Definitive Materials Filed by Investment Companies. (497)
JANUARY 28, 2013
PROSPECTUS
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BlackRock
Funds
SM
| Investor, Institutional and Class R Shares
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BlackRock Global Opportunities Portfolio
Investor
A: BROAX Investor B: BROBX Investor C: BROCX Institutional: BROIX Class R: BGORX
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BlackRock International Opportunities
Portfolio
Investor A: BREAX Investor B: BREBX
Investor C: BRECX Institutional: BISIX
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BlackRock U.S. Opportunities Portfolio
Investor
A: BMEAX Investor B: BRMBX Investor C: BMECX Institutional: BMCIX
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BlackRock Health Sciences Opportunities
Portfolio
Investor A: SHSAX Investor B: SHSPX
Investor C: SHSCX Institutional: SHSSX Class R: BHSRX
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BlackRock Science & Technology Opportunities
Portfolio
Investor A: BGSAX Investor B: BGSBX
Investor C: BGSCX Institutional: BGSIX Class R: BGSRX
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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.
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 Funds, including investment objective, principal strategies,
risk factors, fee and expense
information, and historical
performance information
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3
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8
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13
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18
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23
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28
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Details About the Funds
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30
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36
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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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44
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47
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51
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52
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58
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59
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59
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60
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Management of the Funds
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Information about BlackRock and the Portfolio Managers
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62
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65
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67
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68
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69
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Financial Highlights
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71
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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
Key
Facts About BlackRock Global Opportunities Portfolio
Investment
Objective
The investment
objective of BlackRock Global Opportunities Portfolio (Global
Opportunities or the Fund), a series of BlackRock
Funds
SM
(the Trust), is to provide long-term
capital appreciation.
Fees
and Expenses of the Fund
This table
describes the fees and expenses that you may pay if you buy
and hold shares of Global Opportunities. 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 47 of the Funds
prospectus and in the Purchase of Shares section
on page II-58 of the Funds 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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Class
R
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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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
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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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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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Class
R
Shares
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Management
Fees
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0.90
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%
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0.90
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%
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0.90
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%
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0.90
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%
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0.90
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%
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Distribution
(12b-1)
and/or
Service
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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0.50
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%
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Other
Expenses
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0.37
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%
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0.31
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%
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0.42
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%
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0.35
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%
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0.40
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%
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Total
Annual
Fund
Operating
Expenses
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1.52
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%
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2.21
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%
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2.32
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%
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1.25
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%
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1.80
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Fee
Waivers
and/or
Expense
Reimbursements
4
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(0.19
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)%
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(0.03
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)%
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(0.18
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)%
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(0.19
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)%
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(0.08
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)%
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Total
Annual
Fund
Operating
Expenses
After
Fee
Waivers
and/or
Expense
Reimbursements
4
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1.33
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%
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2.18
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2.14
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1.06
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1.72
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1
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A contingent deferred sales charge (CDSC)
of 1.00% 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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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 Funds 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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As described in the Management of
the Funds section of the Funds prospectus on pages 6270, 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 1.33% (for Investor A Shares), 2.18% (for Investor B Shares), 2.14% (for Investor C Shares),
1.06% (for Institutional Shares) and 1.72% (for Class R Shares) until February 1, 2015. 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 $10,000 in the Fund for the
time periods indicated and then redeem all of your shares at
the end of those periods. The Example also assumes that your
investment has a 5% return each year and that the Funds
operating expenses remain the same. Although your actual costs
may be higher or lower, based on these assumptions your costs
would be:
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1 Year
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3 Years
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5 Years
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10 Years
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Investor A Shares
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$
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653
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$
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944
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$
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1,275
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$
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2,211
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Investor B Shares
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$
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671
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$
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1,035
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$
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1,379
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$
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2,365
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Investor C Shares
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$
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317
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$
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689
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$
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1,207
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$
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2,627
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Institutional Shares
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$
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108
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$
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358
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$
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649
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$
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1,477
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Class R Shares
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$
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175
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$
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550
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$
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960
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$
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2,102
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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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221
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$
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685
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$
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1,179
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$
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2,365
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Investor C Shares
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$
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217
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$
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689
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$
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1,207
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$
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2,627
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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 Funds
performance. During the most recent fiscal year, the Funds
portfolio turnover rate was 122% of the average value of its
portfolio.
Principal
Investment Strategies of the Fund
Under normal
conditions, Global Opportunities 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 initial
public offerings (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 Funds 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).
4
Principal
Risks of Investing in the Fund
Risk is inherent
in all investing. The value of your investment in Global Opportunities,
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 following is a summary description of principal risks of
investing in the Fund.
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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 issuers credit rating or the markets perception of the issuers 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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Debt Securities Risk
Debt securities, such as bonds, involve credit risk. Credit risk is the risk that the borrower will not make timely payments
of principal and interest. Changes in an issuers credit rating or the markets perception of an issuers
creditworthiness may also affect the value of the Funds investment in that issuer. The degree of credit risk depends
on the issuers financial condition and on the terms of the securities. Debt securities are also subject to interest
rate risk. Interest rate risk is the risk that the value of a debt security may fall when 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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Derivatives Risk
The Funds use of derivatives may reduce the Funds 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 Funds 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 to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives
more difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the 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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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 companys financial condition
and overall market and economic conditions.
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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 will lose money. These risks include:
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The Fund generally holds its 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 Funds 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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5
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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 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
Funds investments.
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Investment Style Risk
Under certain market conditions, growth investments have performed better during the later stages of economic expansion.
Therefore, this investment style may over time go in and out of favor. At times when the investment style used by the Fund
is out of favor, the Fund may underperform other equity funds that use different investment styles.
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n
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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 to greater risk and increase its costs. The use of leverage may cause the 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 Funds portfolio will be magnified when the Fund uses leverage.
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Market Risk and Selection Risk
Market risk is the risk that one or more markets in which the 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
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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n
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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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New Issues Risk
New Issues are initial public offerings of equity securities of U.S. and non-U.S. issuers. 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.
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n
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Small Cap Securities Risk
Small cap 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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Performance
Information
The information
shows you how Global Opportunities performance has varied
year by year and provides some indication of the risks of investing
in the Fund. The table compares the average annual total returns
of each class of the Funds shares with that of the MSCI
All Country World Index. Class R Shares commenced operations
on September 12, 2011, therefore the returns in the table for
Class R Shares prior to commencement date are based on the
Funds Institutional Shares, adjusted to reflect the fees
and expenses applicable to Class R Shares. 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 Funds returns would have been lower. Updated information
on the Funds 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
BlackRock
Global Opportunities Portfolio
As of 12/31
During the
periods shown in the bar chart, the highest return for a quarter
was 24.03% (quarter ended June 30, 2009) and the lowest return
for a quarter was 21.57% (quarter ended December 31,
2008).
6
As
of 12/31/12
Average Annual Total Returns
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1
Year
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5
Years
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Since
Inception
(January 31, 2006)
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BlackRock
Global Opportunities Portfolio Investor
A
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Return
Before Taxes
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8.54
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%
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(2.85
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)%
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2.22
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%
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Return
After Taxes on Distributions
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8.38
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%
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(2.91
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)%
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1.95
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%
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Return
After
Taxes
on Distributions
and Sale
of Shares
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5.77
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%
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(2.39
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)%
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1.82
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%
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BlackRock
Global Opportunities Portfolio Investor
B
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Return
Before
Taxes
|
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9.11
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%
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(2.93
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)%
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2.25
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%
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BlackRock
Global Opportunities Portfolio Investor
C
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Return
Before
Taxes
|
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12.68
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%
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(2.57
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)%
|
|
|
2.24
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%
|
BlackRock
Global Opportunities Portfolio Institutional
|
|
|
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Return
Before
Taxes
|
|
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14.87
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%
|
|
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(1.50
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)%
|
|
|
3.31
|
%
|
BlackRock
Global Opportunities Portfolio Class
R
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Return
Before
Taxes
|
|
|
14.06
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%
|
|
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(2.15
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)%
|
|
|
2.63
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%
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MSCI
All Country
World
Index
(Reflects
no deduction
for fees,
expenses
or taxes)
|
|
|
16.13
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%
|
|
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(1.16
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)%
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|
2.85
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%
|
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
investors 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, Institutional and Class
R Shares will vary.
Investment
Manager
Global Opportunities
investment manager is BlackRock Advisors, LLC (previously defined
as BlackRock). The Funds sub-adviser is BlackRock
Financial Management, Inc. (the Sub-Adviser). Where
applicable, BlackRock refers also to the Sub-Adviser.
Portfolio
Managers
Name
|
|
|
|
Portfolio
Manager
of the Fund Since
|
|
Title
|
Thomas
Callan,
CFA
|
|
|
|
2006
|
|
Managing
Director
of
BlackRock,
Inc.
|
Ian
Jamieson,
CFA
|
|
|
|
2011
|
|
Managing
Director
of
BlackRock,
Inc.
|
Nigel
Hart,
CFA
|
|
|
|
2012
|
|
Managing
Director
of
BlackRock,
Inc.
|
* * *
For important
information about purchase and sales of Fund shares, tax information,
and financial intermediary compensation, please turn to Important
Additional Information on page 28 of the prospectus.
7
Fund Overview
Key
Facts About BlackRock International Opportunities Portfolio
Investment
Objective
The investment
objective of BlackRock International Opportunities Portfolio
(International Opportunities or the Fund),
a series of BlackRock Funds
SM
(the Trust),
is to seek long-term capital appreciation.
Fees
and Expenses of the Fund
This table
describes the fees and expenses that you may pay if you buy
and hold shares of International Opportunities. 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 47 of the Funds
prospectus and in the Purchase of Shares section
on page II-58 of the Funds statement of additional information.
Shareholder
Fees
(fees paid directly from your investment)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
Maximum
Sales Charge
(Load) Imposed
on Purchases
(as percentage
of offering
price)
|
|
5.25%
|
|
None
|
|
|
None
|
|
None
|
Maximum
Deferred Sales
Charge (Load)
(as percentage
of
offering price
or redemption
proceeds, whichever
is lower)
|
|
None
1
|
|
4.50
|
%
2
|
|
1.00%
3
|
|
None
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a
percentage of the value of your investment)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
Management
Fees
|
|
0.98%
|
|
0.98
|
%
|
|
0.98%
|
|
0.98%
|
Distribution
(12b-1) and/or
Service Fees
|
|
0.25%
|
|
1.00
|
%
|
|
1.00%
|
|
None
|
Other
Expenses
|
|
0.34%
|
|
0.43
|
%
|
|
0.36%
|
|
0.31%
|
Acquired
Fund Fees and
Expenses
4
|
|
0.01%
|
|
0.01
|
%
|
|
0.01%
|
|
0.01%
|
Total
Annual Fund
Operating Expenses
4
|
|
1.58%
|
|
2.42
|
%
|
|
2.35%
|
|
1.30%
|
Fee
Waivers and/or
Expense Reimbursements
5
|
|
|
|
|
|
|
|
|
|
Total
Annual Fund
Operating Expenses
After Fee Waivers
and/or Expense
Reimbursements
5
|
|
1.58%
|
|
2.42
|
%
|
|
2.35%
|
|
1.30%
|
1
|
|
A contingent deferred sales charge (CDSC)
of 1.00% 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.
|
2
|
|
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 Funds prospectus for the complete schedule of CDSCs.)
|
3
|
|
There is no CDSC on Investor C Shares
after one year.
|
4
|
|
The Total Annual Fund Operating Expenses
do not correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which
does not include the Acquired Fund Fees and Expenses.
|
5
|
|
As described in the Management of
the Funds section of the Funds prospectus on pages 6270, 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 1.98% (for Investor A Shares), 2.75% (for Investor B and Investor C Shares) and 1.49% (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.
|
8
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 Funds
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
|
Investor
A
Shares
|
|
|
|
$
|
677
|
|
|
$
|
998
|
|
|
$
|
1,340
|
|
|
$
|
2,305
|
|
Investor
B
Shares
|
|
|
|
$
|
695
|
|
|
$
|
1,105
|
|
|
$
|
1,491
|
|
|
$
|
2,548
|
|
Investor
C
Shares
|
|
|
|
$
|
338
|
|
|
$
|
733
|
|
|
$
|
1,255
|
|
|
$
|
2,686
|
|
Institutional
Shares
|
|
|
|
$
|
132
|
|
|
$
|
412
|
|
|
$
|
713
|
|
|
$
|
1,568
|
|
You would pay
the following expenses if you did not redeem your shares:
|
|
|
|
1
Year
|
|
3
Years
|
|
5
Years
|
|
10
Years
|
Investor
B
Shares
|
|
|
|
$
|
245
|
|
|
$
|
755
|
|
|
$
|
1,291
|
|
|
$
|
2,548
|
|
Investor
C
Shares
|
|
|
|
$
|
238
|
|
|
$
|
733
|
|
|
$
|
1,255
|
|
|
$
|
2,686
|
|
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 Funds
performance. During the most recent fiscal year, the Funds
portfolio turnover rate was 99% of the average value of its
portfolio.
