orders received after 4:00 p.m. (Eastern time) or on a day when the Fund’s custodian
is closed is normally sent on the next business day following redemption on which the Fund’s custodian is open for business.
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The Fund reserves the right to send redemption proceeds within seven days after receiving a redemption order if, in the judgment of
the Fund, an earlier payment could adversely affect the Fund. No charge for sending redemption payments via ACH is imposed by the
Fund.
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* * *
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If you make a redemption request before the Fund has collected payment for the purchase of shares,
the Fund may delay mailing your proceeds. This delay will usually not exceed ten days.
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79
How to Exchange Shares or Transfer your
Account
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Your Choices
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Important Information for
You to Know
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Exchange Privilege
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Selling shares of one fund to purchase shares of another BlackRock Fund (“exchanging”)
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Investor and Institutional Shares of the Fund are generally exchangeable for shares of the same class of another BlackRock
Fund.
You can exchange $1,000 or more of Investor A, Investor B or Investor C Shares from one fund into the same class of another fund
which offers that class of shares (you can exchange less than $1,000 of Investor Shares if you already have an account in the fund into which you are
exchanging). Investors who currently own Institutional Shares of the Fund may make exchanges into Institutional Shares of other BlackRock Funds except
for investors holding shares through certain client accounts at financial professionals that are omnibus with the Fund and do not meet applicable
minimums. There is no required minimum amount with respect to exchanges of Institutional Shares.
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You may only exchange into a share class and fund that are open to new investors or in which you have a current account if the fund
is closed to new investors.
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Some of the BlackRock Funds impose a different deferred sales charge schedule. The CDSC will continue to be measured from the date of
the original purchase. The CDSC schedule applicable to your original purchase will apply to the shares you receive in the exchange and any subsequent
exchange.
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To exercise the exchange privilege, you may contact your financial intermediary. Alternatively, if your account is held
directly with BlackRock, you may: (i) call (800) 441-7762 and speak with one of our representatives, (ii) make the exchange via the Internet by
accessing your account online at www.blackrock.com/funds, or (iii) send a written request to the Fund at the address on the back cover of this
prospectus. Please note, if you indicated on your New Account Application that you did not want the Telephone Exchange Privilege, you will not be able
to place exchanges via the telephone until you update this option either in writing or by calling (800) 441-7762. The Fund has the right to reject any
telephone request for any reason.
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Although there is currently no limit on the number of exchanges that you can make, the exchange
privilege may be modified or terminated at any time in the future. The Fund may suspend or terminate your exchange privilege at any time for any
reason, including if the Fund believes in its sole discretion that you are engaging in market timing activities. See “Short-Term Trading
Policy” below. For Federal income tax purposes, a share exchange is a taxable event, and a capital gain or loss may be realized. Please consult
your tax adviser or other financial professional before making an exchange request.
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Transfer Shares to Another Financial Intermediary
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Transfer to a participating financial intermediary
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You may transfer your shares of the Fund only to another financial intermediary that has entered into an agreement with the
Distributor. Certain shareholder services may not be available for the transferred shares. All future trading of these assets must be coordinated by
the receiving firm.
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If your account is held directly with BlackRock, you may call (800) 441-7762 with any questions;
otherwise please contact your financial intermediary to accomplish the transfer of shares.
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Transfer to a non-participating financial intermediary
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You must either:
• Transfer your shares to an account with the Fund; or
• Sell your shares, paying any applicable
deferred sales charge.
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If your account is held directly with BlackRock, you may call (800) 441-7762 with any questions;
otherwise please contact your financial intermediary to accomplish the transfer of shares.
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80
Account Services and
Privileges
The following table provides examples of account services and
privileges available in your BlackRock account. Certain of these account services and privileges are only available to shareholders of Investor Shares
whose accounts are held directly with BlackRock. If your account is held directly with BlackRock, please call (800) 441-7762 or visit
www.blackrock.com/funds for additional information as well as forms and applications. Otherwise, please contact your financial professional for
assistance in requesting one or more of the following services and privileges.
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Automatic Investment Plan (AIP)
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Allows systematic investments on a periodic basis from your checking or savings
account.
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BlackRock’s AIP allows you to invest a specific amount on a periodic basis from your checking
or savings account into your investment account. You may apply for this option upon account opening or by completing the Automatic Investment Plan
application. The minimum investment amount for an automatic investment plan is $50 per portfolio. This is no longer available for purchase of Investor
B Shares. If a shareholder has an AIP for purchase of Investor B Shares, the investor must redirect investment into Investor A or Investor C
Shares.
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Dividend Allocation Plan
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Automatically invests your distributions into another BlackRock Fund of your choice pursuant to
your instructions, without any fees or sales charges.
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Dividend and capital gains distributions may be reinvested in your account to purchase additional
shares or paid in cash. Using the Dividend Allocation Plan, you can direct your distributions to your bank account (checking or savings), to purchase
shares of another fund at BlackRock without any fees or sales charges, or by check to special payee. Please call (800) 441-7762 for details. The fund
into which you request your distributions be invested must be open to new purchases.
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EZ Trader
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Allows an investor to purchase or sell Investor Shares by telephone or over the Internet through ACH.
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(NOTE: This option is offered to shareholders whose accounts are held directly with BlackRock. Please speak with your financial
professional if your account is held elsewhere).
Prior to establishing an EZ Trader account, please contact your bank to confirm that it is a member of the ACH system. Once
confirmed, complete an application, making sure to include the appropriate bank information, and return the application to the address listed on the
form.
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Prior to placing a telephone or internet purchase or sale order, please call (800) 441-7762 to confirm that your bank information has been updated on your account. Once this is established, you may place your request
to sell shares with Managed Volatility Portfolio by telephone or Internet. Proceeds will be sent to your pre-designated bank
account.
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Systematic Exchange
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This feature can be used by investors to systematically exchange money from one fund to up to four
other funds.
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A minimum of $10,000 in the initial BlackRock Fund is required and investments in any additional
funds must meet minimum initial investment requirements.
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Systematic Withdrawal Plan (SWP)
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This feature can be used by investors who want to receive regular distributions from their accounts.
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To start an SWP a shareholder must have a current investment of $10,000 or more in a BlackRock Fund.
Shareholders can elect to
receive cash payments of $50 or more at any interval they choose. Shareholders may sign up by completing the SWP Application Form which may be obtained
from BlackRock. Shareholders should realize that if withdrawals exceed income the invested principal in their account will be
depleted.
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To participate in the SWP, shareholders must have their dividends reinvested. Shareholders may change or cancel the SWP at any time,
with a minimum of 24 hours notice. If a shareholder purchases additional Investor A Shares of a fund at the same time he or she redeems shares through
the SWP, that investor may lose money because of the sales charge involved. No CDSC will be assessed on redemptions of Investor Shares made through the
SWP that do not exceed 12% of the account’s net asset value on an annualized basis. For example, monthly, quarterly, and semi-annual SWP
redemptions of Investor Shares will not be subject to the CDSC if they do not exceed 1%, 3% and 6%, respectively, of an account’s net asset value
on the redemption date. SWP redemptions of Investor Shares in excess of this limit will still pay any applicable CDSC.
|
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Ask your financial intermediary for details.
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81
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Reinstatement Privilege
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If you redeem Investor A or Institutional Shares, and within 60 days buy new Investor A Shares of
the same or another BlackRock Fund (equal to all or a portion of the redemption amount), you will not pay a sales charge on the new purchase amount.
This right may be exercised once a year and within 60 days of the redemption, provided that the Investor A Share class of that fund is currently open
to new investors or the shareholder has a current account in that closed fund. Shares will be purchased at the net asset value calculated at the close
of trading on the day the request is received. To exercise this privilege, the Fund must receive written notification from the shareholder of record or
the financial professional of record at the time of purchase. Investors should consult a tax advisor concerning the tax consequences of exercising this
reinstatement privilege.
|
Managed Volatility Portfolio may:
|
n
|
|
Suspend the right of redemption if trading is halted or restricted
on the Exchange or under other emergency conditions described in the Investment Company Act;
|
|
n
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Postpone the date of payment upon redemption if trading is halted
or restricted on the Exchange or under other emergency conditions described in the Investment Company Act or if a redemption request is made before the
Fund has collected payment for the purchase of shares;
|
|
n
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Redeem shares for property other than cash if conditions exist
which make cash payments undesirable in accordance with its rights under the Investment Company Act; and
|
|
n
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Redeem shares involuntarily in certain cases, such as when the
value of a shareholder account falls below a specified level.
|
Note on Low Balance Accounts.
Because of the high cost of
maintaining smaller shareholder accounts, BlackRock has set a minimum balance of $500 in each Fund position you hold within your account (“Fund
Minimum”), and may take one of two actions if the balance in your Fund falls below the Fund Minimum.
First, the Fund may redeem the shares in your account (without
charging any deferred sales charge) if the net asset value of your account falls below $250 for any reason, including market fluctuation. You will be
notified that the value of your account is less than $250 before the Fund makes an involuntary redemption. The notification will provide you with a 90
calendar day period to make an additional investment in order to bring the value of your account to at least $250 before the Fund makes an involuntary
redemption or to the Fund Minimum in order not to be assessed an annual low balance fee of $20, as set forth below. This involuntary redemption may not
apply to accounts of authorized qualified employee benefit plans, selected fee-based programs, accounts established under the Uniform Gifts or
Transfers to Minors Acts, and certain intermediary accounts.
Second, the Fund charges an annual $20 low balance fee on all Fund
accounts that have a balance below the Fund Minimum for any reason, including market fluctuation. The low balance fee will be assessed on Fund accounts
in all BlackRock Funds, regardless of the Fund’s minimum investment amount. The fee will be deducted from the Fund account only once per calendar
year. You will be notified that the value of your account is less than the Fund Minimum before the fee is imposed. You will then have a 90 calendar day
period to make an additional investment to bring the value of your account to the Fund Minimum before the Fund imposes the low balance fee. This low
balance fee does not apply to accounts of authorized qualified employee benefit plans, selected fee-based programs or accounts established under the
Uniform Gifts or Transfers to Minors Acts.
82
Participation in Fee-Based
Programs
If you participate in certain fee-based programs offered by
BlackRock or an affiliate of BlackRock, or by financial intermediaries that have agreements with the Distributor or in certain fee-based programs in
which BlackRock participates, you may be able to buy Institutional Shares, including by exchange from other share classes. Sales charges on the shares
being exchanged may be reduced or waived under certain circumstances. You generally cannot transfer shares held through a fee-based program into
another account. Instead, you will have to redeem your shares held through the program and purchase shares of another class, which may be subject to
distribution and service fees. This may be a taxable event, and you will pay any applicable sales charges.
Shareholders that participate in a fee-based program generally
have two options at termination. The program can be terminated and the shares liquidated, or the program can be terminated and the shares held in an
account. In general, when a shareholder chooses to continue to hold the shares, whatever share class was held in the program can be held after
termination. Shares that have been held for less than specified periods within the program may be subject to a fee upon redemption. Shareholders that
held Investor A or Institutional Shares in the program are eligible to purchase additional shares of the respective share class of Managed Volatility
Portfolio, but may be subject to upfront sales charges with respect to Investor A Shares. Additional purchases of Institutional Shares are permitted
only if you have an existing position at the time of purchase or are otherwise eligible to purchase Institutional Shares.
Details about these features and the relevant charges are included
in the client agreement for each fee-based program and are available from your financial intermediary.
Short-Term Trading
Policy
The Trust’s Board has determined that the interests of
long-term shareholders and Managed Volatility Portfolio’s ability to manage its investments may be adversely affected when shares are repeatedly
bought, sold or exchanged in response to short-term market fluctuations — also known as “market timing.” The Fund is not designed for
market timing organizations or other entities using programmed or frequent purchases and sales or exchanges. The exchange privilege is not intended as
a vehicle for short-term trading. Excessive purchase and sale or exchange activity may interfere with portfolio management, increase expenses and taxes
and may have an adverse effect on the performance of the Fund and its shareholders. For example, large flows of cash into and out of the Fund may
require the management team to allocate a significant amount of assets to cash or other short-term investments or sell securities, rather than
maintaining such assets in securities selected to achieve the Fund’s investment objective. Frequent trading may cause the Fund to sell securities
at less favorable prices, and transaction costs, such as brokerage commissions, can reduce the Fund’s performance.
The Fund’s investment in non-U.S. securities is subject to
the risk that an investor may seek to take advantage of a delay between the change in value of the Fund’s portfolio securities and the
determination of the Fund’s net asset value as a result of different closing times of U.S. and non-U.S. markets by buying or selling Fund shares
at a price that does not reflect their true value. A similar risk exists for funds that invest in securities of small capitalization companies,
securities of issuers located in emerging markets or high yield securities (“junk bonds”) that are thinly traded and therefore may have
actual values that differ from their market prices. This short-term arbitrage activity can reduce the return received by long-term shareholders. The
Fund will seek to eliminate these opportunities by using fair value pricing, as described in “Valuation of Fund Investments”
below.
The Fund discourages market timing and seeks to prevent frequent
purchases and sales or exchanges of Fund shares that it determines may be detrimental to the Fund or long-term shareholders. The Board has approved the
policies discussed below to seek to deter market timing activity. The Board has not adopted any specific numerical restrictions on purchases, sales and
exchanges of Fund shares because certain legitimate strategies will not result in harm to the Fund or shareholders.
If as a result of its own investigation, information provided by a
financial intermediary or other third party, or otherwise, the Fund believes, in its sole discretion, that your short-term trading is excessive or that
you are engaging in market timing activity, it reserves the right to reject any specific purchase or exchange order. If the Fund rejects your purchase
or exchange order, you will not be able to execute that transaction, and the Fund will not be responsible for any losses you therefore may suffer. For
transactions placed directly with the Fund, the Fund may consider the trading history of accounts under common ownership or control for the purpose of
enforcing these policies. Transactions placed through the same financial intermediary on an omnibus basis may be deemed part of a group for the purpose
of this policy and may be rejected in whole or in part by the Fund. Certain accounts, such as omnibus accounts and accounts at financial
intermediaries, however, include multiple investors and such accounts typically provide the Fund with net purchase or redemption and exchange requests
on any given day where purchases, redemptions and exchanges of
83
shares are netted against one another and the identity of
individual purchasers, redeemers and exchangers whose orders are aggregated may not be known by the Fund. While the Fund monitors for market timing
activity, the Fund may be unable to identify such activities because the netting effect in omnibus accounts often makes it more difficult to locate and
eliminate market timers from the Fund. The Distributor has entered into agreements with respect to financial professionals and other financial
intermediaries that maintain omnibus accounts with the Fund pursuant to which such financial professionals and other financial intermediaries undertake
to cooperate with the Distributor in monitoring purchase, exchange and redemption orders by their customers in order to detect and prevent short-term
or excessive trading in the Fund’s shares through such accounts. Identification of market timers may also be limited by operational systems and
technical limitations. In the event that a financial intermediary is determined by the Fund to be engaged in market timing or other improper trading
activity, the Fund’s Distributor may terminate such financial intermediary’s agreement with the Distributor, suspend such financial
intermediary’s trading privileges or take other appropriate actions.
There is no assurance that the methods described above will
prevent market timing or other trading that may be deemed abusive.
The Fund may from time to time use other methods that it believes
are appropriate to deter market timing or other trading activity that may be detrimental to the Fund or long-term shareholders.
84
Management of the Fund
BlackRock manages Managed Volatility Portfolio’s investments
and its business operations subject to the oversight of the Trust’s Board. While BlackRock is ultimately responsible for the management of the
Fund, it is able to draw upon the trading, research and expertise of its asset management affiliates for portfolio decisions and management with
respect to certain portfolio securities. BlackRock is an indirect, wholly-owned subsidiary of BlackRock, Inc.
BlackRock, a registered investment adviser, was organized in 1994 to perform advisory services for investment companies. BlackRock
Financial Management, Inc. (“BFM”), a registered investment adviser and a commodity pool operator organized in 1994, BlackRock
International Limited (“BIL”), a registered investment adviser organized in 1995, BlackRock (Hong Kong) Limited (“BHK”), a
registered investment adviser organized in 1988, and BlackRock (Singapore) Limited (“BRS,” and, together with BFM, BIL and BHK, the
“Sub-Advisers”), a registered investment adviser organized in 2000, are affiliates of BlackRock, and each acts as a sub-adviser for the Fund.
BlackRock and its affiliates had approximately $3.792 trillion in investment company and other portfolio assets under management
as of December 31, 2012.
BlackRock serves as manager to the Fund pursuant to a management agreement (the “Management Agreement”). Pursuant to the
Management Agreement, BlackRock is entitled to fees computed daily and payable monthly.
The maximum annual management fees that can be paid to BlackRock (as a percentage of average daily net assets) are calculated as
follows:
Average Daily Net
Assets
|
Management
Fee Rate
|
|
First $1 billion
|
0.550%
|
|
$1 billion – $2 billion
|
0.500%
|
|
$2 billion – $3 billion
|
0.475%
|
|
Greater than $3 billion
|
0.450%
|
BlackRock has contractually agreed to waive 0.05% of its management fee until June 1, 2013. In addition, BlackRock has contractually agreed to waive the management fee on assets estimated to be attributed
to the Fund’s investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates.
BlackRock has agreed to cap net expenses (excluding (i) interest, taxes, dividends tied to short sales, brokerage commissions, and
other expenditures which are capitalized in accordance with generally accepted accounting principles; (ii) expenses incurred directly or indirectly by
the Fund as a result of investments in other investment companies and pooled investment vehicles; (iii) other expenses attributable to, and incurred as
a result of, the Fund’s investments; and (iv) other extraordinary expenses (including litigation expenses) not incurred in the ordinary course of
the Fund’s business, if any) of each share class of the Fund at the levels shown below and in the Fund’s fees and expenses table in the
“Fund Overview” section of this prospectus. Items (i), (ii), (iii) and (iv) in the preceding sentence are referred to in this prospectus as
“Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses.” To achieve these expense caps,
BlackRock has agreed to waive and/or reimburse fees or expenses if the Fund’s operating expenses exceed a certain limit.
|
|
|
|
Contractual Caps
1
on Total
Annual Fund Operating Expenses
2
(excluding Dividend Expense,
Interest Expense, Acquired Fund
Fees and
Expenses and certain
other Fund expenses)
|
|
Total Annual Fund Operating
Expenses
1
after giving effect
to all applicable expense limitation
provisions (excluding Dividend
Expense, Interest Expense,
Acquired
Fund Fees and Expenses and
certain other Fund expenses)
|
|
Investor A Shares
|
|
|
|
1.37%
|
|
1.19%
|
|
Investor B Shares
|
|
|
|
2.14%
|
|
2.05%
|
|
Investor C Shares
|
|
|
|
2.14%
|
|
1.90%
|
|
Institutional Shares
|
|
|
|
0.89%
|
|
0.89%
|
|
1
|
|
As a percentage of average daily net
assets
|
|
2
|
|
The contractual caps are in effect until
February 1, 2014. The contractual agreement may be terminated upon 90 days’ notice by a majority of the non-interested
Trustees of the Trust or by a vote of a majority of the outstanding voting securities of the Fund.
|
85
With respect to this contractual agreement, if during the
Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement
from BlackRock, are less than the expense limit for that share class, the share class is required to repay BlackRock up to the lesser of (a) the amount
of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that
share class exceeds the operating expenses of the share class for the current fiscal year, provided that (i) the Fund has more than $50 million in
assets and (ii) BlackRock or an affiliate serves as the Fund’s manager or administrator.
BlackRock has voluntarily agreed to waive its management fees by the amount of management fees the Fund
pays to BlackRock indirectly through its investment in affiliated money market
funds.
For the fiscal year ended September 30, 2012,
BlackRock received management fees, net of any applicable waiver, at the annual rate of 0.52% of the Fund’s average daily net
assets.
BlackRock has entered into sub-advisory agreements with the
Sub-Advisers, under which BlackRock pays each Sub-Adviser for services it provides a fee equal to a percentage of the management fee paid to BlackRock
under the Management Agreement. The Sub-Advisers are responsible for the day-to-day management of the Fund’s portfolio.
A discussion regarding the basis for the Board’s
approval in 2012 of the Management Agreement with BlackRock is available in the Fund’s report covering the annual period ended September
30, 2012; a discussion regarding the basis for the Board’s approval of the sub-advisory agreements between BlackRock and the Sub-Advisers
in 2012 will be available in the Fund’s report for the semi-annual period ending March 31, 2013.
From time to time, a manager, analyst, or other employee of
BlackRock or its affiliates may express views regarding a particular asset class, company, security, industry, or market sector. The views expressed by
any such person are the views of only that individual as of the time expressed and do not necessarily represent the views of BlackRock or any other
person within the BlackRock organization. Any such views are subject to change at any time based upon market or other conditions and BlackRock
disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for the Fund
are based on numerous factors, may not be relied on as an indication of trading intent on behalf of the Fund.
Portfolio Manager
Information
Information regarding the portfolio manager of Managed Volatility
Portfolio is set forth below. Further information regarding the portfolio manager, including other accounts managed, compensation, ownership of Fund
shares, and possible conflicts of interest, is available in the Fund’s SAI.
Portfolio Manager
|
|
|
|
Primary Role
|
|
Since
|
|
Title and Recent Biography
|
|
Philip Green
|
|
|
|
Primarily responsible for the day-to-day management of the Fund’s portfolio, including setting the
Fund’s overall investment strategy and overseeing the management of the Fund.
|
|
2006
|
|
Managing Director of BlackRock, Inc. since 2006; Managing Director of Merrill Lynch Investment Managers,
L.P. from 1999 to 2006.
|
The investment activities of BlackRock and its affiliates
(including BlackRock, Inc. and PNC and their affiliates, directors, partners, trustees, managing members, officers and employees (collectively, the
“Affiliates”)), in the management of, or their interest in, their own accounts and other accounts they manage, may present conflicts of
interest that could disadvantage the Fund and its shareholders. BlackRock and its Affiliates provide investment management services to other funds and
discretionary managed accounts that follow an investment program similar to that of the Fund. BlackRock and its Affiliates are involved worldwide with
a broad spectrum of financial services and asset management activities and may engage in the ordinary course of business in activities in which their
interests or the interests of their clients may conflict with those of the Fund. One or more Affiliates act or may act as an investor, investment
banker, research provider, investment manager, financier, advisor, market maker, trader, prime broker, lender, agent and principal, and have other
direct and indirect interests, in securities, currencies and other instruments in which the Fund directly and indirectly invests. Thus, it is likely
that the Fund will have multiple business relationships with and will invest in, engage in transactions with, make voting decisions with respect to, or
obtain services from entities for which an Affiliate performs or seeks to perform investment banking or other services. One or more Affiliates may
engage in proprietary trading and advise accounts and funds that have investment objectives
86
similar to those of the Fund and/or that engage in and compete
for transactions in the same types of securities, currencies and other instruments as the Fund. The trading activities of these Affiliates are carried
out without reference to positions held directly or indirectly by the Fund and may result in an Affiliate having positions that are adverse to those of
the Fund. No Affiliate is under any obligation to share any investment opportunity, idea or strategy with the Fund. As a result, an Affiliate may
compete with the Fund for appropriate investment opportunities. The results of the Fund’s investment activities, therefore, may differ from those
of an Affiliate and of other accounts managed by an Affiliate, and it is possible that the Fund could sustain losses during periods in which one or
more Affiliates and other accounts achieve profits on their trading for proprietary or other accounts. The opposite result is also possible. In
addition, the Fund may, from time to time, enter into transactions in which an Affiliate or its other clients have an adverse interest. Furthermore,
transactions undertaken by Affiliate-advised clients may adversely impact the Fund. Transactions by one or more Affiliate-advised clients or BlackRock
may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of the Fund. The Fund’s activities may be
limited because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such
restrictions. In addition, the Fund may invest in securities of companies with which an Affiliate has or is trying to develop investment banking
relationships or in which an Affiliate has significant debt or equity investments. The Fund also may invest in securities of companies for which an
Affiliate provides or may some day provide research coverage. An Affiliate may have business relationships with and purchase or distribute or sell
services or products from or to distributors, consultants or others who recommend the Fund or who engage in transactions with or for the Fund, and may
receive compensation for such services. The Fund may also make brokerage and other payments to Affiliates in connection with the Fund’s portfolio
investment transactions.
Under a securities lending program approved by the Board, the
Trust, on behalf of the Fund, has retained an Affiliate of BlackRock to serve as the securities lending agent for the Fund to the extent that the Fund
participates in the securities lending program. For these services, the lending agent may receive a fee from the Fund, including a fee based on the
returns earned on the Fund’s investment of the cash received as collateral for the loaned securities. In addition, one or more Affiliates may be
among the entities to which the Fund may lend its portfolio securities under the securities lending program.
The activities of Affiliates may give rise to other conflicts of
interest that could disadvantage the Fund and its shareholders. BlackRock has adopted policies and procedures designed to address these potential
conflicts of interest. See the SAI for further information.
Valuation of Fund
Investments
When you buy shares, you pay the net asset value, plus any
applicable sales charge. This is the offering price. Shares are also redeemed at their net asset value, minus any applicable deferred sales charge.
Managed Volatility Portfolio calculates the net asset value of each class of its shares (generally by using market quotations) each day the Exchange is
open as of the close of business on the Exchange, based on prices at the time of closing. The Exchange generally closes at 4:00 p.m. Eastern time. The
net asset value used in determining your share price is the next one calculated after your purchase or redemption order is placed.
Generally, Institutional Shares will have the highest net asset
value because that class has the lowest expenses. Investor A Shares will have a higher net asset value than Investor B or Investor C Shares. Also,
dividends paid on Investor A and Institutional Shares will generally be higher than dividends paid on Investor B and Investor C Shares because Investor
A and Institutional Shares have lower expenses.
The Fund’s assets and liabilities are valued primarily on the
basis of market quotations. Equity investments and other instruments for which market quotations are readily available are valued at market value,
which is generally determined using the last reported sale price on the exchange or market on which the security or instrument is primarily
traded at the time of valuation. The Fund values fixed-income portfolio securities and non-exchange traded derivatives using market prices provided
directly from one or more broker-dealers, market makers, or independent third-party pricing services which may use matrix pricing and valuation models
to derive values, each in accordance with valuation procedures approved by the Board. Short-term debt securities with remaining maturities of 60 days
or less may be valued on the basis of amortized cost.
Foreign currency exchange rates are generally determined as of the
close of business on the Exchange. Foreign securities owned by the Fund may trade on weekends or other days when the Fund does not price its shares. As
a result, the Fund’s net asset value may change on days when you will not be able to purchase or redeem the Fund’s shares. Generally, trading
in foreign securities, U.S. government securities and money market instruments and certain
87
fixed-income securities is substantially completed each day at
various times prior to the close of business on the Exchange. The values of such securities used in computing the net asset value of the Fund’s
shares are determined as of such times.
When market quotations are not readily available or are not
believed by BlackRock to be reliable, the Fund’s investments are valued at fair value. Fair value determinations are made by BlackRock in
accordance with procedures approved by the Board. BlackRock may conclude that a market quotation is not readily available or is unreliable if a
security or other asset or liability does not have a price source due to its lack of liquidity, if BlackRock believes a market quotation from a
broker-dealer or other source is unreliable, where the security or other asset or other liability is thinly traded (
e.g.
, municipal securities,
certain small cap and emerging growth companies and certain non-U.S. securities) or where there is a significant event subsequent to the most recent
market quotation. For this purpose, a “significant event” is deemed to occur if BlackRock determines, in its business judgment prior to or at
the time of pricing the Fund’s assets or liabilities, that it is likely that the event will cause a material change to the last closing market
price of one or more assets or liabilities held by the Fund. For instance, significant events may occur between the foreign market close and the close
of business on the Exchange that may not be reflected in the computation of the Fund’s net assets. If such event occurs, those instruments may be
fair valued. Similarly, foreign securities whose values are affected by volatility that occurs in U.S. markets on a trading day after the close of
foreign securities markets may be fair valued.
For certain foreign securities, a third-party vendor supplies
evaluated, systematic fair value pricing based upon the movement of a proprietary multi-factor model after the relevant foreign markets have closed.
This systematic fair value pricing methodology is designed to correlate the prices of foreign securities following the close of the local markets to
the price that might have prevailed as of the Fund’s pricing time.
Fair value represents a good faith approximation of the value of a
security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in
which the particular fair values were used in determining the Fund’s net asset value.
The Fund may accept orders from certain authorized financial
intermediaries or their designees. The Fund will be deemed to receive an order when accepted by the intermediary or designee and the order will receive
the net asset value next computed by the Fund after such acceptance. If the payment for a purchase order is not made by a designated later time, the
order will be canceled and the financial intermediary could be held liable for any losses.
Dividends, Distributions and
Taxes
BUYING A DIVIDEND
|
|
Unless your investment is in a tax deferred account, you may want to avoid buying shares shortly before Managed Volatility Portfolio pays a
dividend. The reason? If you buy shares when the Fund has declared but not yet distributed ordinary income or capital gains, you will pay the full
price for the shares and then receive a portion of the price back in the form of a taxable dividend. Before investing you may want to consult your tax
adviser.
|
The Fund will distribute net investment income, if any, and
net realized capital gain, if any, at least annually. The Fund may also pay a special distribution at the end of the calendar year to comply with
Federal tax requirements. Dividends may be reinvested automatically in shares of the Fund at net asset value without a sales charge or may be taken in
cash. If you would like to receive dividends in cash, contact your financial professional, financial intermediary or the Fund. Although this cannot be
predicted with any certainty, the Fund anticipates that the majority of its dividends, if any, will consist of capital gains. Capital gains may be
taxable to you at different rates depending on how long the Fund held the assets sold.
You will pay tax on dividends from the Fund whether you receive
them in cash or additional shares. If you redeem Fund shares or exchange them for shares of another fund, you generally will be treated as having sold
your shares and any gain on the transaction may be subject to tax. In addition, the Fund is generally required by law to provide you and the Internal
Revenue Service with cost basis information on the redemption or exchange of any of your shares in the Fund acquired on or after January
1, 2012 (including any shares that you acquire through reinvestment of distributions). Certain dividend income received by the Fund, including
dividends received from qualifying foreign corporations, and long-term capital gains are eligible for taxation at a reduced rate that applies to
non-corporate shareholders. To the extent the Fund makes any distributions derived from long-term capital gains and qualifying dividend income, such
distributions will be eligible for taxation at the reduced rate.
88
If you are neither a tax resident nor a citizen of the United
States or if you are a foreign entity, the Fund’s ordinary income dividends (which include distributions of net short-term capital gain) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies. However, for taxable years
beginning before January 1, 2014, certain distributions reported by the Fund as either interest related dividends or short
term capital gain dividends and paid to a foreign shareholder will be eligible for an exemption from U.S. withholding
tax.
A 3.8% Medicare contribution tax will be imposed on the net
investment income (which includes interest, dividends and capital gains) of U.S. individuals with income exceeding $200,000, or $250,000 if married and
filing jointly, and of trusts and estates, for taxable years beginning after December 31, 2012.
A 30% withholding tax on dividends paid after December 31, 2013
and redemption proceeds paid after December 31, 2016 will be imposed on (i) certain foreign financial institutions and investment funds,
unless they agree to collect and disclose to the Internal Revenue Service information regarding their direct and indirect U.S. account holders and (ii)
certain other foreign entities unless they certify certain information regarding their direct and indirect U.S. owners. Under some circumstances, a
foreign shareholder may be eligible for refunds or credits of such taxes.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such
taxes. You may be able to claim a credit or take a deduction for foreign taxes paid by the Fund if certain requirements are met.
By law, your dividends and redemption proceeds will be subject to
a withholding tax if you have not provided a taxpayer identification number or social security number or the number you have provided is
incorrect.
This section summarizes some of the consequences under current
Federal tax law of an investment in the Fund. It is not a substitute for personal tax advice. Consult your personal tax adviser about the potential tax
consequences of an investment in the Fund under all applicable tax laws.
89
The Financial Highlights tables are intended to help you
understand Managed Volatility Portfolio’s financial performance for the periods shown. Certain information reflects the financial results for a
single Fund share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the Fund (assuming
reinvestment of all dividends and/or distributions). The information has been audited by Deloitte & Touche LLP, whose audited report, along with
the Fund’s financial statements, is included in the Fund’s Annual Report, which is available upon request.
|
|
|
|
|
Institutional
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
Per Share Operating Performance
|
|
Net asset value, beginning of year
|
|
|
|
$
|
14.03
|
|
|
$
|
14.31
|
|
|
$
|
13.28
|
|
|
$
|
12.96
|
|
|
$
|
17.07
|
|
|
Net investment income
1
|
|
|
|
|
0.23
|
|
|
|
0.29
|
|
|
|
0.29
|
|
|
|
0.27
|
|
|
|
0.33
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.68
|
|
|
|
(0.26
|
)
|
|
|
1.02
|
|
|
|
0.45
|
|
|
|
(2.76
|
)
|
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.91
|
|
|
|
0.03
|
|
|
|
1.31
|
|
|
|
0.72
|
|
|
|
(2.43
|
)
|
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.26
|
)
|
|
|
(0.31
|
)
|
|
|
(0.28
|
)
|
|
|
(0.21
|
)
|
|
|
(0.38
|
)
|
|
Net realized gain
|
|
|
|
|
(0.31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.19
|
)
|
|
|
(1.30
|
)
|
|
Total dividends and distributions
|
|
|
|
|
(0.57
|
)
|
|
|
(0.31
|
)
|
|
|
(0.28
|
)
|
|
|
(0.40
|
)
|
|
|
(1.68
|
)
|
|
Net asset value, end of year
|
|
|
|
$
|
15.37
|
|
|
$
|
14.03
|
|
|
$
|
14.31
|
|
|
$
|
13.28
|
|
|
$
|
12.96
|
|
|
Total Investment Return
2
|
|
Based on net asset value
|
|
|
|
|
13.89
|
%
|
|
|
0.06
|
%
|
|
|
9.99
|
%
|
|
|
6.15
|
%
3
|
|
|
(15.81
|
)%
|
|
Ratios to Average Net Assets
|
|
Total expenses
|
|
|
|
|
0.95
|
%
4
|
|
|
0.94
|
%
|
|
|
0.95
|
%
|
|
|
0.95
|
%
|
|
|
0.94
|
%
|
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
0.91
|
%
4
|
|
|
0.94
|
%
|
|
|
0.95
|
%
|
|
|
0.95
|
%
|
|
|
0.94
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
0.90
|
%
4
|
|
|
0.90
|
%
|
|
|
0.91
|
%
|
|
|
0.88
|
%
|
|
|
0.89
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest
expense
|
|
|
|
|
0.89
|
%
4
|
|
|
0.89
|
%
|
|
|
0.89
|
%
|
|
|
0.88
|
%
|
|
|
0.85
|
%
|
|
Net investment income
|
|
|
|
|
1.59
|
%
4
|
|
|
1.91
|
%
|
|
|
2.09
|
%
|
|
|
2.43
|
%
|
|
|
2.20
|
%
|
|
Supplemental Data
|
|
Net assets, end of year (000)
|
|
|
|
$
|
59,041
|
|
|
$
|
40,259
|
|
|
$
|
39,083
|
|
|
$
|
29,127
|
|
|
$
|
23,083
|
|
|
Portfolio turnover
|
|
|
|
|
324
|
%
5
|
|
|
401
|
%
6
|
|
|
400
|
%
7
|
|
|
354
|
%
8
|
|
|
391
|
%
9
|
|
1
|
|
Based on average shares
outstanding.
|
|
2
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
|
3
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would
have been 5.92%.
|
|
4
|
|
Ratios do not include expenses incurred
indirectly as a result of investments in underlying funds of approximately 0.05%.
|
|
5
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 254%.
|
|
6
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 236%.
|
|
7
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 302%.
|
|
8
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 227%.
|
|
9
|
|
Includes TBA transactions; excluding these
transactions the portfolio turnover would have been 121%.
|
90
Financial Highlights
(continued)
|
|
|
|
|
Investor
A
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
Per Share Operating Performance
|
|
Net asset value, beginning of year
|
|
|
|
$
|
13.98
|
|
|
$
|
14.26
|
|
|
$
|
13.23
|
|
|
$
|
12.92
|
|
|
$
|
17.01
|
|
|
Net investment income
1
|
|
|
|
|
0.19
|
|
|
|
0.25
|
|
|
|
0.24
|
|
|
|
0.23
|
|
|
|
0.28
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.66
|
|
|
|
(0.26
|
)
|
|
|
1.03
|
|
|
|
0.43
|
|
|
|
(2.75
|
)
|
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.85
|
|
|
|
(0.01
|
)
|
|
|
1.27
|
|
|
|
0.66
|
|
|
|
(2.47
|
)
|
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.22
|
)
|
|
|
(0.27
|
)
|
|
|
(0.24
|
)
|
|
|
(0.16
|
)
|
|
|
(0.32
|
)
|
|
Net realized gain
|
|
|
|
|
(0.31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.19
|
)
|
|
|
(1.30
|
)
|
|
Total dividends and distributions
|
|
|
|
|
(0.53
|
)
|
|
|
(0.27
|
)
|
|
|
(0.24
|
)
|
|
|
(0.35
|
)
|
|
|
(1.62
|
)
|
|
Net asset value, end of year
|
|
|
|
$
|
15.30
|
|
|
$
|
13.98
|
|
|
$
|
14.26
|
|
|
$
|
13.23
|
|
|
$
|
12.92
|
|
|
Total Investment Return
2
|
|
Based on net asset value
|
|
|
|
|
13.51
|
%
|
|
|
(0.23
|
)%
|
|
|
9.70
|
%
|
|
|
5.66
|
%
3
|
|
|
(16.05
|
)%
|
|
Ratios to Average Net Assets
|
|
Total expenses
|
|
|
|
|
1.23
|
%
4
|
|
|
1.20
|
%
|
|
|
1.23
|
%
|
|
|
1.27
|
%
|
|
|
1.24
|
%
|
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.23
|
%
4
|
|
|
1.20
|
%
|
|
|
1.22
|
%
|
|
|
1.27
|
%
|
|
|
1.24
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
1.20
|
%
4
|
|
|
1.20
|
%
|
|
|
1.22
|
%
|
|
|
1.26
|
%
|
|
|
1.24
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest
expense
|
|
|
|
|
1.19
|
%
4
|
|
|
1.19
|
%
|
|
|
1.20
|
%
|
|
|
1.26
|
%
|
|
|
1.20
|
%
|
|
Net investment income
|
|
|
|
|
1.28
|
%
4
|
|
|
1.61
|
%
|
|
|
1.75
|
%
|
|
|
2.04
|
%
|
|
|
1.84
|
%
|
|
Supplemental Data
|
|
Net assets, end of year (000)
|
|
|
|
$
|
390,209
|
|
|
$
|
370,916
|
|
|
$
|
385,511
|
|
|
$
|
361,751
|
|
|
$
|
390,051
|
|
|
Portfolio turnover
|
|
|
|
|
324
|
%
5
|
|
|
401
|
%
6
|
|
|
400
|
%
7
|
|
|
354
|
%
8
|
|
|
391
|
%
9
|
|
1
|
|
Based on average shares outstanding.
|
|
2
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
|
3
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would
have been 5.42%.
|
|
4
|
|
Ratios do not include expenses incurred
indirectly as a result of investments in underlying funds of approximately 0.05%.
|
|
5
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 254%.
|
|
6
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 236%.
|
|
7
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 302%.
|
|
8
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 227%.
|
|
9
|
|
Includes TBA transactions; excluding these
transactions the portfolio turnover would have been 121%.
|
91
Financial Highlights
(continued)
|
|
|
|
|
Investor B
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
Per Share Operating Performance
|
|
Net asset value, beginning of year
|
|
|
|
$
|
13.83
|
|
|
$
|
14.10
|
|
|
$
|
13.08
|
|
|
$
|
12.75
|
|
|
$
|
16.83
|
|
|
Net investment income
1
|
|
|
|
|
0.06
|
|
|
|
0.13
|
|
|
|
0.12
|
|
|
|
0.14
|
|
|
|
0.16
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.65
|
|
|
|
(0.26
|
)
|
|
|
1.03
|
|
|
|
0.43
|
|
|
|
(2.75
|
)
|
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.71
|
|
|
|
(0.13
|
)
|
|
|
1.15
|
|
|
|
0.57
|
|
|
|
(2.59
|
)
|
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.13
|
)
|
|
|
(0.14
|
)
|
|
|
(0.13
|
)
|
|
|
(0.05
|
)
|
|
|
(0.19
|
)
|
|
Net realized gain
|
|
|
|
|
(0.31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.19
|
)
|
|
|
(1.30
|
)
|
|
Total dividends and distributions
|
|
|
|
|
(0.44
|
)
|
|
|
(0.14
|
)
|
|
|
(0.13
|
)
|
|
|
(0.24
|
)
|
|
|
(1.49
|
)
|
|
Net asset value, end of year
|
|
|
|
$
|
15.10
|
|
|
$
|
13.83
|
|
|
$
|
14.10
|
|
|
$
|
13.08
|
|
|
$
|
12.75
|
|
|
Total Investment Return
2
|
|
Based on net asset value
|
|
|
|
|
12.60
|
%
|
|
|
(1.01
|
)%
|
|
|
8.78
|
%
|
|
|
4.93
|
%
4
|
|
|
(16.89
|
)%
|
|
Ratios to Average Net Assets
|
|
Total expenses
|
|
|
|
|
2.08
|
%
4
|
|
|
2.00
|
%
|
|
|
2.04
|
%
|
|
|
2.07
|
%
|
|
|
2.02
|
%
|
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.08
|
%
4
|
|
|
2.00
|
%
|
|
|
2.02
|
%
|
|
|
2.06
|
%
|
|
|
2.02
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
2.06
|
%
4
|
|
|
2.00
|
%
|
|
|
2.04
|
%
|
|
|
2.04
|
%
|
|
|
2.02
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest
expense
|
|
|
|
|
2.05
|
%
4
|
|
|
1.98
|
%
|
|
|
2.02
|
%
|
|
|
2.04
|
%
|
|
|
1.97
|
%
|
|
Net investment income
|
|
|
|
|
0.45
|
%
4
|
|
|
0.84
|
%
|
|
|
0.91
|
%
|
|
|
1.27
|
%
|
|
|
1.06
|
%
|
|
Supplemental Data
|
|
Net assets, end of year (000)
|
|
|
|
$
|
19,077
|
|
|
$
|
31,595
|
|
|
$
|
49,315
|
|
|
$
|
69,934
|
|
|
$
|
97,710
|
|
|
Portfolio turnover
|
|
|
|
|
324
|
%
5
|
|
|
401
|
%
6
|
|
|
400
|
%
7
|
|
|
354
|
%
8
|
|
|
391
|
%
9
|
|
1
|
|
Based on average shares outstanding.
|
|
2
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
|
3
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would
have been 4.69%.
|
|
4
|
|
Ratios do not include expenses incurred
indirectly as a result of investments in underlying funds of approximately 0.05%.
|
|
5
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 254%.
|
|
6
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 236%.
|
|
7
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 302%.
|
|
8
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 227%.
|
|
9
|
|
Includes TBA transactions; excluding these
transactions the portfolio turnover would have been 121%.
|
92
Financial Highlights
(concluded)
|
|
|
|
|
Investor C
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
Per Share Operating Performance
|
|
Net asset value, beginning of year
|
|
|
|
$
|
13.76
|
|
|
$
|
14.04
|
|
|
$
|
13.04
|
|
|
$
|
12.73
|
|
|
$
|
16.78
|
|
|
Net investment income
1
|
|
|
|
|
0.08
|
|
|
|
0.13
|
|
|
|
0.14
|
|
|
|
0.15
|
|
|
|
0.17
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.64
|
|
|
|
(0.25
|
)
|
|
|
1.02
|
|
|
|
0.43
|
|
|
|
(2.71
|
)
|
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.72
|
|
|
|
(0.12
|
)
|
|
|
1.16
|
|
|
|
0.58
|
|
|
|
(2.54
|
)
|
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.15
|
)
|
|
|
(0.16
|
)
|
|
|
(0.16
|
)
|
|
|
(0.08
|
)
|
|
|
(0.21
|
)
|
|
Net realized gain
|
|
|
|
|
(0.31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.19
|
)
|
|
|
(1.30
|
)
|
|
Total dividends and distributions
|
|
|
|
|
(0.46
|
)
|
|
|
(0.16
|
)
|
|
|
(0.16
|
)
|
|
|
(0.27
|
)
|
|
|
(1.51
|
)
|
|
Net asset value, end of year
|
|
|
|
$
|
15.02
|
|
|
$
|
13.76
|
|
|
$
|
14.04
|
|
|
$
|
13.04
|
|
|
$
|
12.73
|
|
|
Total Investment Return
2
|
|
Based on net asset value
|
|
|
|
|
12.75
|
%
|
|
|
(0.94
|
)%
|
|
|
8.86
|
%
|
|
|
4.99
|
%
3
|
|
|
(16.66
|
)%
|
|
Ratios to Average Net Assets
|
|
Total expenses
|
|
|
|
|
1.93
|
%
4
|
|
|
1.93
|
%
|
|
|
1.94
|
%
|
|
|
1.98
|
%
|
|
|
1.94
|
%
|
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.93
|
%
4
|
|
|
1.93
|
%
|
|
|
1.94
|
%
|
|
|
1.97
|
%
|
|
|
1.94
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
1.90
|
%
4
|
|
|
1.93
|
%
|
|
|
1.94
|
%
|
|
|
1.98
|
%
|
|
|
1.94
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest
expense
|
|
|
|
|
1.90
|
%
4
|
|
|
1.92
|
%
|
|
|
1.92
|
%
|
|
|
1.98
|
%
|
|
|
1.90
|
%
|
|
Net investment income
|
|
|
|
|
0.58
|
%
4
|
|
|
0.89
|
%
|
|
|
1.05
|
%
|
|
|
1.32
|
%
|
|
|
1.14
|
%
|
|
Supplemental Data
|
|
Net assets, end of year (000)
|
|
|
|
$
|
86,947
|
|
|
$
|
81,644
|
|
|
$
|
84,367
|
|
|
$
|
72,063
|
|
|
$
|
69,584
|
|
|
Portfolio turnover
|
|
|
|
|
324
|
%
5
|
|
|
401
|
%
6
|
|
|
400
|
%
7
|
|
|
354
|
%
8
|
|
|
391
|
%
9
|
|
1
|
|
Based on average shares outstanding.
|
|
2
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
|
3
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would
have been 4.75%.
|
|
4
|
|
Ratios do not include expenses incurred
indirectly as a result of investments in underlying funds of approximately 0.05%.
|
|
5
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 254%.
|
|
6
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 236%.
|
|
7
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 302%.
|
|
8
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 227%.
|
|
9
|
|
Includes TBA transactions; excluding these
transactions the portfolio turnover would have been 121%.
|
93
General Information
Electronic Access to Annual Reports, Semi-Annual Reports and
Prospectuses
Electronic copies of most financial reports and prospectuses are
available on BlackRock’s website. Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and
prospectuses by enrolling in Managed Volatility Portfolio’s electronic delivery program. To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks
or Brokerages:
Please contact your financial professional. Please note that not all investment advisers, banks or brokerages may offer this
service.