Principal
Investment Strategies of the Fund
Under normal
market conditions, International Opportunities 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 initial public offerings
(IPOs).
The Fund may,
when consistent with the Funds 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).
Principal
Risks of Investing in the Fund
Risk is inherent
in all investing. The value of your investment in International
Opportunities, 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 following is a summary description
of principal risks of investing in the Fund.
n
|
|
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 issuers credit rating or the markets perception of the issuers
|
9
|
|
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
|
|
Derivatives Risk
The Funds use of derivatives may reduce the Funds 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 Funds 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 to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives
more difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the 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
|
|
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
|
|
Equity Securities Risk
Stock markets are volatile. The price of equity securities fluctuates based on changes in a companys financial condition
and overall market and economic conditions.
|
n
|
|
Foreign Securities Risk
Foreign investments often involve special risks not present in U.S. investments that can increase the chances that
the Fund will lose money. These risks include:
|
|
|
The Fund generally holds its 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 Funds 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.
|
|
|
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 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
Funds investments.
|
n
|
|
Investment Style Risk
Under certain market conditions, growth investments have performed better during the later stages of economic expansion.
Therefore, this investment style may over time go in and out of favor. At times when the investment style used by the Fund
is out of favor, the Fund may underperform other equity funds that use different investment styles.
|
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 to greater risk and increase its costs. The use of leverage may cause the 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 Funds portfolio will be magnified when the Fund uses leverage.
|
n
|
|
Market Risk and Selection Risk
Market risk is the risk that one or more markets in which the 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
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.
|
10
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
|
|
New Issues Risk
New Issues are initial public offerings of equity securities of U.S. and non-U.S. issuers. 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.
|
n
|
|
Small Cap Securities Risk
Small cap 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.
|
Performance
Information
The information
shows you how International Opportunities performance
has varied year by year and provides some indication of the
risks of investing in the Fund. The table compares the average
annual total returns of each class of the Funds shares
with that of the MSCI All Country World Index Ex-U.S. 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 Funds returns would have been lower. Updated
information on the Funds 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
BlackRock
International Opportunities Portfolio
As of 12/31
During the
ten-year period shown in the bar chart, the highest return
for a quarter was 28.03% (quarter ended June 30, 2009) and
the lowest return for a quarter was 24.50% (quarter ended
September 30, 2008).
As
of 12/31/12
Average Annual Total Returns
|
|
|
|
1
Year
|
|
5
Years
|
|
10
Years
|
BlackRock
International Opportunities Portfolio
Investor A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before Taxes
|
|
|
|
|
11.83
|
%
|
|
|
(3.77
|
)%
|
|
|
11.98
|
%
|
Return
After Taxes on Distributions
|
|
|
|
|
11.59
|
%
|
|
|
(3.81
|
)%
|
|
|
11.19
|
%
|
Return
After
Taxes
on
Distributions
and
Sale
of
Shares
|
|
|
|
|
8.00
|
%
|
|
|
(3.07
|
)%
|
|
|
10.68
|
%
|
BlackRock
International Opportunities Portfolio
Investor B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
12.50
|
%
|
|
|
(3.88
|
)%
|
|
|
11.89
|
%
|
BlackRock
International Opportunities Portfolio
Investor C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
16.15
|
%
|
|
|
(3.47
|
)%
|
|
|
11.74
|
%
|
BlackRock
International Opportunities Portfolio
Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
18.38
|
%
|
|
|
(2.45
|
)%
|
|
|
12.95
|
%
|
MSCI
All
Country
World
Index
Ex-U.S.
(Reflects
no
deduction
for
fees,
expenses
or
taxes)
|
|
|
|
|
16.83
|
%
|
|
|
(2.89
|
)%
|
|
|
9.74
|
%
|
11
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
investors 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.
Investment
Manager
International
Opportunities investment manager is BlackRock Advisors,
LLC (previously defined as BlackRock). The Funds
sub-adviser is BlackRock International Limited (the Sub-Adviser).
Where applicable, BlackRock refers also to the
Sub-Adviser.
Portfolio
Managers
Name
|
|
|
|
Portfolio
Manager
of the Fund Since
|
|
Title
|
Thomas
Callan,
CFA
|
|
|
|
1999
|
|
Managing
Director
of
BlackRock,
Inc.
|
Ian
Jamieson,
CFA
|
|
|
|
2011
|
|
Managing
Director
of
BlackRock,
Inc.
|
Nigel
Hart,
CFA
|
|
|
|
2012
|
|
Managing
Director
of
BlackRock,
Inc.
|
* * *
For important
information about purchase and sales of Fund shares, tax information,
and financial intermediary compensation, please turn to Important
Additional Information on page 28 of the prospectus.
12
Fund Overview
Key
Facts About BlackRock U.S. Opportunities Portfolio
Investment
Objective
The investment
objective of BlackRock U.S. Opportunities Portfolio (U.S.
Opportunities or the Fund), a series of BlackRock
Funds
SM
(the Trust), is to provide long-term
capital appreciation.
Fees
and Expenses of the Fund
This table
describes the fees and expenses that you may pay if you buy
and hold shares of U.S. Opportunities. 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 47 of the Funds
prospectus and in the Purchase of Shares section
on page II-58 of the Funds statement of additional information.
Shareholder
Fees
(fees paid directly from your investment)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
Maximum
Sales Charge (Load)
Imposed on Purchases
(as percentage of
offering price)
|
|
|
5.25
|
%
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Maximum
Deferred Sales Charge
(Load) (as percentage
of
offering price or
redemption proceeds,
whichever is lower)
|
|
|
None
|
1
|
|
|
4.50
|
%
2
|
|
|
1.00
|
%
3
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses that you pay each year as a
percentage of the value of your investment)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
Management
Fees
|
|
|
1.06
|
%
|
|
|
1.06
|
%
|
|
|
1.06
|
%
|
|
|
1.06
|
%
|
Distribution
(12b-1) and/or Service
Fees
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
None
|
|
Other
Expenses
|
|
|
0.31
|
%
|
|
|
0.36
|
%
|
|
|
0.29
|
%
|
|
|
0.24
|
%
|
Acquired
Fund Fees and Expenses
4
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
Total
Annual Fund Operating
Expenses
4
|
|
|
1.63
|
%
|
|
|
2.43
|
%
|
|
|
2.36
|
%
|
|
|
1.31
|
%
|
Fee
Waivers and/or Expense
Reimbursements
5
|
|
|
|
|
|
|
(0.10
|
)%
|
|
|
(0.03
|
)%
|
|
|
(0.27
|
)%
|
Total
Annual Fund Operating
Expenses After Fee
Waivers
and/or Expense
Reimbursements
5
|
|
|
1.63
|
%
|
|
|
2.33
|
%
|
|
|
2.33
|
%
|
|
|
1.04
|
%
|
1
|
|
A contingent deferred sales charge (CDSC)
of 1.00% 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.
|
2
|
|
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 Funds prospectus for the complete schedule of CDSCs.)
|
3
|
|
There is no CDSC on Investor C Shares
after one year.
|
4
|
|
The Total Annual Fund Operating Expenses
do not correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which
does not include the Acquired Fund Fees and Expenses.
|
5
|
|
As described in the Management of
the Funds section of the Funds prospectus on pages 6270, 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 1.65% (for Investor A Shares), 2.32% (for Investor B and Investor C Shares) and 1.03% (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.
|
13
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 Funds
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
|
Investor
A
Shares
|
|
|
|
$
|
682
|
|
|
$
|
1,012
|
|
|
$
|
1,365
|
|
|
$
|
2,356
|
|
Investor
B
Shares
|
|
|
|
$
|
686
|
|
|
$
|
1,098
|
|
|
$
|
1,487
|
|
|
$
|
2,561
|
|
Investor
C
Shares
|
|
|
|
$
|
336
|
|
|
$
|
734
|
|
|
$
|
1,258
|
|
|
$
|
2,694
|
|
Institutional
Shares
|
|
|
|
$
|
106
|
|
|
$
|
389
|
|
|
$
|
692
|
|
|
$
|
1,555
|
|
You would pay
the following expenses if you did not redeem your shares:
|
|
|
|
1
Year
|
|
3
Years
|
|
5
Years
|
|
10
Years
|
Investor
B
Shares
|
|
|
|
$
|
236
|
|
|
$
|
748
|
|
|
$
|
1,287
|
|
|
$
|
2,561
|
|
Investor
C
Shares
|
|
|
|
$
|
236
|
|
|
$
|
734
|
|
|
$
|
1,258
|
|
|
$
|
2,694
|
|
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 Funds
performance. During the most recent fiscal year, the Funds
portfolio turnover rate was 106% of the average value of its
portfolio.
Principal
Investment Strategies of the Fund
Under normal
market conditions, U.S. Opportunities 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 Funds
investment, as those with market capitalizations comparable in size to
those within the universe of 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 initial public offerings
(IPOs).
The Fund may,
when consistent with the Funds investment objective,
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.
Principal
Risks of Investing in the Fund
Risk is inherent
in all investing. The value of your investment in U.S. Opportunities,
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 following is a summary description of principal risks of
investing in the Fund.
n
|
|
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 issuers credit rating or the markets perception of the issuers 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.
|
14
n
|
|
Derivatives Risk
The Funds use of derivatives may reduce the Funds 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 Funds 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 to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives
more difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the 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
|
|
Equity
Securities Risk
Stock markets are volatile. The price of equity securities fluctuates based on changes
in a companys financial condition and overall market and economic conditions.
|
n
|
|
Investment Style Risk
Under certain market conditions, growth investments have performed better during the later stages of economic expansion.
Therefore, this investment style may over time go in and out of favor. At times when the investment style used by the Fund
is out of favor, the Fund may underperform other equity funds that use different investment styles.
|
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 to greater risk and increase its costs. The use of leverage may cause the 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 Funds portfolio will be magnified when the Fund uses leverage.
|
n
|
|
Market Risk and Selection Risk
Market risk is the risk that one or more markets in which the 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
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
|
|
New Issues Risk
New Issues are initial public offerings of equity securities of U.S. and non-U.S. issuers. 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.
|
n
|
|
Small Cap and Emerging Growth Securities
Risk
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.
|
15
Performance
Information
The information
shows you how U.S. Opportunities performance has varied
year by year and provides some indication of the risks of investing
in the Fund. The table compares the average annual total returns
of each class of the Funds shares with that of the Russell
Midcap
®
Index. 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 Funds
returns would have been lower. Updated information on the Funds
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
BlackRock
U.S. Opportunities Portfolio
As of 12/31
During the
ten-year period shown in the bar chart, the highest return
for a quarter was 19.31% (quarter ended June 30, 2003) and
the lowest return for a quarter was 22.42% (quarter ended
September 30, 2011).