Shareholders Who Hold Accounts Directly With
BlackRock:
|
n
|
|
Access the BlackRock website at
http://www.blackrock.com/edelivery; and
|
Delivery of Shareholder Documents
The Fund delivers only one copy of shareholder documents,
including prospectuses, shareholder reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is known as
“householding” and is intended to eliminate duplicate mailings and reduce expenses. 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 contact the Fund at (800) 441-7762.
Anti-Money Laundering Requirements
Managed Volatility Portfolio is subject to the USA PATRIOT Act
(the “Patriot Act”). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering,
terrorism or other illicit activities. Pursuant to requirements under the Patriot Act, the Fund may request information from shareholders to enable it
to form a reasonable belief that it knows the true identity of its shareholders. This information will be used to verify the identity of investors or,
in some cases, the status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Fund reserves the right to reject purchase orders from persons
who have not submitted information sufficient to allow the Fund to verify their identity. The Fund also reserves the right to redeem any amounts in the
Fund from persons whose identity it is unable to verify on a timely basis. It is the Fund’s policy to cooperate fully with appropriate regulators
in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
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 nonpublic 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 nonpublic 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 website.
94
BlackRock does not sell or disclose to nonaffiliated third parties
any nonpublic 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 nonaffiliated 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 nonpublic 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 nonpublic personal information of its Clients, including
procedures relating to the proper storage and disposal of such information.
Statement of Additional
Information
If you would like further information about Managed Volatility
Portfolio, including how it invests, please see the SAI.
For a discussion of the Fund’s policies and procedures
regarding the selective disclosure of its portfolio holdings, please see the SAI. The Fund makes its top ten holdings available on a monthly basis at
www.blackrock.com generally within 5 business days after the end of the month to which the information applies.
95
This glossary contains an explanation of some of the common terms
used in this prospectus. For additional information about Managed Volatility Portfolio, please see the SAI.
Acquired Fund Fees and Expenses
— fees and
expenses charged by other investment companies in which the Fund invests a portion of its assets.
Annual Fund Operating Expenses
— expenses that
cover the costs of operating the Fund.
Barclays U.S. Aggregate Bond Index
— an
unmanaged market-weighted index comprised of investment grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and government agency
issues with at least one year to maturity.
Citigroup World Government Bond Index
— a
market capitalization weighted bond index consisting of government bond markets of 23 countries including the United States.
Distribution Fees
— fees used to support the
Fund’s marketing and distribution efforts, such as compensating financial professionals and other financial intermediaries, advertising and
promotion.
Interest Expense
— the cost of borrowing money
to buy additional securities.
Management Fees
— fees paid to BlackRock for
portfolio management services.
MSCI All Country World Index
— a free
float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging
markets.
Other Expenses
— include accounting, transfer
agency, custody, professional and registration fees.
Service Fees
— fees used to compensate
securities dealers and other financial intermediaries for certain shareholder servicing activities.
Shareholder Fees
— fees paid directly by a
shareholder, including sales charges that you may pay when you buy or sell shares of the Fund.
96
[This page intentionally left blank]
[This page intentionally left blank]
For More Information
Fund and Service
Providers
THE FUND
BlackRock Funds
SM
BlackRock Managed Volatility Portfolio
100 Bellevue Parkway
Wilmington, Delaware 19809
Written Correspondence:
P.O. Box 9819
Providence, Rhode Island 02940-8019
Overnight Mail:
4400
Computer Drive
Westborough, Massachusetts 01588
(800) 441-7762
MANAGER AND
CO-ADMINISTRATOR
BlackRock Advisors, LLC
100 Bellevue
Parkway
Wilmington, Delaware 19809
SUB-ADVISERS
BlackRock Financial Management, Inc.
55 East 52nd Street
New York, New York 10055
BlackRock International Limited
40
Torphichen Street
Edinburgh, Scotland EH3 8JB
BlackRock (Hong Kong) Limited
16/F Cheung Kong Center
2 Queen’s Road Central
Hong Kong, China
BlackRock (Singapore) Limited
20
Anson Road, #18-01
Twenty Anson Singapore
079912 Singapore
CO-ADMINISTRATOR
BNY Mellon Investment Servicing (US)
Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
TRANSFER AGENT
BNY Mellon Investment Servicing (US)
Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
1700 Market
Street
Philadelphia, Pennsylvania 19103
ACCOUNTING SERVICES
PROVIDER
BNY Mellon Investment Servicing (US)
Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
DISTRIBUTOR
BlackRock Investments, LLC
40 East
52nd Street
New York, New York 10022
CUSTODIAN
The Bank of New York Mellon
One Wall
Street
New York, New York 10286
COUNSEL
Sidley Austin LLP
787 Seventh
Avenue
New York, New York 10019-6018
This prospectus contains important
information you should know before investing, including information about risks. Read it carefully and keep it for future reference. More information
about the Fund is available at no charge upon request. This information includes:
Annual/Semi-Annual Reports
These reports contain additional
information about the Fund’s investments. The annual report describes the Fund’s performance, lists portfolio holdings, and discusses recent
market conditions, economic trends and Fund investment strategies that significantly affected the Fund’s performance for the last fiscal
year.
Statement of Additional Information
A Statement of Additional
Information (“SAI”), dated January 28, 2013, has been filed with the Securities and Exchange
Commission (“SEC”). The SAI, which includes additional information about the Fund, may be obtained free of charge, along with the Fund’s
annual and semi-annual reports, by calling (800) 441-7762. The SAI, as supplemented from time to time, is incorporated by reference into this
prospectus.
BlackRock Investor Services
Representatives are available to
discuss account balance information, mutual fund prospectuses, literature, programs and services available. Hours: 8:00 a.m. to 6:00 p.m. (Eastern
time), on any business day. Call: (800) 441-7762.
Purchases and Redemptions
Call your financial professional or
BlackRock Investor Services at (800) 441-7762.
World Wide Web
General fund information and
specific fund performance, including the SAI and annual/semi-annual reports, can be accessed free of charge at www.blackrock.com/prospectus. Mutual
fund prospectuses and literature can also be requested via this website.
Written Correspondence
BlackRock Funds
SM
P.O. Box 9819
Providence, RI 02940-8019
Overnight Mail
BlackRock Funds
SM
4400 Computer Drive
Westborough, MA 01588
Internal Wholesalers/Broker Dealer Support
Available to support investment
professionals 8:30 a.m. to 6:00 p.m. (Eastern time), on any business day. Call: (800) 882-0052.
Portfolio Characteristics and Holdings
A description of the Fund’s
policies and procedures related to disclosure of portfolio characteristics and holdings is available in the SAI.
For information about portfolio
holdings and characteristics, BlackRock fund shareholders and prospective investors may call (800) 882-0052.
Securities and Exchange Commission
You may also view and copy public
information about the Fund, including the SAI, by visiting the EDGAR database on the SEC’s website (http://www.sec.gov) or the SEC’s
Public Reference Room in Washington, D.C. Copies of this information can be obtained, for a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov, or by writing to the Public Reference Room of the SEC, Washington, D.C. 20549. Information about obtaining
documents on the SEC’s website without charge can be obtained by calling the SEC directly at (800) SEC-0330.
You should rely only on the
information contained in this prospectus. No one is authorized to provide you with information that is different from information contained in this
prospectus.
The Securities and Exchange
Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
BLACKROCK FUNDS
SM
:
INVESTMENT COMPANY ACT FILE NO. 811-05742
© BlackRock Advisors, LLC
JANUARY 28,
2013
|
PROSPECTUS
|
|
|
BlackRock
Funds
SM
| Service
Shares
|
>
|
|
BlackRock Managed Volatility Portfolio
Service:
PCBSX
|
This Prospectus contains information
you should know before investing, including information about risks. Please read it before you invest and keep it for future
reference.
The Securities and Exchange
Commission has not approved or disapproved these securities or passed upon the adequacy of this Prospectus. Any representation to the contrary is a
criminal offense.
|
Not FDIC Insured • No Bank Guarantee • May
Lose
Value
|
Table of
Contents
|
Fund Overview
|
|
|
|
Key facts and details about the Fund including investment objective, principal strategies, risk factors, fee and expense information, and
historical performance information
|
|
|
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
4
|
|
|
|
|
|
|
|
|
|
5
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
12
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
|
|
|
|
|
13
|
|
|
|
|
Details About the Fund
|
|
|
|
|
|
|
14
|
|
|
|
|
|
|
|
|
|
17
|
|
|
|
|
|
|
|
|
|
31
|
|
|
|
|
Account Information
|
|
|
|
Information about account services, sales charges & waivers, shareholder transactions, and distribution and other
payments
|
|
|
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
68
|
|
|
|
|
|
|
|
|
|
69
|
|
|
|
|
|
|
|
|
|
72
|
|
|
|
|
|
|
|
|
|
73
|
|
|
|
|
Management of the Fund
|
|
|
|
Information about BlackRock and the Portfolio Manager
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
76
|
|
|
|
|
|
|
|
|
|
77
|
|
|
|
|
|
|
|
|
|
78
|
|
|
|
|
Financial Highlights
|
|
|
|
|
|
|
80
|
|
|
|
|
General Information
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
81
|
|
|
|
|
|
|
|
|
|
82
|
|
|
|
|
Glossary
|
|
|
|
|
|
|
83
|
|
|
|
|
For More Information
|
|
|
|
|
|
|
Inside Back Cover
|
|
|
|
|
|
|
|
|
|
Back Cover
|
|
Fund Overview
The investment objective of BlackRock Managed Volatility
Portfolio, formerly BlackRock Asset Allocation Portfolio (“Managed Volatility Portfolio” or the “Fund”), a series of BlackRock
Funds
SM
(the “Trust”), is to seek total return.
Fees and Expenses of the
Fund
This table describes the fees and expenses that you may pay if you
buy and hold shares of Managed Volatility Portfolio.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
Service Shares
|
|
Management Fee
1
|
|
|
|
|
0.55
|
%
|
|
Distribution and/or Service (12b-1) Fees
|
|
|
|
|
0.25
|
%
|
|
Other Expenses
|
|
|
|
|
0.47
|
%
|
|
Interest Expense
|
|
|
|
|
0.01
%
|
|
|
Miscellaneous Other Expenses
|
|
|
|
|
0.46%
|
|
|
Acquired Fund Fees and Expenses
2
|
|
|
|
|
0.05
|
%
|
|
Total Annual Fund Operating Expenses
2
|
|
|
|
|
1.32
|
%
|
|
Fee Waivers and/or Expense Reimbursements
3
|
|
|
|
|
(0.09
|
)%
|
|
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense
Reimbursements
3
|
|
|
|
|
1.23
|
%
|
|
1
|
|
The Management Fee payable by
the Fund is based on assets estimated to be attributable to the Fund’s direct investments in fixed-income and equity
securities and instruments, including exchange-traded funds (“ETFs”) advised by BlackRock Advisors, LLC
(“BlackRock”) or other investment advisers, other investments and cash and cash equivalents (including money market
funds). BlackRock has contractually agreed to waive the Management Fee on assets estimated to be attributed to the
Fund’s investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates
(the “mutual funds”).
|
|
2
|
|
The Total Annual Fund Operating Expenses do not
correlate to the ratio of expenses to average net assets given in the Fund’s most recent annual report which does not include the Acquired
Fund Fees and Expenses.
|
|
3
|
|
As described in the “Management of the
Fund” section of the Fund’s prospectus on pages 75-79, BlackRock has contractually agreed to waive and/or
reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend
Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.17% of average daily net assets until
February 1, 2014. The Fund may have to repay some of these waivers and/or reimbursements to BlackRock in the
following two years. The agreement may be terminated upon 90 days’ notice by a majority of the non-interested trustees of the Trust or by a vote
of a majority of the outstanding voting securities of the Fund.
|
Example:
This Example is intended to help you compare the cost of investing
in the Fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the
Fund’s operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would
be:
|
|
|
|
1 Year
|
|
3 Years
|
|
5 Years
|
|
10 Years
|
|
Service Shares
|
|
|
|
$
|
125
|
|
|
$
|
409
|
|
|
$
|
715
|
|
|
$
|
1,582
|
|
Portfolio Turnover:
The Fund pays transaction costs, such as commissions, when it buys
and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may result in
higher taxes when shares are held in a taxable account. These costs, which are not reflected in annual fund operating expenses or in the example,
affect the Fund’s performance. During the most recent fiscal year, the Fund’s portfolio turnover rate was
324% of the average value of its portfolio.
3
Principal Investment
Strategies of the Fund
Managed Volatility Portfolio uses an asset allocation strategy,
investing varying percentages of its portfolio in three major categories: stocks, bonds and money market instruments. The Fund has wide flexibility in
the relative weightings given to each category.
The Fund may also invest a significant portion of its assets in
affiliated and unaffiliated ETFs and mutual funds. See “Information About the ETFs and Mutual Funds.”
With respect to its equity investments, the Fund may invest in
ETFs, mutual funds or individual equity securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in common stock,
preferred stock, securities convertible into common stock, non-convertible preferred stock and depositary receipts. The Fund, the ETFs and the mutual
funds may invest in securities of both U.S. and non-U.S. issuers without limit, which can be U.S. dollar-based or non-U.S. dollar-based and may be
currency hedged or unhedged. The Fund, the ETFs and the mutual funds may invest in securities of companies of any market
capitalization.
With respect to its fixed-income investments, the Fund may invest
in ETFs, mutual funds or individual fixed-income securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in a portfolio
of fixed-income securities such as corporate bonds and notes, commercial and residential mortgage-backed securities (bonds that are backed by a
mortgage loan or pools of loans secured either by commercial property or residential mortgages, as applicable), collateralized mortgage obligations
(bonds that are backed by cash flows from pools of mortgages and may have multiple classes with different payment rights and protections),
collateralized debt obligations, asset-backed securities, convertible securities, debt obligations of governments and their sub-divisions (including
those of non-U.S. governments), other floating or variable rate obligations, municipal obligations and zero coupon debt securities. The Fund, the ETFs
and the mutual funds may also invest a significant portion of their assets in non-investment grade bonds (junk bonds or distressed securities),
non-investment grade bank loans, foreign bonds (both U.S. dollar- and non-U.S. dollar-denominated) and bonds of emerging market issuers. The Fund, the
ETFs and the mutual funds may invest in non-U.S. dollar-denominated bonds on a currency hedged or unhedged basis.
With respect to its cash investments, the Fund may hold high
quality money market securities, including short term U.S. Government securities, U.S. Government agency securities, securities issued by U.S.
Government-sponsored enterprises and U.S. Government instrumentalities, bank obligations, commercial paper, including asset-backed commercial paper,
corporate notes and repurchase agreements. The Fund may invest a significant portion of its assets in money market funds, including those advised by
BlackRock or its affiliates.
The Fund may invest in derivatives, including, but not limited to,
interest rate, total return and credit default swaps, indexed and inverse floating rate securities, options, futures, options on futures and swaps and
foreign currency transactions (including swaps), for hedging purposes, as well as to increase the return on its portfolio investments. The Fund may
seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may also use forward foreign currency exchange contracts
(obligations to buy or sell a currency at a set rate in the future) to hedge against movement in the value of non-U.S. currencies. The ETFs and the
mutual funds may, to varying degrees, also invest in derivatives.
The Fund may invest in U.S. and non-U.S. real estate investment
trusts (“REITs”), structured products (including, but not limited to, structured notes, credit linked notes and participation notes, or other
instruments evidencing interests in special purpose vehicles, trusts, or other entities that hold or represent interests in fixed-income securities)
and floating rate securities (such as bank loans).
The Fund incorporates a volatility control process that seeks to
reduce risk when portfolio volatility is expected to deviate from the Fund’s targeted total return volatility of 10% over a one-year period.
Volatility is a statistical measurement of the magnitude of up and down fluctuations in the value of a financial instrument or index over time.
Volatility may result in rapid and dramatic price swings. While BlackRock attempts to manage the Fund’s volatility exposure to stabilize
performance, there can be no guarantee that the Fund will reach its target volatility. The Fund will adjust its asset allocation in response to periods
of high or low expected volatility. The Fund may without limitation allocate assets into cash or short-term fixed-income securities, and away from
riskier assets such as equity and high yield fixed-income securities. When volatility decreases, the Fund may move assets out of cash and back into
riskier securities. At any given time, the Fund may be invested entirely in equities, fixed-income or cash. As part of its attempt to manage the
Fund’s volatility exposure, during certain periods the Fund may make significant investments in index futures or other
derivative instruments designed to reduce the Fund’s exposure to portfolio volatility. The Fund may engage in active and frequent
trading of portfolio securities to achieve its primary investment strategies.
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Risk is inherent in all investing. The value of your investment in
Managed Volatility Portfolio, as well as the amount of return you receive on your investment, may fluctuate significantly from day to day and over
time. You may lose part or all of your investment in the Fund or your investment may not perform as well as other similar investments. The principal
risks set forth below are the principal risks of investing in the Fund and/or the ETFs and the mutual funds (each, an
“Underlying Fund”).
Principal Risks of the Fund’s Fund of Funds
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Affiliated Fund Risk
— In managing the Fund,
BlackRock will have authority to select and substitute ETFs or mutual funds. BlackRock may be subject to potential conflicts of interest in selecting
ETFs or mutual funds because the fees paid to BlackRock by some ETFs or mutual funds are higher than the fees paid by other ETFs or mutual funds.
However, BlackRock is a fiduciary to the Fund and is legally obligated to act in the Fund’s best interests when selecting ETFs and mutual
funds.
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Allocation Risk
— The Fund’s ability to
achieve its investment objective depends upon BlackRock’s skill in determining the Fund’s strategic asset class allocation and in selecting
the best mix of ETFs, mutual funds and direct investments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or
ETFs or mutual funds may be incorrect in view of actual market conditions.
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Investments in ETFs and Other Mutual Funds Risk
— The Fund’s net asset value will change with changes in the value of the ETFs, mutual funds and other securities in which it invests. As
with other investments, investments in other investment companies, including ETFs, are subject to market risk and, for non-index strategies, selection
risk. In addition, if the Fund acquires shares of investment companies, including ETFs, shareholders bear both their proportionate share of expenses in
the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies. If the Fund acquires shares of affiliated
mutual funds, shareholders bear both their proportionate share of expenses in the Fund (excluding management and advisory fees) and, indirectly, the
expenses of the mutual funds. To the extent the Fund is held by an affiliated fund, the ability of the Fund itself to hold other investment companies
may be limited.
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One ETF or mutual fund may buy the same securities that another
ETF or mutual fund sells. In addition, the Fund may buy the same securities that an ETF or mutual fund sells, or vice-versa. If this happens, an
investor in the Fund would indirectly bear the costs of these transactions without accomplishing the intended investment purpose. Also, an investor in
the Fund may receive taxable gains from portfolio transactions by an ETF or mutual fund, as well as taxable gains from transactions in shares of the
ETF or mutual fund by the Fund. Certain of the ETFs or mutual funds may hold common portfolio securities, thereby reducing the diversification benefits
of the Fund.
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Principal ETF-Specific Risks
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Cash Transaction Risk
— Certain ETFs intend to
effect creations and redemptions principally for cash, rather than primarily in-kind because of the nature of the ETF’s investments. Investments
in such ETFs may be less tax efficient than investments in ETFs that effect creations and redemptions in-kind.
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Management Risk
— If an ETF does not fully
replicate the underlying index, it is subject to the risk that the manager’s investment management strategy may not produce the intended
results.
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Passive Investment Risk
— ETFs purchased by the
Fund are not actively managed and may be affected by a general decline in market segments relating to their respective indices. An ETF typically
invests in securities included in, or representative of, its index regardless of their investment merits and does not attempt to take defensive
positions in declining markets.
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Representative Sampling Risk
— When an ETF
deviates from a full replication indexing strategy to utilize a representative sampling strategy, the ETF is subject to an increased risk of tracking
error, in that the securities selected in the aggregate for the ETF may not have an investment profile similar to those of its index.
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Shares of an ETF May Trade at Prices Other Than Net Asset
Value
— The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based on market supply and demand
rather than net asset value. The trading prices of an ETF’s shares may deviate significantly from net asset value during periods of market
volatility. Any of these factors may lead to an ETF’s shares trading at a premium or discount to net asset value. However, because shares can be
created and redeemed in Creation Units, which are aggregated blocks of shares that authorized participants who have entered into agreements with the
ETF’s distributor can purchase or redeem directly from the ETF, at net asset value, large discounts or premiums to the net asset value of an ETF
are not likely to be sustained over the long term. If a shareholder purchases at a time when the market price is at a premium to the net asset value or
sells at a time when the market price is at a discount to the net asset value, the shareholder may sustain losses.
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Tracking Error Risk
— Imperfect correlation
between an ETF’s portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETF’s size, changes to the
index and regulatory requirements may cause tracking error, which is the divergence of an ETF’s performance from that of its underlying index.
This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result because an
ETF incurs fees and expenses while its underlying index does not.
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Other Principal Risks of Investing in the Fund and/or an
Underlying Fund
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Collateralized Debt Obligations Risk
— The pool
of high yield securities underlying collateralized debt obligations is typically separated into groupings called tranches representing different
degrees of credit quality. The higher quality tranches have greater degrees of protection and pay lower interest rates. The lower tranches, with
greater risk, pay higher interest rates.
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Concentration Risk
— To the extent that the
Fund’s or an Underlying Fund’s portfolio reflects concentration in the securities of issuers in a particular region, market, industry,
group of industries, country, group of countries, sector or asset class, the Fund or the Underlying Fund may be adversely affected by the
performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or
regulatory occurrences affecting that region, market, industry, group of industries, country, group of countries, sector or asset class.
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Convertible Securities Risk
— The market value
of a convertible security performs like that of a regular debt security; that is, if market interest rates rise, the value of a convertible security
usually falls. In addition, convertible securities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and
their market value may change based on changes in the issuer’s credit rating or the market’s perception of the issuer’s
creditworthiness. Since it derives a portion of its value from the common stock into which it may be converted, a convertible security is also subject
to the same types of market and issuer risks that apply to the underlying common stock.
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Corporate Loans Risk
— Commercial banks and
other financial institutions or institutional investors make corporate loans to companies that need capital to grow or restructure. Borrowers generally
pay interest on corporate loans at rates that change in response to changes in market interest rates such as the London Interbank Offered Rate
(“LIBOR”) or the prime rates of U.S. banks. As a result, the value of corporate loan investments is generally less exposed to the adverse
effects of shifts in market interest rates than investments that pay a fixed rate of interest. The market for corporate loans may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement periods. The corporate loans in which the Fund or an Underlying Fund
invests are usually rated below investment grade.
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Counterparty Risk
— The counterparty to an
over-the-counter derivatives contract or a borrower of the Fund’s or an Underlying Fund’s securities may be unable or unwilling to
make timely principal, interest or settlement payments, or otherwise to honor its obligations.
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Credit Risk
— Credit risk refers to the
possibility that the issuer of a security will not be able to make payments of interest and principal when due. The degree of credit risk depends on
the issuer’s financial condition and on the terms of the securities.
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Debt Securities Risk
— Debt securities, such as
bonds, involve credit risk. Debt securities are also subject to interest rate risk.
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Derivatives Risk
— The Fund’s or an
Underlying Fund’s use of derivatives may reduce the Fund’s or the Underlying Fund’s returns and/or increase volatility.
Volatility is defined as the characteristic of a security, an index or a market to fluctuate significantly in price within a short time period.
Derivatives are also subject to counterparty risk, which is the risk that the other party in the transaction will not fulfill its contractual
obligation. A risk of the Fund’s or an Underlying Fund’s use of derivatives is that the fluctuations in their values may not correlate
perfectly with the overall securities markets. The possible lack of a liquid secondary market for derivatives and the resulting inability of the Fund
or an Underlying Fund to sell or otherwise close a derivatives position could expose the Fund or the Underlying Fund to losses and could
make derivatives more difficult for the Fund or the Underlying Fund to value accurately. Derivatives may give rise to a form of leverage and may
expose the Fund or an Underlying Fund to greater risk and increase its costs. Recent legislation calls for new regulation of the derivatives
markets. The extent and impact of the regulation is not yet known and may not be known for some time. New regulation may make derivatives more costly,
may limit the availability of derivatives, or may otherwise adversely affect the value or performance of derivatives.
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Distressed Securities Risk
— Distressed
securities are speculative and involve substantial risks in addition to the risks of investing in junk bonds. The Fund and the Underlying Funds
will generally not receive interest payments on the distressed securities and may incur costs to protect its investment. In addition, distressed
securities involve the substantial risk that principal will not be repaid. These securities may present a substantial risk of default or may be in
default at the time of investment.
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Dollar Rolls Risk
— Dollar rolls involve the
risk that the market value of the securities that the Fund or an Underlying Fund is committed to buy may decline below the price of the
securities the Fund or the Underlying Fund has sold. These transactions may involve leverage.
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Emerging Markets Risk
— Emerging markets are
riskier than more developed markets because they tend to develop unevenly and may never fully develop. Investments in emerging markets may be
considered speculative. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S.
investors. In addition, many emerging securities markets have far lower trading volumes and less liquidity than developed markets.
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Equity Securities Risk
— Stock markets are
volatile. The price of equity securities fluctuates based on changes in a company’s financial condition and overall market and economic
conditions.
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Extension Risk
— When interest rates rise,
certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these securities to fall.
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Foreign Securities Risk
— Foreign investments
often involve special risks not present in U.S. investments that can increase the chances that the Fund or an Underlying Fund will lose money.
These risks include:
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The Fund and the Underlying Funds generally hold
their foreign securities and cash in foreign banks and securities depositories, which may be recently organized or new to the foreign
custody business and may be subject to only limited or no regulatory oversight.
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Changes in foreign currency exchange rates can affect the value of
the Fund’s or an Underlying Fund’s portfolio.
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The economies of certain foreign markets may not compare favorably
with the economy of the United States with respect to such issues as growth of gross national product, reinvestment of capital, resources and balance
of payments position.
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The governments of certain countries may prohibit or impose
substantial restrictions on foreign investments in their capital markets or in certain industries.
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Many foreign governments do not supervise and regulate stock
exchanges, brokers and the sale of securities to the same extent as does the United States and may not have laws to protect investors that are
comparable to U.S. securities laws.
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Settlement and clearance procedures in certain foreign markets may
result in delays in payment for or delivery of securities not typically associated with settlement and clearance of U.S.
investments.
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The European financial markets have recently experienced
volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of several European countries. These events
have adversely affected the exchange rate of the Euro and may spread to other countries in Europe, including countries that do not use the Euro. These
events may affect the value and liquidity of certain of the Fund’s or an Underlying Fund’s investments.
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High Portfolio Turnover Risk
— High portfolio
turnover (more than 100%) may result in increased transaction costs to the Fund or an Underlying Fund and potentially higher capital gains or
losses for shareholders. The effects of higher than normal portfolio turnover may adversely affect Fund or Underlying Fund
performance.
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Indexed and Inverse Securities Risk
— Certain
indexed and inverse securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Fund’s or
an Underlying Fund’s investment in such instruments may decline significantly in value if interest rates or index levels move in a way Fund
or Underlying Fund management does not anticipate.
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Inflation Indexed Bonds Risk
— The principal
value of an investment is not protected or otherwise guaranteed by virtue of the Fund’s or an Underlying Fund’s investments in
inflation-indexed bonds.
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Inflation-indexed bonds are fixed-income securities whose
principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced.
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Repayment of the original bond principal upon maturity (as
adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the
adjusted principal value of the bond repaid at maturity may be less than the original principal value.
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The value of inflation-indexed bonds is expected to change in
response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation.
If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed
bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their principal until maturity.
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Periodic adjustments for inflation to the principal amount of an
inflation-indexed bond may give rise to original issue discount, which will be includable in the Fund’s or an Underlying Fund’s gross
income. Due to original issue discount, the Fund or an Underlying Fund may be required to make annual distributions to shareholders that exceed
the cash received, which may cause the Fund or the Underlying Fund to liquidate certain investments when it is not advantageous to do so. Also,
if the principal value of an inflation-indexed bond is adjusted downward due to deflation, amounts previously distributed in the taxable year may be
characterized in some circumstances as a return of capital.
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Interest Rate Risk
— 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. In general, the
market price of debt securities with longer maturities will go up or down more in response to changes in interest rates than the market price of
shorter term securities.
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Investment Style Risk
— Under certain market
conditions, growth investments have performed better during the later stages of economic expansion and value investments have performed better during
periods of economic recovery. Therefore, these investment styles may over time go in and out of favor. At times when the investment style used by the
Fund or Underlying Fund is out of favor, the Fund or Underlying Fund may underperform other funds that use different investment
styles.
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Junk Bonds Risk
— Although junk bonds generally
pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that may cause income and principal losses for the
Fund or Underlying Fund.
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Leverage Risk
— Some transactions may give rise
to a form of economic leverage. These transactions may include, among others, derivatives, and may expose the Fund or an Underlying Fund to
greater risk and increase its costs. The use of leverage may cause the Fund or an Underlying Fund to liquidate portfolio positions when it may
not be advantageous to do so to satisfy its obligations or to meet any required asset segregation requirements. Increases and decreases in the value of
the Fund’s or an Underlying Fund’s portfolio will be magnified when the Fund or the Underlying Fund uses leverage.
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Liquidity Risk
— Liquidity risk exists when
particular investments are difficult to purchase or sell. The Fund’s or an Underlying Fund’s investments in illiquid securities may
reduce the returns of the Fund or the Underlying Fund because it may be difficult to sell the illiquid securities at an advantageous time or
price. To the extent that the Fund’s or an Underlying Fund’s principal investment strategies involve derivatives or securities with
substantial market and/or credit risk, the Fund or the Underlying Fund will tend to have the greatest exposure to liquidity risk. Liquid
investments may become illiquid after purchase by the Fund or an Underlying Fund, particularly during periods of market turmoil. Illiquid
investments may be harder to value, especially in changing markets, and if the Fund or the Underlying Fund is forced to sell these
investments to meet redemption requests or for other cash needs, the Fund or the Underlying Fund may suffer a loss. In addition, when there is
illiquidity in the market for certain securities, the Fund or an Underlying Fund, due to limitations on illiquid investments, may be subject to
purchase and sale restrictions.
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Market Risk and Selection Risk
— Market risk is
the risk that one or more markets in which the Fund or an Underlying Fund invests will go down in value, including the possibility that the
markets will go down sharply and unpredictably. Selection risk is the risk that the securities selected by Fund or Underlying Fund management
will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment
strategies. This means you may lose money.
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Mid-Cap Securities Risk
— The securities of
mid-cap companies generally trade in lower volumes and are generally subject to greater and less predictable price changes than the securities of
larger capitalization companies.
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Mortgage- and Asset-Backed Securities Risks
—
Mortgage- and asset-backed securities represent interests in “pools” of mortgages or other assets, including consumer loans or receivables
held in trust. Mortgage- and asset-backed securities are subject to credit, interest rate, prepayment and extension risks. These securities
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are subject to risk of default on the underlying mortgage or
asset, particularly during periods of economic downturn. Small movements in interest rates (both increases and decreases) may quickly and significantly
reduce the value of certain mortgage-backed securities.
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Municipal Securities Risks
— Municipal
securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal
securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. These risks
include:
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General Obligation Bonds Risks
— Timely payments
depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax base.
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Revenue Bonds Risks
— These payments depend on the
money earned by the particular facility or class of facilities, or the amount of revenues derived from another source.
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Private Activity Bonds Risks
— Municipalities and
other public authorities issue private activity bonds to finance development of industrial facilities for use by a private enterprise. The private
enterprise pays the principal and interest on the bond, and the issuer does not pledge its faith, credit and taxing power for repayment.
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Moral Obligation Bonds Risks
— Moral obligation bonds
are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of
these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
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Municipal Notes Risks
— Municipal notes are shorter
term municipal debt obligations. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund or an
Underlying Fund may lose money.
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Municipal Lease Obligations Risks
— In a municipal
lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not pledge its unlimited taxing power
for payment of the lease obligation, the lease obligation is secured by the leased property.
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Preferred Securities Risk
— Preferred
securities may pay fixed or adjustable rates of return. Preferred securities are subject to issuer-specific and market risks applicable generally to
equity securities.
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Prepayment Risk
— When interest rates fall,
certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund or an Underlying Fund may have to
invest the proceeds in securities with lower yields.
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Real Estate Related Securities Risks
— The main
risk of real estate related securities is that the value of the underlying real estate may go down. Many factors may affect real estate values. These
factors include both the general and local economies, the amount of new construction in a particular area, the laws and regulations (including zoning
and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate. The availability of mortgages and changes in
interest rates may also affect real estate values. If the Fund’s or an Underlying Fund’s real estate related investments are
concentrated in one geographic area or in one property type, the Fund or the Underlying Fund will be particularly subject to the risks
associated with that area or property type.
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REIT Investment Risk
— Investments in REITs
involve unique risks. REITs may have limited financial resources, may trade less frequently and in limited volume and may be more volatile than other
securities.
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Repurchase Agreements and Purchase and Sale Contracts
Risks
— If the other party to a repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the
Fund or an Underlying Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to
repurchase the security in either situation and the market value of the security declines, the Fund or an Underlying Fund may lose
money.
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Reverse Repurchase Agreements Risk
— Reverse
repurchase agreements involve the risk that the other party to the reverse repurchase agreement may fail to return the securities in a timely manner or
at all. The Fund or an Underlying Fund could lose money if it is unable to recover the securities and the value of the collateral held by the
Fund or the Underlying Fund, including the value of the investments made with cash collateral, is less than the value of securities. These
events could also trigger adverse tax consequences to the Fund or an Underlying Fund.
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Risks of Loan Assignments and Participations
—
As the purchaser of an assignment, the Fund or an Underlying Fund typically succeeds to all the rights and obligations of the assigning
institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the Fund or an Underlying Fund may not
be able unilaterally to enforce all rights and remedies under the loan and with regard to any associated collateral. Because assignments may be
arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Fund or an
Underlying Fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. In addition, if
the loan is foreclosed, the Fund or an Underlying Fund could become part owner of any collateral and could bear the costs and liabilities of
owning and
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disposing of the collateral. The Fund or an Underlying Fund
may be required to pass along to a purchaser that buys a loan from the Fund or the Underlying Fund by way of assignment a portion of any
fees to which the Fund or the Underlying Fund is entitled under the loan. In connection with purchasing participations, the Fund or an
Underlying Fund generally will have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor
any rights of set-off against the borrower, and the Fund or an Underlying Fund may not directly benefit from any collateral supporting the loan
in which it has purchased the participation. As a result, the Fund or an Underlying Fund will be subject to the credit risk of both the borrower
and the lender that is selling the participation. In the event of the insolvency of the lender selling a participation, the Fund or an Underlying
Fund may be treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.
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Second Lien Loans Risk
— Second lien loans
generally are subject to similar risks as those associated with investments in senior loans. Because second lien loans are subordinated or unsecured
and thus lower in priority of payment to senior loans, they are subject to the additional risk that the cash flow of the borrower and property securing
the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the
borrower.
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Senior Loans Risk
—There is less readily
available, reliable information about most senior loans than is the case for many other types of securities. An economic downturn generally leads to a
higher non-payment rate, and a senior loan may lose significant value before a default occurs. Moreover, any specific collateral used to secure a
senior loan may decline in value or become illiquid, which would adversely affect the senior loan’s value. No active trading market may exist for
certain senior loans, which may impair the ability of the Fund or an Underlying Fund to realize full value in the event of the need to sell a
senior loan and which may make it difficult to value senior loans. Although senior loans in which the Fund or an Underlying Fund will invest
generally will be secured by specific collateral, there can be no assurance that liquidation of such collateral would satisfy the borrower’s
obligation in the event of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. To the extent that a
senior loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of the bankruptcy of the
borrower. Uncollateralized senior loans involve a greater risk of loss. The senior loans in which the Fund or an Underlying Fund invests are
usually rated below investment grade.
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Small Cap and Emerging Growth Securities Risks
— Small cap or emerging growth companies may have limited product lines or markets. They may be less financially secure than larger, more
established companies. They may depend on a more limited management group than larger capitalized companies.
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Sovereign Debt Risk
— Sovereign debt
instruments are subject to the risk that a governmental entity may delay or refuse to pay interest or repay principal on its sovereign debt, due, for
example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s
debt position in relation to the economy or the failure to put in place economic reforms required by the International Monetary Fund or other
multilateral agencies.
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Structured Notes Risk
— Structured notes and
other related instruments purchased by the Fund or an Underlying Fund are generally privately negotiated debt obligations where the principal
and/or interest is determined by reference to the performance of a specific asset, benchmark asset, market or interest rate
(“reference measure”). The purchase of structured notes exposes the Fund or an Underlying Fund to the credit risk of the issuer of the
structured product. Structured notes may be leveraged, increasing the volatility of each structured note’s value relative to the change in
the reference measure. Structured notes may also be less liquid and more difficult to price accurately than less complex securities and
instruments or more traditional debt securities.
|
|
n
|
|
Structured Products Risk
— Holders of
structured products bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund or an
Underlying Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the
issuer or the entity that sold the assets to be securitized. Certain structured products may be thinly traded or have a limited trading market. In
addition to the general risks associated with debt securities discussed herein, structured products carry additional risks, including, but not limited
to: the possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the
collateral may decline in value or default; and the possibility that the structured products are subordinate to other classes.
|
|
n
|
|
Supranational Entities Risk
— The Fund or an
Underlying Fund may invest in obligations issued or guaranteed by the International Bank for Reconstruction and Development (the World Bank). If
one or more stockholders of the World Bank fail to make necessary additional capital contributions, the entity may be unable to pay interest or repay
principal on its debt securities, and the Fund or an Underlying Fund may lose money on such investments.
|
10
|
n
|
|
Tender Option Bonds and Related Securities Risk
— Investments in tender option bonds, residual interest tender option bonds and inverse floaters expose the Fund or an Underlying Fund to
the same risks as investments in derivatives, as well as risks associated with leverage, described above, especially the risk of increased volatility.
An investment in these securities may be subject to the risk of loss of principal. Residual interest tender option bonds and inverse floaters generally
will underperform the market for fixed rate municipal securities in a rising interest rate environment.
|
|
n
|
|
U.S. Government Mortgage-Related Securities Risk
— There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities guaranteed by the Government National Mortgage Association
(“Ginnie Mae”) are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith
and credit of the United States. Ginnie Mae securities also are supported by the right of Ginnie Mae to borrow funds from the U.S. Treasury to make
payments under its guarantee. Mortgage-related securities issued by The Federal National Mortgage Association (“Fannie Mae”) or The Federal
Home Loan Mortgage Corporation (“Freddie Mac”) are solely the obligations of Fannie Mae or Freddie Mac, as the case may be, and are not
backed by or entitled to the full faith and credit of the United States but are supported by the right of the issuer to borrow from the U.S.
Treasury.
|
|
n
|
|
U.S. Government Obligations Risk
— Certain
securities in which the Fund or an Underlying Fund may invest, including securities issued by certain U.S. Government agencies and U.S.
Government sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of the United States.
|
|
n
|
|
Variable and Floating Rate Instrument Risk
—
The absence of an active market for these securities could make it difficult for the Fund or an Underlying Fund to dispose of them if the issuer
defaults.
|
|
n
|
|
Warrants Risk
— If the price of the underlying
stock does not rise above the exercise price before the warrant expires, the warrant generally expires without any value and the Fund or an
Underlying Fund loses any amount it paid for the warrant. Thus, investments in warrants may involve substantially more risk than investments in
common stock.
|
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n
|
|
Zero Coupon Securities Risk
— While interest
payments are not made on such securities, holders of such securities are deemed to have received income (“phantom income”) annually,
notwithstanding that cash may not be received currently. Some of these securities may be subject to substantially greater price fluctuations during
periods of changing market interest rates than are comparable securities that pay interest currently. Longer term zero coupon bonds are more exposed to
interest rate risk than shorter term zero coupon bonds.
|
Effective May 15, 2012, Managed Volatility Portfolio changed its
investment strategy to invest a significant portion of its assets in ETFs and, to a lesser extent, in mutual funds and directly in securities.
Performance for the periods prior to May 15, 2012 shown below is based on the investment strategy utilized by the Fund, which focused on
investing directly in securities.
On January 31, 2005, the Fund reorganized with the State Street Research Asset Allocation Fund (the
“SSR Fund”), which had investment objectives and strategies similar to the Fund. For periods prior to January 31,
2005, the chart and table show performance information for the SSR Fund. The information shows you how the Fund’s
performance has varied year by year and provides some indication of the risks of investing in the Fund. The table compares
the Fund’s performance to that of the MSCI All Country World Index (the “MSCI ACWI Index”), the Citigroup
World Government Bond Index (hedged into USD) (the “Citigroup WGBI (hedged into USD)”), the Barclays U.S. Aggregate
Bond Index and two customized weighted indices comprised of the returns of the MSCI ACWI Index, the Citigroup WGBI (hedged
into USD) and the Barclays U.S. Aggregate Bond Index in the percentages and combinations set forth in the table. Effective
May 15, 2012, the Fund changed one of the components making up the customized weighted index from the Barclays U.S. Aggregate
Bond Index to the Citigroup WGBI (hedged into USD). Fund management believes that the Citigroup WGBI (hedged into USD) better
reflects the Fund’s increasing global exposure. As with all such investments, past performance (before and after taxes)
is not an indication of future results. Sales charges are not reflected in the bar chart. If they were, returns would be less
than those shown. However, the table includes all applicable fees and sales charges. If BlackRock and its affiliates had not
waived or reimbursed certain Fund expenses during these periods, the Fund’s returns would have been lower. Updated
information on the Fund’s results can be obtained by visiting http://www.blackrock.com/funds or can be obtained by phone
at (800) 882-0052.
11
Service Shares
ANNUAL TOTAL RETURNS
1
BlackRock Managed Volatility Portfolio
As of 12/31
During the ten-year period shown in the bar chart, the highest return for a quarter was 13.78% (quarter ended September 30, 2009) and the
lowest return for a quarter was –13.12% (quarter ended December 31, 2008).
As of 12/31/12
Average Annual Total Returns
|
|
|
|
1 Year
|
|
5 Years
1
|
|
10 Years
1
|
|
BlackRock Managed Volatility Portfolio — Service Shares
|
|
Return Before Taxes
|
|
|
|
|
11.98
|
%
|
|
|
2.64
|
%
|
|
|
7.35
|
%
|
|
Return After Taxes on Distributions
|
|
|
|
|
10.58
|
%
|
|
|
1.99
|
%
|
|
|
6.39
|
%
|
|
Return After Taxes on Distributions and Sale of Shares
|
|
|
|
|
8.50
|
%
|
|
|
2.04
|
%
|
|
|
6.13
|
%
|
|
MSCI ACWI Index
(Reflects no deduction for fees, expenses or taxes)
|
|
|
|
|
16.13
|
%
|
|
|
(1.16
|
)%
|
|
|
8.11
|
%
|
|
Citigroup WGBI (hedged into USD)
(Reflects no deduction for fees, expenses or taxes)
|
|
|
|
|
4.50
|
%
|
|
|
4.68
|
%
|
|
|
4.41
|
%
|
|
Barclays U.S. Aggregate Bond Index
(Reflects no deduction for fees, expenses or taxes)
|
|
|
|
|
4.21
|
%
|
|
|
5.95
|
%
|
|
|
5.18
|
%
|
|
60% MSCI ACWI Index/40% Citigroup WGBI (hedged into USD)
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
11.61
|
%
|
|
|
1.79
|
%
|
|
|
7.03
|
%
|
|
60% MSCI ACWI Index/40% Barclays U.S. Aggregate Bond Index
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
11.48
|
%
|
|
|
2.20
|
%
|
|
|
7.30
|
%
|
|
1
|
|
A portion of the Fund’s total return
was attributable to proceeds received in the fiscal year ended September 30, 2009 in settlement of litigation.
|
After-tax returns are calculated using the historical highest
individual Federal marginal income tax rates and do not reflect the impact of state and local taxes. Actual after-tax returns depend on the
investor’s tax situation and may differ from those shown, and the after-tax returns shown are not relevant to investors who hold their shares
through tax-deferred arrangements such as 401(k) plans or individual retirement accounts.
Managed Volatility Portfolio’s investment manager is
BlackRock Advisors, LLC (previously defined as “BlackRock”). The Fund’s sub-advisers are BlackRock Financial Management, Inc., BlackRock
International Limited, BlackRock (Hong Kong) Limited and BlackRock (Singapore) Limited. Where applicable, “BlackRock” refers also to the
Fund’s sub-advisers.
Name
|
|
Portfolio Manager
of the Fund
Since
|
|
Title
|
|
Philip Green
|
|
2006
|
|
Managing Director of BlackRock, Inc.
|
12
Purchase and Sale of Fund
Shares
You may purchase or redeem shares of Managed Volatility Portfolio
each day the New York Stock Exchange is open. To purchase or sell shares you should contact your financial intermediary or financial professional, or,
if you hold your shares through the Fund, you should contact the Fund by phone at (800) 537-4942, by mail (c/o BlackRock Funds, P.O. Box 9819,
Providence, Rhode Island 02940-8019), or by the Internet at www.blackrock.com/funds. The Fund’s initial and subsequent investment minimums for
Service Shares generally are as follows, although the Fund may reduce or waive the minimums in some cases:
|
|
|
|
Service Shares
|
|
Minimum Initial Investment
|
|
|
|
$5,000
|
|
Minimum Additional Investment
|
|
|
|
No subsequent minimum.
|
Managed Volatility Portfolio’s dividends and distributions
may be subject to Federal income taxes and may be taxed as ordinary income or capital gains, unless you are a tax-exempt investor or are investing
through a retirement plan, in which case you may be subject to Federal income tax upon withdrawal from such tax-deferred arrangements.
Payments to Broker/Dealers
and Other Financial Intermediaries
If you purchase shares of Managed Volatility Portfolio through a
broker-dealer or other financial intermediary, the Fund and BlackRock Investments, LLC, the Fund’s distributor, or its affiliates may pay the
intermediary for the sale of Fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or
other financial intermediary and your individual financial professional to recommend the Fund over another investment. Ask your individual financial
professional or visit your financial intermediary’s website for more information.
13
Details About the Fund
Included in this prospectus are sections that tell you about
buying and selling shares, management information, shareholder features of BlackRock Managed Volatility Portfolio (“Managed Volatility
Portfolio” or the “Fund”), a series of BlackRock Funds
SM
(the “Trust”), and your rights as a
shareholder.
Investment Objective
The investment objective of Managed Volatility Portfolio is to
seek total return.
Should the Trust’s Board of Trustees (the “Board”)
determine that the investment objective of the Fund should be changed, shareholders will be given at least 30 days’ notice before any such change
is made. However, such change can be effected without shareholder approval.
Investment Process
The Fund management team will tactically allocate to asset classes
around the world that are deemed to offer attractive levels of return relative to the level of expected risk. In selecting investments, the Fund
management team will identify global macro opportunities and position the Fund using a combination of exchange-traded funds (“ETFs”), equity,
fixed-income and money market funds advised by BlackRock and its affiliates (the “mutual funds”), individual securities and
derivatives.
ETFs, mutual funds and securities are selected to achieve asset
and sector allocations tactically set by the Fund management team. In selecting fixed-income investments, the Fund management team evaluates sectors of
the bond market including, but not limited to, U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities,
collateralized mortgage obligations, asset-backed securities and corporate bonds. The Fund management team may shift the Fund’s assets among these
various sectors based upon changing market conditions. Investments are made when the Fund management team believes that they have the potential for
above-average total return.
In selecting equity investments, the Fund management team
evaluates the attractiveness of countries and sectors as well as average market capitalization, and will assess each investment’s changing
characteristics relative to its contribution to portfolio risk within that discipline and will sell the investment when it no longer offers an
appropriate return-to-risk trade-off. The Fund will make investments that the Fund management team believes offer attractive returns through long-term
capital appreciation and income.
The Fund incorporates a volatility control process that seeks to
reduce risk when portfolio volatility is expected to deviate from the Fund’s targeted total return volatility of 10% over a one-year period.
Volatility is a statistical measurement of the magnitude of up and down fluctuations in the value of a financial instrument or index over time.
Volatility may result in rapid and dramatic price swings. While BlackRock attempts to manage the Fund’s volatility exposure to stabilize
performance, there can be no guarantee that the Fund will reach its target volatility. The Fund will adjust its asset allocation in response to periods
of high or low expected volatility. The Fund may allocate without limitation assets into cash or short-term fixed-income securities, and away from
riskier assets such as equity and high yield fixed-income securities. When volatility decreases, the Fund may move assets out of cash and back into
riskier securities. At any given time, the Fund may be invested entirely in equities, fixed-income securities or cash. As part of its attempt to
manage the Fund’s volatility exposure, during certain periods the Fund may make significant investments in index futures or
other derivative instruments designed to reduce the Fund’s exposure to portfolio volatility. The Fund may engage in active and frequent
trading of portfolio securities to achieve its primary investment strategies.
Principal Investment Strategies
The Fund uses an asset allocation strategy, investing varying
percentages of its portfolio in three major categories: stocks, bonds and money market instruments. The Fund has wide flexibility in the relative
weightings given to each category. The Fund may also invest a significant portion of its assets in affiliated and unaffiliated ETFs and mutual funds.
See “Information About the ETFs and Mutual Funds.”
14
With respect to its equity investments, the Fund may invest in
ETFs, mutual funds or individual equity securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in common stock,
preferred stock, securities convertible into common stock, non-convertible preferred stock and depositary receipts. Preferred stock is a class of stock
that often pays dividends at a specified rate and has preference over common stock in dividend payments and liquidation of assets. Convertible
securities typically pay current income as either interest (debt security convertibles) or dividends (preferred stock), and their value usually
reflects both the stream of current income payments and the market value of the underlying common stock. The Fund, the ETFs and the mutual funds may
invest in securities of both U.S. and non-U.S. issuers without limit, which can be U.S. dollar-based or non-U.S. dollar-based and may be currency
hedged or unhedged. The Fund, the ETFs and the mutual funds may invest in securities of companies of any market capitalization.
With respect to its fixed-income investments, the Fund may invest
in ETFs, mutual funds or individual fixed-income securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in a portfolio
of fixed-income securities such as corporate bonds and notes, commercial and residential mortgage-backed securities (bonds that are backed by a
mortgage loan or pools of loans secured either by commercial property or residential mortgages, as applicable), collateralized mortgage obligations
(bonds that are backed by cash flows from pools of mortgages and may have multiple classes with different payment rights and protections),
collateralized debt obligations, asset-backed securities, convertible securities, debt obligations of governments and their sub-divisions (including
those of non-U.S. governments), other floating or variable rate obligations, municipal obligations and zero coupon debt securities. The Fund, the ETFs
and the mutual funds may also invest a significant portion of their assets in non-investment grade bonds (junk bonds or distressed securities),
non-investment grade bank loans, foreign bonds (both U.S. dollar- and non-U.S. dollar-denominated) and bonds of emerging market issuers. The Fund, the
ETFs and the mutual funds may invest in non-U.S. dollar-denominated bonds on a currency hedged or unhedged basis.
Non-investment grade bonds acquired by the Fund, the ETFs or the
mutual funds will generally be in the lower categories of the major rating agencies at the time of purchase (BB or lower by Standard & Poor’s,
a division of The McGraw Hill Companies (“S&P”), or Ba or lower by Moody’s Investors Service, Inc. (“Moody’s”)) or
will be determined by the Fund management team to be of similar quality. Split-rated bonds will be considered to have the higher credit rating. The
average portfolio duration of the fixed-income investments held by the Fund will vary based on the Fund management team’s forecast of interest
rates and there are no limits regarding portfolio duration or average maturity.
With respect to its cash investments, the Fund may hold high
quality money market securities, including short term U.S. Government securities, U.S. Government agency securities, securities issued by U.S.
Government-sponsored enterprises and U.S. Government instrumentalities, bank obligations, commercial paper, including asset-backed commercial paper,
corporate notes and repurchase agreements. The Fund may invest a significant portion of its assets in money market funds, including those advised by
BlackRock or its affiliates.
The Fund may invest in derivatives, including, but not limited to,
interest rate, total return and credit default swaps, indexed and inverse floating rate securities, options, futures, options on futures and swaps and
foreign currency transactions (including swaps), for hedging purposes, as well as to increase the return on its portfolio investments. An option is the
right to buy or sell a security or an index of securities at a specific price on or before a specific date. A future is an agreement to buy or sell a
security or an index of securities at a specific price on a specific date. A credit default swap is an agreement whereby one party would pay a
counterparty a periodic stream of payments over the term of the contract, provided that no event of default on a specific bond has occurred. In return,
upon any event of default on such bond, the first party would receive from the counterparty a payment equal to the par (or other agreed-upon) value of
such bond. A swap is an agreement whereby one party exchanges its right to receive or its obligation to pay one type of interest or currency for
another party’s obligation to pay or its right to receive another type of interest or currency in the future or for a period of time. The Fund may
seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as reverse repurchase agreements or dollar rolls). A dollar roll transaction involves a sale by the Fund of a
mortgage-backed or other security concurrently with an agreement by the Fund to repurchase a similar security at a later date at an agreed-upon price.
The securities that are repurchased will bear the same interest rate and stated maturity as those sold, but pools of mortgages collateralizing those
securities may have different prepayment histories than those sold. The Fund may also use forward foreign currency exchange contracts (obligations to
buy or sell a currency at a set rate in the future) to hedge against movement in the value of non-U.S. currencies. The ETFs and the mutual funds may,
to varying degrees, also invest in derivatives.
The Fund may invest in U.S. and non-U.S. REITs, structured
products (including, but not limited to, structured notes, credit linked notes and participation notes, or other instruments evidencing interests in
special purpose vehicles, trusts, or other entities that hold or represent interests in fixed-income securities) and floating rate securities (such as
bank loans).
15
REITs can generally be classified as equity REITs, mortgage REITs
and hybrid REITs. Equity REITs invest the majority of their assets directly in real property and derive their income primarily from rents. Equity REITs
can also realize capital gains by selling properties that have appreciated in value. Mortgage REITs invest the majority of their assets in real estate
mortgages and derive their income primarily from interest payments. Hybrid REITs combine the characteristics of both equity REITs and mortgage REITs.
REITs are not taxed on income distributed to shareholders provided they comply with the requirements of the Internal Revenue Code of 1986, as amended
(the “Internal Revenue Code”).
The Fund is classified as diversified under the Investment Company
Act of 1940, as amended (the “Investment Company Act”).
Other Strategies Applicable to the Fund
In addition to the principal strategies discussed above, the Fund
may also invest or engage in the following investments/strategies:
|
n
|
|
Borrowing
— The Fund may borrow from banks in
amounts aggregating not more than 33
1
⁄
3
% of the value of its total assets.
The Fund may also borrow an additional 5% of its total assets without regard to the foregoing limitation for temporary purposes such as clearance of
portfolio transactions and share redemptions.
|
|
n
|
|
Closed-End Funds
— The Fund may invest in
closed-end investment companies. Closed-end funds generally do not continuously offer their shares for sale and such shares generally are not
redeemable. Closed-end funds sell a fixed number of shares, after which the shares typically trade on a secondary market with a price determined by the
market at a price that may be more or less that the shares’ net asset value.
|
|
n
|
|
Illiquid/Restricted Securities
— The Fund may
invest up to 15% of its net assets in illiquid securities that it cannot sell within seven days at approximately current value. The Fund may also
invest in restricted securities, which are securities that cannot be offered for public resale unless registered under the applicable securities laws
or that have a contractual restriction that prohibits or limits their resale (
i.e.
, Rule 144A securities). They may include private placement
securities that have not been registered under the applicable securities laws. Restricted securities may not be listed on an exchange and may have no
active trading market and therefore may be considered to be illiquid. Rule 144A securities are restricted securities that can be resold to qualified
institutional buyers but not to the general public and may be considered to be liquid securities.
|
|
n
|
|
Master Limited Partnerships
— The Fund may
invest in master limited partnerships (“MLPs”) that are generally in energy-related industries. MLPs are limited partnerships or limited
liability companies taxable as partnerships. MLPs may derive income and gains from the exploration, development, mining, production, processing,
refining, transportation (including pipelines transporting gas, oil or products thereof) or the marketing of any mineral or natural resources. MLPs
generally have two classes of owners, the general partner and limited partners. When investing in an MLP, the Fund intends to purchase publicly traded
common units issued to limited partners of the MLP. The general partner is typically owned by a major energy company, an investment fund, the direct
management of the MLP or is an entity owned by one or more of such parties. The general partner may be structured as a private or publicly traded
corporation or other entity.
|
|
n
|
|
“New Issues”
— From time to time, the
Fund and the ETFs may invest in shares of companies through initial public offerings (“IPOs”).
|
|
n
|
|
Securities Lending
— The Fund may lend
securities with a value up to 33
1
⁄
3
% of its total assets to financial
institutions that provide cash or securities issued or guaranteed by the U.S. Government as collateral.
|
|
n
|
|
When-Issued and Delayed Delivery Securities and Forward
Commitments
— The purchase or sale of securities on a when-issued basis or on a delayed delivery basis or through a forward commitment
involves the purchase or sale of securities by the Fund at an established price with payment and delivery taking place in the future. The Fund enters
into these transactions to obtain what is considered an advantageous price to the Fund at the time of entering into the transaction.
|
|
ABOUT THE PORTFOLIO MANAGER OF MANAGED
VOLATILITY PORTFOLIO
|
|
Philip Green is the portfolio manager of Managed Volatility Portfolio and is primarily responsible for the day-to-day management of the Fund.
Please see “Management of the Fund — Portfolio Manager Information” for additional information about the portfolio
manager.
|
16
This section contains a discussion of the general risks of
investing in Managed Volatility Portfolio. The “Investment Objective and Policies” section in the Statement of Additional Information (the
“SAI”) also includes more information about the Fund, its investments and the related risks. As with any fund, there can be no guarantee that
the Fund will meet its objective or that the Fund’s performance will be positive for any period of time. An investment in the Fund is not a
deposit in any bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or by any bank or governmental
agency.
The Fund is subject to risks due to its structure as a fund of
funds, as well as the same risks as the ETFs and mutual funds in which it invests. The Fund is also subject to the risks associated with the securities
in which it invests directly. The Fund invests in ETFs and mutual funds which invest in fixed-income and equity securities. The principal risks set
forth below are the principal risks of investing in the Fund, the ETFs and/or the mutual funds. In the following discussion, references to the
“Fund” shall mean any one or more of the relevant ETFs or mutual funds and the Fund, where applicable.
Principal Risks of the Fund’s Fund of Funds
Structure
Affiliated Fund Risk
— In managing the Fund, BlackRock will have authority to select and substitute ETFs or mutual
funds. BlackRock may be subject to potential conflicts of interest in selecting ETFs or mutual funds because the fees paid to BlackRock by some ETFs or
mutual funds are higher than the fees paid by other ETFs or mutual funds. However, BlackRock is a fiduciary to the Fund and is legally obligated to act
in the Fund’s best interests when selecting ETFs and mutual funds. If an ETF or mutual fund holds interests in an affiliated fund, the Fund may be
prohibited from purchasing shares of that ETF or mutual fund.
Allocation Risk
— The Fund’s ability to
achieve its investment objective depends upon BlackRock’s skill in determining the Fund’s strategic asset class allocation and in selecting
the best mix of ETFs, mutual funds and direct investments. There is a risk that BlackRock’s evaluations and assumptions regarding asset classes or
ETFs or mutual funds may be incorrect in view of actual market conditions. In addition, there is no guarantee that the ETFs or mutual funds will
achieve their investment objectives, and the ETFs and mutual funds’ performance may be lower than the performance of the asset class which they
were selected to represent. The ETFs and mutual funds may change their investment objectives or policies without the approval of the Fund. If an ETF or
mutual fund were to change its investment objective or policies, the Fund might be forced to withdraw its investment from the ETF or mutual fund at a
disadvantageous time and price.
Investments in ETFs and Other Mutual Funds Risk
— The Fund may invest a significant portion of its assets in ETFs and mutual funds, so the Fund’s investment performance is, in part, related
to the performance of the ETFs and mutual funds. The Fund’s net asset value will change with changes in the value of the ETFs, mutual funds and
other securities in which it invests. As with other investments, investments in other investment companies, including ETFs, are subject to market risk
and, for non-index strategies, selection risk. In addition, if the Fund acquires shares of investment companies, including ETFs, shareholders bear both
their proportionate share of expenses in the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies.
If the Fund acquires shares of affiliated mutual funds, shareholders bear both their proportionate share of expenses in the Fund (excluding management
and advisory fees) and, indirectly, the expenses of the mutual funds. To the extent the Fund is held by an affiliated fund, the ability of the Fund
itself to hold other investment companies may be limited.
As the ETFs or mutual funds or the Fund’s allocations among
the ETFs or mutual funds change from time to time, or to the extent that the expense ratio of the ETFs or mutual funds changes, the weighted average
operating expenses borne by the Fund may increase or decrease.
Investing in an ETF will give the Fund exposure to the securities
comprising the index on which the ETF is based. Shares of ETFs are traded on an exchange throughout a trading day, and bought and sold based on market
values and not at the ETF’s net asset value. For this reason, shares of an ETF could trade at either a premium or discount to its net asset value.
However, the trading prices of index-based ETFs tend to closely track the actual net asset value of the ETF. The Fund will pay brokerage commissions in
connection with the purchase and sale of shares of ETFs, in addition to a spread (
i.e.
, the difference between what professional investors are
willing to pay for ETF shares (the “bid” price) and the price at which they are willing to sell ETF shares (the “ask”
price)).
One ETF or mutual fund may buy the same securities that another
ETF or mutual fund sells. In addition, the Fund may buy the same securities that an ETF or mutual fund sells, or vice-versa. If this happens, an
investor in the Fund would indirectly bear the costs of these transactions without accomplishing the intended investment purpose. Also, an investor in
the Fund may receive taxable gains from portfolio transactions by an ETF or mutual fund, as well as taxable gains from transactions in shares of the
ETF or mutual fund by the Fund. Certain of the ETFs or mutual funds may hold common portfolio securities, thereby reducing the diversification benefits
of the Fund.
17
Principal ETF-Specific Risks
Cash Transaction Risk
— Certain ETFs intend to effect creations and redemptions principally for cash, rather than
primarily in-kind because of the nature of the ETF’s investments. Investments in such ETFs may be less tax efficient than investments in ETFs that
effect creations and redemptions in-kind.
Management Risk
— If an ETF does not fully
replicate the underlying index, it is subject to the risk that the manager’s investment management strategy may not produce the intended
results.
Passive Investment Risk
— ETFs purchased by the
Fund are not actively managed and may be affected by a general decline in market segments relating to their respective indices. An ETF typically
invests in securities included in, or representative of, its index regardless of their investment merits and does not attempt to take defensive
positions in declining markets.
Representative Sampling Risk
— Representative
sampling is a method of indexing that involves investing in a representative sample of securities that collectively have a similar investment profile
to the index and resemble the index in terms of risk factors and other key characteristics. An ETF may or may not hold every security in the index.
When an ETF deviates from a full replication indexing strategy to utilize a representative sampling strategy, the ETF is subject to an increased risk
of tracking error, in that the securities selected in the aggregate for the ETF may not have an investment profile similar to those of its
index.
Shares of an ETF May Trade at Prices Other Than Net Asset
Value
— Shares of an ETF trade on exchanges at prices at, above or below their most recent net asset value. The per share net asset value
of an ETF is calculated at the end of each business day and fluctuates with changes in the market value of the ETF’s holdings since the most
recent calculation. The trading prices of an ETF’s shares fluctuate continuously throughout trading hours based on market supply and demand rather
than net asset value. The trading prices of an ETF’s shares may deviate significantly from net asset value during periods of market volatility.
Any of these factors may lead to an ETF’s shares trading at a premium or discount to net asset value. However, because shares can be created and
redeemed in Creation Units, which are aggregated blocks of shares that authorized participants who have entered into agreements with the ETF’s
distributor can purchase or redeem directly from the ETF, at net asset value (unlike shares of many closed-end funds, which frequently trade at
appreciable discounts from, and sometimes at premiums to, their net asset values), large discounts or premiums to the net asset value of an ETF are not
likely to be sustained over the long-term. While the creation/redemption feature is designed to make it likely that an ETF’s shares normally trade
on exchanges at prices close to the ETF’s next calculated net asset value, exchange prices are not expected to correlate exactly with an
ETF’s net asset value due to timing reasons as well as market supply and demand factors. In addition, disruptions to creations and redemptions or
the existence of extreme market volatility may result in trading prices that differ significantly from net asset value. If a shareholder purchases at a
time when the market price is at a premium to the net asset value or sells at a time when the market price is at a discount to the net asset value, the
shareholder may sustain losses.
Tracking Error Risk
— Imperfect correlation
between an ETF’s portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETF’s size, changes to the
index and regulatory requirements may cause tracking error, which is the divergence of an ETF’s performance from that of its underlying index.
This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result because an
ETF incurs fees and expenses while its underlying index does not.
Other Principal Risks of Investing in the Fund and/or an
Underlying Fund
Collateralized Debt Obligations Risk
— The pool of high yield securities underlying collateralized debt obligations is
typically separated into groupings called tranches representing different degrees of credit quality. The higher quality tranches have greater degrees
of protection and pay lower interest rates. The lower tranches, with greater risk, pay higher interest rates.
Concentration Risk
— To the extent that the
Fund’s or an Underlying Fund’s portfolio reflects concentration in the securities of issuers in a particular region, market, industry,
group of industries, country, group of countries, sector or asset class, the Fund or the Underlying Fund may be adversely affected by the
performance of those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or
regulatory occurrences affecting that region, market, industry, group of industries, country, group of countries, sector or asset
class.
Convertible Securities Risk
— The market value
of a convertible security performs like that of a regular debt security; that is, if market interest rates rise, the value of a convertible security
usually falls. In addition, convertible securities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and
their market value
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may change based on changes in the issuer’s credit rating
or the market’s perception of the issuer’s creditworthiness. Since it derives a portion of its value from the common stock into which it may
be converted, a convertible security is also subject to the same types of market and issuer risks that apply to the underlying common
stock.
Corporate Loans Risk
— Commercial banks and
other financial institutions or institutional investors make corporate loans to companies that need capital to grow or restructure. Borrowers generally
pay interest on corporate loans at rates that change in response to changes in market interest rates such as LIBOR or the prime rates of U.S. banks. As
a result, the value of corporate loan investments is generally less exposed to the adverse effects of shifts in market interest rates than investments
that pay a fixed rate of interest. However, because the trading market for certain corporate loans may be less developed than the secondary market for
bonds and notes, the Fund or an Underlying Fund may experience difficulties in selling its corporate loans. Leading financial institutions often
act as agent for a broader group of lenders, generally referred to as a syndicate. The syndicate’s agent arranges the corporate loans, holds
collateral and accepts payments of principal and interest. If the agent develops financial problems, the Fund or an Underlying Fund may not
recover its investment or recovery may be delayed. By investing in a corporate loan, the Fund or an Underlying Fund may become a member of the
syndicate.
The corporate loans in which the Fund or an Underlying Fund
invests are subject to the risk of loss of principal and income. Although borrowers frequently provide collateral to secure repayment of these
obligations they do not always do so. If they do provide collateral, the value of the collateral may not completely cover the borrower’s
obligations at the time of a default. If a borrower files for protection from its creditors under the U.S. bankruptcy laws, these laws may limit the
Fund’s or an Underlying Fund’s rights to its collateral. In addition, the value of collateral may erode during a bankruptcy case. In
the event of a bankruptcy, the holder of a corporate loan may not recover its principal, may experience a long delay in recovering its investment and
may not receive interest during the delay.
Counterparty Risk
— The counterparty to an
over-the-counter derivatives contract or a borrower of the Fund’s or an Underlying Fund’s securities may be unable or unwilling to
make timely principal, interest or settlement payments, or otherwise to honor its obligations.
Credit Risk
— Credit risk refers to the
possibility that the issuer of a security will not be able to make principal and interest payments when due. Changes in an issuer’s credit rating
or the market’s perception of an issuer’s creditworthiness may also affect the value of the Fund’s or an Underlying Fund’s
investment in that issuer. The degree of credit risk depends on both the financial condition of the issuer and the terms of the
obligation.
Debt Securities Risk
— Debt securities, such as
bonds, involve credit risk. Debt securities are also subject to interest rate risk.
Derivatives Risk
— The Fund’s or an Underlying Fund’s use of derivatives may
reduce the Fund’s or the Underlying Fund’s returns and/or increase volatility. Volatility is defined as the
characteristic of a security, an index or a market to fluctuate significantly in price within a short time period. A risk of
the Fund’s or an Underlying Fund’s use of derivatives is that the fluctuations in their values may not correlate
perfectly with the overall securities markets. Derivatives are also subject to counterparty risk, which is the risk that the
other party in the transaction will not fulfill its contractual obligation. In addition, some derivatives are more sensitive
to interest rate changes and market price fluctuations than other securities. The possible lack of a liquid secondary market
for derivatives and the resulting inability of the Fund or an Underlying Fund to sell or otherwise close a derivatives
position could expose the Fund or the Underlying Fund to losses and could make derivatives more difficult for the Fund or
the Underlying Fund to value accurately. The Fund or an
Underlying Fund could also suffer losses related to its
derivatives positions as a result of unanticipated market movements, which losses are potentially unlimited. Finally,
BlackRock or the investment manager of an Underlying Fund may not be able to predict correctly the direction of securities
prices, interest
rates and other
economic factors, which
could cause the Fund’s or the Underlying Fund’s
derivatives positions to lose value. When a
derivative is used as a hedge against a position that the Fund or an Underlying Fund holds, any loss generated by the
derivative generally should be substantially offset by gains on the hedged investment, and vice versa. While hedging can
reduce or eliminate losses, it can also reduce or eliminate gains. Hedges are sometimes subject to imperfect matching
between the derivative and the underlying security, and
there can be no assurance that the Fund’s or an Underlying Fund’s
hedging transactions will be effective. The income from certain derivatives may be subject to Federal income tax. Swap
agreements involve the risk that the party with whom the Fund or an Underlying Fund has entered into the swap will default
on its obligation to pay the Fund or the Underlying Fund
and the risk that the Fund or the Underlying Fund will not be able to
meet its obligations to pay the other party to the agreement. Credit default swaps involve special risks in addition to
those mentioned above because they are difficult to
value, are highly susceptible to liquidity and credit
risk, and generally pay a
return to the party that has paid the premium only in the event of an actual default by the issuer of the underlying
obligation (as opposed to a credit downgrade or other indication of financial difficulty). Forward foreign currency exchange
contracts do not eliminate fluctuations in the value of non-U.S. securities but rather allow the Fund or an Underlying Fund
to establish a fixed rate of exchange for a future point in time. This strategy can have the effect of reducing returns and
minimizing
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opportunities for gain. Recent legislation calls for new
regulation of the derivatives markets. The extent and impact of the regulation is not yet known and may not be known for some time. New regulation may
make derivatives more costly, may limit the availability of derivatives, or may otherwise adversely affect the value or performance of
derivatives.
Distressed Securities Risk
— Distressed
securities are speculative and involve substantial risks in addition to the risks of investing in junk bonds. The Fund or an Underlying Fund
will generally not receive interest payments on the distressed securities and may incur costs to protect its investment. In addition, distressed
securities involve the substantial risk that principal will not be repaid. These securities may present a substantial risk of default or may be in
default at the time of investment. The Fund or an Underlying Fund may incur additional expenses to the extent it is required to seek recovery
upon a default in the payment of principal of or interest on its portfolio holdings. In any reorganization or liquidation proceeding relating to a
portfolio company, the Fund or an Underlying Fund may lose its entire investment or may be required to accept cash or securities with a value
less than its original investment. Distressed securities and any securities received in an exchange for such securities may be subject to restrictions
on resale.
Dollar Rolls Risk
— A dollar roll transaction
involves a sale by the Fund or an Underlying Fund of a mortgage-backed or other security concurrently with an agreement by the Fund or the
Underlying Fund to repurchase a similar security at a later date at an agreed-upon price. Dollar roll transactions involve the risk that the market
value of the securities the Fund or an Underlying Fund is required to purchase may decline below the agreed upon repurchase price of those
securities. If the broker/dealer to whom the Fund or an Underlying Fund sells securities becomes insolvent, the Fund’s or the Underlying
Fund’s right to purchase or repurchase securities may be restricted. Successful use of mortgage dollar rolls may depend upon the
adviser’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can be successfully
employed.
Emerging Markets Risk
— The risks of foreign
investments are usually much greater for emerging markets. Investments in emerging markets may be considered speculative. Emerging markets include
those in countries defined as emerging or developing by the World Bank, the International Finance Corporation or the United Nations. Emerging markets
are riskier than more developed markets because they tend to develop unevenly and may never fully develop. They are more likely to experience
hyperinflation and currency devaluations, which adversely affect returns to U.S. investors. In addition, many emerging markets have far lower trading
volumes and less liquidity than developed markets. Since these markets are often small, they may be more likely to suffer sharp and frequent price
changes or long-term price depression because of adverse publicity, investor perceptions or the actions of a few large investors. In addition,
traditional measures of investment value used in the United States, such as price to earnings ratios, may not apply to certain small markets. Also,
there may be less publicly available information about issuers in emerging markets than would be available about issuers in more developed capital
markets, and such issuers may not be subject to accounting, auditing and financial reporting standards and requirements comparable to those to which
U.S. companies are subject.
Many emerging markets have histories of political instability and
abrupt changes in policies. As a result, their governments are more likely to take actions that are hostile or detrimental to private enterprise or
foreign investment than those of more developed countries, including expropriation of assets, confiscatory taxation, high rates of inflation or
unfavorable diplomatic developments. In the past, governments of such nations have expropriated substantial amounts of private property, and most
claims of the property owners have never been fully settled. There is no assurance that such expropriations will not reoccur. In such an event, it is
possible that the Fund or an Underlying Fund could lose the entire value of its investments in the affected market. Some countries have
pervasiveness of corruption and crime that may hinder investments. Certain emerging markets may also face other significant internal or external risks,
including the risk of war, and ethnic, religious and racial conflicts. In addition, governments in many emerging market countries participate to a
significant degree in their economies and securities markets, which may impair investment and economic growth. National policies that may limit the
Fund’s or an Underlying Fund’s investment opportunities include restrictions on investment in issuers or industries deemed sensitive
to national interests.
Emerging markets may also have differing legal systems and the
existence or possible imposition of exchange controls, custodial restrictions or other foreign or U.S. governmental laws or restrictions applicable to
such investments. Sometimes, they may lack or be in the relatively early development of legal structures governing private and foreign investments and
private property. In addition to withholding taxes on investment income, some countries with emerging markets may impose differential capital gains
taxes on foreign investors.
Practices in relation to settlement of securities transactions in
emerging markets involve higher risks than those in developed markets, in part because the Fund or an Underlying Fund will need to use brokers
and counterparties that are less well capitalized, and custody and registration of assets in some countries may be unreliable. The possibility of
fraud, negligence, undue influence being exerted by the issuer or refusal to recognize ownership exists in some emerging markets, and, along with other
factors, could result in ownership registration being completely lost. The Fund
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or an Underlying Fund would absorb any loss resulting from such registration
problems and may have no successful claim for compensation. In addition, communications between the United States and emerging market countries may be
unreliable, increasing the risk of delayed settlements or losses of security certificates.
Equity Securities Risk
— Common and preferred
stocks represent equity ownership in a company. Stock markets are volatile. The price of equity securities will fluctuate and can decline and reduce
the value of a portfolio investing in equities. The value of equity securities purchased by the Fund or an Underlying Fund could decline if the
financial condition of the companies the Fund or the Underlying Fund invests in decline or if overall market and economic conditions
deteriorate. They may also decline due to factors that affect a particular industry or industries, such as labor shortages or an increase in production
costs and competitive conditions within an industry. In addition, they may decline due to general market conditions that are not specifically related
to a company or industry, such as real or perceived adverse economic conditions, changes in the general outlook for corporate earnings, changes in
interest or currency rates or generally adverse investor sentiment.
Extension Risk
— When interest rates rise,
certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these securities to fall. Rising interest rates
tend to extend the duration of securities, making them more sensitive to changes in interest rates. The value of longer-term securities generally
changes more in response to changes in interest rates than shorter-term securities. As a result, in a period of rising interest rates, securities may
exhibit additional volatility and may lose value.