As
of 12/31/12
Average Annual Total Returns
|
|
|
|
1
Year
|
|
5
Years
|
|
10
Years
|
BlackRock
U.S. Opportunities Portfolio
Investor A
|
Return
Before Taxes
|
|
|
|
|
4.59
|
%
|
|
|
0.63
|
%
|
|
|
11.31
|
%
|
Return
After Taxes on Distributions
|
|
|
|
|
4.21
|
%
|
|
|
0.17
|
%
|
|
|
11.06
|
%
|
Return
After
Taxes
on
Distributions
and
Sale
of
Shares
|
|
|
|
|
3.49
|
%
|
|
|
0.49
|
%
|
|
|
10.13
|
%
|
BlackRock
U.S. Opportunities Portfolio
Investor B
|
Return
Before
Taxes
|
|
|
|
|
4.98
|
%
|
|
|
0.60
|
%
|
|
|
11.25
|
%
|
BlackRock
U.S. Opportunities Portfolio
Investor C
|
Return
Before
Taxes
|
|
|
|
|
8.59
|
%
|
|
|
0.98
|
%
|
|
|
11.10
|
%
|
BlackRock
U.S Opportunities Portfolio
Institutional
|
Return
Before
Taxes
|
|
|
|
|
10.90
|
%
|
|
|
2.23
|
%
|
|
|
12.43
|
%
|
Russell
Midcap
®
Index
(Reflects
no
deduction
for
fees,
expenses
or
taxes)
|
|
|
|
|
17.28
|
%
|
|
|
3.57
|
%
|
|
|
10.65
|
%
|
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
investors 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.
Investment
Manager
U.S. Opportunities
investment manager is BlackRock Advisors, LLC (previously defined
as BlackRock).
16
Portfolio
Managers
Name
|
|
|
|
Portfolio
Manager
of the Fund Since
|
|
Title
|
Thomas
Callan,
CFA
|
|
|
|
2002
|
|
Managing
Director
of
BlackRock,
Inc.
|
Jean
Rosenbaum,
CFA
|
|
|
|
2002
|
|
Managing
Director
of
BlackRock,
Inc.
|
* * *
For important
information about purchase and sales of Fund shares, tax information,
and financial intermediary compensation, please turn to Important
Additional Information on page 28 of the prospectus.
17
Fund Overview
Key
Facts About BlackRock Health Sciences Opportunities Portfolio
Investment
Objective
The investment
objective of BlackRock Health Sciences Opportunities Portfolio
(Health Sciences Opportunities or the Fund),
a series of BlackRock Funds
SM
(the Trust),
is to provide long-term growth of capital.
Fees
and Expenses of the Fund
This table
describes the fees and expenses that you may pay if you buy
and hold shares of Health Sciences Opportunities. 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 47 of the Funds
prospectus and in the Purchase of Shares section
on page II-58 of the Funds statement of additional information.
Shareholder
Fees
(fees paid directly from your investment)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
|
Class
R
Shares
|
Maximum
Sales Charge (Load) Imposed on Purchases (as percentage of offering price)
|
|
|
5.25
|
%
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Maximum
Deferred Sales
Charge (Load)
(as percentage
of offering price
or redemption
proceeds, whichever
is lower)
|
|
|
None
1
|
|
|
|
4.50
|
%
2
|
|
|
1.00
|
%
3
|
|
|
None
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses that you
pay each year as
a percentage of the value
of your investment)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
|
Class
R
Shares
|
Management
Fees
|
|
|
0.73
|
%
|
|
|
0.73
|
%
|
|
|
0.73
|
%
|
|
|
0.73
|
%
|
|
|
0.73
|
%
|
Distribution
(12b-1)
and/or
Service
Fees
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
None
|
|
|
|
0.50
|
%
|
Other
Expenses
|
|
|
0.31
|
%
|
|
|
0.34
|
%
|
|
|
0.28
|
%
|
|
|
0.25
|
%
|
|
|
0.47
|
%
|
Acquired
Fund
Fees
and
Expenses
4
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
Total
Annual
Fund
Operating
Expenses
4
|
|
|
1.30
|
%
|
|
|
2.08
|
%
|
|
|
2.02
|
%
|
|
|
0.99
|
%
|
|
|
1.71
|
%
|
Fee
Waivers
and/or
Expense
Reimbursements
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
Annual
Fund
Operating
Expenses
After
Fee
Waivers
and/or
Expense
Reimbursements
5
|
|
|
1.30
|
%
|
|
|
2.08
|
%
|
|
|
2.02
|
%
|
|
|
0.99
|
%
|
|
|
1.71
|
%
|
1
|
|
A contingent deferred sales charge (CDSC)
of 1.00% 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.
|
2
|
|
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 Funds prospectus for the complete schedule of CDSCs.)
|
3
|
|
There is no CDSC on Investor C Shares
after one year.
|
4
|
|
The Total Annual Fund Operating Expenses
do not correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which
does not include the Acquired Fund Fees and Expenses.
|
5
|
|
As described in the Management of
the Funds section of the Funds prospectus on pages 6270, 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 1.81% for Class R 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.
|
18
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 Funds
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
|
Investor
A
Shares
|
|
|
|
$
|
650
|
|
|
$
|
915
|
|
|
$
|
1,200
|
|
|
$
|
2,010
|
|
Investor
B
Shares
|
|
|
|
$
|
661
|
|
|
$
|
1,002
|
|
|
$
|
1,319
|
|
|
$
|
2,211
|
|
Investor
C
Shares
|
|
|
|
$
|
305
|
|
|
$
|
634
|
|
|
$
|
1,088
|
|
|
$
|
2,348
|
|
Institutional
Shares
|
|
|
|
$
|
101
|
|
|
$
|
315
|
|
|
$
|
547
|
|
|
$
|
1,213
|
|
Class
R
Shares
|
|
|
|
$
|
174
|
|
|
$
|
539
|
|
|
$
|
928
|
|
|
$
|
2,019
|
|
You would pay
the following expenses if you did not redeem your shares:
|
|
|
|
1
Year
|
|
3
Years
|
|
5
Years
|
|
10
Years
|
Investor
B
Shares
|
|
|
|
$
|
211
|
|
|
$
|
652
|
|
|
$
|
1,119
|
|
|
$
|
2,211
|
|
Investor
C
Shares
|
|
|
|
$
|
205
|
|
|
$
|
634
|
|
|
$
|
1,088
|
|
|
$
|
2,348
|
|
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 Funds
performance. During the most recent fiscal year, the Funds
portfolio turnover rate was 135% of the average value of its
portfolio.
Principal
Investment Strategies of the Fund
Under normal
market conditions, Health Sciences Opportunities invests at
least 80% of total assets in equity 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 of 1940, as amended, which means that it can invest more
of its assets in fewer companies than a diversified fund.
Principal
Risks of Investing in the Fund
Risk is inherent
in all investing. The value of your investment in Health Sciences
Opportunities, 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 following is a summary description
of principal risks of investing in the Fund.
n
|
|
Concentration Risk
The Funds strategy of concentrating in health sciences and related companies means that its performance will be closely
tied to the performance of a particular market segment. The Funds concentration in these companies may present more
risks than if it were broadly diversified over numerous industries and sectors of the economy. A downturn in these companies
would have a larger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, the performance
of these companies will lag the performance of other industries or the broader market as a whole.
|
19
n
|
|
Equity Securities Risk
Stock markets are volatile. The price of equity securities fluctuates based on changes in a companys financial condition
and overall market and economic conditions.
|
n
|
|
Foreign Securities Risk
Foreign investments often involve special risks not present in U.S. investments that can increase the chances that
the Fund will lose money. These risks include:
|
|
|
The Fund generally holds its 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 Funds 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.
|
|
|
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 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
Funds investments.
|
n
|
|
Healthcare-Related Securities Risk
Many healthcare-related companies are smaller and less seasoned than companies in other sectors. Healthcare-related
companies may also be strongly affected by scientific or technological developments and their products may quickly become
obsolete. Many healthcare companies are heavily dependent on patent protection and the actual or perceived safety and efficiency
of their products. The expiration of patents may adversely affect the profitability of these companies. Many healthcare companies
are subject to extensive litigation based on product liability and similar claims. Finally, many healthcare-related companies
offer products and services that are subject to governmental regulation and may be adversely affected by changes in governmental
policies or laws. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act designed
to reform the healthcare industry. The Fund cannot predict the impact of this legislation on healthcare-related companies
or what healthcare-related proposals might be proposed or enacted in the future.
|
n
|
|
Investment Style Risk
Under certain market conditions, growth investments have performed better during the later stages of economic expansion.
Therefore, this investment style may over time go in and out of favor. At times when the investment style used by the Fund
is out of favor, the Fund may underperform other equity funds that use different investment styles.
|
n
|
|
Market Risk and Selection Risk
Market risk is the risk that one or more markets in which the 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
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
|
|
Non-Diversification Risk
The Fund is a non-diversified fund. Because the Fund may invest in securities of a smaller number of issuers, it may
be more exposed to the risks associated with and developments affecting an individual issuer than a fund that invests more
widely.
|
n
|
|
Small Cap Securities Risk
Small cap 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.
|
20
Performance
Information
On January
31, 2005, Health Sciences Opportunities reorganized with the
State Street Research Health Sciences Fund (the SSR Fund).
For periods prior to January 31, 2005, the chart and table
show performance information for the SSR Fund, which had investment
objectives and strategies substantially similar to the Fund.
The performance of Investor B and Investor C Shares for the
period before they were launched is based on the performance
of Investor A Shares, adjusted to reflect the class specific
fees applicable to Investor B and Investor C Shares, respectively,
at the time of such share class launch. Class R Shares
commenced operations on September 12, 2011, therefore the returns
in the table for Class R Shares prior to commencement date
are based on the Funds Institutional Shares, adjusted
to reflect the fees and expenses applicable to Class R Shares.
This information may be considered when assessing the Funds
performance, but does not represent the actual performance
of these share classes.
The
information shows you how the Funds performance has
varied year by year and provides some indication of the
risks of investing in the Fund. The table compares the
Funds performance to that of the Standard & Poors
(S&P) 500
®
Index. The table
also compares the Funds performance to that of the
Russell 3000
®
Health Care Index, which
is relevant to the Fund because it has characteristics
similar to the Funds investment strategies. 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 Funds returns
would have been lower. Updated information on the Funds
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
BlackRock
Health Sciences Opportunities Portfolio
As of
12/31
`
|
|
|
|
During the
ten-year period shown in the bar chart, the highest return
for a quarter was 34.69% (quarter ended June 30, 2003) and
the lowest return for a quarter was 13.97% (quarter ended
December 31, 2008).
As
of 12/31/12
Average Annual Total Returns
|
|
|
|
1
Year
|
|
5
Years
|
|
10
Years
|
BlackRock
Health Sciences Opportunities Portfolio
Investor A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before Taxes
|
|
|
|
|
12.17
|
%
|
|
|
5.51
|
%
|
|
|
14.28
|
%
|
Return
After Taxes on Distributions
|
|
|
|
|
10.80
|
%
|
|
|
4.51
|
%
|
|
|
13.32
|
%
|
Return
After
Taxes
on
Distributions
and
Sale
of
Shares
|
|
|
|
|
9.25
|
%
|
|
|
4.42
|
%
|
|
|
12.48
|
%
|
BlackRock
Health Sciences Opportunities Portfolio
Investor B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
12.99
|
%
|
|
|
5.50
|
%
|
|
|
14.19
|
%
|
BlackRock
Health Sciences Opportunities Portfolio
Investor C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
16.58
|
%
|
|
|
5.89
|
%
|
|
|
14.08
|
%
|
BlackRock
Health Sciences Opportunities Portfolio
Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
18.77
|
%
|
|
|
6.99
|
%
|
|
|
15.25
|
%
|
BlackRock
Health Sciences Opportunities Portfolio
Class R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
17.92
|
%
|
|
|
6.17
|
%
|
|
|
14.35
|
%
|
Russell
3000
®
Health Care Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Reflects
no
deduction
for
fees,
expenses
or
taxes)
|
|
|
|
|
19.32
|
%
|
|
|
5.52
|
%
|
|
|
7.13
|
%
|
S&P
500
®
Index
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Reflects
no
deduction
for
fees,
expenses
or
taxes)
|
|
|
|
|
16.00
|
%
|
|
|
1.66
|
%
|
|
|
7.10
|
%
|
21
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
investors 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, Institutional and Class
R Shares will vary.
Investment
Manager
Health Sciences
Opportunities investment manager is BlackRock Advisors,
LLC (previously defined as BlackRock).