Foreign Securities Risk
— Securities traded in
foreign markets have often (though not always) performed differently from securities traded in the United States. However, such investments often
involve special risks not present in U.S. investments that can increase the chances that the Fund or an Underlying Fund will lose money. In
particular, the Fund or an Underlying Fund is subject to the risk that because there may be fewer investors on foreign exchanges and a smaller
number of securities traded each day, it may be more difficult for the Fund or the Underlying Fund to buy and sell securities on those
exchanges. In addition, prices of foreign securities may go up and down more than prices of securities traded in the United States.
Certain Risks of Holding Fund Assets
Outside the United States
— The Fund and the Underlying Funds generally hold their foreign securities and
cash in foreign banks and securities depositories. Some foreign banks and securities depositories may be recently organized or new to the foreign
custody business. In addition, there may be limited or no regulatory oversight of their operations. Also, the laws of certain countries limit the
Fund’s or an Underlying Fund’s ability to recover its assets if a foreign bank, depository or issuer of a security, or any of their
agents, goes bankrupt. In addition, it is often more expensive for the Fund or an Underlying Fund to buy, sell and hold securities in certain
foreign markets than in the United States. The increased expense of investing in foreign markets reduces the amount the Fund or an Underlying Fund
can earn on its investments and typically results in a higher operating expense ratio for the Fund or the Underlying Fund than for
investment companies invested only in the United States.
Currency Risk
— Securities
and other instruments in which the Fund or an Underlying Fund invests may be denominated or quoted in currencies other than the U.S. dollar. For
this reason, changes in foreign currency exchange rates can affect the value of the Fund’s or an Underlying Fund’s
portfolio.
Generally, when the U.S. dollar rises in
value against a foreign currency, a security denominated in that currency loses value because the currency is worth fewer U.S. dollars. Conversely,
when the U.S. dollar decreases in value against a foreign currency, a security denominated in that currency gains value because the currency is worth
more U.S. dollars. This risk, generally known as “currency risk,” means that a strong U.S. dollar will reduce returns for U.S. investors
while a weak U.S. dollar will increase those returns.
Foreign Economy Risk
— The
economies of certain foreign markets may not compare favorably with the economy of the United States with respect to such issues as growth of gross
national product, reinvestment of capital, resources and balance of payments position. Certain foreign economies may rely heavily on particular
industries or foreign capital and are more vulnerable to diplomatic developments, the imposition of economic sanctions against a particular country or
countries, changes in international trading patterns, trade barriers and other protectionist or retaliatory measures. Investments in foreign markets
may also be adversely affected by governmental actions such as the imposition of capital controls, nationalization of companies or industries,
expropriation of assets or the imposition of punitive taxes. In addition, the governments of certain countries may prohibit or impose substantial
restrictions on foreign investments in their capital markets or in certain industries. Any of these actions could severely affect securities prices or
impair the Fund’s or an Underlying Fund’s ability to purchase or sell foreign securities or transfer the Fund’s or the
Underlying Fund’s assets or income back into the United States, or otherwise adversely affect the Fund’s or an
Underlying Fund’s operations.
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Other potential foreign market risks
include foreign exchange controls, difficulties in pricing securities, defaults on foreign government securities, difficulties in enforcing legal
judgments in foreign courts and political and social instability. Diplomatic and political developments, including rapid and adverse political changes,
social instability, regional conflicts, terrorism and war, could affect the economies, industries and securities and currency markets, and the value of
the Fund’s or an Underlying Fund’s investments, in non-U.S. countries. These factors are extremely difficult, if not impossible, to
predict and take into account with respect to the Fund’s or an Underlying Fund’s investments.
Governmental Supervision and
Regulation/Accounting Standards
— Many foreign governments do not supervise and regulate stock exchanges, brokers and the sale of securities
to the same extent as such regulations exist in the United States. They also may not have laws to protect investors that are comparable to U.S.
securities laws. For example, some foreign countries may have no laws or rules against insider trading. Insider trading occurs when a person buys or
sells a company’s securities based on material non-public information about that company. In addition, some countries may have legal systems that
may make it difficult for the Fund or an Underlying Fund to vote proxies, exercise shareholder rights, and pursue legal remedies with respect to
its foreign investments. Accounting standards in other countries are not necessarily the same as in the United States. If the accounting standards in
another country do not require as much detail as U.S. accounting standards, it may be harder for Fund or Underlying Fund management to
completely and accurately determine a company’s financial condition.
Settlement Risk
— Settlement
and clearance procedures in certain foreign markets differ significantly from those in the United States. Foreign settlement and clearance procedures
and trade regulations also may involve certain risks (such as delays in payment for or delivery of securities) not typically associated with the
settlement of U.S. investments.
At times, settlements in certain foreign
countries have not kept pace with the number of securities transactions. These problems may make it difficult for the Fund or an Underlying Fund
to carry out transactions. If the Fund or an Underlying Fund cannot settle or is delayed in settling a purchase of securities, it may miss
attractive investment opportunities and certain of its assets may be uninvested with no return earned thereon for some period. If the Fund or an
Underlying Fund cannot settle or is delayed in settling a sale of securities, it may lose money if the value of the security then declines or, if
it has contracted to sell the security to another party, the Fund or the Underlying Fund could be liable for any losses
incurred.
European Economic Risk
—
The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising
government debt levels of several European countries. These events have adversely affected the exchange rate of the Euro and may spread
to other countries in Europe, including countries that do not use the Euro. These events may affect the value and liquidity of certain of the
Fund’s or an Underlying Fund’s investments.
Responses to the financial problems
by European governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may
limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and
others of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition,
one or more countries may abandon the Euro, the common currency of the European Union, and/ or withdraw from the European Union. The
impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far
reaching.
High Portfolio Turnover Risk
— The Fund or
an Underlying Fund may engage in active and frequent trading of its portfolio securities. High portfolio turnover (more than 100%) may result in
increased transaction costs to the Fund or the Underlying Fund, including brokerage commissions, dealer mark-ups and other transaction costs on
the sale of the securities and on reinvestment in other securities. The sale of Fund or Underlying Fund portfolio securities may result in the
realization and/or distribution to shareholders of higher capital gains or losses as compared to a fund with less active trading policies. These
effects of higher than normal portfolio turnover may adversely affect Fund or Underlying Fund performance.
Indexed and Inverse Securities Risk
— Certain
indexed and inverse securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Fund’s or
an Underlying Fund’s investment in such instruments may decline significantly in value if interest rates or index levels move in a way Fund
or Underlying Fund management does not anticipate.
Inflation Indexed Bonds Risk
— The principal
value of an investment is not protected or otherwise guaranteed by virtue of the Fund’s or an Underlying Fund’s investments in
inflation-indexed bonds.
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Inflation-indexed bonds are fixed-income securities whose
principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced.
Repayment of the original bond principal upon maturity (as
adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the
adjusted principal value of the bond repaid at maturity may be less than the original principal value.
The value of inflation-indexed bonds is expected to change in
response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation.
If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed
bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their principal until maturity.
Periodic adjustments for inflation to the principal amount of an
inflation-indexed bond may give rise to original issue discount, which will be includable in the Fund’s or an Underlying Fund’s gross
income. Due to original issue discount, the Fund or an Underlying Fund may be required to make annual distributions to shareholders that exceed
the cash received, which may cause the Fund or the Underlying Fund to liquidate certain investments when it is not advantageous to do so. Also,
if the principal value of an inflation-indexed bond is adjusted downward due to deflation, amounts previously distributed in the taxable year may be
characterized in some circumstances as a return of capital.
Interest Rate Risk
— Interest rate risk is the
risk that prices of fixed-income securities generally increase when interest rates decline and decrease when interest rates increase. Prices of
longer-term securities generally change more in response to interest rate changes than prices of shorter-term securities. The Fund or an Underlying
Fund may lose money if short-term or long-term interest rates rise sharply or otherwise change in a manner not anticipated by Fund or Underlying
Fund management.
Investment Style Risk
— Under certain market
conditions, growth investments have performed better during the later stages of economic expansion and value investments have performed better during
periods of economic recovery. Therefore, these investment styles may over time go in and out of favor. At times when the investment style used by the
Fund or an Underlying Fund is out of favor, the Fund or the Underlying Fund may underperform other funds that use different investment
styles.
Junk Bonds Risk
— Although junk bonds generally
pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that may cause income and principal losses for the
Fund or an Underlying Fund. The major risks of junk bond investments include:
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Junk bonds may be issued by less creditworthy issuers. Issuers of
junk bonds may have a larger amount of outstanding debt relative to their assets than issuers of investment grade bonds. In the event of an
issuer’s bankruptcy, claims of other creditors may have priority over the claims of junk bond holders, leaving few or no assets available to repay
junk bond holders.
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Prices of junk bonds are subject to extreme price fluctuations.
Adverse changes in an issuer’s industry and general economic conditions may have a greater impact on the prices of junk bonds than on other higher
rated fixed-income securities.
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Issuers of junk bonds may be unable to meet their interest or
principal payment obligations because of an economic downturn, specific issuer developments, or the unavailability of additional financing.
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Junk bonds frequently have redemption features that permit an
issuer to repurchase the security from the Fund or an Underlying Fund before it matures. If the issuer redeems junk bonds, the Fund or an
Underlying Fund may have to invest the proceeds in bonds with lower yields and may lose income.
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Junk bonds may be less liquid than higher rated fixed-income
securities, even under normal economic conditions. There are fewer dealers in the junk bond market, and there may be significant differences in the
prices quoted for junk bonds by the dealers. Because they are less liquid, judgment may play a greater role in valuing certain of the Fund’s or
an Underlying Fund’s securities than is the case with securities trading in a more liquid market.
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The Fund or an Underlying Fund may incur expenses to the
extent necessary to seek recovery upon default or to negotiate new terms with a defaulting issuer.
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The credit rating of a high yield security does not necessarily
address its market value risk. Ratings and market value may change from time to time, positively or negatively, to reflect new developments regarding
the issuer.
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Leverage Risk
— Some transactions may give rise
to a form of economic leverage. These transactions may include, among others, derivatives, and may expose the Fund or an Underlying Fund to
greater risk and increase its costs. As an open-end investment company registered with the Securities and Exchange Commission (“SEC”), the
Fund and the Underlying Funds are subject to the federal securities laws, including the Investment Company Act, the rules
thereunder, and various SEC and SEC staff interpretive positions. In accordance with these laws, rules and positions, the Fund and the Underlying
Funds must “set aside” liquid assets (often referred to as “asset segregation”), or engage in other SEC- or staff-approved
measures, to “cover” open positions with respect to certain kinds of instruments. The use of leverage may cause the Fund or an Underlying
Fund to liquidate portfolio positions when it may not be advantageous to do so to satisfy its obligations or to meet any required asset segregation
requirements. Increases and decreases in the value of the Fund’s or Underlying Fund’s portfolio will be magnified when the Fund or
Underlying Fund uses leverage.
Liquidity Risk
— Liquidity risk exists when
particular investments are difficult to purchase or sell. The Fund’s or an Underlying Fund’s investments in illiquid securities may
reduce the returns of the Fund or an Underlying Fund because it may be difficult to sell the illiquid securities at an advantageous time or
price. To the extent that the Fund’s or an Underlying Fund’s principal investment strategies involve derivatives or securities with
substantial market and/or credit risk, the Fund or the Underlying Fund will tend to have the greatest exposure to liquidity risk. Liquid
investments may become illiquid after purchase by the Fund or an Underlying Fund, particularly during periods of market turmoil. Illiquid
investments may be harder to value, especially in changing markets, and if the Fund or an Underlying Fund is forced to sell these investments to
meet redemption requests or for other cash needs, the Fund or the Underlying Fund may suffer a loss. In addition, when there is illiquidity in
the market for certain securities, the Fund or an Underlying Fund, due to limitations on illiquid investments, may be subject to purchase and
sale restrictions.
Market Risk and Selection Risk
— Market risk is
the risk that one or more markets in which the Fund or an Underlying Fund invests will go down in value, including the possibility that the
markets will go down sharply and unpredictably. Selection risk is the risk that the securities selected by Fund or Underlying Fund management
will underperform the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment
strategies. This means you may lose money.
Mid-Cap Securities Risk
— The securities of
mid-cap companies generally trade in lower volumes and are generally subject to greater and less predictable price changes than the securities of
larger capitalization companies.
Mortgage- and Asset-Backed Securities Risks
—
Mortgage-backed securities (residential and commercial) and asset-backed securities represent interests in “pools” of mortgages or other
assets, including consumer loans or receivables held in trust. Although asset-backed and commercial mortgage-backed securities (“CMBS”)
generally experience less prepayment than residential mortgage-backed securities, mortgage-backed and asset-backed securities, like traditional
fixed-income securities, are subject to credit, interest rate, prepayment and extension risks.
Small movements in interest rates (both increases and decreases)
may quickly and significantly reduce the value of certain mortgage-backed securities. The Fund’s or an Underlying Fund’s investments
in asset-backed securities are subject to risks similar to those associated with mortgage-related securities, as well as additional risks associated
with the nature of the assets and the servicing of those assets. These securities also are subject to the risk of default on the underlying mortgage or
assets, particularly during periods of economic downturn. Certain CMBS are issued in several classes with different levels of yield and credit
protection. The Fund’s or an Underlying Fund’s investments in CMBS with several classes may be in the lower classes that have greater
risks than the higher classes, including greater interest rate, credit and prepayment risks.
Mortgage-backed securities may be either pass-through securities
or collateralized mortgage obligations (“CMOs”). Pass-through securities represent a right to receive principal and interest payments
collected on a pool of mortgages, which are passed through to security holders. CMOs are created by dividing the principal and interest payments
collected on a pool of mortgages into several revenue streams (“tranches”) with different priority rights to portions of the underlying
mortgage payments. Certain CMO tranches may represent a right to receive interest only (“IOs”), principal only (“POs”) or an amount
that remains after floating-rate tranches are paid (an “inverse floater”). These securities are frequently referred to as “mortgage
derivatives” and may be extremely sensitive to changes in interest rates. Interest rates on inverse floaters, for example, vary inversely with a
short-term floating rate (which may be reset periodically). Interest rates on inverse floaters will decrease when short-term rates increase, and will
increase when short-term rates decrease. These securities have the effect of providing a degree of investment leverage. In response to changes in
market interest rates or other market conditions, the value of an inverse floater may increase or decrease at a multiple of the increase or decrease in
the value of the underlying securities. If the Fund or an Underlying Fund invests in CMO tranches (including CMO tranches issued by government
agencies) and interest rates move in a manner not anticipated by Fund or Underlying Fund management, it is possible that the Fund or the
Underlying Fund could lose all or substantially all of its investment.
24
The mortgage market in the United States at times has experienced
difficulties that may adversely affect the performance and market value of certain of the Fund’s or an Underlying Fund’s
mortgage-related investments. Delinquencies and losses on mortgage loans (including subprime and second-lien mortgage loans) generally have
increased and may continue to increase, and a decline in or flattening of real estate values (as has been experienced and may continue to be
experienced in many housing markets) may exacerbate such delinquencies and losses. Also, a number of mortgage loan originators have recently
experienced serious financial difficulties or bankruptcy. Reduced investor demand for mortgage loans and mortgage-related securities and increased
investor yield requirements have caused limited liquidity in the secondary market for mortgage-related securities, which can adversely affect the
market value of mortgage-related securities. It is possible that such limited liquidity in such secondary markets could continue or
worsen.
Asset-backed securities entail certain risks not presented by
mortgage-backed securities, including the risk that in certain states it may be difficult to perfect the liens securing the collateral backing certain
asset-backed securities. In addition, certain asset-backed securities are based on loans that are unsecured, which means that there is no collateral to
seize if the underlying borrower defaults. Certain mortgage-backed securities in which the Fund or an Underlying Fund may invest may also
provide a degree of investment leverage, which could cause the Fund or the Underlying Fund to lose all or substantially all of its
investment.
Municipal Securities Risks
— Municipal
securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal
securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. These risks
include:
General Obligation Bonds Risks
— The full faith, credit and taxing power of the municipality that issues a general obligation bond secures payment of interest and repayment of
principal. Timely payments depend on the issuer’s credit quality, ability to raise tax revenues and ability to maintain an adequate tax
base.
Revenue Bonds Risks
—
Payments of interest and principal on revenue bonds are made only from the revenues generated by a particular facility, class of facilities or the
proceeds of a special tax or other revenue source. These payments depend on the money earned by the particular facility or class of facilities, or the
amount of revenues derived from another source.
Private Activity Bonds Risks
— Municipalities and other public authorities issue private activity bonds to finance development of industrial facilities for use by a private
enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its full faith, credit and taxing power
for repayment. If the private enterprise defaults on its payments, the Fund or an Underlying Fund may not receive any income or get its money
back from the investment.
Moral Obligation Bonds Risks
— Moral obligation bonds are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet
its obligations, repayment of these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
Municipal Notes Risks
—
Municipal notes are shorter term municipal debt obligations. They may provide interim financing in anticipation of, and are secured by, tax collection,
bond sales or revenue receipts. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund or an Underlying
Fund may lose money.
Municipal Lease Obligations Risks
— In a municipal lease obligation, the issuer agrees to make payments when due on the lease obligation. The issuer will generally appropriate
municipal funds for that purpose, but is not obligated to do so. Although the issuer does not pledge its unlimited taxing power for payment of the
lease obligation, the lease obligation is secured by the leased property. However, if the issuer does not fulfill its payment obligation it may be
difficult to sell the property and the proceeds of a sale may not cover the Fund’s or an Underlying Fund’s loss.
Tax-Exempt Status Risk
— In
making investments, the Fund, an Underlying Fund and their respective investment manager will rely on the opinion of issuers’
bond counsel and, in the case of derivative securities, sponsors’ counsel, on the tax-exempt status of interest on Municipal Obligations and
payments under tax-exempt derivative securities. None of the Fund, an Underlying Fund or their respective
investment manager will independently review the bases for those tax opinions. If any of those tax opinions are ultimately determined to be
incorrect or if events occur after the security is acquired that impact the security’s tax-exempt status, the Fund, an Underlying Fund and
their respective shareholders could be subject to substantial tax liabilities. The Internal Revenue Service (the “IRS”) has
generally not ruled on the taxability of the securities. An assertion by the IRS that a portfolio security is not exempt from federal income tax
(contrary to indications from the issuer) could affect the Fund’s, an Underlying
25
Fund’s and
shareholder’s income tax liability for the current or past years and could create liability for information reporting penalties. In addition, an
IRS assertion of taxability may impair the liquidity and the fair market value of the securities.
Preferred Securities Risk
— Preferred
securities may pay fixed or adjustable rates of return. Preferred securities are subject to issuer-specific and market risks applicable generally to
equity securities. In addition, a company’s preferred securities generally pay dividends only after the company makes required payments to holders
of its bonds and other debt. For this reason, the value of preferred securities will usually react more strongly than bonds and other debt to actual or
perceived changes in the company’s financial condition or prospects. Preferred securities of smaller companies may be more vulnerable to adverse
developments than preferred stock of larger companies.
Prepayment Risk
— When interest rates fall,
certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund or an Underlying Fund may have to
invest the proceeds in securities with lower yields. In periods of falling interest rates, the rate of prepayments tends to increase (as does price
fluctuation) as borrowers are motivated to pay off debt and refinance at new lower rates. During such periods, reinvestment of the prepayment proceeds
by the management team will generally be at lower rates of return than the return on the assets that were prepaid. Prepayment reduces the yield to
maturity and the average life of the security.
Real Estate Related Securities Risks
— The main
risk of real estate related securities is that the value of the underlying real estate may go down. Many factors may affect real estate values. These
factors include both the general and local economies, the amount of new construction in a particular area, the laws and regulations (including zoning
and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate. The availability of mortgages and changes in
interest rates may also affect real estate values. If the Fund’s or an Underlying Fund’s real estate related investments are
concentrated in one geographic area or in one property type, the Fund or the Underlying Fund will be particularly subject to the risks
associated with that area or property type.
REIT Investment Risk
— In addition to the risks
facing real estate related securities, such as a decline in property values due to increasing vacancies, a decline in rents resulting from
unanticipated economic, legal or technological developments or a decline in the price of securities of real estate companies due to a failure of
borrowers to pay their loans or poor management, investments in REITs involve unique risks. REITs may have limited financial resources, may trade less
frequently and in limited volume and may be more volatile than other securities.
Repurchase Agreements and Purchase and Sale Contracts
Risks
— If the other party to a repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the
Fund or an Underlying Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to
repurchase the security in either situation and the market value of the security declines, the Fund or the Underlying Fund may lose
money.
Reverse Repurchase Agreements Risk
— Reverse
repurchase agreements involve the sale of securities held by the Fund or an Underlying Fund with an agreement to repurchase the securities at an
agreed-upon price, date and interest payment. Reverse repurchase agreements involve the risk that the other party to the reverse repurchase agreement
may fail to return the securities in a timely manner or at all. The Fund or an Underlying Fund could lose money if it is unable to recover the
securities and the value of the collateral held by the Fund or the Underlying Fund, including the value of the investments made with cash
collateral, is less than the value of securities. These events could also trigger adverse tax consequences to the Fund or an Underlying
Fund.
Risks of Loan Assignments and Participations
—
As the purchaser of an assignment, the Fund or an Underlying Fund typically succeeds to all the rights and obligations of the assigning
institution and becomes a lender under the credit agreement with respect to the debt obligation; however, the Fund or an Underlying Fund may not
be able unilaterally to enforce all rights and remedies under the loan and with regard to any associated collateral. Because assignments may be
arranged through private negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Fund or an
Underlying Fund as the purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. In addition, if
the loan is foreclosed, the Fund or an Underlying Fund could become part owner of any collateral and could bear the costs and liabilities of
owning and disposing of the collateral. The Fund or an Underlying Fund may be required to pass along to a purchaser that buys a loan from the
Fund or the Underlying Fund by way of assignment a portion of any fees to which the Fund or the Underlying Fund is entitled under the
loan. In connection with purchasing participations, the Fund or an Underlying Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the borrower, and the Fund or an Underlying
Fund may not directly benefit from any collateral supporting the loan in which it has purchased the participation. As a result, the Fund or an
Underlying Fund will be
26
subject to the credit risk of both the borrower and the lender
that is selling the participation. In the event of the insolvency of the lender selling a participation, the Fund or an Underlying Fund may be
treated as a general creditor of the lender and may not benefit from any set-off between the lender and the borrower.
Second Lien Loans Risk
— Second lien loans
generally are subject to similar risks as those associated with investments in senior loans. Because second lien loans are subordinated or unsecured
and thus lower in priority of payment to senior loans, they are subject to the additional risk that the cash flow of the borrower and property securing
the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the borrower. This
risk is generally higher for subordinated unsecured loans or debt, which are not backed by a security interest in any specific collateral. Second lien
loans generally have greater price volatility than senior loans and may be less liquid.
There is also a possibility that originators will not be able to
sell participations in second lien loans, which would create greater credit risk exposure for the holders of such loans. Second lien loans share the
same risks as other below investment grade securities.
Senior Loans Risk
— There is less readily
available, reliable information about most senior loans than is the case for many other types of securities. In addition, there is no minimum rating or
other independent evaluation of a borrower or its securities limiting the Fund’s or an Underlying Fund’s investments, and
the Fund’s or the Underlying Fund’s investment manager relies primarily on its own evaluation of a borrower’s credit
quality rather than on any available independent sources. As a result, the Fund or an Underlying Fund is particularly dependent on the
analytical abilities of its investment manager.
An economic downturn generally leads to a higher non-payment rate,
and a senior loan may lose significant value before a default occurs. Moreover, any specific collateral used to secure a senior loan may decline in
value or become illiquid, which would adversely affect the senior loan’s value.
No active trading market may exist for certain senior loans, which
may impair the ability of the Fund or an Underlying Fund to realize full value in the event of the need to sell a senior loan and which may make
it difficult to value senior loans. Adverse market conditions may impair the liquidity of some actively traded senior loans. To the extent that a
secondary market does exist for certain senior loans, the market may be subject to irregular trading activity, wide bid/ask spreads and extended trade
settlement periods. See “Liquidity Risk.”
Although senior loans in which the Fund or an Underlying Fund
will invest generally will be secured by specific collateral, there can be no assurance that liquidation of such collateral would satisfy the
borrower’s obligation in the event of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. In the
event of the bankruptcy of a borrower, the Fund or an Underlying Fund could experience delays or limitations with respect to its ability to
realize the benefits of the collateral securing a senior loan. If the terms of a senior loan do not require the borrower to pledge additional
collateral in the event of a decline in the value of the already pledged collateral, the Fund or an Underlying Fund will be exposed to the risk
that the value of the collateral will not at all times equal or exceed the amount of the borrower’s obligations under the senior loans. To the
extent that a senior loan is collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of the
bankruptcy of the borrower. Uncollateralized senior loans involve a greater risk of loss. Some senior loans are subject to the risk that a court,
pursuant to fraudulent conveyance or other similar laws, could subordinate the senior loans to presently existing or future indebtedness of the
borrower or take other action detrimental to lenders, including the Fund or an Underlying Fund. Such court action could under certain
circumstances include invalidation of senior loans.
If a senior loan is acquired through an assignment, the Fund or
an Underlying Fund may not be able to unilaterally enforce all rights and remedies under the loan and with regard to any associated collateral. If
a senior loan is acquired through a participation, the Fund or an Underlying Fund generally will have no right to enforce compliance by the
borrower with the terms of the loan agreement against the borrower, and the Fund or an Underlying Fund may not directly benefit from the
collateral supporting the debt obligation in which it has purchased the participation. As a result, the Fund or an Underlying Fund will be
exposed to the credit risk of both the borrower and the institution selling the participation.
The senior loans in which the Fund or Underlying Fund
invests are usually rated below investment grade. As a result, the risks associated with senior loans are similar to the risks of below investment
grade securities, although senior loans are typically senior and secured in contrast to other below investment grade securities, which are often
subordinated and unsecured. See “Junk Bonds Risk.” The higher standing of senior loans has historically resulted in generally higher
recoveries in the event of a corporate reorganization. In addition, because their interest rates are typically adjusted for changes in short-term
interest rates, senior loans generally are subject to less interest rate risk than other below investment grade securities, which are typically fixed
rate.
27
Small Cap and Emerging Growth Securities Risks
— Small cap or emerging growth companies may have limited product lines or markets. They may be less financially secure than larger, more
established companies. They may depend on a small number of key personnel. If a product fails or there are other adverse developments, or if management
changes, the Fund’s or an Underlying Fund’s investment in a small cap company may lose substantial value. In addition, it is more
difficult to get information on smaller companies, which tend to be less well known, have shorter operating histories, do not have significant
ownership by large investors and are followed by relatively few securities analysts.
The securities of small cap or emerging growth companies generally
trade in lower volumes and are subject to greater and more unpredictable price changes than larger cap securities or the market as a whole. In
addition, small cap securities may be particularly sensitive to changes in interest rates, borrowing costs and earnings. Investing in small cap
securities requires a longer term view.
Sovereign Debt Risk
— Sovereign debt
instruments are subject to the risk that a governmental entity may delay or refuse to pay interest or repay principal on its sovereign debt, due, for
example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entity’s
debt position in relation to the economy or the failure to put in place economic reforms required by the International Monetary Fund or other
multilateral agencies. If a governmental entity defaults, it may ask for more time in which to pay or for further loans. There is no legal process for
collecting sovereign debt that a government does not pay nor are there bankruptcy proceedings through which all or part of the sovereign debt that a
governmental entity has not repaid may be collected.
Structured Notes Risk
— Structured notes and
other related instruments purchased by the Fund or an Underlying Fund are generally privately negotiated debt obligations where the principal
and/or interest is determined by reference to the performance of a specific asset, benchmark asset, market or interest rate
(“reference measure”). The interest rate or the principal amount payable upon maturity or
redemption may increase or decrease, depending upon changes in the value of the reference measure. The terms of a structured note
may provide that, in certain circumstances, no principal is due at maturity and, therefore, may result in a loss of invested capital
by the Fund or an Underlying Fund. The interest and/or principal payments that may be made on a structured product may vary widely,
depending on a variety of factors, including the volatility of the reference measure.
Structured notes may be positively or negatively indexed, so the appreciation of the reference measure may produce an increase or a decrease in the interest rate or the value of the principal at maturity. The rate of return on structured notes may be determined by applying a multiplier to the performance or differential performance of reference measures. Application of a multiplier involves leverage that will serve to magnify the potential for gain and the risk of loss.
The purchase of structured notes exposes the Fund or an Underlying Fund to the credit risk of the issuer of the structured product. Structured notes may also be more volatile, less liquid, and more difficult to price accurately than less complex securities and instruments or more traditional debt securities.
Structured Products Risk
— Holders of
structured products bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund or an
Underlying Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the
issuer or the entity that sold the assets to be securitized. Certain structured products may be thinly traded or have a limited trading market. In
addition to the general risks associated with debt securities discussed herein, structured products carry additional risks, including, but not limited
to: the possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the
collateral may decline in value or default; and the possibility that the structured products are subordinate to other classes. Structured notes are
based upon the movement of one or more factors, including currency exchange rates, interest rates, referenced bonds and stock indices, and changes in
interest rates and impact of these factors may cause significant price fluctuations. Additionally, changes in the reference instrument or security may
cause the interest rate on the structured note to be reduced to zero.
Supranational Entities Risk
— The Fund or an
Underlying Fund may invest in obligations issued or guaranteed by the International Bank for Reconstruction and Development (the World Bank). The
government members, or “stockholders,” usually make initial capital contributions to the World Bank and in many cases are committed to make
additional capital contributions if the World Bank is unable to repay its borrowings. There is no guarantee that one or more stockholders of the World
Bank will continue to make any necessary additional capital contributions. If such contributions are not made, the entity may be unable to pay interest
or repay principal on its debt securities, and the Fund or an Underlying Fund may lose money on such investments.
Tender Option Bonds and Related Securities Risk
— Investments in tender option bonds, residual interest tender option bonds and inverse floaters expose the Fund or an Underlying Fund to
the same risks as investments in derivatives, as well as risks associated with leverage, described above, especially the risk of increased volatility.
An
28
investment in these securities typically will involve greater risk than an investment in a municipal fixed rate security, including the risk of loss
of principal. Distributions on residual interest tender option bonds and inverse floaters will bear an inverse relationship to short-term municipal
security interest rates. Distributions on the residual interests and inverse floaters paid to the Fund or an Underlying Fund will be reduced or,
in the extreme, eliminated as short-term municipal interest rates rise and will increase when short-term municipal interest rates fall. Residual
interest tender option bonds and inverse floaters generally will underperform the market for fixed rate municipal securities in a rising interest rate
environment.
U.S. Government Mortgage-Related Securities Risk
— There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities guaranteed by Ginnie Mae are guaranteed as to the timely payment of
principal and interest by Ginnie Mae and such guarantee is backed by the full faith and credit of the United States. Ginnie Mae securities also are
supported by the right of Ginnie Mae to borrow funds from the U.S. Treasury to make payments under its guarantee. Mortgage-related securities issued by
Fannie Mae or Freddie Mac are solely the obligations of Fannie Mae or Freddie Mac, as the case may be, and are not backed by or entitled to the full
faith and credit of the United States but are supported by the right of the issuer to borrow from the U.S. Treasury.
U.S. Government Obligations Risk
— Obligations
of U.S. Government agencies, authorities, instrumentalities and sponsored enterprises have historically involved little risk of loss of principal if
held to maturity. However, not all U.S. Government securities are backed by the full faith and credit of the United States. Obligations of certain
agencies, authorities, instrumentalities and sponsored enterprises of the U.S. Government are backed by the full faith and credit of the United States
(
e.g.
, Ginnie Mae); other obligations are backed by the right of the issuer to borrow from the U.S. Treasury (
e.g.
, the Federal Home Loan
Banks) and others are supported by the discretionary authority of the U.S. Government to purchase an agency’s obligations. Still others are backed
only by the credit of the agency, authority, instrumentality or sponsored enterprise issuing the obligation. No assurance can be given that the U.S.
Government would provide financial support to any of these entities if it is not obligated to do so by law.
Variable and Floating Rate Instrument Risk
—
The absence of an active market for these securities could make it difficult for the Fund or an Underlying Fund to dispose of them if the issuer
defaults.
Warrants Risk
— If the price of the underlying
stock does not rise above the exercise price before the warrant expires, the warrant generally expires without any value and the Fund or an
Underlying Fund loses any amount it paid for the warrant. Thus, investments in warrants may involve substantially more risk than investments in
common stock. Warrants may trade in the same markets as their underlying stock; however, the price of the warrant does not necessarily move with the
price of the underlying stock.
Zero Coupon Securities Risk
— While interest
payments are not made on such securities, holders of such securities are deemed to have received income (“phantom income”) annually,
notwithstanding that cash may not be received currently. The effect of owning instruments that do not make current interest payments is that a fixed
yield is earned not only on the original investment but also, in effect, on all discount accretion during the life of the obligations. This implicit
reinvestment of earnings at a fixed rate eliminates the risk of being unable to invest distributions at a rate as high as the implicit yield on the
zero coupon bond, but at the same time eliminates the holder’s ability to reinvest at higher rates in the future. For this reason, some of these
securities may be subject to substantially greater price fluctuations during periods of changing market interest rates than are comparable securities
that pay interest currently. Longer term zero coupon bonds are more exposed to interest rate risk than shorter term zero coupon bonds. These
investments benefit the issuer by mitigating its need for cash to meet debt service, but also require a higher rate of return to attract investors who
are willing to defer receipt of cash.
Other Risks of Investing in the Fund and/or the Underlying
Funds
The Fund and the Underlying Funds may also be subject to
certain other risks associated with their investments and investment strategies, including:
Borrowing Risk
— Borrowing may exaggerate
changes in the net asset value of Fund or Underlying Fund shares and in the return on the Fund’s or the Underlying Fund’s
portfolio. Borrowing will cost the Fund or an Underlying Fund interest expense and other fees. The costs of borrowing may reduce the
Fund’s or the Underlying Fund’s return. Borrowing may cause the Fund or an Underlying Fund to liquidate positions when it may
not be advantageous to do so to satisfy its obligations.
29
Expense Risk
— Fund or Underlying Fund
expenses are subject to a variety of factors, including fluctuations in the Fund’s or the Underlying Fund’s net assets.
Accordingly, actual expenses may be greater or less than those indicated. For example, to the extent that the Fund’s or the Underlying
Fund’s net assets decrease due to market declines or redemptions, the Fund’s or the Underlying Fund’s expenses will increase
as a percentage of Fund or Underlying Fund net assets. During periods of high market volatility, these increases in the Fund’s or the
Underlying Fund’s expense ratio could be significant.
Liquidity Risk
— Liquidity risk exists when
particular investments are difficult to purchase or sell. The Fund’s or an Underlying Fund’s investments in illiquid securities may
reduce the returns of the Fund or the Underlying Fund because it may be difficult to sell the illiquid securities at an advantageous time or
price. To the extent that the Fund’s or an Underlying Fund’s principal investment strategies involve derivatives or securities with
substantial market and/or credit risk, the Fund or the Underlying Fund will tend to have the greatest exposure to liquidity risk. Liquid
investments may become illiquid after purchase by the Fund or the Underlying Fund, particularly during periods of market turmoil.
Illiquid investments may be harder to value, especially in changing
markets, and if the Fund or the Underlying Fund is forced to sell these investments to meet redemption requests or for other cash needs, the
Fund or the Underlying Fund may suffer a loss. In addition, when there is illiquidity in the market for certain securities, the Fund or the
Underlying Fund, due to limitations on illiquid investments, may be subject to purchase and sale restrictions.
Master Limited Partnerships Risk
— The common
units of an MLP are listed and traded on U.S. securities exchanges and their value fluctuates predominantly based on prevailing market conditions and
the success of the MLP. Unlike owners of common stock of a corporation, owners of common units have limited voting rights and have no ability annually
to elect directors. In the event of liquidation, common units have preference over subordinated units, but not over debt or preferred units, to the
remaining assets of the MLP.
“New Issues” Risk
— “New
Issues” are IPOs of equity securities of U.S. and non-U.S. issuers. Investments in companies that have recently gone public have the
potential to produce substantial gains for the Fund or an Underlying Fund. However, there is no assurance that the Fund or an Underlying Fund
will have access to profitable IPOs and therefore investors should not rely on these past gains as an indication of future performances. The
investment performance of the Fund or an Underlying Fund during periods when it is unable to invest significantly or at all in IPOs may be lower
than during periods when the Fund or an Underlying Fund is able to do so. In addition, as the Fund or an Underlying Fund increases in
size, the impact of IPOs on the Fund’s or the Underlying Fund’s performance will generally decrease. Securities issued in IPOs are
subject to many of the same risks as investing in companies with smaller market capitalizations. Securities issued in IPOs have no trading history, and
information about the companies may be available for very limited periods. In addition, the prices of securities sold in IPOs may be highly volatile or
may decline shortly after the initial public offering. When an initial public offering is brought to the market, availability may be limited and the
Fund or an Underlying Fund may not be able to buy any shares at the offering price, or, if it is able to buy shares, it may not be able to buy
as many shares at the offering price as it would like.
Risks of Investing in Closed-End Funds
— The
shares of closed-end funds may trade at a discount or premium to, or at, their net asset value. To the extent that the Fund or an Underlying Fund
invests a portion of its assets in closed-end funds, those assets will be subject to the risks of the closed-end fund’s portfolio securities,
and a shareholder in the Fund or an Underlying Fund will bear not only his or her proportionate share of the expenses of the Fund or the
Underlying Fund, but also, indirectly, the expenses of the closed-end fund. The securities of closed-end funds in which the Fund or an
Underlying Fund may invest may be leveraged. As a result, the Fund or an Underlying Fund may be indirectly exposed to leverage through an
investment in such securities. An investment in securities of closed-end funds that use leverage may expose the Fund or an Underlying Fund to
higher volatility in the market value of such securities and the possibility that the Fund’s or an Underlying Fund’s long-term returns
on such securities (and, indirectly, the long-term returns of the shares) will be diminished.
When-Issued and Delayed Delivery Securities and Forward
Commitments Risks
— When-issued and delayed delivery securities and forward commitments involve the risk that the security the Fund or
an Underlying Fund buys will lose value prior to its delivery. There also is the risk that the security will not be issued or that the other party
to the transaction will not meet its obligation. If this occurs, the Fund or an Underlying Fund loses both the investment opportunity for the
assets it set aside to pay for the security and any gain in the security’s price.
30
Information About the ETFs
and Mutual Funds
The Fund may invest in any of the ETFs and mutual funds listed
below. The table sets forth (i) the names of the ETFs and mutual funds, and (ii) brief descriptions of their investment objectives and principal
investment strategies. The list of ETFs and mutual funds is subject to change at the discretion of BlackRock without notice to
shareholders.
Prospectuses for any of these ETFs and mutual funds can be
accessed at www.blackrock.com/prospectus or obtained by calling (800) 441-7762.
ETFs
BlackRock Fund Advisors (“BFA”), an affiliate of
BlackRock and each ETF’s investment adviser, uses a “passive” or indexing approach to try to achieve the ETF’s investment
objective. Unlike many investment companies, the ETF does not try to “beat” the index it tracks and does not seek temporary defensive
positions when markets decline or appear overvalued.
Indexing may eliminate the chance that the ETF will substantially
outperform the Underlying Index (as defined below) but also may reduce some of the risks of active management, such as poor security selection.
Indexing seeks to achieve lower costs and better after-tax performance by keeping portfolio turnover low in comparison to actively managed investment
companies.
For some ETFs, BFA may invest in all securities included in the
Underlying Index in roughly the same proportions as each security is weighted in such Underlying Index in an indexing strategy known as “full
replication.” For other ETFs, BFA uses a representative sampling indexing strategy to manage the ETFs. “Representative sampling” is an
indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the
Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market
capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of
the Underlying Index. The Fund may or may not hold all of the securities in the Underlying Index. Funds that employ a representative sampling strategy
may incur tracking error risk to a greater extent than a fund that seeks to replicate an index.
An ETF will at all times invest at least 80% of its assets in the
securities of the Underlying Index or in depositary receipts representing securities in its Underlying Index. The ETF may invest the remainder of its
assets in other securities, including securities not in the Underlying Index, but which BFA believes will help track the Underlying Index. Certain ETFs
may also hold futures contracts, options on futures contracts, other types of options and swaps related to its Underlying Index, as well as cash and
cash equivalents, including shares of money market funds advised by BFA or its affiliates.
The Underlying Index is sponsored by an organization (the
“Index Provider”) that is independent of the ETF and BFA. The Index Provider determines the composition and relative weightings of the
securities in the Underlying Index and publishes information regarding the market value of the Underlying Index.
Each ETF will concentrate its investments
(
i.e.
, hold 25% or more of its total assets) in a particular
industry or group of industries to approximately the same extent
that the Underlying Index is concentrated. For purposes of
this limitation, securities of the U.S. government (including
its agencies and instrumentalities) and repurchase agreements
collateralized by U.S. government securities are not considered
to be issued by members of any industry.
31
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares MSCI All Country Asia ex Japan Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI All Country Asia ex Japan Index (the “Underlying Index”).
|
|
|
|
|
|
As of June 30, 2012, the Underlying Index is a free float-adjusted market capitalization
index designed to measure equity market performance of the following 12 developed and emerging market countries or regions: Australia, China,
Hong Kong, India, Indonesia, Malaysia, New Zealand, the Philippines, Singapore, South Korea, Taiwan and Thailand. Components primarily
include consumer discretionary, financial, industrials and information technology companies. The components of the Underlying Index, and
the degree to which these components represent certain industries, may change over time.
|
|
iShares Barclays 1-3 Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. 1-3 Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury
that have a remaining maturity of greater than or equal to one year and less than three years. As of April 30, 2012, there were 69 issues in the
Underlying Index.
|
|
iShares Barclays 7-10 Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. 7-10 Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury
that have a remaining maturity of greater than or equal to seven years and less than ten years. As of April 30, 2012, there were 20 issues in
the Underlying Index.
|
|
iShares Core Total U.S. Bond Market ETF
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. Aggregate Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the total U.S. investment-grade bond
market. As of April 30, 2012, there were 7,929 issues in the Underlying Index.
|
|
iShares Barclays 20+ Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. 20+ Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury
that have a remaining maturity of 20 or more years. As of April 30, 2012, there were 18 issues in the Underlying
Index.
|
|
iShares Barclays Short Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. Short Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury
that have a remaining maturity of between one and 12 months. As of April 30, 2012, there were 64 issues in the Underlying
Index.
|
|
iShares Barclays 3-7 Year Treasury Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. 3-7 Year Treasury Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of public obligations of the U.S. Treasury
that have a remaining maturity of greater than or equal to three years and less than seven years. As of April 30, 2012, there were 88 issues in
the Underlying Index.
|
|
iShares Barclays MBS Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. MBS Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of investment grade mortgage-backed
pass-through securities issued by Ginnie Mae, Fannie Mae and Freddie Mac. The Underlying Index includes fixed-rate mortgage pass-through
securities issued by Ginnie Mae, Fannie Mae and Freddie Mac that have 30-, 20-, 15-year maturities as well as hybrid adjustable rate
mortgages (“ARMs”). All securities in the Underlying Index must have a remaining weighted average maturity of at least one year;
hybrid ARMs must be at least one year away from initial reset, must be investment grade, and must have $250 million or more of
outstanding face value. In addition, the securities in the Underlying Index must be denominated in U.S. dollars and must be non-convertible.
The Underlying Index is market capitalization-weighted and the securities in the Underlying Index are updated on the last calendar day of
each month.
|
32
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares FTSE China 25 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the FTSE China 25 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is designed to track the performance of the largest companies in
the Chinese equity market that are available to international investors. The Underlying Index consists of 25 of the largest and most liquid
Chinese companies. Securities in the Underlying Index are weighted based on the total market value of their shares, so that securities
with higher total market values generally have a higher representation in the Underlying Index. Each security in the Underlying Index is a
current constituent of the FTSE All-World Index and all of the securities in the Underlying Index currently trade on the Hong Kong Stock
Exchange. Components primarily include financial, oil and gas, and telecommunications companies. The components of the Underlying Index, and
the degree to which these components represent certain industries, may change over time.
|
|
iShares Barclays Intermediate Credit Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. Intermediate Credit Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of investment-grade corporate debt and
sovereign, supranational, local authority and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater
than or equal to one year and less than ten years. As of April 30, 2012, there were 3,330 issues in the Underlying Index. Components
primarily include financial and industrials entities, and may change over time.
|
|
iShares S&P Latin America 40 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
companies in the Mexican and South American equity markets as represented by the S&P Latin America 40
TM
Index (the
“Underlying Index”).
|
|
|
|
|
|
The Underlying Index is comprised of selected equities trading on the exchanges of five
Latin American countries. The Underlying Index includes securities that Standard & Poor’s Financial Services LLC, a subsidiary of
The McGraw-Hill Companies considers to be highly liquid from major economic sectors of the Mexican and South American equity markets.
Companies from Brazil, Chile, Colombia, Mexico and Peru are represented in the Underlying Index. Components primarily include consumer staples,
financial and materials companies, and may change over time.
|
|
iShares MSCI ACWI Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI All Country World Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a free float-adjusted market capitalization index designed to
measure the combined equity market performance of developed and emerging markets countries. Components primarily include consumer
discretionary, consumer staples, energy, financial, industrials and information technology companies. The components of the Underlying
Index, and the degree to which these components represent certain industries, may change over time. As of June 30, 2012, the Underlying Index
consisted of companies in the following countries or regions: Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, the
Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan,
Malaysia, Mexico, Morocco, the Netherlands, New Zealand, Norway, Peru, the Philippines, Poland, Portugal, Russia, Singapore, South Africa,
South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Kingdom and the United States.
|
|
iShares MSCI EAFE Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI EAFE
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. as an equity benchmark for its
international stock performance. The Underlying Index includes stocks from Europe, Australasia and the Far East and, as of June 30, 2012,
consisted of the following 22 developed market country indexes or regions: Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden,
Switzerland and the United Kingdom. Components primarily include consumer staples, financial and industrials companies. The components of
the Underlying Index, and the degree to which these components represent certain industries, may change over time.
|
33
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares MSCI EAFE Minimum Volatility Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI EAFE Minimum Volatility Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. to measure the performance of
international equity securities that have lower absolute volatility. The Underlying Index begins with the MSCI EAFE Index, which is a
capitalization-weighted index, and then follows a rules-based methodology to determine weights for securities in the index that seeks to
minimize total risk of the MSCI EAFE Index. The Underlying Index includes stocks from Europe, Australasia, the Middle East and the Far East and,
as of June 30, 2012, consisted of the following 19 developed market country indexes or regions: Australia, Belgium, Denmark, Finland,
France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Portugal, Singapore, Spain, Sweden, Switzerland
and the United Kingdom. Components primarily include consumer staples, financial and healthcare companies. The components of the Underlying
Index, and the degree to which these components represent certain industries, may change over time.
|
|
iShares MSCI Emerging Markets Minimum Volatility Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Emerging Markets Minimum Volatility Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. to measure the performance of
equity securities in global emerging markets that have lower absolute volatility. The Underlying Index begins with the MSCI Emerging Markets
Index, which is a capitalization-weighted index, and then follows a rules-based methodology to determine optimal weights for securities
in the index with the lowest total risk. As of June 30, 2012, the Underlying Index consisted of companies in the following
19 countries: Brazil, Chile, China, Colombia, the Czech Republic, Egypt, India, Indonesia, Malaysia, Mexico, Morocco, Peru, the
Philippines, Poland, Russia, South Africa, South Korea, Taiwan and Thailand. Component companies include consumer staples, financials and
telecommunication services companies.
|
|
iShares MSCI USA Minimum Volatility Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI USA Minimum Volatility Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index has been developed by MSCI Inc. to measure the performance of
equity securities in the top 85% by market capitalization of equity securities listed on stock exchanges in the United States that have lower
absolute volatility. The Underlying Index begins with the MSCI USA Index, which is a capitalization-weighted index, and then follows a
rules-based methodology to determine weights for securities in the index that seeks to minimize total risk of the MSCI USA Index. Components
primarily include consumer staples, healthcare and information technology companies. The components of the Underlying Index, and the
degree to which these components represent certain industries, may change over time.
|
|
iShares MSCI Pacific ex-Japan Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Pacific ex-Japan Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks from the following four countries: Australia,
Hong Kong, New Zealand and Singapore. Components primarily include consumer staples, financial, industrial and materials
companies.
|
|
iShares S&P National AMT-Free Municipal Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P National AMT-Free Municipal Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the investment-grade segment of the
U.S. municipal bond market. As of April 30, 2012, there were 9,018 issues in the Underlying Index.
|
34
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares S&P U.S. Preferred Stock Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P U.S. Preferred Stock Index
TM
(the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of a select group of preferred stocks
listed on the New York Stock Exchange, NYSE Arca, Inc., NYSE Amex, NASDAQ Global Select Market, NASDAQ Select Market or NASDAQ Capital
Market. The Underlying Index does not seek to directly reflect the performance of the companies issuing the preferred stock. The
Underlying Index includes preferred stocks with a market capitalization over $100 million that meet minimum price, liquidity, trading
volume, maturity and other requirements determined Standard & Poor’s Financial Services LLC, a subsidiary of The McGraw-Hill
Companies. The Underlying Index excludes certain issues of preferred stock, such as those that are issued by special ventures (
e.g.
,
toll roads or dam operators) or structured products that are linked to indexes or other stocks.
|
|
iShares Barclays TIPS Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. Treasury Inflation Protected Securities (TIPS) Index (Series-L) (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the inflation-protected public
obligations of the U.S. Treasury. Inflation-protected public obligations of the U.S. Treasury, commonly known as “TIPS,” are
securities issued by the U.S. Treasury that are designed to provide inflation protection to investors. TIPS are income-generating
instruments whose interest and principal payments are adjusted for inflation — a sustained increase in prices that erodes the purchasing
power of money. The inflation adjustment, which is typically applied monthly to the principal of the bond, follows a designated inflation
index, such as the consumer price index. A fixed coupon rate is applied to the inflation-adjusted principal so that as inflation rises, both the
principal value and the interest payments increase. This can provide investors with a hedge against inflation, as it helps preserve the
purchasing power of an investment. Because of this inflation adjustment feature, inflation-protected bonds typically have lower yields
than conventional fixed-rate bonds. As of December 31, 2011, there were 31 issues in the Underlying Index.
|
|
iShares MSCI Australia Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Australia Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Australian Stock Exchange.
Components primarily include consumer staples, financial and materials companies.
|
|
iShares Barclays 1-3 Year Credit Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Barclays U.S. 1-3 Year Credit Bond Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of investment grade corporate debt and
sovereign, supranational, local authority and non-U.S. agency bonds that are U.S. dollar-denominated and have a remaining maturity of greater
than or equal to one year and less than three years. As of April 30, 2012, there were 896 issues in the Underlying Index. Components
primarily include financial and industrials entities, and may change over time.
|
|
iShares MSCI Brazil Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Brazil Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the BM&FBOVESPA (the
Brazilian exchange). Components primarily include energy, financial and materials companies.
|
|
iShares MSCI Canada Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Canada Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Toronto Stock Exchange.
Components primarily include energy, financial and materials companies.
|
35
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Dow Jones Select Dividend Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Dow Jones U.S. Select Dividend Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of a selected group of equity securities
issued by companies that have provided relatively high dividend yields on a consistent basis over time. Dividend yield is calculated using a
stock’s unadjusted indicated annual dividend (not including any special dividends) divided by its unadjusted price. The Underlying
Index is comprised of 100 of the highest dividend-yielding securities (excluding REITs) in the Dow Jones U.S. Index, a broad-based index
representative of the total market for U.S. equity securities. To be included in the Underlying Index, the securities (i) must have a current
year’s dividend per-share ratio which is greater than or equal to their five year average dividend per-share ratio; (ii) must have
an average five-year dividend payout ratio of 60% or less; and (iii) must have a minimum three-month average trading volume of 100,000 shares a
day. “Dividend payout ratio” reflects the percentage of a company’s earnings paid out as dividends. A ratio of 60% would
mean that the company issuing the security paid out approximately 60% of its earnings as dividends. A company with a lower dividend payout ratio
has more earnings to support dividends, and adjustments or changes in the level of earnings are therefore less likely to significantly
affect the level of dividends paid. Positive dividend growth rate is a measure of dividend consistency, since it provides some indication
of a company’s ability to continue to pay dividends. The Underlying Index is reviewed and rebalanced annually.
|
|
iShares Dow Jones U.S. Real Estate Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Dow Jones U.S. Real Estate Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the real estate sector of the U.S.
equity market. The Underlying Index includes companies in the following industry groups: real estate holding and development and REITs. As of
March 31, 2012, the Underlying Index was concentrated in the REITs industry group, which comprised 95.91% of the market capitalization of
the Underlying Index. Components primarily include REITs. The components of the Underlying Index, and the degree to which these
components represent certain industries, may change over time.
|
|
iShares MSCI Emerging Markets Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Emerging Markets Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is designed to measure equity market performance in the global
emerging markets. As of June 30, 2012, the Underlying Index consisted of the following 21 emerging market indexes: Brazil,
Chile, China, Colombia, the Czech Republic, Egypt, Hungary, India, Indonesia, Malaysia, Mexico, Morocco, Peru, the Philippines, Poland,
Russia, South Africa, South Korea, Taiwan, Thailand and Turkey. Components primarily include energy, financial, information technology
and materials companies.
|
|
iShares MSCI Germany Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Germany Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Frankfurt Stock
Exchange. Components primarily include consumer discretionary, financial and materials companies.
|
|
iShares iBoxx $ Investment Grade Corporate Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the iBoxx
®
$ Liquid Investment Grade Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a rules-based index consisting of liquid, U.S. dollar-denominated,
investment grade corporate bonds for sale in the United States, as determined by the index provider. The Underlying Index is designed to provide
a broad representation of the U.S. dollar-denominated liquid investment grade corporate bond market. The Underlying Index is a modified
market-value weighted index with a cap on each issuer of 3%. There is no limit to the number of issues in the Underlying Index, but as of
April 30, 2012 the Underlying Index included approximately 947 constituents. Components primarily include consumer services, financials, and oil
and gas entities, and may change over time.
|
36
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares MSCI Japan Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Japan Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Tokyo Stock Exchange.
Components primarily include consumer discretionary, financial and industrial companies.
|
|
iShares J.P. Morgan USD Emerging Markets Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the J.P. Morgan EMBI
SM
Global Core Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a broad, diverse U.S. dollar denominated emerging markets debt
benchmark which tracks the total return of actively traded external debt instruments in emerging market countries. The methodology is designed
to distribute the weight of each country within the Underlying Index by limiting the weights of countries with higher debt outstanding
and reallocating this excess to countries with lower debt outstanding.
|
|
iShares Cohen & Steers Realty Majors Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Cohen & Steers Realty Major Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of selected REITs. The objective of the Underlying Index
is to represent relatively large and liquid REITs that may benefit from future consolidation and securitization of the U.S. real estate
industry. REITs are selected for inclusion in the Underlying Index based on a rigorous review of several factors, including management,
portfolio quality, and sector and geographic diversification. The REITs selected for inclusion in the Underlying Index must meet minimum
market capitalization and liquidity requirements. The Underlying Index is weighted according to the total free float-adjusted market
value of each REIT’s outstanding shares and is adjusted quarterly so that no REIT represents more than 8% of the Underlying Index.
Within the REIT market, the Underlying Index is diversified across property sectors that represent the current market. Components primarily
include REITs. The components of the Underlying Index, and the degree to which these components represent certain industries, may change
over time.
|
|
iShares Russell 1000 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 1000 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization sector of the
U.S. equity market. The Underlying Index includes issuers representing approximately 92% of the market capitalization of all publicly-traded
U.S. equity securities. The Underlying Index is a float-adjusted capitalization-weighted index of equity securities used by the
approximately 1,000 largest issuers in the Russell 3000
®
Index. As of March 31, 2012, the Underlying Index represented
approximately 93% of the total market capitalization of the Russell 3000 Index. Total market capitalization reflects all equity shares
outstanding, while total market value reflects float-adjusted capitalizations based on equity shares available for general investment.
Components primarily include consumer discretionary, financial and technology companies, and may change over time.
|
|
iShares Russell 1000 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 1000 Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization growth sector
of the U.S. equity market. It is a subset of the Russell 1000
®
Index, which measures the performance of the large-capitalization
sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 76% of the total market
value of the Russell 1000 Index. The Underlying Index measures the performance of equity securities of Russell 1000 Index issuers with
relatively higher price-to-book ratios and higher forecasted growth. Components primarily include consumer discretionary, producer
durables and technology companies, and may change over time.
|
37
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Russell 1000 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 1000 Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization value sector
of the U.S. equity market. It is a subset of the Russell 1000
®
Index, which measures the performance of the
large-capitalization sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 74% of the total
market value of the Russell 1000 Index. The Underlying Index measures the performance of equity securities of Russell 1000 Index issuers with
relatively lower price-to-book ratios and lower forecasted growth. Components primarily include energy, financial, health care and
utilities companies, and may change over time.
|
|
iShares Russell 2000 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 2000 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization sector of the
U.S. equity market. The Underlying Index includes issuers representing approximately 10% of the total market capitalization of all
publicly-traded U.S. equity securities. The Underlying Index is a float-adjusted capitalization-weighted index of equity securities
issued by the approximately 2000 smallest issuers in the Russell 3000
®
Index. As of March 31, 2012, the Underlying Index
represented approximately $1.4 trillion of the total market capitalization of the Russell 3000 Index. Total market capitalization
reflects all equity shares outstanding, while total market value reflects float-adjusted capitalizations based on equity shares available for
general investment. Components primarily include consumer discretionary, financial, producer durables and technology companies, and may
change over time.
|
|
iShares Russell 2000 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 2000 Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization growth sector
of the U.S. equity market. It is a subset of the Russell 2000
®
Index, which measures the performance of the small-capitalization
sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 66% of the total market value of
the Russell 2000 Index. The Underlying Index measures the performance of equity securities of Russell 2000 Index issuers with relatively
higher price-to-book ratios and higher forecasted growth. Components primarily include consumer discretionary, health care and technology
companies, and may change over time.
|
|
iShares Russell 2000 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 2000 Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization value sector
of the U.S. equity market. It is a subset of the Russell 2000
®
Index, which measures the performance of the
small-capitalization sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 63% of the total
market value of the Russell 2000 Index. The Underlying Index measures the performance of equity securities of Russell 2000 Index issuers with
relatively lower price-to-book ratios and lower forecasted growth. Components primarily include consumer discretionary, financial and
producer durables companies, and may change over time.
|
|
iShares Russell 3000 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell 3000 Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the broad U.S. equity market. As of
March 31, 2012, the Underlying Index included issuers representing approximately 98% of the total market capitalization of all
publicly-traded U.S.-domiciled equity securities. The Underlying Index is a float-adjusted capitalization-weighted index of the largest
issuers determined to have the U.S. as their primary country of risk. Total market capitalization reflects all equity shares outstanding, while
total market value reflects float-adjusted capitalizations based on equity shares available for general investment. Components primarily
include consumer discretionary, financial and technology companies, and may change over time.
|
38
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Russell MidCap Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell Midcap Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization growth sector of
the U.S. equity market. It is a subset of the Russell Midcap
®
Index, which measures the performance of the mid-capitalization
sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 64% of the total market value of
the Russell Midcap Index. The Underlying Index measures the performance of equity securities of Russell Midcap Index issuers with higher
price-to-book ratios and higher forecasted growth. The Russell Midcap Index is a float-adjusted, capitalization-weighted index of the 800
smallest issuers in the Russell 1000
®
and includes securities issued by issuers which range in size between approximately
$1.6 billion and $18.3 billion, although this range may change from time to time. Components primarily include consumer discretionary,
producer durables and technology companies, and may change over time.
|
|
iShares Russell MidCap Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell Midcap Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization value sector of
the U.S. equity market. It is a subset of the Russell Midcap
®
Index, which measures the performance of the mid-capitalization
sector of the U.S. equity market. As of March 31, 2012, the Underlying Index represented approximately 64% of the total market value of
the Russell Midcap Index. The Underlying Index measures the performance of equity securities of Russell Midcap Index issuers with relatively
lower price-to-book ratios and lower forecasted growth. The Russell Midcap Index is a float-adjusted, capitalization-weighted index of the 800
smallest issuers in the Russell 1000
®
and includes securities issued by issuers which range in size between approximately
$1.6 billion and $18.3 billion, although this range may change from time to time. Components primarily include consumer discretionary, financial
and utilities companies, and may change over time.
|
|
iShares Russell Midcap Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the Russell Midcap Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization sector of the
U.S. equity market. The Underlying Index is a float-adjusted, capitalization-weighted index of the 800 smallest issuers in the Russell
1000
®
Index. The Underlying Index includes equity securities issued by issuers which range in size between approximately
1.6 billion and $18.3 billion, although this range may change from time to time. As of March 31, 2012, the Underlying Index represented
approximately 31% of the total market capitalization of all publicly-traded U.S. equity securities. Components primarily include consumer
discretionary, financial and producer durables companies, and may change over time.
|
|
iShares MSCI South Korea Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the MSCI Korea Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Stock Market Division of
the Korean Exchange. Components primarily include consumer discretionary, financial, industrial and information technology
companies.
|
|
iShares S&P SmallCap 600 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P SmallCap 600
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization sector of the
U.S. equity market. As of March 31, 2012, the Underlying Index included approximately 3% of the market capitalization of all U.S. equity
securities. The stocks in the Underlying Index have a market capitalization between $300 million and $1.4 billion (which may fluctuate
depending on the overall level of the equity markets) and are selected for liquidity and industry group representation. Components primarily
include consumer discretionary, financial, industrials and information technology companies, and may change over time.
|
39
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares Core S&P Mid-Cap ETF
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P MidCap 400
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization sector of the
U.S. equity market. As of March 31, 2012, the Underlying Index included approximately 8% of the market capitalization of all U.S. equity
securities. The stocks in the Underlying Index have a market capitalization between $1 billion and $4.4 billion (which may fluctuate
depending on the overall level of the equity markets) and are selected for liquidity and industry group representation. The Underlying Index
consists of stocks from a broad range of industries. Components primarily include financial, industrials and information technology
companies, and may change over time.
|
|
iShares S&P MidCap 400 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P MidCap 400
®
Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization value sector of
the U.S. equity market. It is a subset of the S&P MidCap 400
®
and consists of those stocks in the S&P MidCap
400
®
exhibiting the strongest value characteristics, as determined by Standard & Poor’s Financial Services LLC, a
subsidiary of The McGraw-Hill Companies, representing approximately 48% of the market capitalization of the S&P MidCap 400
®
as of March 31, 2012. The stocks in the Underlying Index have a market capitalization between $1 billion and $4.4 billion (which may fluctuate
depending on the overall level of the equity markets). The Underlying Index consists of stocks from a broad range of industries.
Components primarily include consumer discretionary, financial, industrials and information technology companies, and may change over
time.
|
|
iShares S&P MidCap 400 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P MidCap 400
®
Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the mid-capitalization growth sector of
the U.S. equity market. It is a subset of the S&P MidCap 400
®
and consists of those stocks in the S&P MidCap
400
®
exhibiting the strongest growth characteristics, as determined by Standard & Poor’s Financial Services LLC, a
subsidiary of The McGraw-Hill Companies, representing approximately 52% of the market capitalization of the S&P MidCap 400
®
as of March 31, 2012. The stocks in the Underlying Index have a market capitalization between $1 billion and $4.4 billion (which may fluctuate
depending on the overall level of the equity markets). The Underlying Index consists of stocks from a broad range of industries.
Components primarily include consumer discretionary, health care, industrials, and information technology companies, and may change over
time.
|
|
iShares S&P SmallCap 600 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P SmallCap 600
®
Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the small-capitalization value sector
of the U.S. equity market. It is a subset of the S&P SmallCap 600
®
and consists of those stocks in the S&P SmallCap
600
®
exhibiting the strongest value characteristics, as determined by Standard & Poor’s Financial Services LLC, a
subsidiary of The McGraw-Hill Companies, representing approximately 49% of the market capitalization of the S&P SmallCap
600
®
as of March 31, 2012. The stocks in the Underlying Index have a market capitalization between $300 million and $1.4 billion
(which may fluctuate depending on the overall level of the equity markets). Components primarily include consumer discretionary,
financial and industrials companies, and may change over time.
|
|
iShares S&P 100 Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P’s 100
®
Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization sector of the
U.S. equity market. It is a subset of the S&P 500
®
and consists of blue chip stocks from diverse industries in the
S&P 500
®
with exchange listed options. As of March 31, 2012, the Underlying Index represented approximately 53% of the
market capitalization of U.S. equities. Components primarily include consumer staples, energy, financial and information technology
companies, and may change over time.
|
40
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
iShares S&P 500 Growth Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P 500
®
Growth Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization growth sector
of the U.S. equity market. It is a subset of the S&P 500
®
and consists of those stocks in the S&P 500
®
exhibiting the strongest growth characteristics, as determined by Standard & Poor’s Financial Services LLC, a subsidiary of The
McGraw-Hill Companies, representing approximately 55% of the market capitalization of the S&P 500
®
as of March 31,
2012. Components primarily include consumer staples, health care and information technology companies, and may change over
time.
|
|
iShares S&P 500 Value Index Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the S&P 500
®
Value Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index measures the performance of the large-capitalization value sector
of the U.S. equity market. It is a subset of the S&P 500
®
and consists of those stocks in the S&P
500
®
exhibiting the strongest value characteristics, as determined by Standard & Poor’s Financial Services LLC, a
subsidiary of The McGraw-Hill Companies, representing approximately 45% of the market capitalization of the S&P 500
®
as
of March 31, 2012. Components primarily include consumer discretionary, energy, financial, industrials and information technology
companies, and may change over time.
|
|
iShares MSCI Taiwan Index Fund
|
|
|
|
The iShares MSCI Taiwan Index Fund (the “Fund”) seeks investment results that correspond generally to the price and
yield performance, before fees and expenses, of the MSCI Taiwan Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index consists of stocks traded primarily on the Taiwan Stock Exchange.
Components primarily include financial, information technology and materials companies.
|
|
iShares iBoxx $ High Yield Corporate Bond Fund
|
|
|
|
The fund seeks investment results that correspond generally to the price and yield performance, before fees and expenses, of
the iBoxx
®
$ Liquid High Yield Index (the “Underlying Index”).
|
|
|
|
|
|
The Underlying Index is a rules-based index consisting of liquid U.S. dollar-denominated, high
yield corporate bonds for sale in the United States, as determined by the index provider. The Underlying Index is designed to provide a
broad representation of the U.S. dollar-denominated liquid high yield corporate bond market. The Underlying Index is a modified
market-value weighted index with a cap on each issuer of 3%. Bonds in the Underlying Index are selected using a rules-based criteria, as
defined by the index provider. There is no limit to the number of issues in the Underlying Index, but as of April 30, 2012 the Underlying Index
included approximately 639 constituents. Components primarily include consumer services, financial, industrials, oil and gas, and
telecommunications entities, and may change over time.
|
|
SPDR Barclays International Treasury Bond ETF
|
|
|
|
The fund seeks to provide investment results that, before fees and expenses, correspond
generally to the price and yield performance of an index that tracks the fixed-rate local currency sovereign debt of investment grade
countries outside the United States. The Barclays Global Treasury Ex-US Capped Index (the “Underlying Index”) includes
government bonds issued by investment grade countries outside the United States, in local currencies, that have a remaining
maturity of one year or more and are rated investment grade (Baa3/BBB-/BBB-or higher using the middle rating of Moody’s Investors
Service, Inc., Standard & Poor’s, Inc. and Fitch Inc., respectively). Each of the component securities in the Underlying Index
is a constituent of the Barclays Global Treasury ex-US Index, screened such that the following countries are included: Australia,
Austria, Belgium, Canada, Denmark, France, Germany, Greece, Italy, Japan, Mexico, Netherlands, Poland, South Africa, Spain, Sweden,
Taiwan, United Kingdom. In addition, the securities in the Underlying Index must be fixed-rate and have certain minimum amounts
outstanding, depending upon the currency in which the bonds are denominated. The Underlying Index is calculated by Barclays using a
modified “market capitalization” methodology. This design ensures that each constituent country within the Underlying Index is
represented in a proportion consistent with its percentage with respect to the total market capitalization of the Underlying Index.
Component securities in each constituent country are represented in a proportion consistent with their percentage relative to the
other component securities in the constituent country. Under certain conditions, however, the par amount of a component security within
the Underlying Index may be adjusted to conform to Internal Revenue Code requirements. As of September 30, 2012, there were approximately
668 securities in the Underlying Index and the modified adjusted duration of securities in the Underlying Index was approximately
7.09 years.
|
41
EQUITY FUNDS
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
ACWI ex-US Index Master Portfolio
|
|
|
|
The investment objective of the fund is to match the performance of the MSCI All Country World ex-US Index (the “MSCI
ACWI ex-US Index”) in U.S. dollars with net dividends as closely as possible before the deduction of fund expenses. The fund employs
a “passive” management approach, attempting to invest in a portfolio of assets whose performance is expected to match approximately
the performance of the MSCI ACWI ex-USA Index. The fund will be substantially invested in equity securities in the MSCI ACWI ex-USA
Index, and will invest, under normal circumstances, at least 80% of its assets in securities or other financial instruments that are components
of or have economic characteristics similar to the securities included in the MSCI ACWI ex-USA Index. Equity securities consist primarily
of common stock, preferred stock, securities convertible into common stock and securities or other instruments whose price is linked to
the value of common stock.
|
|
|
|
|
|
The fund will invest in the common stocks represented in the MSCI ACWI ex-USA Index in
roughly the same proportions as their weightings in the MSCI ACWI ex-USA Index. The MSCI ACWI ex-USA Index is a free float-adjusted market
capitalization index designed to measure the combined equity market performance of developed and emerging market countries, excluding the
United States. The component stocks have a market capitalization between $69 million and $207 billion as of March 31, 2012. The fund may
also engage in futures transactions. At times, the fund may not invest in all of the common stocks in the MSCI ACWI ex-USA Index, or in the same
weightings as in the MSCI ACWI ex-USA Index. At those times, the fund chooses investments so that the market capitalizations, industry
weightings and other fundamental characteristics of the stocks chosen are similar to the MSCI ACWI ex-USA Index as a
whole.
|
|
BlackRock All-Cap Energy & Resources Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term growth of capital. Under normal market conditions, the fund
invests at least 80% of its total assets in equity securities of global energy and natural resources companies and companies in
associated businesses, as well as utilities (such as gas, water, cable, electrical and telecommunications utilities). The fund will
concentrate its investments (
i.e.
, invest more than 25% of its assets) in energy or natural resources companies. The fund may
invest without limit in companies located anywhere in the world and will generally invest in at least three countries and in companies tied
economically to a number of countries. The fund expects to invest primarily in developed markets, but may also invest in emerging
markets. The fund may invest in companies of any size.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective, buy or sell
options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies (commonly known as
derivatives).
|
|
Master Basic Value LLC
|
|
|
|
The investment objective of the fund is to seek capital appreciation and, secondarily, income.
|
|
|
|
|
|
The fund tries to achieve its investment objective by investing in securities, primarily equity securities, that fund
management believes are undervalued and therefore represent basic investment value.
|
|
|
|
|
|
The fund places particular emphasis on companies with below average price/earnings ratios that may pay above average
dividends. The fund purchases primarily common stock of U.S. companies in trying to meet its objectives. The fund management may also
determine a company is undervalued if its stock price is down because of temporary factors from which the fund management believes the company
will recover. The fund focuses its investments on companies with a market capitalization over $5 billion. The fund may invest up to 25%
of its total assets in the securities of foreign companies. The fund concentrates its foreign exposure on established companies in
developed countries. Although the fund may invest in emerging markets or underdeveloped countries from time to time, the fund does not
speculate on such markets or countries.
|
|
|
|
|
|
Fund management believes that favorable changes in market prices are more likely to occur when: (i) stocks are out of favor;
(ii) company earnings are depressed; (iii) price/earnings ratios are limited; (iv) there is no general interest in a security or
industry.
|
|
|
|
|
|
On the other hand, fund management believes that negative developments are more likely
to occur when: (i) investment expectations are generally high; (ii) stock prices are advancing or have advanced rapidly; (iii) price/earnings
ratios have been inflated; (iv) an industry or security continues to become popular among investors.
|
42
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Basic Value LLC (continued)
|
|
|
|
Fund management believes that stocks with relatively high price/earnings ratios are more
vulnerable to price declines from unexpected adverse developments. At the same time, stocks with relatively low price/earnings ratios are more
likely to benefit from favorable but generally unanticipated events. Thus, the fund may invest a large part of its net assets in stocks
that have weak research ratings. The fund may sell a security if, for example, the stock price increases to the high end of the range of its
historical price-book value ratio or if the fund determines that the issuer no longer meets the criteria fund management has established
for the purchase of such securities or if fund management thinks there is a more attractive investment opportunity in the same
category.
|
|
Bond Index Master Portfolio
|
|
|
|
The fund seeks to provide investment results that correspond to the total return
performance of fixed-income securities in the aggregate, as represented by the Barclays U.S. Aggregate Bond Index (the “Barclays U.S.
Aggregate Index”). The fund pursues its investment objective by seeking to match the total return performance of the Barclays U.S.
Aggregate Index, which is composed of approximately 8,000 fixed-income securities. The fixed-income securities that comprise the Barclays U.S.
Aggregate Index include U.S. government securities and corporate bonds, as well as mortgage-backed securities, asset-backed securities and
commercial mortgage-backed securities. All securities in the Barclays U.S. Aggregate Index are investment-grade. The fund maintains a
weighted average maturity consistent with that of the Barclays U.S. Aggregate Index, which generally ranges between 5 and 10 years. The fund
invests in a representative sample of these securities. Securities are selected for investment by the fund in accordance with their
relative proportion within the Barclays U.S. Aggregate Index as well as based on credit quality, issuer sector, maturity structure, coupon
rates and callability, among other factors. The fund’s manager considers investments that provide substantially similar exposure to
securities in the Barclays U.S. Aggregate Index to be investments comprising the fund’s benchmark index. The fund is managed by
determining which securities are to be purchased or sold to reflect, to the extent feasible, the investment characteristics of its benchmark
index. Under normal circumstances, at least 90% of the value of the fund’s assets, plus the amount of any borrowing for investment
purposes, is invested in securities comprising the Barclays U.S. Aggregate Index, which, for the fund, are considered
bonds.
|
|
BlackRock Capital Appreciation Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term growth of capital. The fund tries to achieve its investment
objective by investing primarily in a diversified portfolio consisting of primarily common stock of U.S. companies that fund management
believes have shown above-average growth rates in earnings over the long-term. In other words, fund management tries to choose investments
that will increase in value over the long term. To a lesser extent the fund may also invest in securities convertible into common stock
and rights to subscribe to common stock of these companies. The fund emphasizes investments in companies with medium to large market
capitalization (currently, approximately $2 billion or more). The fund will generally invest at least 65% of its total assets in common
stock, convertible preferred stock, securities convertible into common stock, and rights to subscribe to common stock. Of these securities
the fund will generally invest in common stock.
|
|
|
|
|
|
Convertible securities generally are debt securities or preferred stock that may be
converted into common stock. Convertible securities typically pay current income as either interest (debt security convertibles) or dividends
(preferred stock). A convertible’s value usually reflects both the stream of current income payments and the market value of the
underlying common stock. The fund may purchase securities pursuant to the exercise of subscription rights, which allow an issuer’s
existing shareholders to purchase additional common stock at a price substantially below the market price of the
shares.
|
43
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock China Fund
|
|
|
|
The investment objective of the fund is to seek to maximize total return. Total return means the combination of capital
appreciation and investment income. The fund seeks to achieve its objective by investing at least 80% of its total assets in equity securities
of companies domiciled, or exercising the predominant part of their economic activity, in China, including its special administrative
regions such as Hong Kong, or in instruments with similar economic characteristics. Equity securities include common stock, preferred stock,
securities convertible into common stock or securities or other instruments whose price is linked to the value of common stocks. A company
may be deemed to exercise a predominant part of its activity in China if (i) shares of such company are principally traded in China, (ii)
such company derives at least 50% of its revenues or profits from China, or (iii) such company has at least 50% of its assets in
China.
|
|
|
|
|
|
Fund management anticipates that at least 70% of the fund’s total assets will be invested in shares designated H shares
or Red Chip shares, both of which are listed on the Hong Kong Stock Exchange. H shares are issued by companies that are incorporated in
China. Red Chip shares are issued by companies based in China but incorporated internationally.
|
|
|
|
|
|
The fund also invests in securities listed on the Shanghai and Shenzhen Stock Exchanges. These securities are divided into two
classes of shares: A shares, ownership of which is restricted to Chinese investors and to certain foreign investors under the Qualified
Foreign Institutional Investor structure, and B shares, which may be owned by both Chinese and foreign investors. The fund’s exposure to
the A shares market will be effected through investments in participation notes or other structured or derivative instruments that are
designed to replicate, or otherwise provide exposure to, the performance of A shares of Chinese companies. The fund expects to gain
exposure to the B shares market through direct investments in securities listed on the Shanghai and Shenzhen Stock
Exchanges.
|
|
|
|
|
|
The fund is a non-diversified fund, which means that it can invest more of its assets in fewer companies than a diversified
fund.
|
|
|
|
|
|
The fund has a value orientation, although fund management recognizes that this style
will underperform at certain periods in the cycle and has the flexibility to adjust style risk accordingly. Fund management is based on
fundamental analysis, although it makes use of quantitative inputs. The fundamental analysis focuses on company specifics, such as
valuation, earnings sustainability, earnings revision and cash flow analysis. The quantitative inputs include a multi-factor screen and price
action criteria.
|
|
BlackRock Commodity Strategies Fund
|
|
|
|
The investment objective of the fund is to seek total return. The fund utilizes two strategies and under normal circumstances,
expects to invest approximately 50% of its total assets in each strategy; provided, however, that from time to time, fund management may
alter the weightings if it deems it prudent to do so based on market conditions, trends or movements or other similar
factors.
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|
One strategy focuses on investments in commodity-linked derivatives. To meet coverage and collateral requirements associated
with these derivative investments, and to invest excess cash, the fund holds a portion of its portfolio in investment-grade short-term
fixed-income securities. The other strategy focuses on equity investments in commodity-related companies, including, but not limited to,
companies operating in the mining, energy and agricultural sectors. The fund invests in equity securities of such companies in order to
complement the commodity exposures achieved through investments in commodity-linked derivatives. Taken together, these two strategies offer
broad exposure to global commodities market trends across asset classes, industries, sectors, and regions.
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The fund manages the term structure of its commodity-linked derivative positions and has the flexibility to gain exposure to
futures maturities which differ from those in the fund’s benchmark, the Dow Jones-UBS Commodity Index Total Return
SM
. This is
done in an effort to achieve efficient investment results and minimize any adverse effects on returns caused by commodity term
structures.
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|
Equity securities held by the fund may include common stocks, preferred stocks, convertible securities, warrants, depositary
receipts, and other instruments whose price is linked to the value of common stock, and equity interests in master limited partnerships.
In addition, the fund may also invest in fixed-income instruments (of any credit quality and any duration) of commodity-related
companies.
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|
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There are no restrictions on investment in terms of geography or market capitalization.
As such, the fund may invest in both U.S. and non-U.S. companies, including companies located in emerging markets, and in securities
denominated in both U.S. dollars and foreign currencies.
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44
Fund Name
|
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|
Investment Objective and
Principal Investment Strategies
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BlackRock Emerging Markets Fund, Inc.
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The investment objective of the fund is to seek long-term capital appreciation by investing in securities, principally equity
securities, of issuers in countries having smaller capital markets.
|
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Under normal conditions, the fund invests at least 80% of its total assets in equity securities of issuers located in
countries with developing capital markets. Equity securities consist primarily of common and preferred stocks and depositary receipts,
and include securities convertible into common stock, and securities or other instruments whose price is linked to the value of common stock.
A developing capital market is the market of any country that the World Bank, the International Finance Corporation, the United Nations
or its authorities have determined to have a low or middle income economy. Countries with developing capital markets can be found in
regions such as Asia, Latin America, Eastern Europe and Africa. For this purpose, developing capital markets include, but are not limited to,
the markets of all countries that comprise the MSCI Emerging Markets Index. The fund may also invest in fixed-income securities issued by
companies and governments in these countries, as well as mezzanine investments. The fund normally invests in at least three countries at
any given time. The fund can invest in securities denominated in either U.S. dollars or foreign currencies. Fund management anticipates that
under most circumstances the fund’s investments will primarily be denominated in foreign currencies. The fund has not established
any rating or maturity criteria for the debt securities in which it may invest. From time to time the fund may invest in shares of companies
through initial public offerings.
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Fund management may, when consistent with the fund’s investment objective, buy or
sell options or futures on a security or an index of securities, or enter into interest rate or foreign currency transactions, including
swaps (collectively, commonly known as derivatives). The fund’s exposure to certain markets may be effected through investments in
participation notes or other structured or derivative instruments that are designed to replicate, or otherwise provide exposure to, the
performance of securities listed in such markets.
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BlackRock Energy & Resources Portfolio
|
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|
The investment objective of the fund is to provide long-term growth of capital. Under normal conditions, the fund invests at
least 80% of its total assets in equity securities of global energy and natural resources companies and companies in associated
businesses, as well as utilities (such as gas, water, cable, electrical and telecommunications utilities). Equity securities include common
and preferred stock, convertible securities, warrants, depositary receipts and securities or other instruments whose price is linked to
the price of common stock. The fund intends to emphasize small companies but may from time to time emphasize companies of other sizes.
The fund will concentrate its investments (
i.e.
, invest more than 25% of its assets) in energy or natural resources companies. The fund
may invest without limit in companies located anywhere in the world and will generally invest in at least three countries and in
companies tied economically to a number of countries. The fund expects to invest primarily in developed markets, but may also invest in
emerging markets.
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Fund management may, when consistent with the fund’s investment objective, buy or
sell options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies (commonly known
as derivatives).
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|
BlackRock Equity Dividend Fund
|
|
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|
The investment objective of the fund is to seek long-term total return and current income. The fund seeks to achieve its
objective by investing primarily in a diversified portfolio of equity securities. Under normal circumstances, the fund will invest at least
80% of its assets in equity securities and at least 80% of its assets in dividend paying securities. The fund may invest in securities of
companies with any market capitalization, but will generally focus on large cap securities. The fund may also invest in convertible
securities and non-convertible preferred stock. Equity securities include common stock, preferred stock, securities convertible into common
stock, or securities or other instruments whose price is linked to the value of common stock.