Portfolio
Managers
Name
|
|
|
|
Portfolio
Manager
of the Fund Since
|
|
Title
|
Thomas
Callan,
CFA
|
|
|
|
2005
|
|
Managing
Director
of
BlackRock,
Inc.
|
Erin
Xie,
PhD
|
|
|
|
2003
|
|
Managing
Director
of
BlackRock,
Inc.
|
* * *
For important
information about purchase and sales of Fund shares, tax information,
and financial intermediary compensation, please turn to Important
Additional Information on page 28 of the prospectus.
22
Fund Overview
Key
Facts About BlackRock Science & Technology Opportunities
Portfolio
Investment
Objective
The investment
objective of BlackRock Science & Technology Opportunities
Portfolio (Science & Technology Opportunities
or the Fund), a series of BlackRock Funds
SM
(the Trust), is to provide long-term capital
appreciation.
Fees
and Expenses of the Fund
This table
describes the fees and expenses that you may pay if you buy
and hold shares of Science & Technology Opportunities.
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 47 of the Funds
prospectus and in the Purchase of Shares section
on page II-58 of the Funds statement of additional information.
Shareholder
Fees
(fees paid directly from your investment)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
|
Class
R
Shares
|
Maximum
Sales Charge (Load) Imposed on Purchases (as percentage of offering price)
|
|
|
5.25
|
%
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
|
|
None
|
|
Maximum
Deferred
Sales
Charge
(Load)
(as
percentage
of offering
price
or redemption
proceeds,
whichever
is lower)
|
|
|
None
|
1
|
|
|
4.50
|
%
2
|
|
|
1.00
|
%
3
|
|
|
None
|
|
|
|
None
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Annual
Fund Operating Expenses
(expenses that are
deducted from Fund assets)
|
|
Investor
A
Shares
|
|
Investor
B
Shares
|
|
Investor
C
Shares
|
|
Institutional
Shares
|
|
Class
R
Shares
|
Management
Fees
|
|
|
0.90
|
%
|
|
|
0.90
|
%
|
|
|
0.90
|
%
|
|
|
0.90
|
%
|
|
|
0.90
|
%
|
Distribution
(12b-1)
and/or
Service
Fees
|
|
|
0.25
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
None
|
|
|
|
0.50
|
%
|
Other
Expenses
|
|
|
0.57
|
%
|
|
|
0.62
|
%
|
|
|
0.70
|
%
|
|
|
0.55
|
%
|
|
|
0.60
|
%
|
Acquired
Fund
Fees
and
Expenses
4
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
|
|
0.01
|
%
|
Total
Annual
Fund
Operating
Expenses
4
|
|
|
1.73
|
%
|
|
|
2.53
|
%
|
|
|
2.61
|
%
|
|
|
1.46
|
%
|
|
|
2.01
|
%
|
Fee
Waivers
and/or
Expense
Reimbursements
5
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.06
|
)%
|
|
|
|
|
Total
Annual
Fund
Operating
Expenses
After
Fee
Waivers
and/or
Expense
Reimbursements
5
|
|
|
1.73
|
%
|
|
|
2.53
|
%
|
|
|
2.61
|
%
|
|
|
1.40
|
%
|
|
|
2.01
|
%
|
1
|
|
A contingent deferred sales charge (CDSC)
of 1.00% 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.
|
2
|
|
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 Funds prospectus for the complete schedule of CDSCs.)
|
3
|
|
There is no CDSC on Investor C Shares
after one year.
|
4
|
|
The Total Annual Fund Operating Expenses
do not correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which
does not include the Acquired Fund Fees and Expenses.
|
5
|
|
As described in the Management of
the Funds section of the Funds prospectus on pages 6270, 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 1.80% (for Investor A Shares), 2.73% (for Investor B and Investor C Shares), 1.39% (for Institutional
Shares) and 2.57% (for Class R 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.
|
23
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 Funds
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
|
Investor
A
Shares
|
|
|
|
$
|
692
|
|
|
$
|
1,041
|
|
|
$
|
1,414
|
|
|
$
|
2,459
|
|
Investor
B
Shares
|
|
|
|
$
|
706
|
|
|
$
|
1,138
|
|
|
$
|
1,545
|
|
|
$
|
2,670
|
|
Investor
C
Shares
|
|
|
|
$
|
364
|
|
|
$
|
811
|
|
|
$
|
1,385
|
|
|
$
|
2,944
|
|
Institutional
Shares
|
|
|
|
$
|
143
|
|
|
$
|
456
|
|
|
$
|
792
|
|
|
$
|
1,741
|
|
Class
R
Shares
|
|
|
|
$
|
204
|
|
|
$
|
630
|
|
|
$
|
1,083
|
|
|
$
|
2,338
|
|
You would pay
the following expenses if you did not redeem your shares:
|
|
|
|
1
Year
|
|
3
Years
|
|
5
Years
|
|
10
Years
|
Investor
B
Shares
|
|
|
|
$
|
256
|
|
|
$
|
788
|
|
|
$
|
1,345
|
|
|
$
|
2,670
|
|
Investor
C
Shares
|
|
|
|
$
|
264
|
|
|
$
|
811
|
|
|
$
|
1,385
|
|
|
$
|
2,944
|
|
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 Funds
performance. During the most recent fiscal year, the Funds
portfolio turnover rate was 320% of the average value of its
portfolio.
Principal
Investment Strategies of the Fund
Under normal
market conditions, Science & Technology Opportunities 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 Funds 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,
internet and catalog retail, integrated telecom services, alternative
carriers and wireless telecommunication services.
The Fund seeks
to invest primarily 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
initial public offerings (IPOs).
The Fund may,
when consistent with the Funds 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).
24
Principal
Risks of Investing in the Fund
Risk is inherent
in all investing. The value of your investment in Science &
Technology Opportunities, 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 following is a summary
description of principal risks of investing in the Fund.
n
|
|
Concentration Risk
The Funds strategy of concentrating in science and technology and related companies means that its performance will
be closely tied to the performance of a particular market segment. The Funds concentration in these companies may present
more risks than if it were broadly diversified over numerous industries and sectors of the economy. A downturn in these companies
would have a larger impact on the Fund than on a mutual fund that does not concentrate in such companies. At times, the performance
of these companies will lag the performance of other industries or the broader market as a whole.
|
n
|
|
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 issuers credit rating or the markets perception of the issuers 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
|
|
Derivatives Risk
The Funds use of derivatives may reduce the Funds 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 Funds 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 to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives
more difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the 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
|
|
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
|
|
Equity Securities Risk
Stock markets are volatile. The price of equity securities fluctuates based on changes in a companys financial condition
and overall market and economic conditions.
|
n
|
|
Foreign Securities Risk
Foreign investments often involve special risks not present in U.S. investments that can increase the chances that
the Fund will lose money. These risks include:
|
|
|
The Fund generally holds its 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 Funds 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.
|
25
|
|
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 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
Funds investments.
|
n
|
|
Geographic Concentration Risk
From time to time the Fund may invest a substantial amount of its assets in issuers located in a single country or
a limited number of countries. If the Fund concentrates its investments in this manner, it assumes the risk that economic,
political and social conditions in those countries will have a significant impact on its investment performance. The Funds
investment performance may also be more volatile if it concentrates its investments in certain countries, especially emerging
market countries.
|
n
|
|
Investment Style Risk
Under certain market conditions, growth investments have performed better during the later stages of economic expansion.
Therefore, this investment style may over time go in and out of favor. At times when the investment style used by the Fund
is out of favor, the Fund may underperform other equity funds that use different investment styles.
|
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 to greater risk and increase its costs. The use of leverage may cause the 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 Funds portfolio will be magnified when the Fund uses leverage.
|
n
|
|
Market Risk and Selection Risk
Market risk is the risk that one or more markets in which the 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
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
|
|
New Issues Risk
New Issues are initial public offerings of equity securities of U.S. and non-U.S. issuers. 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.
|
n
|
|
Small Cap Securities Risk
Small cap 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
|
|
Technology Securities Risk
Certain technology related companies may face special risks that their products or services may not prove to be commercially
successful. Technology related companies are also strongly affected by worldwide scientific or technological developments.
As a result, their products may rapidly become obsolete. Such companies are also often subject to governmental regulation
and may, therefore, be adversely affected by governmental policies.
|
26
Performance
Information
The information
shows you how Science & Technology Opportunities
performance has varied year by year and provides some indication
of the risks of investing in the Fund. The table compares the
Funds performance to that of the NYSE Arca Tech 100 Index
SM
.
The returns for Class R Shares prior to October 2, 2006, the
commencement of operations of Class R Shares, are based upon
performance of the Funds Institutional Shares. The returns
for Class R Shares, however, are adjusted to reflect the class-specific
fees applicable to Class R Shares at the time of such share
class launch. 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 Funds returns would
have been lower. Updated information on the Funds 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 Science & Technology Opportunities Portfolio
As of 12/31
During the
periods shown in the bar chart, the highest return for a quarter
was 29.92% (quarter ended June 30, 2003) and the lowest return
for a quarter was 22.29% (quarter ended December 31,
2008).
As
of 12/31/12
Average Annual Total Returns
|
|
|
|
1
Year
|
|
5
Years
1
|
|
10
Years
1
|
BlackRock
Science & Technology Opportunities
Portfolio Investor A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before Taxes
|
|
|
|
|
1.66
|
%
|
|
|
(0.02
|
)%
|
|
|
8.70
|
%
|
Return
After Taxes on Distributions
|
|
|
|
|
1.66
|
%
|
|
|
(0.02
|
)%
|
|
|
8.70
|
%
|
Return
After
Taxes
on
Distributions
and
Sale
of
Shares
|
|
|
|
|
1.08
|
%
|
|
|
(0.02
|
)%
|
|
|
7.74
|
%
|
BlackRock
Science & Technology Opportunities
Portfolio Investor B
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
1.94
|
%
|
|
|
(0.23
|
)%
|
|
|
8.57
|
%
|
BlackRock
Science & Technology Opportunities
Portfolio Investor C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
5.31
|
%
|
|
|
0.17
|
%
|
|
|
8.36
|
%
|
BlackRock
Science & Technology Opportunities
Portfolio Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
7.57
|
%
|
|
|
1.43
|
%
|
|
|
9.72
|
%
|
BlackRock
Science & Technology Opportunities
Portfolio Class R
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Return
Before
Taxes
|
|
|
|
|
6.96
|
%
|
|
|
0.72
|
%
|
|
|
8.92
|
%
|
NYSE
Arca Tech 100 Index
SM
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Reflects
no
deduction
for
fees,
expenses
or
taxes)
|
|
|
|
|
21.46
|
%
|
|
|
7.62
|
%
|
|
|
11.69
|
%
|
1
|
|
A portion of the Funds total return
was attributable to proceeds received in the fiscal year ended September 30, 2009 in a 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
investors 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, Institutional and Class
R Shares will vary.
27
Investment
Manager
Science &
Technology Opportunities investment manager is BlackRock
Advisors, LLC (previously defined as BlackRock).
Portfolio
Managers
Name
|
|
|
|
Portfolio
Manager
of the Fund Since
|
|
Title
|
Thomas
Callan,
CFA
|
|
|
|
2000
|
|
Managing
Director
of
BlackRock,
Inc.
|
Jean
Rosenbaum,
CFA
|
|
|
|
2000
|
|
Managing
Director
of
BlackRock,
Inc.
|
Erin
Xie,
PhD
|
|
|
|
2005
|
|
Managing
Director
of
BlackRock,
Inc.
|
* * *
For important
information about purchase and sales of Fund shares, tax information,
and financial intermediary compensation, please see Important
Additional Information below.
Important
Additional Information
Purchase and Sale of Fund Shares
You may purchase
or redeem shares of a Fund 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 a 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. Each Funds 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
|
|
Class
R Shares
1
|
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.
|
|
$100
for
all
accounts.
|
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.
|
|
No
subsequent
minimum.
|
1
|
|
Class R Shares are currently offered only
by Global Opportunities, Health Sciences Opportunities and Science & Technology Opportunities.
|
28
Tax Information
Each Funds
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 a Fund through a broker-dealer or other financial
intermediary, the Fund and BlackRock Investments, LLC, the
Funds 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
intermediarys website for more information.
29
Details About
the Funds
Included in
this prospectus are sections that tell you about buying and
selling shares, management information, and shareholder features
of BlackRock Global Opportunities Portfolio (Global Opportunities),
BlackRock International Opportunities Portfolio (International
Opportunities), BlackRock U.S. Opportunities Portfolio
(U.S. Opportunities), BlackRock Health Sciences
Opportunities Portfolio (Health Sciences Opportunities)
and BlackRock Science & Technology Opportunities Portfolio
(Science & Technology Opportunities) (each,
a Fund and, collectively, the Funds),
each a series of BlackRock Funds
SM
(the Trust),
and your rights as a shareholder.
Should the
Trusts Board of Trustees (the Board) determine
that the investment objective of a 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.
Global Opportunities
Investment
Objective
The investment
objective of Global Opportunities is to provide long-term capital
appreciation.
Investment
Process
BlackRock considers
a variety of factors when choosing investments for Global Opportunities,
such as:
n
|
|
identifying securities that have above-average
return potential, influenced by factors such as relative value and earnings estimate revisions; and
|
n
|
|
identifying opportunities in the global
securities markets for investments in global equity securities of any market capitalization, as well as fixed income investments
and foreign currency transactions.
|
The Fund generally
will sell a security when, in the Fund management teams
opinion, the security reaches its price target, or there is
a deterioration in the companys fundamentals, a change
in macroeconomic outlook, technical deterioration, a need to
rebalance the portfolio or a better opportunity elsewhere.
The team uses a broad set of quantitative tools to enhance
the timing of purchase or sell decisions.
The Fund may
engage in active and frequent trading of portfolio securities
to achieve its primary investment strategies.
Principal
Investment Strategies
Under normal
conditions, Global Opportunities will invest at least 75% of
its total assets in global equity securities of any market
capitalization, selected for their above-average return potential.
Under normal circumstances, the Fund will seek to 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 United States,
(iii) of issuers which primarily trade in a market located
outside the United States or (iv) of issuers doing a substantial
amount of business outside the United States, which the Fund
considers to be companies that derive at least 50% of their
revenue or profits from business outside the United States
or have at least 50% of their sales or assets outside the United
States. 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. The Fund may invest up to 25% of its total
assets in stocks of issuers in emerging market countries.
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. 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). Split
rated bonds will be considered to have the higher credit
rating.
30
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.
With respect
to equity investments, the Fund seeks to buy primarily common
stock but may also invest in preferred stock and convertible
securities.
The Fund may,
when consistent with the Funds 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). 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 swap is an agreement
whereby one party exchanges its right to receive or its obligation
to pay one type of currency for another partys obligation
to pay or its right to receive another type of currency in
the future or for a period of time. 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 does
not limit its investments to companies of any particular size,
and may invest in securities of companies with small to large
capitalizations.
ABOUT THE PORTFOLIO MANAGEMENT
TEAM OF GLOBAL OPPORTUNITIES
|
Global Opportunities is managed by a team of financial professionals. Thomas Callan, CFA, Ian
Jamieson, CFA, and Nigel Hart,
CFA, are the portfolio managers
and are jointly and primarily
responsible for the day-to-day
management of the Fund. Please
see Management of the
Funds Portfolio Manager
Information for additional
information about the portfolio
management team.
|
International
Opportunities
Investment
Objective
The investment
objective of International Opportunities is to seek long-term
capital appreciation.
Investment
Process
BlackRock considers
a variety of factors when choosing investments for International
Opportunities, such as:
n
|
|
identifying companies that appear to have
above-average earnings growth potential;
|
n
|
|
identifying companies and industries that
appear to have the potential for above-average long-term performance based on projections of supply and demand of a resource
and the state of the market; and
|
n
|
|
identifying companies that are expected
to show above-average return potential based on factors such as relative value and earnings estimate revisions, depending
on market conditions.
|
The Fund generally
will sell a stock when, in the Fund management teams
opinion, the stock reaches its price target, there is a deterioration
in the companys fundamentals, a change in macroeconomic
outlook, technical deterioration, valuation issues, a need
to rebalance the portfolio or a better opportunity elsewhere.
The Fund may
engage in active and frequent trading of portfolio securities
to achieve its primary investment strategies.
Principal
Investment Strategies
Under normal
market conditions, International Opportunities invests at least
80% of its net assets (which means net assets plus any borrowings
for investment purposes) in equity securities issued by foreign
companies of any market capitalization. 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 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.
31
The Fund may,
when consistent with the Funds 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). 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 swap is an agreement
whereby one party exchanges its right to receive or its obligation
to pay one type of currency for another partys obligation
to pay or its right to receive another type of currency in
the future or for a period of time. 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 does
not limit its investments to companies of any particular size,
and may invest in securities of companies with small to large
capitalizations.
ABOUT THE PORTFOLIO MANAGEMENT
TEAM OF INTERNATIONAL OPPORTUNITIES
|
International Opportunities is managed by a team of financial professionals. Thomas Callan,
CFA, Ian Jamieson, CFA, and
Nigel Hart, CFA, are the portfolio
managers and are jointly and
primarily responsible for
the day-to-day management
of the Fund. Please see Management
of the Funds Portfolio
Manager Information
for additional information
about the portfolio management
team.
|
U.S. Opportunities
Investment
Objective
The investment
objective of U.S. Opportunities is to seek long-term capital
appreciation.
Investment
Process
BlackRock considers
a variety of factors when choosing investments for U.S. Opportunities,
such as:
n
|
|
identifying companies and industries that
appear to have the potential for above-average long-term performance based on projections of supply and demand of a resource
and the state of the market; and
|
n
|
|
identifying companies that are expected
to show above-average growth over the long-term as well as those that appear to be trading below their true worth.
|
The Fund generally
will sell a stock when, in the Fund management teams
opinion, the stock reaches its price target, there is a deterioration
in the companys fundamentals, a change in macroeconomic
outlook, technical deterioration, valuation issues, a need
to rebalance the portfolio or a better opportunity elsewhere.
The Fund may
engage in active and frequent trading of portfolio securities
to achieve its primary investment strategies.
Principal
Investment Strategies
Under normal
market conditions, U.S. Opportunities invests at least 80%
of its net assets (which means net assets plus any borrowings
for investment purposes) 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 Funds investment, as those with market capitalizations
comparable in size to those within the universe of 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 Funds investment objective,
buy or sell options or futures on a security or an index of
securities (collectively, commonly known as derivatives). 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. The primary
purpose of using derivatives is to attempt to
32
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.
ABOUT THE PORTFOLIO MANAGEMENT
TEAM OF U.S. OPPORTUNITIES
|
U.S. Opportunities is managed by a team of financial professionals. Jean Rosenbaum, CFA, and
Thomas Callan, CFA, are the
portfolio managers and are
jointly and primarily responsible
for the day-to-day management
of the Fund. Please see Management
of the Funds Portfolio
Manager Information
for additional information
about the portfolio management
team.
|
Health Sciences
Opportunities
Investment
Objective
The investment
objective of Health Sciences Opportunities is to provide long-term
growth of capital.
Investment
Process
BlackRock considers
a variety of factors when choosing investments for Health Sciences
Opportunities, such as:
n
|
|
identifying companies and industries that
appear to have the potential for above-average returns; and
|
n
|
|
identifying companies that are expected
to show above-average growth over the long-term as well as those that appear to be trading below their true worth.
|
The Fund expects
to invest in health sciences companies comparable in size to
those in the health sector of the Russell 3000
®
Health Care Index or in similar companies, including non-U.S.
companies.
The Fund generally
will sell a stock when, in the Fund management teams
opinion, the stock reaches its price target, there is a deterioration
in the companys fundamentals, a change in macroeconomic
outlook, technical deterioration, valuation issues, a need
to rebalance the portfolio or a better opportunity elsewhere.
The Fund may
engage in active and frequent trading of portfolio securities
to achieve its primary investment strategies.
Principal
Investment Strategies
Under normal
market conditions, Health Sciences Opportunities invests at
least 80% of total assets in equity 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 does not limit its investments to companies of any
particular size.
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 of 1940, as amended, which means that it can invest more
of its assets in fewer companies than a diversified fund.
ABOUT THE PORTFOLIO MANAGEMENT
TEAM OF HEALTH SCIENCES OPPORTUNITIES
|
Health Sciences Opportunities is managed by a team of financial professionals. Erin Xie, PhD,
and Thomas Callan, CFA, are
the portfolio managers and
are jointly and primarily
responsible for the day-to-day
management of the Fund. Please
see Management of the
Funds Portfolio Manager
Information for additional
information about the portfolio
management team.
|
33
Science
& Technology Opportunities
Investment
Objective
The investment
objective of Science & Technology Opportunities is to provide
long-term capital appreciation.
Investment
Process
BlackRock considers
a variety of factors when choosing investments for Science
& Technology Opportunities, such as:
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selecting companies with the potential
for rapid and sustainable growth from the development, advancement and use of science and/or technology; and
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identifying companies that have above-average
return potential based on factors such as revenue and earnings growth, estimate revisions, profitability and relative value.
The factors and the weight assigned to a factor may change depending on market conditions.
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In addition,
a variety of countries, including emerging market countries,
and industries are likely to be represented.
The Fund generally
will sell a stock when, in the Fund management teams
opinion, there is a deterioration in the companys fundamentals,
a change in macroeconomic outlook, technical deterioration,
valuation issues, a need to rebalance the portfolio or a better
opportunity elsewhere. The team uses a broad set of quantitative
tools to enhance the timing of purchase or sell decisions.
The Fund may
engage in active and frequent trading of portfolio securities
to achieve its primary investment strategies.
Principal
Investment Strategies
Under normal
market conditions, Science & Technology Opportunities invests
at least 80% of its net assets (which means net assets plus
any borrowings for investment purposes) 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 Funds 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,
internet and catalog retail, integrated telecom services, alternative
carriers and wireless telecommunication services.
The Fund seeks
to invest primarily 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 Funds 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). 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 swap is an agreement
whereby one party exchanges its right to receive or its obligation
to pay one type of currency for another partys obligation
to pay or its right to receive another type of currency in
the future or for a period of time. 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).
ABOUT THE PORTFOLIO MANAGEMENT
TEAM OF SCIENCE & TECHNOLOGY OPPORTUNITIES
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Science & Technology Opportunities is managed by a team of financial professionals. Thomas
Callan, CFA, Jean Rosenbaum,
CFA, and Erin Xie, PhD are
the portfolio managers and
are jointly and primarily
responsible for the day-to-day
management of the Fund. Please
see Management of the
Funds Portfolio Manager
Information for additional
information about the portfolio
management team.
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Other Strategies
Applicable to the Funds
In addition
to the principal strategies discussed above, each Fund (except
as noted below) may also invest or engage in the following
investments/strategies:
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Convertible Securities (Health Sciences
Opportunities)
The Fund may invest in convertible securities, which 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 securitys value usually reflects both the stream
of current income payments and the market value of the underlying common stock.
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Credit Default Swaps (Global Opportunities,
International Opportunities, U.S. Opportunities and Science & Technology Opportunities)
Each Fund may
invest in credit default swaps, 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.
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Depositary Receipts
Each Fund may invest in securities of foreign issuers in the form of depositary receipts or other securities that are convertible
into securities of foreign issuers. American Depositary Receipts are receipts typically issued by an American bank or trust
company that evidence underlying securities issued by a foreign corporation. European Depositary Receipts (issued in Europe)
and Global Depositary Receipts (issued throughout the world) each evidence a similar ownership arrangement. The Funds may
invest in unsponsored depositary receipts.
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Derivative Transactions (Health
Sciences Opportunities)
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.
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Foreign Securities (U.S. Opportunities)
The Fund may invest in companies located in countries other than the United States.
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Illiquid/Restricted Securities
Each Fund may invest up to 15% of its net assets in illiquid securities that it cannot sell within seven days at approximately
current value. Each 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.
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Indexed and Inverse Securities
Each Fund may invest in securities the potential return of which is based on the change in a specified interest rate
or equity index (an indexed security). For example, a Fund may invest in a security that pays a variable amount
of interest or principal based on the current level of the French or Korean stock markets. A Fund may also invest in securities
whose return is inversely related to changes in an interest rate or index (inverse securities). In general, the
return on inverse securities will decrease when the underlying index or interest rate goes up and increase when that index
or interest rate goes down.