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The fund may invest up to 25% of its total assets in securities of foreign issuers. The
fund may invest in securities from any country. The fund may invest in securities denominated in both U.S. dollars and non-U.S. dollar
currencies. BlackRock chooses investments for the fund that it believes will both increase in value over the long term and provide
current income, focusing on investments that will do both instead of those that will favor current income over capital
appreciation.
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45
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock EuroFund
|
|
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|
The investment objective of the fund is to seek capital appreciation primarily through investment in equities of corporations
domiciled in European countries. Under normal circumstances, the fund will invest at least 80% of its net assets in equity securities,
including common stock and convertible securities, of companies located in Europe.
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For these purposes, “net assets” include any borrowings for investment purposes. Equity securities include common
stock, preferred stock, securities convertible into common stock or securities or other instruments whose price is linked to the value of
common stock.
|
|
|
|
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|
Common stocks are securities representing shares of ownership of a corporation. Convertible securities are securities, such as
corporate bonds or preferred stock, that are exchangeable for shares of common stock of the issuer or another company. The fund currently
expects that a majority of the fund’s assets will be invested in equity securities of companies in Western European countries, but may also
invest in emerging markets in Eastern European countries. Within particular countries the fund considers the condition and growth
potential of industry sectors and selects what fund management believes are companies with attractive valuations or good prospects for
earnings growth within those sectors. The fund may invest in companies of any size.
|
|
|
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|
|
Under normal circumstances, the fund anticipates it will allocate a substantial amount
(approximately 40% or more — unless market conditions are not deemed favorable by BlackRock, in which case the fund would invest at
least 30%) — of its total assets in foreign securities, which may include securities (i) of foreign government issuers, (ii) of
issuers organized or located outside the U.S., (iii) of issuers which primarily trade in a market located outside the U.S., or (iv) of
issuers doing a substantial amount of business outside the U.S., which the fund considers to be companies that derive at least 50% of
their revenue or profits from business outside the U.S. or have at least 50% of their sales or assets outside the U.S. The fund will allocate
its assets among various regions and countries (but in no less than three different foreign markets). For temporary defensive purposes
the fund may deviate very substantially from the allocation described above.
|
|
BlackRock Flexible Equity Fund
|
|
|
|
The investment objective of the fund is to seek to achieve long-term total return. Under normal circumstances,
the fund invests
at least 80% of
its net assets
(plus any borrowings
for investment
purposes) in equity
securities and
equity-like securities
and instruments
with similar economic
characteristics.
The fund seeks
to invest primarily
in securities issued
by North American
companies. The
fund may invest
in companies of
any capitalization
size, style or
sector. Equity
securities consist
primarily of common
stock, preferred
stock, securities
convertible into
common stock and
securities or other
instruments whose
price is linked
to the value of
common stock.
|
|
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|
|
|
The fund may also invest in equity securities of foreign issuers, including
securities of companies in emerging market countries. The fund may invest directly in foreign securities or indirectly through
depositary receipts and similar instruments. The fund may invest in derivatives, including but not limited to, total return
and credit default swaps, options, futures, options on futures and swaps, and foreign exchange transactions, for hedging
purposes, as well as to enhance the return on its portfolio investments. The fund may invest up to 20% of its net assets
(plus any borrowings for investment purposes) in fixed income securities when, in the view of the portfolio manager, these
securities offer better risk-adjusted return potential than equity securities. The fund may invest in fixed income securities
of any rating, which may include high yield securities (commonly called “junk bonds”), and the fund may invest
up to 10% of its net assets in distressed securities that are in default or the issuers of which are in bankruptcy. The fund
may seek to provide exposure (up to 20% of the fund’s total assets) to the investment returns of real assets that trade
in the commodity markets through investment in commodity-linked derivative instruments and investment vehicles that exclusively
invest in commodities such as exchange traded funds, which are designed to provide exposure to commodity markets without
direct investment in physical commodities. The fund may gain such exposure to commodity markets by investing up to 20% of
its total assets in a wholly-owned subsidiary of the fund formed in the Cayman Islands, which invests primarily in commodity-related
instruments. In order to seek to mitigate risk or lower overall volatility, the fund may invest up to 20% of its net assets
in cash or cash equivalents.
|
46
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Focus Growth LLC
|
|
|
|
The fund’s investment objective is long-term capital appreciation. The fund is a non-diversified fund that tries to achieve its
investment objective by investing primarily in common stock of not less than 25 to approximately 35 companies that fund management
believes have strong earnings and revenue growth and capital appreciation potential (also known as “aggressive growth
companies”).
|
|
|
|
|
|
Companies selected through a process of both top-down macro-economic analysis of economic and business conditions, and
bottom-up analysis of the business fundamentals of individual companies. The fund will emphasize common stock of companies with mid to
large stock market capitalizations; however, the fund also may invest in the common stock of small companies. The stocks are selected from a
universe of companies that fund management believes have above average growth potential. Fund management will make investment decisions based
on judgments regarding several valuation parameters relative to anticipated rates of growth in earnings and potential rates of return on
equity.
|
|
|
|
|
|
The fund generally invests at least 65% of its total assets in equity securities. Equity securities consist of common stock
and American Depository Receipts (“ADRs”). The fund may invest without limitation in the securities of foreign companies in the
form of ADRs.
|
|
|
|
|
|
In addition to ADRs, the fund may also invest up to 20% of its total assets in other
forms of securities of foreign companies, including European Depositary Receipts, which are receipts typically issued in Europe evidencing an
ownership arrangement with the foreign company or other securities convertible into securities of foreign
companies.
|
|
BlackRock Global Dividend Income Portfolio
|
|
|
|
The investment objective of the fund is to seek to provide a level of current income that exceeds the average yield on global
stocks generally.
|
|
|
|
|
|
Under normal circumstances, the fund will invest at least 80% of its net assets in dividend-paying equity securities and at
least 40% of its assets outside of the U.S. (unless market conditions are not deemed favorable by fund management, in which case the fund
would invest at least 30% of its assets outside of the U.S.). The fund will primarily invest in common stock, preferred stock, securities
convertible into common and preferred stock and non-convertible preferred stock. The fund may invest in securities of non-U.S. issuers
that can be U.S. dollar based or non-U.S. dollar based. The fund may invest in securities of companies of any market capitalization, but
intends to invest primarily in securities of large capitalization companies. The combination of equity securities will be varied from time to
time both with respect to types of securities and markets in response to changing market and economic trends. The fund may invest in
shares of companies through IPOs and “new issues.”
|
|
|
|
|
|
The fund may invest up to 20% of total assets in global fixed-income securities, including corporate bonds, U.S. Government
debt securities, non-U.S. Government and supranational debt securities (an example of such an entity is the International Bank for
Reconstruction and Development (the World Bank)), asset-backed securities, mortgage-backed securities, corporate loans, emerging market debt
securities and non-investment grade debt securities (high yield or junk bonds). Investment in fixed-income securities will be made on an
opportunistic basis. The fund may invest in fixed-income securities of any duration or maturity.
|
|
|
|
|
|
The fund has no geographic limits in where it may invest and has no specific policy on
the number of different countries in which it will invest. The fund may invest in both developed and emerging markets. The fund may emphasize
foreign securities when fund management expects these investments to outperform U.S. securities. The fund may use derivatives, including
options, futures, indexed securities, inverse securities, swaps and forward contracts both to seek to increase the return of the fund or to
hedge (or protect) the value of its assets against adverse movements in currency exchange rates, interest rates and movements in the
securities markets. The fund may enter into currency transactions on a hedged or unhedged basis in order to seek total
return.
|
47
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Global Dividend Income Portfolio (continued)
|
|
|
|
Under normal circumstances, the fund anticipates it will allocate a substantial amount (at least 40% or more — unless
market conditions are not deemed favorable by fund management, in which case the fund would invest at least 30%) — of its total assets
in foreign securities, which may include securities (i) of foreign government issuers, (ii) of issuers organized or located outside the
U.S., (iii) of issuers which primarily trade in a market located outside the U.S., (iv) of issuers doing a substantial amount of business
outside the U.S., which the fund considers to be companies that derive at least 50% of their revenue or profits from business outside the
U.S. or have at least 50% of their sales or assets outside the U.S. The fund will allocate its assets among various regions and
countries, including the United States (but in no less than three different countries). For temporary defensive purposes the fund may deviate
very substantially from this allocation.
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its principal investment
strategies.
|
|
|
|
|
|
The fund is a non-diversified portfolio under the Investment Company Act.
|
|
BlackRock Global Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term capital appreciation.
Under normal conditions,
the fund will invest
at least 75% of
its total assets
in global equity
securities of any
market capitalization,
selected for their
above-average return
potential. The
fund seeks to buy
primarily common
stock but may also
invest in preferred
stock and convertible
securities. The
fund may invest
up to 25% of its
total assets in
stocks of issuers
in emerging market
countries.
|
|
|
|
|
|
The fund may invest up to 25% of its total assets in global fixed income securities, including corporate bonds,
U.S. government
debt securities,
non-U.S. government
and supranational
debt securities,
asset-backed securities,
mortgage-backed
securities, emerging
market debt securities
and non-investment
grade debt securities
(high yield or
junk bonds). Investment
in fixed income
securities will
be made on an opportunistic
basis. Securities
will be identified
based on factors
such as relative
value and earnings
estimate revisions.
|
|
|
|
|
|
From time to time, the fund may invest in shares of companies through IPOs. The fund will invest in securities of non-U.S.
issuers that can be U.S.-dollar based or non-U.S.-dollar based on a hedged or unhedged basis. The fund may enter into currency transactions on a
hedged or unhedged basis in order to seek total return.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective,
buy or sell options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies,
or enter into foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund typically
uses derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce
exposure to other risks, such as currency risk. The fund may also use derivatives to enhance returns, in which case their
use would involve leveraging risk. The fund may seek to obtain market exposure to the securities in which it primarily invests
by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase
agreements or dollar rolls). The fund may also use forward foreign currency exchange contracts (obligations to buy or sell
a currency at a set rate in the future).
|
48
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Global SmallCap Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term growth of capital by investing primarily in a portfolio of equity
securities of small cap issuers located in various foreign countries and in the United States. The fund invests in a diversified portfolio
primarily consisting of equity securities of small cap issuers in various foreign countries and in the United States. Equity securities
consist primarily of common and preferred stocks and depositary receipts, and include securities convertible into common stock, and
securities or other instruments whose price is linked to the value of common stock. Depositary receipts include American Depositary Receipts
(“ADRs”), European Depositary Receipts (“EDRs”), Global Depositary Receipts (“GDRs”) and unsponsored
Depositary Receipts.
|
|
|
|
|
|
ADRs are receipts typically issued by an American bank or trust company that evidence underlying securities issued by a
foreign corporation. EDRs (issued in Europe) and GDRs (issued throughout the world) each evidence a similar ownership arrangement. In
addition, the fund may invest in derivative securities or instruments, such as options and futures, the value of which is based on a common
stock or a group of common stocks. The fund may use derivatives to hedge its investment portfolio against market, interest rate and
currency risks or to seek to enhance its return. The derivatives that the fund may use include indexed and inverse securities, options, futures,
swaps and forward foreign exchange transactions.
|
|
|
|
|
|
Under normal circumstances, the fund invests at least 80% of its assets in equity securities of small cap issuers. Small cap
issuers are those whose market capitalization is similar to the market capitalization of companies in the MSCI All Country World Small Cap
Index
SM
at the time of the fund’s investment. As of September 28, 2012, the MSCI All Country World Small Cap
Index
SM
included companies with free float market capitalizations between $16.7 million and $5.984 billion. The market
capitalizations of companies in the index change with market conditions and the composition of the MSCI All Country World Small Cap
Index
SM
. The fund will invest in securities of issuers from a variety of countries, including those in emerging markets. The fund may
also invest in equity securities issued by emerging growth companies, which are companies of any market capitalization without a long or
consistent history of earnings but that fund management believes have the potential for earnings growth over an extended period of
time.
|
|
|
|
|
|
Under normal circumstances, the fund anticipates it will allocate a substantial amount
(approximately 40% or more — unless market conditions are not deemed favorable by fund management, in which case the fund would invest
at least 30%) — of its total assets in foreign securities which may include securities (i) of foreign government issuers, (ii) of
issuers organized or located outside the U.S., (iii) of issuers which primarily trade in a market located outside the U.S., (iv) of issuers
doing a substantial amount of business outside the U.S., which the fund considers to be companies that derive at least 50% of their
revenue or profits from business outside the U.S. or have at least 50% of their sales or assets outside the U.S. The fund will allocate its
assets among various regions and countries, including the United States (but in no less than three different countries). The fund may
invest in securities denominated in any currency. For temporary defensive purposes the fund may deviate very substantially from the
allocation described above.
|
|
BlackRock Health Sciences Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term growth of equity capital. Under normal market
conditions, the
fund invests at
least 80% of total
assets in securities,
primarily common
stock, of companies
in health sciences
and related industries.
The health sciences
sector can include
companies in health
care equipment
and supplies, health
care providers
and services, biotechnology,
and pharmaceuticals.
Health Sciences
and related industries
can include, but
are not limited
to, businesses
involved in the
development, production,
and distribution
or delivery of
medical and pharmaceutical
products and services,
companies engaged
in biotechnology
and medical research
and development,
companies that
may design, manufacture
or distribute medical,
dental and optical
equipment and supplies,
including diagnostic
equipment, and
companies that
may also provide
diagnostic services
or operate health
facilities and
hospitals, or provide
related administrative,
management and
financial support.
The fund will concentrate
its investments
(
i.e.
, invest
more than 25% of
its assets) in
health sciences
or related industries,
and may invest
in companies located
in non-U.S. countries.
|
|
|
|
|
|
The fund reserves the right to invest up to 20% of total assets in other types of securities. These may include
stocks of companies
not associated
with health sciences.
|
|
|
|
|
|
The fund is classified as non-diversified under the Investment Company
Act.
|
49
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock India Fund
|
|
|
|
The investment objective of the fund is to seek to maximize total return from a portfolio of equity securities of Indian
companies or instruments with similar economic characteristics. Total return means the combination of capital appreciation and investment
income.
|
|
|
|
|
|
The fund seeks to achieve its investment objective by investing at least 80% of its total assets in equity securities of
Indian companies or in instruments with similar economic characteristics. An Indian company is a company which is organized under the laws
of, or with a principal office in, or for which the principal trading market for its securities is, India; or derives 50% or more of its
total revenue or profit from either goods or services produced or sales made in India; or has 50% or more of its assets in
India.
|
|
|
|
|
|
The fund may invest in companies of any size, and may invest a significant portion of its assets in equity securities of
smaller companies. Equity securities include common stock, preferred stock, securities convertible into common stock or securities or other
instruments whose price is linked to the value of common stocks.
|
|
|
|
|
|
Fund management may, when consistent with the fund’s investment objective, buy or sell options or futures on a security
or an index of securities (commonly known as derivatives). The primary purpose of using derivatives is to attempt to reduce risk to the fund as
a whole (hedge), but they may also be used to maintain liquidity and commit cash pending investment. Fund management also may, but under
normal market conditions generally does not, intend to use derivatives for speculation to increase returns.
|
|
|
|
|
|
The fund will invest primarily in the common stocks of companies that are selected for
their growth potential and which are valued at a reasonable price. However, the fund may also invest in value stocks. Fund management seeks
to maximize total return by constructing the portfolio to reflect fund management’s views of the macro-economic environment as well
as by using a “bottom up” approach, which entails the fundamental analysis of individual stocks and companies.
|
|
BlackRock International Fund
|
|
|
|
The investment objective of the fund is to seek long-term capital growth through investments primarily in a diversified
portfolio of equity securities of companies located outside the United States. The fund invests primarily in stocks of companies located
outside the U.S. The fund may purchase common stock, preferred stock, convertible securities and other instruments. The fund may invest in
securities issued by companies of all sizes but will focus mainly on medium and large companies. Companies will be located in developed
countries of Europe and the Far East, and in countries with emerging capital markets anywhere in the world. The fund may invest up to 25%
of its total assets in global fixed-income securities, including corporate bonds, U.S. government debt securities, non-U.S. government and
supranational debt securities, asset-backed securities, mortgage-backed securities, emerging market debt securities and non-investment
grade debt securities (high yield or junk bonds).
|
|
|
|
|
|
Fund management selects companies that it believes are undervalued or have good prospects for earnings growth. The fund
chooses investments predominantly using a “bottom up” investment style using a global sector-based investment process. The
fund’s allocations to particular countries are based on fund management’s evaluation of individual companies.
|
|
|
|
|
|
Under normal circumstances, the fund will allocate a substantial amount (approximately 40% or more — unless market
conditions are not deemed favorable by fund management, in which case the fund would invest at least 30%) of its total assets in
securities (i) of foreign government issuers, (ii) of issuers organized or located outside the U.S., (iii) of issuers which primarily trade in a
market located outside the U.S., or (iv) of issuers doing a substantial amount of business outside the U.S., which the fund considers to
be companies that derive at least 50% of their revenue or profits from business outside the U.S. or have at least 50% of their sales or assets
outside the U.S. The fund will allocate its assets among various regions and countries, including the United States (but in no less than
three different countries). For temporary defensive purposes the fund may deviate very substantially from the allocation described
above.
|
|
|
|
|
|
Fund management may, when consistent with the fund’s investment objective, buy or
sell options or futures on a security or an index of securities, or enter into interest rate or foreign currency transactions, including
swaps (collectively, commonly known as derivatives).
|
50
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master International Index Series
|
|
|
|
The investment objective of the fund is to match the performance of the MSCI EAFE Index (Europe, Australasia, Far East) in
U.S. dollars with net dividends as closely as possible before the deduction of fund expenses. The fund will not attempt to buy or sell
securities based on the economic, financial or market analysis of the investment manager, but will instead employ a “passive”
investment approach. This means that the investment manager will attempt to invest in a portfolio of assets whose performance is expected
to match approximately the performance of the index before deduction of expenses. The fund will buy or sell securities only when the
investment manager believes it is necessary to do so in order to match the performance of the index. Accordingly, it is anticipated that
the fund’s portfolio turnover and trading costs will be lower than those of an “actively” managed fund. However, the fund has
operating and other expenses, while an index does not. Therefore, the fund may tend to underperform its target index to some degree over
time.
|
|
|
|
|
|
The fund will be substantially invested in securities in the index, and will invest, under normal circumstances, at least 80%
of its assets in securities or other financial instruments that are components of or have economic characteristics similar to the
securities included in the index. This policy is a non-fundamental policy of the fund and may not be changed without 60 days’ prior
notice to interestholders. The fund may change its target index if the investment manager believes a different index would better enable
the fund to match the performance of the market segment represented by the current index and, accordingly, the investment objective of the fund
may be changed without interestholder approval.
|
|
|
|
|
|
The fund will, under normal circumstances, invest in all of the countries represented in
the EAFE Index. The fund may not, however, invest in all of the companies within a country represented in the EAFE Index, or in the same
weightings as the EAFE Index. Instead, the fund may invest in a sample of equity securities included in the EAFE Index and in derivative
instruments correlated with components of the EAFE Index as a whole based on the investment manager’s optimization process, a statistical
sampling technique that aims to create a portfolio that will match approximately the performance of the index with fewer transaction
costs than would be incurred through full replication.
|
|
BlackRock International Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to seek long-term capital appreciation.
Under normal market conditions,
the fund invests
at least 80% of
its net assets
in equity securities
issued by foreign
companies of any
market capitalization.
The fund may invest
up to 40% of its
net assets in stocks
of issuers in emerging
market countries.
The fund seeks
to buy primarily
common stock but
can also invest
in preferred stock
and convertible
securities. From
time to time the
fund may invest
in shares of companies
through IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective,
buy or sell options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies,
or enter into foreign currency transactions, including swaps. The fund typically uses derivatives as a substitute for taking
a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as currency
risk. The fund may also use derivatives to enhance returns, in which case their use would involve leveraging risk. The fund
may seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase
and sale contracts or by using other investment techniques (such as reverse repurchase agreements or dollar rolls). The fund
may also use forward foreign currency exchange contracts (obligations to buy or sell a currency at a set rate in the future).
|
51
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Large Cap Core Portfolio
|
|
|
|
The investment objective of the fund is long-term capital growth. In other words, the fund tries to choose investments that
will increase in value. Current income from dividends and interest will not be an important consideration in selecting portfolio
securities.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing at least 80% of its assets (which
for this purpose means net assets plus any borrowings for investment purposes) in equity securities, primarily common stock, of large cap
companies located in the United States that BlackRock selects from among those that are, at the time of purchase, included in the Russell
1000
®
Index. Equity securities consist primarily of common stock, preferred stock, securities convertible into common stock and
securities and other instruments whose price is linked to the value of common stock. Large cap companies are companies that at the time
of purchase have a market capitalization equal to or greater than the top 80% of the companies that comprise the Russell
1000
®
Index. As of June 22, 2012, the most recent rebalance date, the lowest market
capitalization in this group was $1.4 billion. The market capitalizations of companies in the index change with market
conditions and the composition of the index. BlackRock uses a multi-factor quantitative model to look for companies within the applicable
Russell 1000
®
Index that, in its opinion, are consistent with the investment objective of the fund.
|
|
Master Large Cap Growth Portfolio
|
|
|
|
The investment objective of the fund is long-term capital growth. In other words, the fund tries to choose investments that
will increase in value. Current income from dividends and interest will not be an important consideration in selecting portfolio
securities.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing at least 80% of its assets (which
for this purpose means net assets plus any borrowings for investment purposes) in equity securities, primarily common stock, of large cap
companies located in the United States that BlackRock selects from among those that are, at the time of purchase, included in the Russell
1000
®
Growth Index. Equity securities consist primarily of common stock, preferred stock, securities convertible into common
stock and securities and other instruments whose price is linked to the value of common stock. Large cap companies are companies that at
the time of purchase have a market capitalization equal to or greater than the top 80% of the companies that comprise the Russell
1000
®
Index. As of June 22, 2012, the most recent rebalance date, the lowest
market capitalization in this group was $1.4 billion. The market capitalizations of companies in the index change with market
conditions and the composition of the index. BlackRock uses a multi-factor quantitative model to look for companies within the applicable
Russell 1000
®
Index that, in its opinion, are consistent with the investment objective of the fund.
|
|
Master Large Cap Value Portfolio
|
|
|
|
The investment objective of the fund is long-term capital growth. In other words, the fund tries to choose investments that
will increase in value. Current income from dividends and interest will not be an important consideration in selecting portfolio
securities.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing at least 80% of its assets (which
for this purpose means net assets plus any borrowings for investment purposes) in equity securities, primarily common stock, of large cap
companies located in the United States that BlackRock selects from among those that are, at the time of purchase, included in the Russell
1000
®
Value Index. Equity securities consist primarily of common stock, preferred stock, securities convertible into common
stock and securities and other instruments whose price is linked to the value of common stock. Large cap companies are companies that at
the time of purchase have a market capitalization equal to or greater than the top 80% of the companies that comprise the Russell
1000
®
Index. As of June 22, 2012, the most recent rebalance date, the lowest
market capitalization in this group was $1.4 billion. The market capitalizations of companies in the index change with market
conditions and the composition of the index. BlackRock uses a multi-factor quantitative model to look for companies within the applicable
Russell 1000
®
Index that, in its opinion, are consistent with the investment objective of the fund.
|
52
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Latin America Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term capital appreciation by investing primarily in Latin American equity
and debt securities.
|
|
|
|
|
|
Under normal market conditions, the fund will invest at least 80% of its total assets in Latin American securities.
The fund emphasizes
equity securities
of companies of
any market capitalization
located in Latin
America. The fund
will not seek to
invest in a large
number of countries
in Latin America.
|
|
|
|
|
|
Fund management chooses securities using a combination of “top down” and “bottom up”
investment styles.
“Top down”
means that the
fund seeks to allocate
its investments
to markets that
fund management
believes have the
potential to outperform
other markets due
to economic factors
such as government
fiscal policies
and the direction
of interest rates
and currency movements.
“Bottom up”
means that the
fund also selects
investments based
on fund management’s
assessment of the
earnings prospects
of individual companies.
|
|
|
|
|
|
The fund can invest in securities denominated in the currencies of Latin
American countries or in other currencies. Fund management may, when consistent with the fund’s investment objective,
buy or sell options or futures on a security or an index of securities, or enter into interest rate or foreign currency transactions,
including swaps (collectively, commonly known as derivatives). From time to time the fund may invest in shares of companies
through initial public offerings.
|
|
BlackRock Long-Horizon Equity Fund
|
|
|
|
The investment objective of the fund is to provide high total investment return. The fund seeks to achieve
its investment
objective through
a fully managed
investment policy
utilizing global
equity securities.
The fund will,
under normal circumstances,
invest at least
80% of its net
assets (plus any
borrowings for
investment purposes)
in equity securities.
Equity securities
include common
stock, preferred
stock, convertible
securities, and
securities or other
instruments whose
price is linked
to the value of
common stock. The
combination of
equity securities
will be varied
from time to time
both with respect
to types of securities
and markets and
in response to
changing market
and economic trends.
In selecting equity
investments, the
fund mainly seeks
securities that
fund management
believes are undervalued.
When choosing investments,
fund management
considers various
factors, including
opportunities for
equity investments
to increase in
value, expected
dividends, and
interest rates.
The fund may invest
in the securities
of companies of
any market capitalization.
The fund may invest
a portion of its
assets in securities
directly or indirectly
secured by real
estate or interests
therein or issued
by companies that
invest in real
estate or interests
therein such as
stock, bonds or
convertible bonds
issued by REITs.
|
|
|
|
|
|
The fund has no geographic limits in where it may invest. The fund may
invest in both developed and emerging markets. When choosing investment markets, fund management considers various factors,
including economic and political conditions, potential for economic growth and possible changes in currency exchange rates.
In addition to investing in foreign securities, the fund actively manages its exposure to foreign currencies through the
use of forward currency contracts and other currency derivatives. The fund may own foreign cash equivalents or foreign bank
deposits as part of the fund’s investment strategy. The fund will also invest in non-U.S. currencies. The fund may underweight
or overweight a currency based on the fund management team’s outlook. As part of its principal investment strategies,
the fund may invest without limitation in cash, cash equivalents, money market securities, such as U.S. Treasury and agency
obligations, other U.S. Government securities, short term debt obligations of corporate issuers, certificates of deposit,
bankers’ acceptances, commercial paper (short term, unsecured, negotiable promissory notes of a domestic or foreign
issuer) or other high quality fixed-income securities.
|
53
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Mid-Cap Growth Equity Portfolio
|
|
|
|
The investment objective of the fund is long-term capital appreciation. The fund normally invests at least 80% of its net
assets in equity securities issued by U.S. mid-capitalization growth companies which fund management believes have above-average earnings growth
potential. Equity securities consist primarily of common stock, preferred stock, securities convertible into common stock and securities or
other instruments whose price is linked to the value of common stock. Although a universal definition of mid-capitalization companies
does not exist, the fund generally defines these companies, at the time of the fund’s investment, as those with market
capitalizations comparable in size to the companies in the Russell Midcap
®
Growth Index (between approximately
$1.275 billion and $19.075 billion as of June 30, 2012, the most recent rebalance
date). In the future, the fund may define mid-capitalization companies using a different index or classification system. The fund primarily
buys common stock but also can invest in preferred stock and convertible securities. From time to time the fund may invest in shares of
companies through “new issues” or IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective, buy or sell
options or futures on a security or an index of securities (commonly known as derivatives). The primary purpose of using derivatives is
to attempt to reduce risk to the fund as a whole (hedge), but they may also be used to maintain liquidity and commit cash pending
investment. Fund management also may, but under normal market conditions generally does not intend to, use derivatives for speculation to
increase returns.
|
|
BlackRock Mid Cap Value Opportunities Fund
|
|
|
|
The investment objective of the fund is to seek capital appreciation and, secondarily, income, by investing in securities,
primarily equity securities that fund management believes are undervalued and therefore represent an investment value.
|
|
|
|
|
|
In seeking to meet its objective, the fund normally invests at least 80% of its assets in equity securities of mid cap
companies. Equity securities include common stock, preferred stock, securities convertible into common stock, or securities or other
instruments whose price is linked to the value of common stock. Mid cap companies are companies that at the time of purchase have market
capitalizations in the range of companies included in the Standard & Poor’s MidCap Value 400 Index (generally between $580
million and $8.6 billion as of March 31, 2012). This definition of mid-capitalization companies may be changed in response to changes in the market.
The fund purchases securities that fund management believes have long term potential to grow in size or become more profitable or that
the stock market may value more highly in the future.
|
|
|
|
|
|
Fund management places particular emphasis on stocks trading at the low end of one or
more valuation measures, such as price/book value, or price/sales, price/earnings or price/cash flow ratios. Such companies also may have
particular qualities that affect the outlook for such companies, including an attractive market niche. The fund purchases primarily
common stock of U.S. companies in trying to meet its investment objective. The fund may also invest up to 30% of its total assets in the
securities of foreign companies. The fund may invest in securities denominated in currencies other than the U.S.
dollar.
|
54
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Natural Resources Trust
|
|
|
|
The investment objective of the fund is to seek long-term growth of capital and to
protect the purchasing power of shareholders’ capital by investing in a portfolio of equity securities of domestic and foreign companies
with substantial natural resource assets. The fund seeks to achieve its objective by investing primarily in equity securities of
companies with substantial natural resource assets. Under normal circumstances, the fund will invest at least 80% of its assets in companies
with substantial natural resource assets or in securities the value of which is related to the market value of some natural resource
asset. Equity securities include common stock, preferred stock, securities convertible into common stock or securities or other
instruments whose price is linked to the value of common stock. Natural resource assets include materials with economic value that are
derived from natural sources, either directly or indirectly, such as metals, fuels, timber, underdeveloped land and agricultural products
(e.g., fertilizer and chemicals). The fund normally invests in a portfolio consisting of companies in a variety of natural resource related
sectors, such as energy, chemicals, oil, gas, paper, mining, steel or agricultural products. Under certain circumstances, however, the
fund may concentrate its investments in one or more of these sectors or in one or more issuers in the natural resources related
industries. The fund focuses on investments in companies that provide exposure to commodities where existing, and projected, capacity is
forecast to approach levels that represent full utilization of that capacity based upon supply and demand forecasts for the commodity.
The fund is a non-diversified fund, which means that it can invest more of its assets in fewer companies than a diversified fund. The fund will
normally invest in both U.S. and non-U.S. companies, including companies located in emerging markets, and in securities denominated in
both U.S. dollars and foreign currencies. The fund may invest in securities of issuers with any market capitalization.
|
|
BlackRock Pacific Fund, Inc.
|
|
|
|
The investment objective of the fund is to seek long-term capital appreciation primarily through investment in equity
securities of corporations domiciled in Far Eastern or Western Pacific countries, including Japan, Australia, Hong Kong, Taiwan, Singapore,
South Korea and India.
|
|
|
|
|
|
Under normal circumstances, the fund will invest at least 80% of its assets in a
portfolio of equity securities of companies located in Far Eastern or Western Pacific countries. For the most part, these securities will be
common stock. Many of the companies in which the fund invests are located in markets generally considered to be emerging markets. The
fund may also invest in convertible securities. The fund invests in companies it believes are undervalued relative to the market. Current income
from dividends and interest will not be an important factor in selecting the securities in which the fund will
invest.
|
|
Russell 1000
®
Index Master Portfolio
|
|
|
|
The investment objective of the fund is to match the performance of the Russell 1000
®
Index as closely as
possible before the deduction of fund expenses. The fund employs a “passive” management approach, attempting to invest in a portfolio
of assets whose performance is expected to match approximately the performance of the Russell 1000. The fund will be substantially
invested in equity securities in the Russell 1000, and will invest, under normal circumstances, at least 80% of its assets in securities or
other financial instruments that are components of or have economic characteristics similar to the securities included in the Russell
1000.
|
|
|
|
|
|
The fund will invest in the common stocks represented in the Russell 1000 in roughly the same proportions as their weightings
in the Russell 1000. As of May 31, 2011, the most recent rebalance date, the companies in the Russell 1000 have a
market capitalization ranging from $1.624 billion to $411.18 billion. The fund may also engage in futures transactions. At times, the
fund may not invest in all of the common stocks in the Russell 1000, or in the same weightings as in the Russell 1000. At those times,
the fund chooses investments so that the market capitalizations, industry weightings and other fundamental characteristics of the stocks
chosen are similar to the Russell 1000 as a whole.
|
|
|
|
|
|
The fund may lend securities with a value up to 33
1
⁄
3
% of its total assets to financial institutions that provide cash or securities issued or
guaranteed by the U.S. Government as collateral. The fund will concentrate its investments (i.e., hold 25% or more of its total assets)
in a particular industry or group of industries to approximately the same extent that the Russell 1000 is concentrated.
|
55
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
S&P 500 Stock Master Portfolio
|
|
|
|
The fund seeks to provide investment results that correspond to the total return performance of the publicly-traded common
stocks in the aggregate, as represented by the Standard & Poor’s 500
®
Index. The fund pursues its investment objective
by seeking to replicate the total return performance of the S&P 500 Index, which is composed of 500 selected common stocks, most of
which are listed on the New York Stock Exchange. The S&P 500 Index is a capitalization-weighted index from a broad range of
industries chosen for market size, liquidity and industry group representation. The component stocks are weighted according to the total
float-adjusted market value of their outstanding shares (i.e. they are weighted according to public float which is the total market value
of their outstanding shares readily available to the general marketplace for trading purposes). The percentage of the fund’s assets
invested in a given stock is approximately the same as the percentage such stock represents in the S&P 500
Index.
|
|
|
|
|
|
The fund is managed by determining which securities are to be purchased or sold to
reflect, to the extent feasible, the investment characteristics of its benchmark index. Under normal circumstances, at least 90% of the value
of the fund’s assets, plus the amount of any borrowing for investments purposes, is invested in securities comprising the S&P
500 Index.
|
|
Master S&P 500 Index Series
|
|
|
|
The investment objective of the fund is to match the performance of the Standard & Poor’s 500
®
Index
(the “S&P 500”) as closely as possible before the deduction of fund expenses.
|
|
|
|
|
|
The fund will not attempt to buy or sell securities based on the economic, financial or market analysis of the investment
manager, but will instead employ a “passive” investment approach. This means that the investment manager will attempt to invest in
a portfolio of assets whose performance is expected to match approximately the performance of the index before deduction of expenses. The
fund will buy or sell securities only when the investment manager believes it is necessary to do so in order to match the performance of
the index. Accordingly, it is anticipated that the fund’s portfolio turnover and trading costs will be lower than those of an
“actively” managed fund. However, the fund has operating and other expenses, while an index does not. Therefore, the fund may
tend to underperform its target index to some degree over time.
|
|
|
|
|
|
The fund will be substantially invested in securities in the index, and will invest, under
normal circumstances, at least 80% of its assets in securities or other financial instruments that are components of or have economic
characteristics similar to the securities included in the index. This policy is a non-fundamental policy of the fund and may not be
changed without 60 days’ prior notice to interestholders. The fund may change its target index if the investment manager believes a
different index would better enable the fund to match the performance of the market segment represented by the current index and,
accordingly, the investment objective of the fund may be changed without interestholder approval. The fund may invest in all 500 stocks in
the S&P 500 in roughly the same proportions as their weightings in the S&P 500. For example, if 2% of the S&P 500 is made up
of the stock of a particular company, the fund will normally invest approximately 2% of its assets in that company. This strategy is
known as “full replication.” However, if the investment manager believes it would be cost efficient, the investment manager is
authorized to deviate from full replication and instead invest in a statistically selected sample of the 500 stocks in the S&P 500
based on the investment manager’s optimization process, a statistical sampling technique that aims to create a portfolio that has
aggregate investment characteristics, such as average market capitalization and industry weightings, similar to the S&P 500 as a
whole, but which involves lower transaction costs than would be incurred through full replication. The fund may continue to hold stock dividends
and other non-cash distributions from S&P 500 stocks held by the fund if the investment manager believes it would be advantageous to
do so. The investment manager may also purchase stocks not included in the S&P 500 when it believes that it would be a cost efficient way
of approximating the S&P 500’s performance.
|
56
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Science & Technology Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term capital appreciation. Under normal market conditions, the fund
invests at least 80% of its net assets in equity securities issued by U.S. and non-U.S. science and technology companies in all market
capitalization ranges, selected for their rapid and sustainable growth potential from the development, advancement and use of science and/or
use of technology. The fund may invest up to 25% of its net assets in emerging market countries.
|
|
|
|
|
|
Some of the industries likely to be represented in the fund’s portfolio holdings include: application software, IT
consulting and services, internet software and services, networking equipment, telecom equipment, computer hardware, computer storage and
peripherals, electronic equipment and instruments, semiconductors and equipment, aerospace and defense, electrical components and equipment,
biotechnology, pharmaceuticals, healthcare equipment and supplies, healthcare distribution and services, healthcare facilities,
industrial gases, specialty chemicals, advanced materials, integrated telecom services, alternative carriers and wireless
telecommunication services.
|
|
|
|
|
|
The fund primarily invests in common stock but may also invest in preferred stock and convertible securities. The fund may
also invest in Rule 144A securities, which are privately placed securities purchased by qualified institutional buyers. From time to time
the fund may invest in shares of companies through IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objective, buy or sell
options or futures on a security or an index of securities and may buy options on a currency or a basket of currencies, or enter into
foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund typically uses derivatives as a
substitute for taking a position in the underlying asset and/or as part of a strategy designed to reduce exposure to other risks, such as
currency risk. The fund may also use derivatives to enhance returns, in which case their use would involve leveraging risk. The fund may
seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by
using other investment techniques (such as reverse repurchase agreements or dollar rolls). The fund may also use forward foreign currency
exchange contracts (obligations to buy or sell a currency at a set rate in the future). The fund may, but under normal market conditions
generally does not intend to, use derivatives for speculation to increase returns.
|
|
BlackRock Small Cap Growth Equity Portfolio
|
|
|
|
The investment objective of the fund is long-term capital appreciation.
The fund normally invests at least 80% of its net assets in equity securities issued by U.S. small capitalization companies
which fund management believes offer superior prospects for growth. Equity securities consist primarily of common stock,
preferred stock, securities convertible into common stock and securities or other instruments whose price is linked to the
value of common stock. The fund management team focuses on U. S. small capitalization emerging growth companies. Although
a universal definition of small-capitalization companies does not exist, the fund generally defines these companies, at the
time of the fund’s investment, as those with market capitalizations comparable in size to the companies in the Russell
2000
®
Growth Index (between approximately $53 million and $3.771 billion as of June 30, 2012, the most recent
rebalance date). In the future, the fund may define small-capitalization companies using a different index or classification
system. The fund seeks to buy primarily common stock but also can invest in preferred stock, convertible securities and other
equity securities. From time to time the fund may invest in shares of companies through “new issues” or IPOs.
|
57
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Small Cap Index Series
|
|
|
|
The investment objective of the fund is to match the performance of the Russell 2000
®
as closely as possible
before the deduction of fund expenses.
|
|
|
|
|
|
The fund will not attempt to buy or sell securities based on the economic, financial or market analysis of the investment
manager, but will instead employ a “passive” investment approach. This means that the investment manager will attempt to invest
in a portfolio of assets whose performance is expected to match approximately the performance of the index before deduction of expenses. The
fund will buy or sell securities only when the investment manager believes it is necessary to do so in order to match the performance of
the index. Accordingly, it is anticipated that the fund’s portfolio turnover and trading costs will be lower than those of an
“actively” managed fund. However, the fund has operating and other expenses, while an index does not. Therefore, the fund may
tend to underperform its target index to some degree over time.
|
|
|
|
|
|
The fund will be substantially invested in securities in the index, and will invest, under
normal circumstances, at least 80% of its assets in securities or other financial instruments that are components of or have economic
characteristics similar to the securities included in the index. This policy is a non-fundamental policy of the fund and may not be
changed without 60 days’ prior notice to interestholders. The fund may change its target index if the investment manager believes a
different index would better enable the fund to match the performance of the market segment represented by the current index and,
accordingly, the investment objective of the fund may be changed without interestholder approval. The fund may not invest in all of the
common stocks in the Russell 2000, or in the same weightings as in the Russell 2000. Instead, the fund might invest in a sample of the
stocks included in the Russell 2000 based on the investment manager’s optimization process, a statistical sampling technique that
aims to create a portfolio that will match approximately the performance of the index with fewer transaction costs than would be incurred
through full replication. The fund will choose investments so that the market capitalizations, industry weightings and other fundamental
characteristics of the stocks and derivative instruments in its portfolio are similar to the Russell 2000 as a whole.
|
|
BlackRock U.S. Opportunities Portfolio
|
|
|
|
The investment objective of the fund is to provide long-term capital appreciation. Under normal market conditions,
the fund invests
at least 80% of
its net assets
in equity securities
issued by U.S.
emerging capitalization
companies with
relatively attractive
earnings growth
potential and valuation.