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Investment Companies
Each Fund has the ability to invest in other investment companies, such as exchange-traded funds, unit investment trusts,
and open-end and closed-end funds. Each Fund may invest in affiliated investment companies, including affiliated money market
funds and affiliated exchange traded funds.
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Money Market Securities
Each Fund may invest in high quality money market securities pending investments or when it expects to need cash to
pay redeeming shareholders. A Fund will not be deemed to deviate from its normal strategies if it holds these securities
pending investments.
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New Issues (Health Sciences
Opportunities)
The Fund may invest in shares of companies through initial public offerings.
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Real Estate Investment Trusts (REITs)
(Global Opportunities, International Opportunities and U.S. Opportunities)
Each Fund may invest in REITs.
REITs are companies that own interests in real estate or in real estate related loans or other interests, and have revenue
primarily consisting of rent derived from owned, income producing real estate properties and capital gains from the sale
of such properties. 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
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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.
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Repurchase Agreements and Purchase
and Sale Contracts (Global Opportunities, International Opportunities, U.S. Opportunities and Science & Technology Opportunities)
Each Fund may enter into certain types of repurchase agreements or purchase and sale contracts. Under a repurchase
agreement, the seller agrees to repurchase a security at a mutually agreed-upon time and price. A purchase and sale contract
is similar to a repurchase agreement, but purchase and sale contracts also provide that the purchaser receives any interest
on the security paid during the period.
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Securities Lending
Each 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.
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Temporary Defensive Strategies
It is possible that in extreme market conditions each Fund temporarily may invest some or all of its assets in high
quality money market securities. Such a temporary defensive strategy would be inconsistent with the Funds primary investment
strategies. The reason for acquiring money market securities would be to avoid market losses. However, if market conditions
improve, this strategy could result in reducing the potential gain from the market upswing, thus reducing the Funds
opportunity to achieve its investment objective.
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Warrants
A warrant
gives a Fund the right to buy stock. The warrant specifies the amount of underlying stock, the purchase (or exercise)
price and the date the warrant expires. The Fund has no obligation to exercise the warrant and buy the stock. A warrant has
value only if the Fund is able to exercise it or sell it before it expires.
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When-Issued and Delayed Delivery
Securities and Forward Commitments (Global Opportunities, International Opportunities, U.S. Opportunities and Science &
Technology Opportunities)
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 a Fund at an established price with
payment and delivery taking place in the future. A Fund enters into these transactions to obtain what is considered an advantageous
price to a Fund at the time of entering into the transaction.
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This section
contains a discussion of the general risks of investing in
the Funds. The Investment Objectives and Policies
section in the Statement of Additional Information (SAI)
also includes more information about the Funds, their investments
and the related risks. There can be no guarantee that any Fund
will meet its objective or that a Funds performance will
be positive for any period of time. An investment in a 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.
Principal
Risks of Investing in the Funds
Concentration
Risk (Health Sciences Opportunities and Science & Technology
Opportunities)
Each Funds strategy of
concentrating in health sciences and related companies (Health
Sciences Opportunities) or science and technology and related
companies (Science & Technology Opportunities) means that
its performance will be closely tied to the performance of
a particular market segment. Each Funds concentration
in these companies may present more risks than if it were broadly
diversified over numerous industries and sectors of the economy.
A downturn in these companies would have a larger impact on
a Fund than on a mutual fund that does not concentrate in such
companies. At times, the performance of these companies will
lag the performance of other industries or the broader market
as a whole.
Convertible
Securities Risk (Global Opportunities, International Opportunities,
U.S. Opportunities and Science & Technology Opportunities
Principal Risk; Health Sciences Opportunities Other 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 issuers credit rating or the markets perception
of the issuers 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.
Debt
Securities Risk (Global Opportunities)
Debt
securities, such as bonds, involve credit risk. Credit risk
is the risk that the borrower will not make timely payments
of principal and interest. Changes in an issuers credit
rating or the markets perception of an issuers
creditworthiness may also affect the value of the Funds
investment in that issuer. The degree of credit risk depends
on the issuers financial condition and on the terms of
the securities. Debt
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securities
are also subject to interest rate risk. Interest rate risk
is the risk that the value of a debt security may fall when
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.
Derivatives
Risk (Global Opportunities, International Opportunities,
U.S. Opportunities and Science & Technology Opportunities
Principal Risk; Health Sciences Opportunities Other Risk)
A Funds use of derivatives
may reduce the Funds 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 a Funds 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 a Fund to sell or otherwise
close a derivatives position could expose the Fund to losses
and could make derivatives more difficult for a Fund to
value accurately. A Fund could also suffer losses related
to its derivatives positions as a result of unanticipated
market movements, which losses are potentially unlimited.
Finally, BlackRock may not be able to predict correctly
the direction of securities prices, interest rates and
other economic factors, which could cause the Funds
derivatives positions to lose value. When a derivative
is used as a hedge against a position that the 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 Funds 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 a Fund has entered into the swap will default
on its obligation to pay the Fund and the risk that the
Fund will not be able to meet its obligations to pay the
other party to the agreement. Global Opportunities, International
Opportunities, U.S. Opportunities and Science & Technology
Opportunities may each invest in credit default swaps.
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). Each of the
Funds may invest in foreign forward currency exchange contracts.
Forward foreign currency exchange contracts do not eliminate
fluctuations in the value of non-U.S. securities but rather
allow the 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 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.
Emerging
Growth Securities Risk (U.S. Opportunities)
Emerging growth companies are subject to the growth investment
style risk described under Investment Style Risk
and the risk of investing in small cap companies described
under Small Cap Securities Risk.
Emerging
Markets Risk (Global Opportunities, International Opportunities
and Science & Technology Opportunities Principal Risk;
Health Sciences Opportunities Other 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 could lose the
entire
37
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 Funds
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 a 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 that ownership exists in some
emerging markets, and, along with other factors, could result
in ownership registration being completely lost. A 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 a Fund
could decline if the financial condition of the companies the
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.
Foreign
Securities Risk (Global Opportunities, International Opportunities,
Health Sciences Opportunities and Science & Technology
Opportunities Principal Risk; U.S. Opportunities Other 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 a Fund will lose money. In particular, a 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 a 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 Funds generally holds 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 a Funds 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 a 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 a Fund can earn on its investments and typically
results in a higher operating expense ratio for a Fund than
for investment companies invested only in the United States.
Currency
Risk
Securities and other instruments in which a
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 a Funds 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
38
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 a Funds ability to purchase or sell
foreign securities or transfer a Funds assets or income
back into the United States, or otherwise adversely affect
the Funds operations.
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 a Funds investments,
in non-U.S. countries. These factors are extremely difficult,
if not impossible, to predict and take into account with respect
to a Funds 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 companys securities based
on material non-public information about that company. In addition,
some countries may have legal systems that may make it difficult
for a 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 management to completely
and accurately determine a companys 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 a Fund to carry out transactions.
If a 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 a 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, a 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 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 a Funds 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.
Geographic
Concentration Risk (Science & Technology Opportunities)
From time to time Science & Technology Opportunities
may invest a substantial amount of its assets in issuers located
in a single country or a limited number of countries. If the
Fund concentrates its investments in this manner, it assumes
the risk that economic, political and social conditions in
those countries will have a significant impact on its investment
performance. The Funds investment performance may also
be more volatile if it concentrates its investments in certain
countries, especially emerging market countries.
Healthcare-Related
Securities Risk (Health Sciences Opportunities)
Many healthcare-related companies are smaller and less seasoned
than companies in other sectors. Healthcare-related companies
may also be strongly affected by scientific or technological
developments and their products may quickly become obsolete.
Many healthcare
39
companies
are heavily dependent on patent protection and the actual or
perceived safety and efficiency of their products. The expiration
of patents may adversely affect the profitability of these
companies. Many healthcare companies are subject to extensive
litigation based on product liability and similar claims. Finally,
many healthcare-related companies offer products and services
that are subject to governmental regulation and may be adversely
affected by changes in governmental policies or laws. In March
2010, President Obama signed into law the Patient Protection
and Affordable Care Act designed to reform the healthcare industry.
The Fund cannot predict the impact of this legislation on healthcare-related
companies or what healthcare-related proposals might be proposed
or enacted in the future.
Investment
Style Risk
Under certain market conditions,
growth investments have performed better during the later stages
of economic expansion. Therefore, this investment style may
over time go in and out of favor. At times when the investment
style used by a Fund is out of favor, the Fund may underperform
other equity funds that use different investment styles.
Leverage
Risk (Global Opportunities, International Opportunities, U.S.
Opportunities and Science & Technology Opportunities Principal
Risk; Health Sciences Opportunities Other Risk)
Some transactions may give rise to a form of economic leverage.
These transactions may include, among others, derivatives,
and may expose a Fund to greater risk and increase its costs.
As an open-end investment company registered with the Securities
and Exchange Commission (the SEC), each Fund is
subject to the federal securities laws, including the Investment
Company Act of 1940, as amended (the Investment Company
Act), the rules thereunder, and various SEC and SEC staff
interpretive positions. In accordance with these laws, rules
and positions, each Fund 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 a 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 a Funds portfolio
will be magnified when the Fund uses leverage.
Market
Risk and Selection Risk
Market risk is the risk
that one or more markets in which a 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 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.
New
Issues Risk (Global Opportunities, International Opportunities,
U.S. Opportunities and Science & Technology Opportunities
Principal Risk; Health Sciences Opportunities Other Risk)
New Issues are initial public offerings
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 a Fund. However, there is
no assurance that a 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 a Fund during periods when it is unable to invest significantly
or at all in IPOs may be lower than during periods when a Fund
is able to do so. In addition, as a Fund increases in size,
the impact of IPOs on a Funds 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 a
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.
Non-Diversification
Risk (Health Sciences Opportunities)
Health
Sciences Opportunities is a non-diversified fund. Because the
Fund may invest in securities of a smaller number of issuers,
it may be more exposed to the risks associated with and developments
affecting an individual issuer than a fund that invests more
widely.
Small
Cap Securities Risk
Small cap 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
Funds 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.
40
The securities
of small cap 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.
Technology
Securities Risk (Science & Technology Opportunities)
Certain technology related companies may face special
risks that their products or services may not prove to be commercially
successful. Technology related companies are also strongly
affected by worldwide scientific or technological developments.
As a result, their products may rapidly become obsolete. Such
companies are also often subject to governmental regulation
and may, therefore, be adversely affected by governmental policies.
Other
Risks of Investing in the Funds
Each Fund (except
as noted below) may also be subject to certain other risks
associated with its investments and investment strategies,
including:
Borrowing
Risk
Borrowing may exaggerate changes in the
net asset value of Fund shares and in the return on a Funds
portfolio. Borrowing will cost the Fund interest expense and
other fees. The costs of borrowing may reduce a Funds
return. Borrowing may cause a Fund to liquidate positions when
it may not be advantageous to do so to satisfy its obligations.
Depositary
Receipts Risk
The issuers of unsponsored depositary
receipts are not obligated to disclose information that is,
in the United States, considered material. Therefore, there
may be less information available regarding these issuers and
there may not be a correlation between such information and
the market value of the depositary receipts. Depositary receipts
are generally subject to the same risks as the foreign securities
that they evidence or into which they may be converted.
Expense
Risk
Fund expenses are subject to a variety
of factors, including fluctuations in the Funds net assets.
Accordingly, actual expenses may be greater or less than those
indicated. For example, to the extent that a Funds net
assets decrease due to market declines or redemptions, a Funds
expenses will increase as a percentage of Fund net assets.
During periods of high market volatility, these increases in
a Funds expense ratio could be significant.
Extension
Risk (Global Opportunities)
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.
High
Portfolio Turnover Risk
Each 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 a 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 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 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
a Funds investment in such instruments may decline significantly
in value if interest rates or index levels move in a way Fund
management does not anticipate.
Investment
in Other Investment Companies Risk
As with other
investments, investments in other investment companies are
subject to market and selection risk. In addition, if a Fund
acquires shares of investment companies, including ones affiliated
with the Fund, shareholders bear both their proportionate share
of expenses in the Fund (including management and advisory
fees) and, indirectly, the expenses of the investment companies.
To the extent a Fund is held by an affiliated fund, the ability
of the Fund itself to hold other investment companies may be
limited.