Although a universal
definition of emerging
capitalization
companies does
not exist, the
fund generally
defines these companies,
at the time of
the fund’s
investment, as
those with market
capitalizations
comparable in size
to those within
the universe of
the Russell Midcap
®
Index stocks
(between approximately
$1.35 billion and
$17.40 billion
as of June 22,
2012, the most
recent rebalance
date). In the future,
the fund may define
emerging capitalization
companies using
a different index
or classification
system.
|
|
|
|
|
|
The fund seeks to buy primarily common stock but can also invest in preferred stock and convertible securities.
From time to time
the fund may invest
in shares of companies
through IPOs.
|
|
|
|
|
|
The fund may, when consistent with the fund’s investment objectives,
buy or sell options or futures on a security or an index of securities (collectively, commonly known as derivatives). The
primary purpose of using derivatives is to attempt to reduce risk to the fund as a whole (hedge), but they may also be used
to maintain liquidity and commit cash pending investment. The fund may also use derivatives to enhance returns, in which
case their use would involve leveraging risk.
|
58
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
Master Value Opportunities LLC
|
|
|
|
The investment objective of the fund is to seek long term growth of capital by investing in a diversified portfolio of
securities, primarily common stock, of relatively small companies that management of the fund believes have special investment value and
emerging growth companies regardless of size.
|
|
|
|
|
|
The fund tries to choose investments for capital appreciation — that is, investments that will increase in value. The
fund invests in a diversified portfolio primarily consisting of equity securities of small cap and emerging growth companies. Small cap
companies are those whose market capitalization is similar to the market capitalization of companies in the Russell 2000
®
or the S&P SmallCap 600
®
at the time of the fund’s investment. Companies whose capitalization no longer meets this
definition after purchase continue to be considered small market capitalization companies. As of March 31, 2012, the Russell
2000
®
included companies with capitalizations up to $3.623 billion and the S&P SmallCap 600
®
included
companies with capitalizations up to $3.186 billion. The market capitalizations of companies in each index change with market conditions
and the composition of the index. Emerging growth companies are defined as companies of any market capitalization without a long or consistent
history of earnings but that fund management believes have the potential for earnings growth over an extended period of time. The equity
securities in which the fund may invest include: (i) common stock; (ii) preferred stock; (iii) securities into common stock; (iv) index
securities that are based on a group of common stocks. The fund may invest in derivative instruments, such as options and futures, the values of
which are based on a common stock or group of common stocks. The fund may use derivatives to hedge its investment portfolio against
market and currency risks as well as to increase the return on its portfolio investments. The derivatives that the fund may use include, but are
not limited to, futures, forwards, options, and indexed securities.
|
|
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The fund will invest primarily in U.S. companies that do most of their business in the
United States, but may invest a portion of its assets in foreign companies. It is anticipated that in the immediate future, the fund will
invest not more than 30% of its total assets in the securities of foreign issuers, including issuers in emerging markets.
|
|
BlackRock World Gold Fund
|
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|
The investment objective of the fund is to seek to maximize total return. Total return means the combination of capital
appreciation and investment income.
|
|
|
|
|
|
The fund seeks to achieve its objective by investing primarily in equity securities of gold-related companies. A company is
considered a “gold-related company” when, at the time of purchase, at least 50% of the non-current assets, capitalization, gross
revenues or operating profits of the company in the most recent or current fiscal year are involved in or result from (directly or indirectly
through subsidiaries) gold-mining and/or other related activities, including but not limited to, exploring for, extracting, refining or
processing gold. Under normal circumstances, the fund will invest at least 80% of its net assets, plus any borrowings for investment purposes,
in equity securities of gold-related companies. For purposes of this policy, investments in exchange traded funds (“ETFs”) that
invest primarily in physical gold or in equity securities of gold-related companies will be treated as investments in equity securities
of gold-related companies. Equity securities include common stock, preferred stock, securities convertible into common stock or securities or
other instruments whose price is linked to the value of common stock. The fund may also invest in the equity securities of companies
whose predominant economic activity is the mining of other precious metals, minerals or base metals and in related ETFs. The fund generally
does not hold physical gold or other precious metals.
|
|
|
|
|
|
The fund may seek to provide exposure to the investment returns of gold and other
precious metals that trade in the commodity markets through investments designed to provide this exposure without direct investment in gold
or other precious metals or futures contracts related thereto. Such exposure may be obtained through investments in derivative
instruments linked to gold and other precious metals and investment vehicles, such as ETFs, that exclusively invest in gold and other precious
metals. The fund may make such investments directly or through investments in a wholly-owned subsidiary of the fund formed in the Cayman
Islands, which invests primarily in instruments related to gold or other precious metals, including through certain derivatives transactions.
The fund will not invest more than 25% of its total assets (measured at the time of investment) in the subsidiary.
|
59
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock World Gold Fund (continued)
|
|
|
|
The fund is a non-diversified fund, which means that it can invest more of its assets in
fewer companies than a diversified fund. The fund will normally invest in both U.S. and non-U.S. companies, including companies located in
emerging markets, such as Russia, and in securities denominated in both U.S. dollars and foreign currencies. The fund may invest in
securities of issuers of any market capitalization. The fund seeks to invest in companies that offer the best exposure to metals and minerals
prices within an acceptable risk level. The fund attempts to identify inefficiencies in the market by constructing the portfolio to
reflect fund management’s views of the macro-economic environment (relating to the precious metals sector) as well as by using a
“bottom up” approach, which entails the fundamental analysis of individual stocks and companies.
|
FIXED-INCOME FUNDS
|
|
|
|
|
|
BlackRock Core Bond Portfolio
|
|
|
|
The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent
investment management. The fund normally invests at least 80% of its assets in bonds and maintains an average portfolio duration that is
within ±20% of the duration of the benchmark. As of December 31, 2011, the average duration of the benchmark, the Barclays U.S.
Aggregate Bond Index, was 4.36 years, as calculated by BlackRock.
|
|
|
|
|
|
The fund may invest up to 10% of its assets in non-dollar denominated bonds of issuers located outside of the United States,
including but not limited to emerging market issuers. The fund’s investment in non-dollar denominated bonds may be on a currency
hedged or unhedged basis.
|
|
|
|
|
|
The fund only buys securities that are rated investment grade at the time of purchase by at least one major rating agency or
determined by the management team to be of similar quality. Split rated bonds will be considered to have the higher credit
rating.
|
|
|
|
|
|
The management team evaluates sectors of the bond market and individual securities within these sectors. The management team
selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities,
CMOs, asset-backed securities and corporate bonds.
|
|
|
|
|
|
The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and
interest rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund may use
derivative instruments to hedge its investments or seek to enhance returns. The fund may seek to obtain market exposure to the securities in
which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as
reverse repurchase agreements or dollar rolls).
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
principal investment strategies.
|
|
BlackRock Emerging Market Local Debt Portfolio
|
|
|
|
The fund seeks maximum long term total return. The fund invests primarily in a global
portfolio of fixed-income securities and derivatives of any maturity of issuers located in emerging markets that may be denominated in any
currency (on a hedged or unhedged basis). Fixed-income securities are debt obligations such as bonds and debentures, U.S. Government
securities, debt obligations of domestic and non-U.S. corporations, debt obligations of non-U.S. governments and their political subdivisions,
asset-backed securities, various mortgage-backed securities (both residential and commercial), other floating or variable rate
obligations, municipal obligations and zero coupon debt securities. Emerging markets include, but are not limited to, countries that are
included in the J.P. Morgan EMBI Global Index. The fund will invest at least 80% of its assets in fixed-income securities issued by
governments, their political subdivisions (states, provinces and municipalities), agencies and companies tied economically to an emerging
market. Fund management considers securities to be tied economically to an emerging market if (1) the issuer is organized under the laws of or
maintains its principal place of business in an emerging market country, (2) the issuer’s securities are traded principally in an
emerging market country or (3) the issuer, during its most recent fiscal year, derived at least 50% of its revenues or profits from goods
produced or sold, investments made, or services performed in an emerging market country or has at least 50% of its assets in an emerging
market country. The full spectrum of available investments, including non-investment grade (high yield or junk) securities (including
distressed securities), securities of small cap issuers and derivatives may be utilized. It is possible that up to 100% of the fund’s
assets may be invested in non-investment grade (high yield or junk) securities. Many of the countries in which the fund invests will have
sovereign ratings that are below investment grade or will be unrated.
|
60
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Emerging Market Local Debt Portfolio (continued)
|
|
|
|
The fund may gain exposure to currencies, through cash, synthetic currency investments or synthetic fixed income instruments
of emerging market issuers denominated in any currency.
|
|
|
|
|
|
The management team may, when consistent with the fund’s investment objective, buy or sell options or futures, or enter
into credit default swaps and interest rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives).
The fund typically uses derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy designed to
reduce exposure to other risks, such as interest rate or currency risk. The fund may also use derivatives to enhance returns, in which
case their use would involve leveraging risk. The fund may seek to obtain market exposure to the securities in which it primarily invests by
entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or
dollar rolls, which involve a sale by a fund of a mortgage-backed or other security concurrently with an agreement by the fund to repurchase a
similar security at a later date at an agreed-upon price).
|
|
|
|
|
|
The fund may invest up to 10% of its assets in equity securities.
|
|
BlackRock Floating Rate Income Portfolio
|
|
|
|
The primary investment objective of the fund is to seek to provide high current income, with a secondary objective of
long-term capital appreciation.
|
|
|
|
|
|
The fund normally invests at least 80% of its assets in floating rate investments and investments that are the economic
equivalent of floating rate investments, which effectively enables the fund to achieve a floating rate of income. These investments may
include but are not limited to, any combination of the following securities: (i) senior secured floating rate loans or debt; (ii) second lien or
other subordinated or unsecured floating rate loans or debt; and (iii) fixed-rate loans or debt with respect to which the fund has
entered into derivative instruments to effectively convert the fixed-rate interest payments into floating rate interest payments. The fund may
also purchase, without limitation, participations or assignments in senior floating rate loans or second lien floating rate loans. For
purposes of the fund’s investments, the term debt includes investments in convertible or preferred securities.
|
|
|
|
|
|
The fund may invest in securities of any credit quality without limitation, including securities rated below investment grade.
The fund anticipates that, under current market conditions, substantially all of its portfolio will consist of securities rated below
investment grade, which are commonly referred to as “junk bonds.”
|
|
|
|
|
|
The fund may invest up to 20% of its assets in fixed-income securities with respect to which the fund has not entered into
derivative instruments to effectively convert the fixed-rate interest payments into floating-rate interest payments. Such fixed-income
securities include, but are not limited to, corporate bonds, preferred securities, convertible securities, mezzanine investments,
collateralized loan obligations, senior loans, second lien loans, structured products and U.S. government debt
securities.
|
|
|
|
|
|
The fund’s investments in any floating rate and fixed-income securities may be of any duration or maturity. The Fund may
invest in securities of foreign issuers, including issuers located in emerging markets, without limitation. The fund may also invest up to
15% of its assets in illiquid securities. The fund may also invest in companies whose financial condition is uncertain, where the borrower
has defaulted in the payment of interest or principal or in the performance of its covenants or agreements, or that may be involved in
bankruptcy proceedings, reorganizations or financial restructurings.
|
|
|
|
|
|
The fund may invest up to 10% of its assets in common stocks or other equity securities. In addition, the fund may acquire and
hold such securities (or rights to acquire such securities) in unit offerings with fixed-income securities, in connection with an
amendment, waiver, conversion or exchange of fixed-income securities, in connection with the bankruptcy or workout of a distressed fixed-income
security, or upon the exercise of a right or warrant obtained on account of a fixed-income security.
|
|
|
|
|
|
The fund may buy or sell options or futures on a security or an index of securities, buy
or sell options on futures or enter into credit default swaps and interest rate or foreign currency transactions, including swaps and forward
contracts (collectively, commonly known as derivatives). The fund may use derivatives for hedging purposes, as well as to increase the
total return on its portfolio investments. The fund may engage in active and frequent trading of portfolio securities to achieve its primary
investment strategies.
|
61
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock GNMA Portfolio
|
|
|
|
The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent investment
management. Under normal circumstances, the fund normally invests at least 80% of its assets in Ginnie Mae securities. Ginnie Mae securities represent
interests in pools of residential mortgage loans originated by private lenders and pass income from the initial debtors (homeowners) through
intermediaries to investors. Ginnie Mae securities are backed by the full faith and credit of the United States and are supported by the right of
Ginnie Mae to borrow funds from the U.S. Treasury to make payments under its guarantee. The fund invests primarily in securities issued by Ginnie Mae
as well as other U.S. Government securities in the five to ten year maturity range.
|
|
|
|
|
|
Securities purchased by the fund are rated in the highest rating category (AAA or Aaa) at the time of purchase by at least one major
rating agency or are determined by the fund management team to be of similar quality. The fund measures its performance against the Barclays GNMA MBS
Index (the benchmark).
|
|
|
|
|
|
The management team will normally attempt to structure the fund’s portfolio to have comparable duration to its
benchmark.
|
|
|
|
|
|
The fund also makes investments in residential and commercial mortgage-backed securities and other asset-backed
securities.
|
|
|
|
|
|
The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and interest
rate transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market exposure to the securities in
which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase
agreements or dollar rolls).
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
|
|
BlackRock High Yield Bond Portfolio
|
|
|
|
The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent investment
management.
|
|
|
|
|
|
The fund invests primarily in non-investment grade bonds with maturities of ten years or less. The fund normally invests at least 80%
of its assets in high yield bonds. The high yield securities (commonly called “junk bonds”) acquired by the fund will generally be in the
lower rating categories of the major rating agencies (BB or lower by S&P or Ba or lower by Moody’s) or will be determined by the fund
management team to be of similar quality. Split rated bonds will be considered to have the higher credit rating. The fund may invest up to 30% of its
assets in non-dollar denominated bonds of issuers located outside of the United States. The fund’s investment in non-dollar denominated bonds may
be on a currency hedged or unhedged basis. The fund may also invest in convertible and preferred securities. Convertible securities will be counted
toward the fund’s 80% policy to the extent they have characteristics similar to the securities included within that
policy.
|
|
|
|
|
|
To add additional diversification, the management team can invest in a wide range of securities including corporate bonds, mezzanine
investments, collateralized bond obligations, bank loans and mortgage-backed and asset-backed securities.
|
|
|
|
|
|
The fund can also invest, to the extent consistent with its investment objective, in non-U.S. and emerging market securities and
currencies. The fund may invest in securities of any rating, and may invest up to 10% of its assets (measured at the time of investment) in distressed
securities that are in default or the issuers of which are in bankruptcy. The fund may buy or sell options or futures on a security or an index of
securities, or enter into credit default swaps and interest rate or foreign currency transactions, including swaps (collectively, commonly known as
derivatives). The fund may use derivative instruments to hedge its investments or to seek to enhance returns. The fund may seek to obtain market
exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment
techniques (such as reverse repurchase agreements or dollar rolls).
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
|
62
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Inflation Protected Bond Portfolio
|
|
|
|
The investment objective of the fund is to seek to maximize real return, consistent with preservation of real capital and prudent
investment management. Under normal circumstances, the fund invests at least 80% of its assets in inflation-indexed bonds of varying maturities issued
by the U.S. and non-U.S. governments, their agencies or instrumentalities, and U.S. and non-U.S. corporations.
|
|
|
|
|
|
The fund maintains an average portfolio duration that is within ±20% of the duration of the Barclays Global Real: U.S. TIPS
Index.
|
|
|
|
|
|
The fund may invest up to 20% of it assets in non-investment grade bonds (high yield or junk bonds) or securities of emerging market
issuers. The fund may also invest up to 20% of its assets in non-dollar denominated securities of non-U.S. issuers, and may invest without limit in
U.S. dollar denominated securities of non-U.S. issuers.
|
|
|
|
|
|
The fund is non-diversified under the Investment Company Act, which means that it may concentrate its assets in a smaller number of
issuers than a diversified fund.
|
|
|
|
|
|
The fund also makes investments in residential and commercial mortgage-backed securities and other asset-backed securities.
Non-investment grade bonds acquired by the fund will generally be in the lower rating categories of the major rating agencies (BB or lower by S&P
or Ba or lower by Moody’s) or will be determined by the management team to be of similar quality. Split rated bonds will be considered to have the
higher credit rating. The fund may buy or sell options or futures, or enter into credit default swaps and interest rate or foreign currency
transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market exposure to the securities in which it
primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase
agreements or dollar rolls).
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
|
|
BlackRock International Bond Portfolio
|
|
|
|
The fund seeks to maximize total return, consistent with income generation and prudent investment
management.
|
|
|
|
|
|
The fund invests primarily in non-dollar denominated bonds of issuers located outside of the United States in the five to fifteen
year maturity range. The fund normally invests at least 80% of its assets in bonds and at least 65% of its assets in bonds of a diversified group of
non-U.S. issuers from at least three developed countries. The fund may invest more than 25% of its assets in the securities of issuers located in
Canada, France, Germany, Japan and the United Kingdom. The fund may from time to time invest in investment grade bonds of issuers in emerging market
countries. The fund will also invest in non-U.S. currencies, and the fund may underweight or overweight a currency based on the fund management
team’s outlook. The fund may only buy securities rated investment grade at the time of purchase by at least one major rating agency or determined
by the management team to be of similar quality. Split rated bonds will be considered to have the higher credit rating.
|
|
|
|
|
|
The fund considers non-U.S. issuers to include (i) foreign government issuers, (ii) issuers organized or located outside the U.S.,
(iii) issuers which primarily trade in a market located outside the U.S., or (iv) issuers doing a substantial amount of business outside the U.S.,
which the fund considers to be companies that derive at least 50% of their revenue or profits from business outside the U.S. or have at least 50% of
their sales or assets outside the U.S. The fund will allocate its assets among various regions and countries (but in no less than three different
countries). For temporary defensive purposes the fund may deviate very substantially from the allocation described above.
|
|
|
|
|
|
The management team will normally attempt to structure the fund’s portfolio to have comparable duration to its
benchmark.
|
|
|
|
|
|
The management team may, when consistent with the fund’s investment objective, buy or sell
options or futures, or enter into credit default swaps and interest rate or foreign currency transactions, including swaps (collectively, commonly
known as derivatives). The fund typically uses derivatives as a substitute for taking a position in the underlying asset and/or as part of a strategy
designed to reduce exposure to other risks, such as interest rate or currency risk. The fund may also use derivatives to enhance returns, in which case
their use would involve leveraging risk. The fund may seek to obtain market exposure to the securities in which it primarily invests by entering into a
series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or dollar rolls, which involves
the sale by a fund of a mortgage-backed or other security concurrently with an agreement by the fund to repurchase a similar security at a later date
at an agreed-upon price).
|
63
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Long Duration Bond Portfolio
|
|
|
|
The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent investment
management. Under normal circumstances, the fund invests at least 80% of its assets in bonds and maintains an average portfolio duration that is within
±20% of the duration of the Barclays U.S. Government/Credit Index.
|
|
|
|
|
|
Fund management evaluates sectors of the U.S. and non-U.S. bond market and individual securities within these sectors. The fund
selects bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, CMOs,
pass-throughs, asset-backed securities, corporate bonds and taxable and tax-exempt municipal bonds. The fund may also invest in preferred
stock.
|
|
|
|
|
|
The fund invests primarily in dollar-denominated investment grade bonds, but may invest up to 20% of its assets in any combination of
non-investment grade bonds (high yield or junk bonds), non-dollar denominated bonds and bonds of emerging market issuers. The fund’s investment in
non-dollar denominated bonds may be on a currency hedged or unhedged basis. Non-investment grade bonds acquired by the fund will generally be in the
lower rating categories of the major rating agencies (BB or lower by S&P or Ba or lower by Moody’s) or will be determined by the management
team to be of similar quality. The fund may invest in securities rated in the category C and above or determined by the management team to be of
comparable quality. Split rated bonds will be considered to have the higher rating.
|
|
|
|
|
|
The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and interest
rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market exposure to
the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as
reverse repurchase agreements or dollar rolls).
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
|
|
BlackRock Low Duration Bond Portfolio
|
|
|
|
The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent investment
management. The fund invests primarily in investment grade bonds and maintains an average portfolio duration that is within ±1% of the duration
of the benchmark. The benchmark has an average duration between 1 and 3 years.
|
|
|
|
|
|
The fund normally invests at least 80% of its assets in debt securities.
|
|
|
|
|
|
The fund may invest up to 10% of its assets in each of non-investment grade bonds (high yield or junk bonds), non-dollar denominated
bonds of issuers located outside of the United States and emerging market debt securities.
|
|
|
|
|
|
The management team evaluates sectors of the bond market and individual securities within these sectors. The management team selects
bonds from several sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, CMOs, asset-backed
securities and corporate bonds. The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps
and interest rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund may use derivative
instruments to hedge its investments or to seek to enhance returns. The fund may seek to obtain market exposure to the securities in which it primarily
invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as reverse repurchase agreements or
dollar rolls).
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
principal investment strategies.
|
|
BlackRock Secured Credit Portfolio
|
|
|
|
The investment objective of the fund is to seek to provide high current income, with a
secondary objective of long-term capital appreciation. The fund normally invests at least 80% of its assets in secured instruments, including bank
loans and bonds, issued primarily, but not exclusively, by below investment grade (below the fourth highest rating of the major rating agencies)
issuers. The fund may invest in instruments of any credit quality without limitation, including instruments rated below investment grade. The fund
anticipates that, under current market conditions, substantially all of its portfolio will consist of instruments rated below investment grade (or
determined by the management team to be of similar quality), which are commonly referred to as “junk bonds.”
|
64
Fund Name
|
|
|
|
Investment Objective and
Principal Investment Strategies
|
|
BlackRock Secured Credit Portfolio (continued)
|
|
|
|
Collateral supporting the secured instruments generally includes, but is not limited to, all the tangible and intangible assets of
the borrower and, in some cases, specific assets of the borrower. The fund will typically invest in senior secured loans and bonds; however, to a
lesser extent the fund may invest in subordinated loans and bonds and unsecured debt.
|
|
|
|
|
|
The fund may invest in floating rate and fixed income securities of any duration or maturity. The fund may invest in securities of
foreign issuers, including issuers located in emerging markets, without limitation.
|
|
|
|
|
|
The fund may also invest in companies whose financial condition is uncertain, where the borrower has defaulted in the payment of
interest or principal or in the performance of its covenants or agreements, or that may be involved in bankruptcy proceedings, reorganizations or
financial restructurings.
|
|
|
|
|
|
The fund may also invest up to 15% of its assets in illiquid securities.
|
|
|
|
|
|
The fund may invest up to 20% of its assets in corporate bonds, commercial and residential mortgage-backed securities, mezzanine
investments, CBOs, CDOs, CMOs, asset-backed securities, convertible bonds, U.S. Government mortgage-related securities, U.S. Treasuries and agency
securities, preferred securities, and equity securities or derivatives tied to the performance of these securities.
|
|
|
|
|
|
The fund may use derivatives for hedging purposes, as well as to increase the total return on its portfolio
investments.
|
|
|
|
|
|
The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
|
|
Master Total Return Portfolio
|
|
|
|
The primary objective of the fund is to realize a total return that exceeds that of the Barclays U.S. Aggregate Bond
Index.
|
|
|
|
|
|
The fund invests primarily in a diversified portfolio of fixed-income securities, such as corporate bonds and notes, mortgage-backed
and asset-backed securities, convertible securities, preferred securities and government debt obligations.
|
|
|
|
|
|
The fund normally invests more than 90% of its assets in fixed-income securities.
|
|
|
|
|
|
The fund may use derivatives, including, but not limited to, interest rate, total return and
credit default swaps, indexed and inverse floating rate securities, options, futures, and options on futures and swaps, for hedging purposes, as well
as to increase the return on its portfolio investments. Derivatives are financial instruments whose value is derived from another security or an index
such as the Barclays Aggregate Bond Index or the CSFB High Yield Index. The fund may also invest in credit-linked notes, credit-linked trust
certificates, structured notes, or other instruments evidencing interests in special purpose vehicles, trusts, or other entities that hold or represent
interests in fixed-income securities.
|
|
BlackRock U.S. Government Bond Portfolio
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The investment objective of the fund is to seek to maximize total return, consistent with income generation and prudent investment
management. Under normal circumstances, the fund invests at least 80% of its assets in bonds that are issued or guaranteed by the U.S. Government and
its agencies. These include debt securities issued by eligible financial institutions and guaranteed by the Federal Deposit Insurance Corporation under
its Temporary Liquidity Guarantee Program. The fund invests primarily in the highest rated government and agency bonds and maintains an average
portfolio duration that is within ±20% of the Barclays U.S. Government/Credit Index.
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Securities purchased by the fund generally are rated in the highest rating category (AAA or Aaa) at the time of purchase by at least
one major rating agency or are determined by the fund management team to be of similar quality. In addition, the fund’s dollar-weighted average
maturity will be between 3 and 10 years.
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The fund evaluates sectors of the bond market and individual securities within these sectors. The fund selects bonds from several
sectors including: U.S. Treasuries and agency securities, commercial and residential mortgage-backed securities, collateralized mortgage obligations,
asset-backed securities and corporate bonds.
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The fund invests primarily in dollar-denominated bonds, but may invest up to 10% of its assets in non-dollar denominated bonds of
issuers located outside of the United States. The fund’s investment in non-dollar denominated bonds may be on a currency hedged or unhedged
basis.
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The fund may buy or sell options or futures on a security or an index of securities, or enter into credit default swaps and interest
rate or foreign currency transactions, including swaps (collectively, commonly known as derivatives). The fund may seek to obtain market exposure to
the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using other investment techniques (such as
reverse repurchase agreements or dollar rolls).
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The fund may engage in active and frequent trading of portfolio securities to achieve its
primary investment strategies.
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65
Fund Name
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Investment Objective and
Principal Investment Strategies
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BlackRock U.S. Mortgage Portfolio
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The investment objective of the fund is to seek high total return. The fund invests primarily in mortgage-related securities. The
securities in which the fund may invest include U.S. government securities, U.S. government agency securities, securities issued by U.S. government
instrumentalities and U.S. government-sponsored enterprises, and other mortgage-backed securities or mortgage-related securities issued by the U.S.
government or by private issuers. Under normal circumstances, the fund will invest at least 80% of its assets in mortgage-backed securities and other
mortgage-related securities that are issued by issuers located in the United States.
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The fund seeks to achieve its investment objective by selecting securities of any maturity issued or guaranteed by the U.S.
government, by various agencies of the U.S. government, by various instrumentalities that have been established or sponsored by the U.S. government, or
securities issued by banks or other financial institutions. Some of these securities are issued and/or guaranteed by the U.S. government and are
supported by the full faith and credit of the United States. Other securities are issued or guaranteed by Federal agencies or government-sponsored
enterprises and are not direct obligations of the United States, and are not backed by the full faith and credit of the United States, but involve
sponsorship or guarantees by government agencies or enterprises.
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The fund may invest in non-agency securities issued by banks and other financial institutions, including non-agency mortgage-related
securities. Non-agency securities are not backed by the full faith and credit of the United States and do not involve sponsorship or guarantees by
government agencies or enterprises. The fund may invest a substantial portion of its assets in non-agency mortgage-related securities that are rated
below investment grade. For purposes of determining a bond’s credit rating, split rated bonds will be considered to have the higher credit rating.
The fund may also participate in TBA Transactions and enter into dollar rolls. A TBA Transaction is a method of trading mortgage-backed securities
where the buyer and seller agree upon general trade parameters such as agency, settlement date, par amount and price at the time the contract is
entered into but the mortgage-backed securities are delivered in the future, generally 30 days later. The actual pools of mortgage-backed securities
delivered in a TBA Transaction typically are not determined until two days prior to settlement date.
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A dollar roll transaction involves a sale by the Fund of a mortgage-backed or other security
concurrently with an agreement by the fund to repurchase a similar security at a later date at an agreed-upon price. The securities that are
repurchased will bear the same interest rate and stated maturity as those sold, but pools of mortgages collateralizing those securities may have
different prepayment histories than those sold.
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BlackRock World Income Fund, Inc.
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The fund seeks high current income by investing in a global portfolio of fixed income securities denominated in various currencies,
including multi-national currency units. The fund mainly invests in bonds and other fixed income securities, including preferred stock, that
periodically pay interest or dividends. Fixed income securities are securities that represent an obligation by the issuer to pay a specified rate of
interest or dividend at specified times. These securities may be denominated and pay interest in U.S. dollars or other currencies and may be issued by
U.S. or foreign governments or corporations.
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The fund will spread its investments among different types of fixed income securities and different countries based upon fund
management’s analysis of the yield, maturity and currency considerations affecting these securities. The fund may invest in U.S. and foreign
government and corporate fixed income securities, including junk bonds and unrated securities. The fund normally will invest at least 90% of its assets
in fixed income securities, and may invest up to 100% of its assets in securities classified as junk bonds.
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Under normal circumstances, the fund anticipates it will allocate a substantial amount
(approximately 40% or more — unless market conditions are not deemed favorable by BlackRock, in which case the fund would invest at least 30%)
— of its total assets in securities (i) of foreign government issuers, (ii) of issuers organized or located outside the U.S., (iii) of issuers
which primarily trade in a market located outside the U.S., or (iv) of issuers doing a substantial amount of business outside the U.S., which the fund
considers to be companies that derive at least 50% of their revenue or profits from business outside the U.S. or have at least 50% of their sales or
assets outside the U.S. The fund will allocate its assets among various regions and countries, including the United States (but in no less than three
different countries). For temporary defensive purposes the fund may deviate very substantially from the allocation described
above.
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66
Fund Name
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Investment Objective and
Principal Investment Strategies
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BlackRock World Income Fund, Inc. (continued)
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The fund may invest in securities of any maturity or duration. The average maturity of the fund’s portfolio securities will vary
based upon BlackRock’s view of economic and market conditions. However, the fund does not expect the average maturity of its portfolio to exceed
fifteen years.
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Fund management presently expects that the fund will invest primarily in securities denominated in the currencies represented in the
J. P. Morgan Global Government Bond Broad Index, but the fund also can invest in securities denominated in other currencies. Issuers of securities may
not always be located in the country in whose currency the securities are denominated. The fund’s investments ordinarily will be denominated in at
least three currencies. No set portion of the fund’s investments is required to be denominated in any particular currency. Substantially all of
the fund’s investments may be denominated in a single currency, including U.S. dollars.
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The fund may invest in several different kinds of securities issued by the U.S. Government. These include U.S. Treasury obligations
(bills, notes and bonds) that have different interest rates and maturities and are issued at different times. These securities are backed by the full
faith and credit of the U.S. Government. The fund also may invest in obligations issued or guaranteed by U.S. Government agencies or other U.S.
Government organizations. These include but are not limited to government guaranteed mortgage-related or asset-backed securities. Some of these
securities may be backed by the full faith and credit of the U.S. Treasury, some may be supported by the right of the issuer to borrow from the U.S.
Treasury, and some are backed only by the credit of the issuer itself.
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The obligations of foreign governments and their related organizations have various kinds of government support. These obligations
may or may not be supported by the full faith and credit of a foreign government. The fund may invest in securities issued by international
organizations designated or supported by governments or government agencies to promote economic reconstruction or development. The debt securities in
which the fund invests may include credit-linked notes, credit-linked trust certificates, structured notes or other instruments evidencing interests in
special purpose vehicles, trusts or other entities that hold or represent interests in debt securities. In addition, the fund may invest in corporate
loans.
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The fund may use a variety of portfolio strategies to hedge its portfolio against interest rate
and currency risk, or to seek to enhance its return. These strategies include the use of derivatives, such as options on portfolio positions or
currencies, financial and currency futures and options on these futures, forward foreign currency transactions, indexed and inverse securities,
interest rate swaps and credit default swaps. Derivatives are financial instruments whose value is derived from another security or an index such as
the J. P. Morgan Global Government Bond Broad Index.
|
MONEY MARKET FUND
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TempFund
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The investment objective of the fund is to seek as high a level of current income as is
consistent with liquidity and stability of principal. The fund invests in a broad range of U.S. dollar-denominated money market instruments, including
government, U.S. and foreign bank, commercial obligations and repurchase agreements. The fund may also invest in mortgage- and asset-backed securities,
short-term obligations issued by or on behalf of states, territories and possessions of the United States, the District of Columbia, and their
respective authorities, agencies, instrumentalities and political subdivisions and derivative securities such as beneficial interests in municipal
trust certificates and partnership trusts, variable and floating rate instruments and when-issued and delayed delivery securities. The fund seeks to
maintain a net asset value of $1.00 per share. The securities purchased by the fund are subject to the quality, diversification and other requirements
of Rule 2a-7 under the Investment Company Act, and other rules of the SEC.
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67
Account Information
How to Choose the Share Class
that Best Suits Your Needs
Managed Volatility Portfolio currently offers multiple share
classes (Service Shares in this prospectus), each with its own sales charge and expense structure, allowing you to invest in the way that best suits
your needs. Each share class represents an ownership interest in the same investment portfolio of the Fund. When you choose your class of shares, you
should consider the size of your investment and how long you plan to hold your shares. Either your financial professional or your selected securities
dealer, broker, investment adviser, service provider or industry professional (“financial intermediary”) can help you determine which share
class is best suited to your personal financial goals.
The Fund’s shares are distributed by BlackRock Investments,
LLC (the “Distributor”), an affiliate of BlackRock.
The table below summarizes key features of the Service Share class
offered by this prospectus.
Service Share Class at a Glance
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Service Shares
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Availability
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Limited to certain investors, including: financial intermediaries (such as banks and brokerage firms) acting
on behalf of their customers, certain persons who were shareholders of the Compass Capital Group of Funds at the time of its combination with The
PNC
®
Fund in 1996 and investors that participate in the Capital Directions
SM
asset allocation program. Service Shares will
normally be held by financial intermediaries or in the name of nominees of financial intermediaries on behalf of their customers. Service Shares are
normally purchased through a customer’s account at a financial intermediary through procedures established by such financial intermediary. In
these cases, confirmation of share purchases and redemptions will be sent to the financial intermediaries. A customer’s ownership of shares will
be recorded by the financial intermediary and reflected in the account statements provided by such financial intermediaries to their customers.
Investors wishing to purchase Service Shares should contact their financial intermediaries.
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Minimum Investment
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$5,000. However, financial intermediaries may set a higher minimum for their customers.
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Initial Sales Charge?
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No. Entire purchase price is invested in shares of the Fund.
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Deferred Sales Charge?
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No.
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Service and Distribution Fees?
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|
No Distribution Fee. 0.25% Annual Service Fee.
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Redemption Fees?
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|
No.
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Advantage
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No up-front sales charge so you start off owning more shares.
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Disadvantage
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Limited availability.
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Distribution and Service
Payments
The Trust, on behalf of Managed Volatility Portfolio, has adopted
a plan (the “Plan”) that allows the Fund to pay distribution fees for the sale of its shares under Rule 12b-1 of the Investment Company Act,
and shareholder servicing fees for certain services provided to its shareholders. The Fund does not make distribution payments under the Plan with
respect to Service Shares.
Plan Payments
Under the Plan, the Trust pays shareholder servicing fees (also
referred to as shareholder liaison services fees) on behalf of the Fund to brokers, dealers, financial institutions and industry professionals
(including BlackRock, The PNC Financial Services Group, Inc. (“PNC”) and their respective affiliates) (each a “Financial
Intermediary”) for providing support services to their customers who own Service Shares. The shareholder servicing fee payment is calculated as a
percentage of the average daily net asset value of Service Shares of the Fund. All Service Shares pay this shareholder servicing fee.
68
In return for the shareholder servicing fee, Financial
Intermediaries (including BlackRock) may provide one or more of the following services to their customers who own Service Shares:
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n
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Responding to customer questions on the services performed by the
Financial Intermediary and investments in Service Shares;
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n
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Assisting customers in choosing and changing dividend options,
account designations and addresses; and
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n
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Providing other similar shareholder liaison services.
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The shareholder servicing fees payable pursuant to the Plan are
paid to compensate Financial Intermediaries for the administration and servicing of shareholder accounts and are not costs which are primarily intended
to result in the sale of the Fund’s shares. Because the fees paid by the Fund under the Plan are paid out of Fund assets on an ongoing basis, over
time these fees will increase the cost of your investment and may cost you more than paying other types of sales charges. For more information on the
Plan, including a complete list of services provided thereunder, see the SAI.
Other Payments by the Fund
In addition to, rather than in lieu of, fees that the Fund may pay
to a Financial Intermediary pursuant to the Plan and fees the Fund pays to its transfer agent, BNY Mellon Investment Servicing (US) Inc. (the
“Transfer Agent”), BlackRock, on behalf of the Fund, may enter into non-Plan agreements with a Financial Intermediary pursuant to which the
Fund will pay a Financial Intermediary for administrative, networking, recordkeeping, sub-transfer agency and shareholder services. These non-Plan
payments are generally based on either (1) a percentage of the average daily net assets of Fund shareholders serviced by a Financial Intermediary or
(2) a fixed dollar amount for each account serviced by a Financial Intermediary. The aggregate amount of these payments may be
substantial.
Other Payments by BlackRock
The Plan permits BlackRock, the Distributor and their affiliates
to make payments relating to distribution and sales support activities out of their past profits or other sources available to them (and not as an
additional charge to the Fund). From time to time, BlackRock, the Distributor or their affiliates also may pay a portion of the fees for
administrative, networking, recordkeeping, sub-transfer agency and shareholder services described above at its or their own expense and out of its or
their legitimate profits. BlackRock, the Distributor and their affiliates may compensate affiliated and unaffiliated Financial Intermediaries for the
sale and distribution of shares of the Fund or for these other services to the Fund and shareholders. These payments would be in addition to the Fund
payments described in this prospectus and may be a fixed dollar amount, may be based on the number of customer accounts maintained by the Financial
Intermediary or may be based on a percentage of the value of shares sold to, or held by, customers of the Financial Intermediary. The aggregate amount
of these payments by BlackRock, the Distributor and their affiliates may be substantial. Payments by BlackRock may include amounts that are sometimes
referred to as “revenue sharing” payments. In some circumstances, these revenue sharing payments may create an incentive for a Financial
Intermediary, its employees or associated persons to recommend or sell shares of the Fund to you. Please contact your Financial Intermediary for
details about payments it may receive from the Fund or from BlackRock, the Distributor or their affiliates. For more information, see the
SAI.
How to Buy, Sell and Transfer
Shares
The chart on the following pages summarizes how to buy, sell and
transfer shares through your financial professional or financial intermediary. You may also buy, sell and transfer shares through BlackRock if your
account is held directly with BlackRock. To learn more about buying, selling or transferring shares through BlackRock, call (800) 537-4942. Because the
selection of a mutual fund involves many considerations, your financial intermediary may help you with this decision.
Managed Volatility Portfolio may reject any purchase order, modify
or waive the minimum initial or subsequent investment requirements for any shareholders and suspend and resume the sale of any share class of the Fund
at any time for any reason. In addition, the Fund may waive certain requirements regarding the purchase, sale or transfer of shares described
below.
Persons who were shareholders of an investment portfolio of the
Compass Capital Group of Funds in 1996 at the time the portfolio combined with the PNC
®
Fund may purchase and redeem Service Shares of
the same fund and for the same account in which they held shares on that date through the procedures described in this section.
Under certain circumstances, if no activity occurs in an account
within a time period specified by state law, a shareholder’s shares in the Fund may be transferred to that state.
69
How to Buy Shares
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Your Choices
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|
Important Information for
You to Know
|
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Initial Purchase
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|
Determine the amount of your investment
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|
Refer to the minimum initial investment in the “Service Share Class at a Glance” table
in this prospectus.
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Have your financial intermediary submit your purchase order
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The price of your shares is based on the next calculation of the Fund’s net asset value after your order is placed. Any purchase
orders placed prior to the close of business on the New York Stock Exchange (the “Exchange”) (generally 4:00 p.m. Eastern time) will be
priced at the net asset value determined that day. Certain financial intermediaries, however, may require submission of orders prior to that time.
Purchase orders placed after that time will be priced at the net asset value determined on the next business day. A broker-dealer or financial
institution maintaining the account in which you hold shares may charge a separate account, service or transaction fee on the purchase or sale of Fund
shares that would be in addition to the fees and expenses shown in the Fund’s “Fees and Expenses” table.
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The Fund may reject any order to buy shares and may suspend the sale of shares at any time.
Financial intermediaries may charge a processing fee to confirm a purchase.
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Add to your investment
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Purchase additional shares
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There is no minimum amount for additional investments.
|
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Have your financial intermediary submit your purchase order for additional
shares
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To purchase additional shares you may contact your financial intermediary. For more details
on purchasing by Internet see below.
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Or contact BlackRock (for accounts held directly with BlackRock)
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Purchase by Telephone:
Call (800) 537-4942 and speak with one of our representatives. The Fund has the right to reject any
telephone request for any reason.
Purchase by Internet:
You may purchase your shares and view activity in your account by logging onto the BlackRock website at
www.blackrock.com/funds. Purchases made on the Internet using the Automated Clearing House Network (“ACH”) will have a trade date that is the
day after the purchase is made. Certain institutional clients’ purchase orders of Service Shares placed by wire prior to the close of business on
the Exchange will be priced at the net asset value determined that day. Contact your financial intermediary or BlackRock for further information. The
Fund limits Internet purchases in shares of the Fund to $25,000 per trade. Different maximums may apply to certain institutional
investors.