Junk
Bonds Risk (Global Opportunities)
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. The major risks
of junk bond investments include:
n
|
|
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 issuers 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.
|
41
n
|
|
Prices of junk bonds are subject to extreme
price fluctuations. Adverse changes in an issuers industry and general economic conditions may have a greater impact
on the prices of junk bonds than on other higher rated fixed-income securities.
|
n
|
|
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.
|
n
|
|
Junk bonds frequently have redemption
features that permit an issuer to repurchase the security from a Fund before it matures. If the issuer redeems junk bonds,
the Fund may have to invest the proceeds in bonds with lower yields and may lose income.
|
n
|
|
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 Funds securities than is the case with securities trading in a more
liquid market.
|
n
|
|
The Fund may incur expenses to the extent
necessary to seek recovery upon default or to negotiate new terms with a defaulting issuer.
|
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.
Liquidity
Risk
Liquidity risk exists when particular investments
are difficult to purchase or sell. A Funds investments
in illiquid securities may reduce the returns of the Fund because
it may be difficult to sell the illiquid securities at an advantageous
time or price. To the extent that the Funds principal
investment strategies involve derivatives or securities with
substantial market and/or credit risk, the Fund will tend to
have the greatest exposure to liquidity risk. Liquid investments
may become illiquid after purchase by a Fund, particularly
during periods of market turmoil. Illiquid investments may
be harder to value, especially in changing markets, and if
a Fund is forced to sell these investments to meet redemption
requests or for other cash needs, the Fund may suffer a loss.
In addition, when there is illiquidity in the market for certain
securities, a Fund, due to limitations on illiquid investments,
may be subject to purchase and sale restrictions.
Mortgage-
and Asset-Backed Securities Risk (Global Opportunities)
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 Funds 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 Funds 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 invests
in CMO tranches (including CMO tranches issued by government
agencies) and interest rates move in a manner not anticipated
by Fund management, it is possible that the Fund could lose
all or substantially all of its investment.
42
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 Funds 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 each
Fund may invest may also provide a degree of investment leverage,
which could cause the Fund to lose all or substantially all
of its investment.
Prepayment
Risk (Global Opportunities)
When interest rates
fall, certain obligations will be paid off by the obligor more
quickly than originally anticipated, and the 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.
REIT
Investment Risk (Global Opportunities, International Opportunities
and U.S. Opportunities)
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 Risk (Global Opportunities,
International Opportunities, U.S. Opportunities and Science
& Technology Opportunities)
If the other
party to a repurchase agreement or purchase and sale contract
defaults on its obligation under the agreement, a 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, a Fund may lose money.
Securities
Lending Risk
Securities lending involves the
risk that the borrower may fail to return the securities in
a timely manner or at all. As a result, the Fund may lose money
and there may be a delay in recovering the loaned securities.
A Fund could also lose money if it does not recover the securities
and/or the value of the collateral falls, including the value
of investments made with cash collateral. These events could
trigger adverse tax consequences for the Fund.
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
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.
When-Issued
and Delayed Delivery Securities and Forward Commitments Risk
(Global Opportunities, International Opportunities, U.S. Opportunities
and Science & Technology Opportunities)
When-issued and delayed delivery securities and forward commitments
involve the risk that the security a 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, a Fund loses
both the investment opportunity for the assets it set aside
to pay for the security and any gain in the securitys
price.
43
Account Information
How
to Choose the Share Class that Best Suits Your Needs
Each Fund currently
offers multiple share classes (Investor A, Investor B, Investor
C and Institutional Shares in this prospectus for International
Opportunities and U.S. Opportunities; Investor A, Investor
B, Investor C, Institutional and Class R Shares in this prospectus
for Global Opportunities, Science & Technology Opportunities
and Health Sciences Opportunities), 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
particular 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,
Investor B and Investor C Shares are sometimes referred to
herein collectively as Investor Shares.
For example,
if you select Institutional Shares of a Fund, you will not
pay any sales charge. However, only certain investors may buy
Institutional Shares. If you select Investor A Shares of a
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 or Class R Shares (if available for your 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
for Investor C Shares and 0.25% per year for Class R Shares,
and a service fee of 0.25% per year for both classes of shares
under a plan adopted pursuant to Rule 12b-1 under the Investment
Company Act. Because these fees are paid out of a Funds
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 the 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.
Each Funds
shares are distributed by BlackRock Investments, LLC (the Distributor),
an affiliate of BlackRock.
The table on
the following pages summarizes key features of each of the
share classes offered by this prospectus.
44
Share
Classes at a Glance
1
|
|
|
|
Investor A Shares
|
|
Investor B Shares
|
|
Investor C Shares
3,4
|
|
Institutional Shares
|
|
Class R Shares
2
|
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, its affiliates or other financial intermediaries.
·
Certain employees and affiliates of BlackRock or its affiliates.
|
|
Available only to certain retirement and other similar
plans.
|
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 generally not 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
a
Fund.
|
|
$100 for all accounts.
|
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.
|
|
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.
|
|
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.
|
|
0.25% Annual Distribution Fee. 0.25% Annual Service Fee.
|
Redemption Fees?
|
|
|
|
No.
|
|
No.
|
|
No.
|
|
No.
|
|
No.
|
Conversion to Investor A Shares?
|
|
|
|
N/A
|
|
Yes, automatically after approximately eight years.
|
|
No.
|
|
No.
|
|
No.
|
(footnotes
appear on the following page)
45
Share
Classes at a Glance
1
|
|
|
|
Investor A Shares
|
|
Investor B Shares
|
|
Investor C Shares
3,4
|
|
Institutional Shares
|
|
Class R Shares
2
|
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.
|
|
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
than
Investor
A
Shares
and,
as
a
result,
lower
total
performance.
|
|
You pay ongoing distribution fees each year you own Investor
C
Shares,
which
means
that
over
the
long
term
you
can
expect
higher
total
fees
than
Investor
A
Shares
and,
as
a
result,
lower
total
performance.
|
|
Limited availability.
|
|
Limited availability. You pay ongoing distribution fees
each
year
you
own
Class
R
Shares,
which
means
that
over
the
long
term
you
can
expect
higher
total
fees
than
Investor
A
Shares
and,
as
a
result,
lower
total
performance.
|
1
|
|
Please see Details About the Share
Classes for more information about each share class.
|
2
|
|
Class R Shares are currently offered only
by Global Opportunities, Health Sciences Opportunities and Science & Technology Opportunities.
|
3
|
|
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.
|
4
|
|
The Funds 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.
|
The following
pages will cover the additional details of each share class,
including the Institutional and Class R 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.
46
Details
About the Share Classes
Investor
A Shares Initial Sales Charge Options
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 1.00% 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 Shares 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, the 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 investors 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 investors
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 Letter of Intent and right of accumulation
the investor may not combine with the investors 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 the Fund, the investor should inform the 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
intermediary or BlackRock Funds, may result in the investor
not receiving the sales charge reduction to which the investor
is otherwise entitled.
47
The 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 investors 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 investors 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 investors intention to buy a specified amount
of Investor A, Investor C 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 investors 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 investors 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 individual
retirement account (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 of 1986, as amended (the
Internal Revenue Code);
|
n
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|
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;
|
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 Funds, the
Funds manager, the Funds 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.
|
48
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 1.00% 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 acquire 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 each Funds
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 a sales concession of 4.00% of the purchase
price of Investor B Shares to dealers 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 fees,
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.
Investor
B Shares
If you redeem
Investor B Shares of a Fund 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
|
|
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|
Sales Charge
1
|
0 1
|
|
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|
4.50%
|
1 2
|
|
|
|
4.00%
|
2 3
|
|
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|
3.50%
|
3 4
|
|
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|
3.00%
|
4 5
|
|
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|
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.
|
49
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 a fixed income fund
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 BlackRock 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 a 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 a Fund, BlackRock or an affiliate;
|
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 a Fund, BlackRock or their affiliates;
|
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 intermediary
can help you determine whether you are eligible to buy Institutional
Shares. The Fund may permit a lower initial investment to 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 a Fund may make additional purchases of Institutional Shares of that Fund directly from the Fund;
|
50
n
|
|
Institutional and individual retail investors
with a minimum investment of $2 million who purchase directly from the Fund;
|
n
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|
Certain qualified retirement plans;
|
n
|
|
Investors in selected fee based programs;
|
n
|
|
Clients of registered investment advisors
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 a Fund; and
|
n
|
|
Employees, officers and directors/trustees
of BlackRock Inc., BlackRock Funds, Merrill Lynch, The PNC Financial Services Group, Inc. (PNC), Barclays or
their respective affiliates.
|
Class R
Shares (offered only by Global Opportunities, Health Sciences
Opportunities and Science & Technology Opportunities)
Class R Shares
are available only to certain retirement and other similar
plans. If you buy Class R Shares, you will pay neither an initial
sales charge nor a contingent deferred sales charge. However,
Class R Shares are subject to a distribution fee of 0.25% per
year and a service fee of 0.25% per year. Because these fees
are paid out of a Funds 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. Class
R Shares do not offer a conversion privilege.
The Distributor
currently pays the annual Class R Shares distribution fee and
annual Class R Shares service fee to dealers as an ongoing
concession and as a shareholder servicing fee, respectively,
on a monthly basis.
Distribution
and Service Payments
The Trust,
on behalf of the Funds, has adopted a plan (the Plan)
with respect to the Investor Shares and Class R Shares that
allows each Fund to pay a distribution fee 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, Investor C and Class R Shares pay a fee (distribution
fee) to the Distributor and/or its affiliates, including
PNC and its affiliates, for distribution and sales support
services. The distribution fee 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, Investor C and Class
R Shares. The distribution fee 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, Investor C and
Class R Shares pay a maximum distribution fee per year that
is a percentage of the average daily net asset value of the
applicable Fund attributable to Investor B, Investor C and
Class R 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 each
Fund to Financial Intermediaries for providing support services
to their customers who own Investor A, Investor B, Investor
C and Class R Shares. The shareholder servicing fee payment
is calculated as a percentage of the average daily net asset
value of Investor A, Investor B, Investor C and Class R Shares
of the Fund. All Investor A, Investor B, Investor C and Class
R 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 A, Investor B, Investor
C and Class R Shares:
n
|
|
Responding to customer questions on the
services performed by the Financial Intermediary and investments in Investor A, Investor B, Investor C and Class R Shares;
|
n
|
|
Assisting customers in choosing and changing
dividend options, account designations and addresses; and
|
n
|
|
Providing other similar shareholder liaison
services.
|
51
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 a Funds shares. Because
the fees paid by the Funds 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, Investor C and Class R 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 a Fund may pay to a Financial
Intermediary pursuant to the Plan and fees that a Fund pays
to its transfer agent. BNY Mellon Investment Servicing (US)
Inc. (the Transfer Agent), BlackRock, on behalf
of a 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 Funds). 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 Funds or for
these other services to the Funds 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 a Fund to you. Please contact your Financial Intermediary
for details about payments it may receive from a 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 other
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 intermediary may help you with
this decision.
Each Fund 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 Funds 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 shareholders shares
in a Fund may be transferred to that state.
52
How to Buy
Shares
|
|
|
|
Your Choices
|
|
|
|
Important Information for You
to Know
|
Initial Purchase
|
|
|
|
First, select the share class appropriate for you
|
|
|
|
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).
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
Class R Shares are available only to certain retirement
and
other
similar
plans.
|
|
|
|
|
Next, determine the amount of your investment
|
|
|
|
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 for Investor C Shares.
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
Have your financial intermediary submit your purchase order
|
|
|
|
The
price of your shares is based
on the next calculation of
the Funds 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 applicable
Funds Fees and
Expenses table.
|
|
|
|
|
|
|
|
|
The Fund may reject any order to buy shares and may suspend
the
sale
of
shares
at
any
time.
Other
financial
intermediaries
may
charge
a
processing
fee
to
confirm
a
purchase.
|
|
|
|
|
Or contact BlackRock (for accounts held directly
with BlackRock)
|
|
|
|
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.
|
Add to Your Investment
|
|
|
|
Purchase additional shares
|
|
|
|
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
and
Class
R
Shares
have
no
minimum
for
additional
purchases.
|
|
|
|
|
Have your financial intermediary submit your
purchase order for additional shares
|
|
|
|
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 Funds have the right to
reject any telephone request
for any reason.