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Please read the On-Line Services Disclosure Statement and User Agreement, the Terms and Conditions page and the Consent to Electronic
Delivery Agreement (if you consent to electronic delivery), before attempting to transact online.
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The Fund employs reasonable procedures to confirm that transactions entered over the Internet are
genuine. By entering into the User Agreement with the Fund in order to open an account through the website, the shareholder waives any right to reclaim
any losses from the Fund or any of its affiliates incurred through fraudulent activity.
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Acquire additional shares by reinvesting dividends and capital gains
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All dividends and capital gains distributions are automatically reinvested without a sales charge.
To make any changes to your dividend and/or capital gains distributions options, please call BlackRock at (800) 537-4942, or contact your financial
professional (if your account is not held directly with BlackRock).
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How to Pay for Shares
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Making payment for purchases
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Payment for an order must be made in Federal funds or other immediately available funds by the
time specified by your financial intermediary, but in no event later than 4:00 p.m. (Eastern time) on the first business day following
BlackRock’s receipt of the order. Payment may also, at the discretion of the Fund, be made in the form of securities that are permissible
investments for the Fund. If payment is not received by this time, the order will be canceled and you and your financial intermediary will be
responsible for any loss to the Fund.
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70
How to Sell Shares
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|
Your Choices
|
|
|
|
Important Information for
You to Know
|
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Full or Partial Redemption of Shares
|
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|
Have your financial intermediary submit your sales order
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You can make redemption requests through your financial intermediary. The price of your shares is based on the next
calculation of the Fund’s net asset value after your order is placed. For your redemption request to be priced at the net asset value on the day
of your request, you must submit your request to your financial professional or financial intermediary prior to that day’s close of business on
the Exchange (generally 4:00 p.m. Eastern time). Certain financial intermediaries, however, may require submission of orders prior to that time. Any
redemption request placed after that time will be priced at the net asset value at the close of business on the next business day.
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Financial intermediaries may charge a fee to process a redemption of shares. Shareholders who hold
more than one class should indicate which class of shares they are redeeming. The Fund may reject an order to sell shares under certain
circumstances.
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Selling shares held directly with BlackRock
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Methods of Redeeming:
Redeem by Telephone:
Institutions may place redemption orders by telephoning (800) 537-4942.
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The Fund, its administrators and the Distributor will employ reasonable procedures to confirm that instructions communicated by
telephone are genuine. The Fund and its service providers will not be liable for any loss, liability, cost or expense for acting upon telephone
instructions that are reasonably believed to be genuine in accordance with such procedures. The Fund may refuse a telephone redemption request if it
believes it is advisable to do so. During periods of substantial economic or market change, telephone redemptions may be difficult to complete. Please
find alternate redemption methods below.
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Redeem by Internet:
You may redeem in your account by logging onto the BlackRock website at www.blackrock.com/funds. Proceeds
from Internet redemptions will be sent via wire to the bank account of record.
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Redeem in Writing:
You may sell shares held with BlackRock by writing to BlackRock, P.O. Box 9819, Providence, Rhode Island
02940-8019, or for overnight delivery, 4400 Computer Drive, Westborough, Massachusetts 01588. All shareholders on the account must sign the letter. A
medallion signature guarantee will generally be required but may be waived in certain limited circumstances. You can obtain a medallion signature
guarantee stamp from a bank, securities dealer, securities broker, credit union, savings and loan association, national securities exchange or
registered securities association. A notary public seal will not be acceptable. If you hold stock certificates, return the certificates with the
letter. Proceeds from redemptions may be sent via check, ACH or wire to the bank account of record.
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Payment of Redemption Proceeds by Wire Transfer:
Payment for redeemed shares for which a
redemption order is received before 4:00 p.m. (Eastern time) on a business day is normally made in Federal funds wired to the redeeming shareholder on
the next business day, provided that the Fund’s custodian is also open for business. Payment for redemption orders received after 4:00 p.m.
(Eastern time) or on a day when the Fund’s custodian is closed is normally wired in Federal funds on the next business day following redemption on
which the Fund’s custodian is open for business. The Fund reserves the right to wire redemption proceeds within seven days after receiving a
redemption order if, in the judgment of the Fund, an earlier payment could adversely affect the Fund.
|
71
How to Sell Shares (continued)
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|
Your Choices
|
|
|
|
Important Information for
You to Know
|
|
Full
or Partial Redemption
of Shares (continued)
|
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|
|
Selling shares held directly with BlackRock (continued)
|
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|
If a shareholder has given authorization for expedited redemption, shares can be redeemed by Federal wire transfer to a single
previously designated bank account. No charge for wiring redemption payments with respect to Service Shares is imposed by the Fund, although financial
intermediaries may charge their customers for redemption services. Information relating to such redemption services and charges, if any, should be
obtained by customers from their financial intermediaries. You are responsible for any additional charges imposed by your bank for wire
transfers.
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The Fund is not responsible for the efficiency of the Federal wire system or the shareholder’s firm or bank. To change the name
of the single, designated bank account to receive wire redemption proceeds, it is necessary to send a written request to the Fund at the address on the
back cover of this prospectus.
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* * *
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If you make a redemption request before the Fund has collected payment for the purchase of shares,
the Fund may delay mailing your proceeds. This delay will usually not exceed ten days.
|
How to Transfer your Account
|
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Transfer Shares to
Another Financial
Intermediary
|
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Transfer to a participating financial intermediary
|
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|
You may transfer your shares of the Fund only to another financial intermediary that has entered into an agreement with the
Distributor. Certain shareholder services may not be available for the transferred shares. All future trading of these assets must be coordinated by
the receiving firm.
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If your account is held directly with BlackRock, you may call (800) 537-4942 with any questions;
otherwise please contact your financial intermediary to accomplish the transfer of shares.
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Transfer to a non-participating financial intermediary
|
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You must either:
• Transfer your shares to an account with the Fund; or
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• Sell your shares, paying any applicable deferred sales charge.
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|
If your account is held directly with BlackRock, you may call (800) 537-4942 with any questions;
otherwise please contact your financial intermediary to accomplish the transfer of shares.
|
Managed Volatility Portfolio may:
|
n
|
|
Suspend the right of redemption if trading is halted or restricted
on the Exchange or under other emergency conditions described in the Investment Company Act;
|
|
n
|
|
Postpone the date of payment upon redemption if trading is halted
or restricted on the Exchange or under other emergency conditions described in the Investment Company Act or if a redemption request is made before the
Fund has collected payment for the purchase of shares;
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n
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Redeem shares for property other than cash if conditions exist
which make cash payments undesirable in accordance with its rights under the Investment Company Act; and
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n
|
|
Redeem shares involuntarily in certain cases, such as when the
value of a shareholder account falls below a specified level.
|
Note on Low Balance Accounts.
Because of the high cost of
maintaining smaller shareholder accounts, BlackRock has set a minimum balance of $500 in each Fund position you hold within your account (“Fund
Minimum”), and may take one of two actions if the balance in your Fund falls below the Fund Minimum.
First, the Fund may redeem the shares in your account (without
charging any deferred sales charge) if the net asset value of your account falls below $250 for any reason, including market fluctuation. You will be
notified that the value of your account is less than $250 before the Fund makes an involuntary redemption. The notification will provide you with a 90
calendar day period to make an additional investment in order to bring the value of your account to at
72
least $250 before the Fund makes an involuntary redemption or
to the Fund Minimum in order not to be assessed an annual low balance fee of $20, as set forth below. This involuntary redemption may not apply to
accounts of authorized qualified employee benefit plans, selected fee-based programs, accounts established under the Uniform Gifts or Transfers to
Minors Acts, and certain intermediary accounts.
Second, the Fund charges an annual $20 low balance fee on all Fund
accounts that have a balance below the Fund Minimum for any reason, including market fluctuation. The low balance fee will be assessed on Fund accounts
in all mutual funds sponsored and advised by BlackRock and its affiliates, regardless of the Fund’s minimum investment amount. The fee will be
deducted from the Fund account only once per calendar year. You will be notified that the value of your account is less than the Fund Minimum before
the fee is imposed. You will then have a 90 calendar day period to make an additional investment to bring the value of your account to the Fund Minimum
before the Fund imposes the low balance fee. This low balance fee does not apply to accounts of authorized qualified employee benefit plans, selected
fee-based programs or accounts established under the Uniform Gifts or Transfers to Minors Acts.
Short-Term Trading
Policy
The Trust’s Board has determined that the interests of
long-term shareholders and Managed Volatility Portfolio’s ability to manage its investments may be adversely affected when shares are repeatedly
bought, sold or exchanged in response to short-term market fluctuations — also known as “market timing.” The Fund is not designed for
market timing organizations or other entities using programmed or frequent purchases and sales or exchanges. The exchange privilege is not intended as
a vehicle for short-term trading. Excessive purchase and sale or exchange activity may interfere with portfolio management, increase expenses and taxes
and may have an adverse effect on the performance of the Fund and its shareholders. For example, large flows of cash into and out of the Fund may
require the management team to allocate a significant amount of assets to cash or other short-term investments or sell securities, rather than
maintaining such assets in securities selected to achieve the Fund’s investment objective. Frequent trading may cause the Fund to sell securities
at less favorable prices, and transaction costs, such as brokerage commissions, can reduce the Fund’s performance.
The Fund’s investment in non-U.S. securities is subject to
the risk that an investor may seek to take advantage of a delay between the change in value of the Fund’s portfolio securities and the
determination of the Fund’s net asset value as a result of different closing times of U.S. and non-U.S. markets by buying or selling Fund shares
at a price that does not reflect their true value. A similar risk exists for funds that invest in securities of small capitalization companies,
securities of issuers located in emerging markets or high yield securities (“junk bonds”) that are thinly traded and therefore may have
actual values that differ from their market prices. This short-term arbitrage activity can reduce the return received by long-term shareholders. The
Fund will seek to eliminate these opportunities by using fair value pricing, as described in “Valuation of Fund Investments”
below.
The Fund discourages market timing and seeks to prevent frequent
purchases and sales or exchanges of Fund shares that it determines may be detrimental to the Fund or long-term shareholders. The Board has approved the
policies discussed below to seek to deter market timing activity. The Board has not adopted any specific numerical restrictions on purchases, sales and
exchanges of Fund shares because certain legitimate strategies will not result in harm to the Fund or shareholders.
If as a result of its own investigation, information provided by a
financial intermediary or other third party, or otherwise, the Fund believes, in its sole discretion, that your short-term trading is excessive or that
you are engaging in market timing activity, it reserves the right to reject any specific purchase or exchange order. If the Fund rejects your purchase
or exchange order, you will not be able to execute that transaction, and the Fund will not be responsible for any losses you therefore may suffer. For
transactions placed directly with the Fund, the Fund may consider the trading history of accounts under common ownership or control for the purpose of
enforcing these policies. Transactions placed through the same financial intermediary on an omnibus basis may be deemed part of a group for the purpose
of this policy and may be rejected in whole or in part by the Fund. Certain accounts, such as omnibus accounts and accounts at financial
intermediaries, however, include multiple investors and such accounts typically provide the Fund with net purchase or redemption and exchange requests
on any given day where purchases, redemptions and exchanges of shares are netted against one another and the identity of individual purchasers,
redeemers and exchangers whose orders are aggregated may not be known by the Fund. While the Fund monitors for market timing activity, the Fund may be
unable to identify such activities because the netting effect in omnibus accounts often makes it more difficult to locate and eliminate market timers
from the Fund. The Distributor has entered into agreements with respect to financial professionals and other financial intermediaries that maintain
omnibus accounts with the Fund pursuant to which such financial professionals and other financial intermediaries undertake to cooperate with the
Distributor in monitoring purchase, exchange and redemption orders by their customers in order to detect and prevent short-term or
73
excessive trading in the Fund’s shares through such
accounts. Identification of market timers may also be limited by operational systems and technical limitations. In the event that a financial
intermediary is determined by the Fund to be engaged in market timing or other improper trading activity, the Fund’s Distributor may terminate
such financial intermediary’s agreement with the Distributor, suspend such financial intermediary’s trading privileges or take other
appropriate actions.
There is no assurance that the methods described above will
prevent market timing or other trading that may be deemed abusive.
The Fund may from time to time use other methods that it believes
are appropriate to deter market timing or other trading activity that may be detrimental to the Fund or long-term shareholders.
74
Management of the Fund
BlackRock manages Managed Volatility Portfolio’s investments
and its business operations subject to the oversight of the Trust’s Board. While BlackRock is ultimately responsible for the management of the
Fund, it is able to draw upon the trading, research and expertise of its asset management affiliates for portfolio decisions and management with
respect to certain portfolio securities. BlackRock is an indirect, wholly-owned subsidiary of BlackRock, Inc.
BlackRock, a registered investment adviser, was organized in 1994
to perform advisory services for investment companies. BlackRock Financial Management, Inc. (“BFM”), a registered investment adviser and a
commodity pool operator organized in 1994, BlackRock International Limited (“BIL”), a registered investment adviser organized
in 1995, BlackRock (Hong Kong) Limited (“BHK”), a registered investment adviser organized in 1988, and BlackRock (Singapore) Limited
(“BRS,” and, together with BFM, BIL and BHK, the “Sub-Advisers”), a registered investment adviser organized in 2000, are affiliates
of BlackRock, and each acts as a sub-adviser for the Fund. BlackRock and its affiliates had approximately $3.792 trillion in
investment company and other portfolio assets under management as of December 31, 2012.
BlackRock serves as manager to the Fund pursuant to a management
agreement (the “Management Agreement”). Pursuant to the Management Agreement, BlackRock is entitled to fees computed daily and payable
monthly.
The maximum annual management fees that can be paid to BlackRock
(as a percentage of average daily net assets) are calculated as follows:
Average Daily Net
Assets
|
|
|
|
Management
Fee Rate
|
|
First $1 billion
|
|
|
|
0.550%
|
|
$1 billion – $2 billion
|
|
|
|
0.500%
|
|
$2 billion – $3 billion
|
|
|
|
0.475%
|
|
Greater than $3 billion
|
|
|
|
0.450%
|
BlackRock has contractually agreed to waive 0.05% of its
management fee until June 1, 2013. In addition, BlackRock has contractually agreed to waive the management fee on assets estimated to be attributed
to the Fund’s investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates.
BlackRock has agreed to cap net expenses (excluding (i)
interest, taxes, dividends tied to short sales, brokerage commissions, and other expenditures which are capitalized in accordance with generally
accepted accounting principles; (ii) expenses incurred directly or indirectly by the Fund as a result of investments in other investment companies and
pooled investment vehicles; (iii) other expenses attributable to, and incurred as a result of, the Fund’s investments; and (iv) other
extraordinary expenses (including litigation expenses) not incurred in the ordinary course of the Fund’s business, if any) of each share class of
the Fund at the level shown below and in the Fund’s fees and expenses table in the “Fund Overview” section of this prospectus. Items
(i), (ii), (iii) and (iv) in the preceding sentence are referred to in this prospectus as “Dividend Expense, Interest Expense, Acquired Fund Fees
and Expenses and certain other Fund expenses.” To achieve these expense caps, BlackRock has agreed to waive and/or reimburse fees or expenses if
the Fund’s operating expenses exceed a certain limit.
|
Contractual Caps
1
on Total
Annual Fund Operating Expenses
2
(excluding Dividend Expense,
Interest Expense, Acquired Fund
Fees and
Expenses and certain
other Fund expenses)
|
|
Service Shares
|
1.17%
|
|
1
|
|
As a percentage of average daily net
assets
|
|
2
|
|
The contractual cap is in effect until
February 1, 2014. The contractual agreement may be terminated upon 90 days’ notice by a majority of the non-interested
Trustees of the Trust or by a vote of a majority of the outstanding voting securities of the Fund.
|
75
With respect to this contractual agreement, if during the
Fund’s fiscal year the operating expenses of a share class, that at any time during the prior two fiscal years received a waiver or reimbursement
from BlackRock, are less than the expense limit for that share class, the share class is required to repay BlackRock up to the lesser of (a) the amount
of fees waived or expenses reimbursed during those prior two fiscal years under the agreement and (b) the amount by which the expense limit for that
share class exceeds the operating expenses of the share class for the current fiscal year, provided that (i) the Fund has more than $50 million in
assets and (ii) BlackRock or an affiliate serves as the Fund’s manager or administrator.
BlackRock has voluntarily agreed to waive its management fees by the amount of management fees the Fund
pays to BlackRock indirectly through its investment in affiliated money market
funds.
For the fiscal year ended September 30, 2012,
BlackRock received management fees, net of any applicable waiver, at the annual rate of 0.52% of the Fund’s average daily net
assets.
BlackRock has entered into sub-advisory agreements with the
Sub-Advisers, under which BlackRock pays each Sub-Adviser for services it provides a fee equal to a percentage of the management fee paid to BlackRock
under the Management Agreement. The Sub-Advisers are responsible for the day-to-day management of the Fund’s
portfolio.
A discussion regarding the basis for the Board’s approval
in 2012 of the Management Agreement with BlackRock is available in the Fund’s report covering the annual period ended September 30, 2012; a
discussion regarding the basis for the Board’s approval of the sub-advisory agreements between BlackRock and the Sub-Advisers in 2012 will
be available in the Fund’s report for the semi-annual period ending March 31, 2013.
From time to time, a manager, analyst, or other employee of
BlackRock or its affiliates may express views regarding a particular asset class, company, security, industry, or market sector. The views expressed by
any such person are the views of only that individual as of the time expressed and do not necessarily represent the views of BlackRock or any other
person within the BlackRock organization. Any such views are subject to change at any time based upon market or other conditions and BlackRock
disclaims any responsibility to update such views. These views may not be relied on as investment advice and, because investment decisions for the Fund
are based on numerous factors, may not be relied on as an indication of trading intent on behalf of the Fund.
Portfolio Manager Information
Information regarding the portfolio manager of Managed Volatility
Portfolio is set forth below. Further information regarding the portfolio manager, including other accounts managed, compensation, ownership of Fund
shares, and possible conflicts of interest, is available in the Fund’s SAI.
Portfolio Manager
|
|
|
|
Primary Role
|
|
Since
|
|
Title and Recent Biography
|
|
Philip Green
|
|
|
|
Primarily responsible for the day-to-day management of the Fund’s portfolio, including setting the
Fund’s overall investment strategy and overseeing the management of the Fund.
|
|
2006
|
|
Managing Director of BlackRock, Inc. since 2006; Managing Director of Merrill Lynch Investment Managers,
L.P. from 1999 to 2006.
|
The investment activities of BlackRock and its affiliates
(including BlackRock, Inc. and PNC and their affiliates, directors, partners, trustees, managing members, officers and employees (collectively, the
“Affiliates”)) in the management of, or their interest in, their own accounts and other accounts they manage, may present conflicts of
interest that could disadvantage the Fund and its shareholders. BlackRock and its Affiliates provide investment management services to other funds and
discretionary managed accounts that follow an investment program similar to that of the Fund. BlackRock and its Affiliates are involved worldwide with
a broad spectrum of financial services and asset management activities and may engage in the ordinary course of business in activities in which their
interests or the interests of their clients may conflict with those of the Fund. One or more Affiliates act or may act as an investor, investment
banker, research provider, investment manager, financier, advisor, market maker, trader, prime broker, lender, agent and principal, and have other
direct and indirect interests, in securities, currencies and other instruments in which the Fund directly and indirectly invests. Thus, it is likely
that the Fund will have multiple business relationships with and will invest in, engage in transactions with, make voting decisions with respect to, or
obtain services from entities for which an Affiliate performs or seeks to perform investment banking or other services. One or more Affiliates may
engage in proprietary trading and advise accounts and funds that have investment objectives
76
similar to those of the Fund and/or that engage in and compete
for transactions in the same types of securities, currencies and other instruments as the Fund. The trading activities of these Affiliates are carried
out without reference to positions held directly or indirectly by the Fund and may result in an Affiliate having positions that are adverse to those of
the Fund. No Affiliate is under any obligation to share any investment opportunity, idea or strategy with the Fund. As a result, an Affiliate may
compete with the Fund for appropriate investment opportunities. The results of the Fund’s investment activities, therefore, may differ from those
of an Affiliate and of other accounts managed by an Affiliate, and it is possible that the Fund could sustain losses during periods in which one or
more Affiliates and other accounts achieve profits on their trading for proprietary or other accounts. The opposite result is also possible. In
addition, the Fund may, from time to time, enter into transactions in which an Affiliate or its other clients have an adverse interest. Furthermore,
transactions undertaken by Affiliate-advised clients may adversely impact the Fund. Transactions by one or more Affiliate-advised clients or BlackRock
may have the effect of diluting or otherwise disadvantaging the values, prices or investment strategies of the Fund. The Fund’s activities may be
limited because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies designed to comply with such
restrictions. In addition, the Fund may invest in securities of companies with which an Affiliate has or is trying to develop investment banking
relationships or in which an Affiliate has significant debt or equity investments. The Fund also may invest in securities of companies for which an
Affiliate provides or may some day provide research coverage. An Affiliate may have business relationships with and purchase or distribute or sell
services or products from or to distributors, consultants or others who recommend the Fund or who engage in transactions with or for the Fund, and may
receive compensation for such services. The Fund may also make brokerage and other payments to Affiliates in connection with the Fund’s portfolio
investment transactions.
Under a securities lending program approved by the Board, the
Trust, on behalf of the Fund, has retained an Affiliate of BlackRock to serve as the securities lending agent for the Fund to the extent that the Fund
participates in the securities lending program. For these services, the lending agent may receive a fee from the Fund, including a fee based on the
returns earned on the Fund’s investment of the cash received as collateral for the loaned securities. In addition, one or more Affiliates may be
among the entities to which the Fund may lend its portfolio securities under the securities lending program.
The activities of Affiliates may give rise to other conflicts of
interest that could disadvantage the Fund and its shareholders. BlackRock has adopted policies and procedures designed to address these potential
conflicts of interest. See the SAI for further information.
Valuation of Fund Investments
When you buy shares, you pay the net asset value, plus any
applicable sales charge. This is the offering price. Shares are also redeemed at their net asset value, minus any applicable deferred sales charge.
Managed Volatility Portfolio calculates the net asset value of each class of its shares (generally by using market quotations) each day the Exchange is
open as of the close of business on the Exchange, based on prices at the time of closing. The Exchange generally closes at 4:00 p.m. Eastern time. The
net asset value used in determining your share price is the next one calculated after your purchase or redemption order is placed.
The Fund’s assets and liabilities are valued primarily on the
basis of market quotations. Equity investments and other instruments for which market quotations are readily available are valued at market value,
which is generally determined using the last reported sale price on the exchange or market on which the security or instrument is primarily
traded at the time of valuation. The Fund values fixed-income portfolio securities and non-exchange traded derivatives using market prices provided
directly from one or more broker-dealers, market makers, or independent third-party pricing services which may use matrix pricing and valuation models
to derive values, each in accordance with valuation procedures approved by the Board. Short-term debt securities with remaining maturities of 60 days
or less may be valued on the basis of amortized cost.
Foreign currency exchange rates are generally determined as of the
close of business on the Exchange. Foreign securities owned by the Fund may trade on weekends or other days when the Fund does not price its shares. As
a result, the Fund’s net asset value may change on days when you will not be able to purchase or redeem the Fund’s shares. Generally, trading
in foreign securities, U.S. government securities and money market instruments and certain fixed-income securities is substantially completed each day
at various times prior to the close of business on the Exchange. The values of such securities used in computing the net asset value of the Fund’s
shares are determined as of such times.
When market quotations are not readily available or are not
believed by BlackRock to be reliable, the Fund’s investments are valued at fair value. Fair value determinations are made by BlackRock in
accordance with procedures approved by the Board. BlackRock may conclude that a market quotation is not readily available or is unreliable if
a
77
security or other asset or liability does not have a price
source due to its lack of liquidity, if BlackRock believes a market quotation from a broker-dealer or other source is unreliable, where the security or
other asset or other liability is thinly traded (
e.g.
, municipal securities, certain small cap and emerging growth companies and certain
non-U.S. securities) or where there is a significant event subsequent to the most recent market quotation. For this purpose, a “significant
event” is deemed to occur if BlackRock determines, in its business judgment prior to or at the time of pricing the Fund’s assets or
liabilities, that it is likely that the event will cause a material change to the last closing market price of one or more assets or liabilities held
by the Fund. For instance, significant events may occur between the foreign market close and the close of business on the Exchange that may not be
reflected in the computation of the Fund’s net assets. If such event occurs, those instruments may be fair valued. Similarly, foreign securities
whose values are affected by volatility that occurs in U.S. markets on a trading day after the close of foreign securities markets may be fair
valued.
For certain foreign securities, a third-party vendor supplies
evaluated, systematic fair value pricing based upon the movement of a proprietary multi-factor model after the relevant foreign markets have closed.
This systematic fair value pricing methodology is designed to correlate the prices of foreign securities following the close of the local markets to
the price that might have prevailed as of the Fund’s pricing time.
Fair value represents a good faith approximation of the value of a
security. The fair value of one or more securities may not, in retrospect, be the price at which those assets could have been sold during the period in
which the particular fair values were used in determining the Fund’s net asset value.
The Fund may accept orders from certain authorized financial
intermediaries or their designees. The Fund will be deemed to receive an order when accepted by the intermediary or designee and the order will receive
the net asset value next computed by the Fund after such acceptance. If the payment for a purchase order is not made by a designated later time, the
order will be canceled and the financial intermediary could be held liable for any losses.
Dividends, Distributions and Taxes
|
BUYING A DIVIDEND
|
|
Unless your investment is in a tax deferred account, you may want to avoid buying shares shortly before Managed Volatility Portfolio pays a
dividend. The reason? If you buy shares when the Fund has declared but not yet distributed ordinary income or capital gains, you will pay the full
price for the shares and then receive a portion of the price back in the form of a taxable dividend. Before investing you may want to consult your tax
adviser.
|
The Fund will distribute net investment income, if any, and
net realized capital gain, if any, at least annually. The Fund may also pay a special distribution at the end of the calendar year to comply with
Federal tax requirements. Dividends may be reinvested automatically in shares of the Fund at net asset value without a sales charge or may be taken in
cash. If you would like to receive dividends in cash, contact your financial professional, financial intermediary or the Fund. Although this cannot be
predicted with any certainty, the Fund anticipates that the majority of its dividends, if any, will consist of capital gains. Capital gains may be
taxable to you at different rates depending on how long the Fund held the assets sold.
You will pay tax on dividends from the Fund whether you receive
them in cash or additional shares. If you redeem Fund shares or exchange them for shares of another fund, you generally will be treated as having sold
your shares and any gain on the transaction may be subject to tax. In addition, the Fund is generally required by law to provide you and the Internal
Revenue Service with cost basis information on the redemption or exchange of any of your shares in the Fund acquired on or after January
1, 2012 (including any shares that you acquire through reinvestment of distributions). Certain dividend income received by the Fund, including
dividends received from qualifying foreign corporations, and long-term capital gains are eligible for taxation at a reduced rate that applies to
non-corporate shareholders. To the extent the Fund makes any distributions derived from long-term capital gains and qualifying dividend income, such
distributions will be eligible for taxation at the reduced rate.
If you are neither a tax resident nor a citizen of the United
States or if you are a foreign entity, the Fund’s ordinary income dividends (which include distributions of net short-term capital gain) will
generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies. However, for taxable years
beginning before January 1, 2014, certain distributions reported by the Fund as either interest related dividends or short
term capital gain dividends and paid to a foreign shareholder were eligible for an exemption from U.S. withholding tax.
78
A 3.8% Medicare contribution tax will be imposed on the net
investment income (which includes interest, dividends and capital gains) of U.S. individuals with income exceeding $200,000, or $250,000 if married and
filing jointly, and of trusts and estates, for taxable years beginning after December 31, 2012.
A 30% withholding tax on dividends paid after December 31, 2013
and redemption proceeds paid after December 31, 2016 will be imposed on (i) certain foreign financial institutions and investment funds,
unless they agree to collect and disclose to the Internal Revenue Service information regarding their direct and indirect U.S. account holders and (ii)
certain other foreign entities unless they certify certain information regarding their direct and indirect U.S. owners. Under some circumstances, a
foreign shareholder may be eligible for refunds or credits of such taxes.
Dividends and interest received by the Fund may give rise to
withholding and other taxes imposed by foreign countries. Tax conventions between certain countries and the United States may reduce or eliminate such
taxes. You may be able to claim a credit or take a deduction for foreign taxes paid by the Fund if certain requirements are met.
By law, your dividends and redemption proceeds will be subject to
a withholding tax if you have not provided a taxpayer identification number or social security number or the number you have provided is
incorrect.
This section summarizes some of the consequences under current
Federal tax law of an investment in the Fund. It is not a substitute for personal tax advice. Consult your personal tax adviser about the potential tax
consequences of an investment in the Fund under all applicable tax laws.
79
The Financial Highlights table is intended to help you understand
Managed Volatility Portfolio’s financial performance for the periods shown. Certain information reflects the financial results for a single Fund
share. The total returns in the table represent the rate that an investor would have earned or lost on an investment in the Fund (assuming reinvestment
of all dividends and/or distributions). The information has been audited by Deloitte & Touche LLP, whose audited report, along with the Fund’s
financial statements, is included in the Fund’s Annual Report, which is available upon request.
|
|
|
|
|
Service
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
|
Per Share Operating Performance
|
|
Net asset value, beginning of year
|
|
|
|
$
|
13.99
|
|
|
$
|
14.27
|
|
|
$
|
13.24
|
|
|
$
|
12.93
|
|
|
$
|
17.03
|
|
|
Net investment income
1
|
|
|
|
|
0.19
|
|
|
|
0.25
|
|
|
|
0.25
|
|
|
|
0.24
|
|
|
|
0.30
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.67
|
|
|
|
(0.26
|
)
|
|
|
1.03
|
|
|
|
0.44
|
|
|
|
(2.76
|
)
|
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.86
|
|
|
|
(0.01
|
)
|
|
|
1.28
|
|
|
|
0.68
|
|
|
|
(2.46
|
)
|
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.23
|
)
|
|
|
(0.27
|
)
|
|
|
(0.25
|
)
|
|
|
(0.18
|
)
|
|
|
(0.34
|
)
|
|
Net realized gain
|
|
|
|
|
(0.31
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(0.19
|
)
|
|
|
(1.30
|
)
|
|
Total dividends and distributions
|
|
|
|
|
(0.54
|
)
|
|
|
(0.27
|
)
|
|
|
(0.25
|
)
|
|
|
(0.37
|
)
|
|
|
(1.64
|
)
|
|
Net asset value, end of year
|
|
|
|
$
|
15.31
|
|
|
$
|
13.99
|
|
|
$
|
14.27
|
|
|
$
|
13.24
|
|
|
$
|
12.93
|
|
|
Total Investment Return
2
|
|
Based on net asset value
|
|
|
|
|
13.53
|
%
|
|
|
(0.21
|
)%
|
|
|
9.74
|
%
|
|
|
5.83
|
%
3
|
|
|
(16.00
|
)%
|
|
Ratios to Average Net Assets
|
|
Total expenses
|
|
|
|
|
1.27
|
%
4
|
|
|
1.24
|
%
|
|
|
1.27
|
%
|
|
|
1.18
|
%
|
|
|
1.11
|
%
|
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.27
|
%
4
|
|
|
1.24
|
%
|
|
|
1.27
|
%
|
|
|
1.15
|
%
|
|
|
1.11
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
1.18
|
%
4
|
|
|
1.18
|
%
|
|
|
1.19
|
%
|
|
|
1.14
|
%
|
|
|
1.11
|
%
|
|
Total expenses after fees waived, reimbursed and paid indirectly and excluding interest
expense
|
|
|
|
|
1.17
|
%
4
|
|
|
1.17
|
%
|
|
|
1.17
|
%
|
|
|
1.14
|
%
|
|
|
1.07
|
%
|
|
Net investment income
|
|
|
|
|
1.30
|
%
4
|
|
|
1.63
|
%
|
|
|
1.80
|
%
|
|
|
2.17
|
%
|
|
|
1.96
|
%
|
|
Supplemental Data
|
|
Net assets, end of year (000)
|
|
|
|
$
|
1,915
|
|
|
$
|
1,676
|
|
|
$
|
1,652
|
|
|
$
|
1,472
|
|
|
$
|
1,552
|
|
|
Portfolio turnover
|
|
|
|
|
324
|
%
5
|
|
|
401
|
%
6
|
|
|
400
|
%
7
|
|
|
354
|
%
8
|
|
|
391
|
%
9
|
|
1
|
|
Based on average shares
outstanding.
|
|
2
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
|
3
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Fund’s total return. Excluding these proceeds, the Fund’s total return would
have been 5.60%.
|
|
4
|
|
Ratios do not include expenses incurred
indirectly as a result of investments in underlying funds of approximately 0.05%.
|
|
5
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 254%.
|
|
6
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 236%.
|
|
7
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 302%.
|
|
8
|
|
Includes mortgage dollar roll transactions;
excluding these transactions the portfolio turnover would have been 227%.
|
|
9
|
|
Includes TBA transactions; excluding these
transactions the portfolio turnover would have been 121%.
|
80
General Information
Electronic Access to Annual Reports, Semi-Annual Reports and
Prospectuses
Electronic copies of most financial reports and prospectuses are
available on BlackRock’s website. Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and
prospectuses by enrolling in Managed Volatility Portfolio’s electronic delivery program. To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks
or Brokerages:
Please contact your financial professional. Please note that not all investment advisers, banks or brokerages may offer this
service.
Shareholders Who Hold Accounts Directly With
BlackRock:
|
n
|
|
Access the BlackRock website at
http://www.blackrock.com/edelivery; and
|
Delivery of Shareholder Documents
The Fund delivers only one copy of shareholder documents,
including prospectuses, shareholder reports and proxy statements, to shareholders with multiple accounts at the same address. This practice is known as
“householding” and is intended to eliminate duplicate mailings and reduce expenses. 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 contact the Fund at (800) 537-4942.
Anti-Money Laundering Requirements
Managed Volatility Portfolio is subject to the USA PATRIOT Act
(the “Patriot Act”). The Patriot Act is intended to prevent the use of the U.S. financial system in furtherance of money laundering,
terrorism or other illicit activities. Pursuant to requirements under the Patriot Act, the Fund may request information from shareholders to enable it
to form a reasonable belief that it knows the true identity of its shareholders. This information will be used to verify the identity of investors or,
in some cases, the status of financial professionals; it will be used only for compliance with the requirements of the Patriot Act.
The Fund reserves the right to reject purchase orders from persons
who have not submitted information sufficient to allow the Fund to verify their identity. The Fund also reserves the right to redeem any amounts in the
Fund from persons whose identity it is unable to verify on a timely basis. It is the Fund’s policy to cooperate fully with appropriate regulators
in any investigations conducted with respect to potential money laundering, terrorism or other illicit activities.
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 nonpublic 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 nonpublic 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 website.
81
BlackRock does not sell or disclose to nonaffiliated third parties
any nonpublic 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 nonaffiliated 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 nonpublic 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 nonpublic personal information of its Clients, including
procedures relating to the proper storage and disposal of such information.
Statement of Additional
Information
If you would like further information about Managed Volatility
Portfolio, including how it invests, please see the SAI.
For a discussion of the Fund’s policies and procedures
regarding the selective disclosure of its portfolio holdings, please see the SAI. The Fund makes its top ten holdings available on a monthly basis at
www.blackrock.com generally within 5 business days after the end of the month to which the information applies.
82
This glossary contains an explanation of some of the common terms
used in this prospectus. For additional information about Managed Volatility Portfolio, please see the SAI.
Acquired Fund Fees and Expenses
— fees and
expenses charged by other investment companies in which the Fund invests a portion of its assets.
Annual Fund Operating Expenses
— expenses that
cover the costs of operating the Fund.
Barclays U.S. Aggregate Bond Index
— an
unmanaged market-weighted index comprised of investment grade corporate bonds (rated BBB or better), mortgages and U.S. Treasury and government agency
issues with at least one year to maturity.
Citigroup World Government Bond Index
— a
market capitalization weighted bond index consisting of government bond markets of 23 countries including the United States.
Distribution Fees
— fees used to support the
Fund’s marketing and distribution efforts, such as compensating financial professionals and other financial intermediaries, advertising and
promotion.
Interest Expense
— the cost of borrowing money
to buy additional securities.
Management Fees
— fees paid to BlackRock for
portfolio management services.
MSCI All Country World Index
— a free
float-adjusted market capitalization weighted index designed to measure the equity market performance of developed and emerging
markets.
Other Expenses
— include accounting, transfer
agency, custody, professional and registration fees.
Service Fees
— fees used to compensate
securities dealers and other financial intermediaries for certain shareholder servicing activities.
Shareholder Fees
— fees paid directly by a
shareholder, including sales charges that you may pay when you buy or sell shares of the Fund.
83
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For More Information
Fund and Service
Providers
THE
FUND
BlackRock Funds
SM
BlackRock Managed Volatility Portfolio
100 Bellevue Parkway
Wilmington, Delaware 19809
Written Correspondence:
P.O. Box 9819
Providence, Rhode Island 02940-8019
Overnight Mail:
4400
Computer Drive
Westborough, Massachusetts 01588
(800) 537-4942
MANAGER AND
CO-ADMINISTRATOR
BlackRock Advisors, LLC
100 Bellevue
Parkway
Wilmington, Delaware 19809
SUB-ADVISERS
BlackRock Financial Management, Inc.
55 East 52nd Street
New York, New York 10055
BlackRock International Limited
40 Torphichen Street
Edinburgh, Scotland EH3 8JB
BlackRock (Hong Kong) Limited
16/F Cheung Kong Center
2 Queen’s Road Central
Hong Kong, China
BlackRock (Singapore) Limited
20
Anson Road #18-01
Twenty Anson Singapore
079912 Singapore
CO-ADMINISTRATOR
BNY Mellon Investment Servicing (US)
Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
TRANSFER AGENT
BNY Mellon Investment Servicing (US)
Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
INDEPENDENT REGISTERED PUBLIC
ACCOUNTING FIRM
Deloitte & Touche LLP
1700
Market Street
Philadelphia, Pennsylvania 19103
ACCOUNTING SERVICES
PROVIDER
BNY Mellon Investment Servicing (US)
Inc.
301 Bellevue Parkway
Wilmington, Delaware 19809
DISTRIBUTOR
BlackRock Investments, LLC
40 East
52nd Street
New York, New York 10022
CUSTODIAN
The Bank of New York Mellon
One Wall
Street
New York, New York 10286
COUNSEL
Sidley Austin LLP
787 Seventh
Avenue
New York, New York 10019-6018
This prospectus contains important
information you should know before investing, including information about risks. Read it carefully and keep it for future reference. More information
about the Fund is available at no charge upon request. This information includes:
Annual/Semi-Annual Reports
These reports contain additional
information about the Fund’s investments. The annual report describes the Fund’s performance, lists portfolio holdings, and discusses recent
market conditions, economic trends and Fund investment strategies that significantly affected the Fund’s performance for the last fiscal
year.
Statement of Additional Information
A Statement of Additional
Information (“SAI”), dated January 28, 2013, has been filed with the Securities and Exchange
Commission (“SEC”). The SAI, which includes additional information about the Fund, may be obtained free of charge, along with the Fund’s
annual and semi-annual reports, by calling (800) 537-4942. The SAI, as supplemented from time to time, is incorporated by reference into this
prospectus.
BlackRock Investor Services
Representatives are available to
discuss account balance information, mutual fund prospectuses, literature, programs and services available. Hours: 8:00 a.m. to 6:00 p.m. (Eastern
time), on any business day. Call: (800) 537-4942.
Purchases and Redemptions
Call your financial professional or
BlackRock Investor Services at (800) 537-4942.
World Wide Web
General fund information and
specific fund performance, including the SAI and annual/semi-annual reports, can be accessed free of charge at www.blackrock.com/prospectus. Mutual
fund prospectuses and literature can also be requested via this website.
Written Correspondence
BlackRock Funds
SM
P.O. Box 9819
Providence, RI 02940-8019
Overnight Mail
BlackRock Funds
SM
4400 Computer Drive
Westborough, MA 01588
Internal Wholesalers/Broker Dealer Support
Available to support investment
professionals 8:30 a.m. to 6:00 p.m. (Eastern time), on any business day. Call: (800) 882-0052.
Portfolio Characteristics and Holdings
A description of the Fund’s
policies and procedures related to disclosure of portfolio characteristics and holdings is available in the SAI.
For information about portfolio
holdings and characteristics, BlackRock fund shareholders and prospective investors may call (800) 882-0052.
Securities and Exchange Commission
You may also view and copy public
information about the Fund, including the SAI, by visiting the EDGAR database on the SEC’s website (http://www.sec.gov) or the SEC’s
Public Reference Room in Washington, D.C. Copies of this information can be obtained, for a duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov, or by writing to the Public Reference Room of the SEC, Washington, D.C. 20549. Information about obtaining
documents on the SEC’s website without charge can be obtained by calling the SEC directly at (800) SEC-0330.
You should rely only on the
information contained in this prospectus. No one is authorized to provide you with information that is different from information contained in this
prospectus.
The Securities and Exchange
Commission has not approved or disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a
criminal offense.
BLACKROCK FUNDS
SM
:
INVESTMENT COMPANY ACT FILE NO. 811-05742
© BlackRock Advisors, LLC