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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
Funds
automated
voice
response
unit
service
(VRU)
at
(800)
441-7762.
|
53
How to Buy
Shares (continued)
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|
|
Your Choices
|
|
|
|
Important Information for You
to Know
|
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
for Institutional Shares placed
by wire prior to the close
of business on the Exchange
will be placed at the net asset
value determined that day.
Contact your financial intermediary
or BlackRock for further information.
Each 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 Funds employ 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
intermediary
(if
your
account
is
not
held
directly
with
BlackRock).
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|
Participate in the Automatic Investment Plan (AIP)
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|
BlackRocks 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.
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|
Refer to the Account Services and Privileges
section
of
this
prospectus
for
additional
information.
|
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 BlackRocks
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.
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|
There is a $20 fee for each purchase check that is returned
due
to
insufficient
funds.
The
Funds
do
not
accept
third-party
checks.
You
may
also
wire
Federal
funds
to
the
Funds
to
purchase
shares,
but
you
must
call
(800)
441-7762
before
doing
so
to
confirm
the
wiring
instructions.
|
54
How to Sell
Shares
|
|
|
|
Your Choices
|
|
|
|
Important Information for You
to Know
|
Full or Partial
Redemption of Shares
|
|
|
|
Have your financial intermediary submit your sales order
|
|
|
|
You
can also make redemption requests
through your financial intermediary.
Shareholders should indicate
whether they are redeeming
Investor A, Investor B, Investor
C, Institutional or Class R
Shares. The price of your shares
is based on the next calculation
of the Funds 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 intermediary
prior to that days 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.
Each
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
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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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Each
Fund, its administrators and
the Distributor will employ
reasonable procedures to confirm
that instructions communicated
by telephone are genuine. Each
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. Each
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 below
alternative redemption methods.
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Redeem by VRU:
Investor shares may also be redeemed by use of the Funds 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.
|
55
How to Sell
Shares (continued)
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|
|
|
Your Choices
|
|
|
|
Important Information for You
to Know
|
Full or Partial Redemption of Shares (continued)
|
|
|
|
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 Funds custodian
is also open for business.
Payment for redemption orders
received after 4:00 p.m. (Eastern
time) or on a day when the
Funds custodian is closed
is normally wired in Federal
funds on the next business
day following redemption on
which the Funds custodian
is open for business. Each
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
a 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
Funds are not responsible for
the efficiency of the Federal
wire system or the shareholders
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 shareholders 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 Funds custodian is
also open for business. Payment
for redemption orders received
after 4:00 p.m. (Eastern time)
or on a day when the Funds
custodian is closed is normally
sent on the next business day
following redemption on which
the Funds custodian is
open for business.
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|
The
Funds reserve the right to
send redemption proceeds within
seven days after receiving
a redemption order if, in the
judgment of the Funds, an earlier
payment could adversely affect
the Fund. No charge for sending
redemption payments via ACH
is imposed by the Funds.
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*
* *
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If you make a redemption request before a Fund has collected
payment
for
the
purchase
of
shares,
the
Fund
may
delay
mailing
your
proceeds.
This
delay
will
usually
not
exceed
ten
days.
|
56
How to Exchange
Shares or Transfer your Account
|
|
|
|
Your Choices
|
|
|
|
Important Information for You
to Know
|
Exchange Privilege
|
|
|
|
Selling shares of one fund to purchase shares of another BlackRock Fund (exchanging)
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|
Investor and Institutional Shares of the Funds are generally exchangeable for shares of the
same class of another BlackRock
Fund. No exchange privilege
is available for Class R Shares.
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|
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 a Fund
may make exchanges into institutional
Shares of other BlackRock Funds
except for investors holding
shares through certain client
accounts at financial intermediaries
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 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 Funds have 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.
Each
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.
|
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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|
|
|
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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.
|
57
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 intermediary 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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|
BlackRocks 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.
|
Dividend Allocation Plan
|
|
|
|
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
distribution
be
invested
must
be
open
to
new
purchases.
|
EZ Trader
|
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|
|
Allows an investor to purchase or sell Investor class 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
intermediary if your account
is held elsewhere).
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|
|
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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|
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|
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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
the
Fund
by
telephone
or
Internet.
Proceeds
will
be
sent
to
your
pre-designated
bank
account.
|
Systematic
Exchange
|
|
|
|
This feature can be used by investors to systematically
exchange money from one fund to up to four other funds.
|
|
|
|
A minimum of $10,000 in the initial BlackRock Fund is
required
and
investments
in
any
additional
funds
must
meet
minimum
initial
investment
requirements.
|
Systematic
Withdrawal Plan
(SWP)
|
|
|
|
This feature can be used by investors who want to receive regular distributions
from their accounts.
|
|
|
|
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 accounts 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 accounts 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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|
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|
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|
|
Ask your financial adviser or financial intermediary
for
details.
|
58
|
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|
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|
|
Reinstatement Privilege
|
|
|
|
|
|
|
|
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
intermediary
of
record
at
the
time
of
the
purchase.
Investors
should
consult
a
tax
advisor
concerning
the
tax
consequences
of
exercising
this
reinstatement
privilege.
|
Each Fund 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 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
|
|
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
|
|
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 a Funds
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.
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 exchanges 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 or redemption
fee.
59
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 a Fund, but may be subject to upfront sales charges
with respect to Investor A Shares. Additional purchases of
Institutional Shares are available 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 Board has
determined that the interests of long-term shareholders and
each Funds 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 Funds are 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 a Fund and
its returns to shareholders. For example, large flows of cash
into and out of a 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 Funds investment
objective. Frequent trading may cause a Fund to sell securities
at less favorable prices, and transaction costs, such as brokerage
commissions, can reduce a Funds performance.
Each Funds
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 Funds portfolio securities and
the determination of the Funds 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. Each Fund will seek to eliminate
these opportunities by using fair value pricing, as described
in Valuation of Fund Investments below.
The Funds discourage
market timing and seek to prevent frequent purchases and sales
or exchanges of Fund shares that they determine may be detrimental
to a 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 Funds or shareholders.
If
as a result of its own investigation, information provided
by a financial intermediary or other third party, or otherwise,
a 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 a 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 a 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 a Fund. Certain
accounts, such as omnibus accounts and accounts at financial
intermediaries, however, include multiple investors and
such accounts typically provide a 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 a Fund. While the Funds monitor for market
timing activity, the Funds 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 Funds. The Distributor has entered into
agreements with respect to financial intermediaries that
maintain omnibus accounts with the Funds 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 Funds shares through such accounts.
Identification of market timers may also be limited by
operational systems and
60
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 Funds
Distributor may terminate such financial intermediarys
agreement with the Distributor, suspend such financial intermediarys
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 Funds may
from time to time use other methods that they believe are appropriate
to deter market timing or other trading activity that may be
detrimental to a Fund or long-term shareholders.
61
Management
of the Funds
BlackRock,
each Funds manager, manages the Funds investments
and its business operations subject to the oversight of the
Trusts Board. While BlackRock is ultimately responsible
for the management of the Funds, 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 commodity pool operator organized in 1994 and an
affiliate of BlackRock, acts as sub-adviser for a portion of
the assets of Global Opportunities. BlackRock International
Limited (BIL), a registered investment adviser
organized in 1995 and also an affiliate of BlackRock, acts
as sub-adviser for International Opportunities. BFM and BIL
may be referred to herein individually as a Sub-Adviser
and collectively as the Sub-Advisers. 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 each Fund pursuant to a management agreement
(the Management Agreement). BlackRock has entered
into a sub-advisory agreement with each Sub-Adviser, under
which BlackRock pays each Sub-Adviser for services it provides
to the applicable Fund a fee equal to a percentage of the management
fee paid by such Fund to BlackRock under the Management Agreement.
Each Sub-Adviser is responsible for the day-to-day management
of the applicable Funds portfolio (or in the case of
Global Opportunities, a portion of the portfolio). Pursuant
to the Management Agreement, BlackRock is entitled to fees
computed daily and payable monthly as described below.
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 Funds investments; and (iv) other extraordinary expenses
(including litigation expenses) not incurred in the ordinary
course of the Funds business, if any), of each share
class of certain Funds at the levels shown below (and in the
case of contractual caps, at the levels shown both below and
in a Funds 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
or reimburse fees or expenses if these operating expenses exceed
a certain limit.
Global Opportunities
Total Annual Management Fee
With respect
to Global Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
0.900%
|
$1 billion $2 billion
|
|
|
|
0.850%
|
$2 billion $3 billion
|
|
|
|
0.800%
|
Greater than $3 billion
|
|
|
|
0.750%
|
62
With respect
to Global Opportunities, BlackRock has agreed contractually
to waive and/or reimburse fees or expenses in order to limit
Total Annual Fund Operating Expenses to the amounts noted in
the table below.
|
|
|
|
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
|
|
|
|
1.33%
|
|
1.33%
|
Investor B
|
|
|
|
2.18%
|
|
2.18%
|
Investor C
|
|
|
|
2.14%
|
|
2.14%
|
Institutional
|
|
|
|
1.06%
|
|
1.06%
|
Class R
|
|
|
|
1.72%
|
|
1.65%
|
1
|
|
As
a percentage of average daily net assets.
|
2
|
|
The contractual cap is in effect until February 1, 2015.
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.
|
International
Opportunities Total Annual Management Fee
With respect
to International Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
1.000%
|
$1 billion $2 billion
|
|
|
|
0.950%
|
$2 billion $3 billion
|
|
|
|
0.900%
|
Greater than $3 billion
|
|
|
|
0.850%
|
With respect
to International Opportunities, BlackRock has agreed contractually
to waive and/or reimburse fees or expenses in order to limit
Total Annual Fund Operating Expenses to the amounts noted in
the table below.
|
|
|
|
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)
|
Investor
A
|
|
|
|
1.98%
|
Investor
B
|
|
|
|
2.75%
|
Investor
C
|
|
|
|
2.75%
|
Institutional
|
|
|
|
1.49%
|
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.
|
U.S. Opportunities
Total Annual Management Fee
With respect
to U.S. Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
1.100%
|
$1 billion $2 billion
|
|
|
|
1.050%
|
$2 billion $3 billion
|
|
|
|
1.025%
|
Greater than $3 billion
|
|
|
|
1.000%
|
63
With respect
to U.S. Opportunities, BlackRock has agreed contractually to
waive and/or reimburse fees or expenses in order to limit Total
Annual Fund Operating Expenses to the amounts noted in the
table below.
|
|
|
|
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
|
|
|
|
1.65%
|
|
1.51%
|
Investor B
|
|
|
|
2.32%
|
|
2.30%
|
Investor C
|
|
|
|
2.32%
|
|
2.25%
|
Institutional
|
|
|
|
1.03%
|
|
1.03%
|
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.
|
Health Sciences
Opportunities Total Annual Management Fee
With respect
to Health Sciences Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
0.750%
|
$1 billion $2 billion
|
|
|
|
0.700%
|
$2 billion $3 billion
|
|
|
|
0.675%
|
Greater than $3 billion
|
|
|
|
0.650%
|
With respect
to Health Sciences Opportunities, BlackRock has agreed contractually
to waive and/or reimburse fees or expenses in order to limit
Total Annual Fund Operating Expenses to the amounts noted in
the table below.
|
|
|
|
Contractual
Cap
1
on Total
Annual Fund Operating
Expenses
2
(excluding Dividend
Expense,
Interest Expense, Acquired
Fund
Fees and Expenses and
certain
other Fund expenses)
|
Class R
|
|
|
|
1.81%
|
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.
|
Science
& Technology Opportunities Total Annual Management Fee
With respect
to Science & Technology Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
0.900%
|
$1 billion $2 billion
|
|
|
|
0.850%
|
$2 billion $3 billion
|
|
|
|
0.800%
|
Greater than $3 billion
|
|
|
|
0.750%
|
With respect
to Science & Technology Opportunities, BlackRock has agreed
contractually to waive and/or reimburse fees or expenses in
order to limit Total Annual Fund Operating Expenses to the
amounts noted in the table below.
64
|
|
|
|
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)
|
Investor A
|
|
|
|
1.80%
|
Investor B
|
|
|
|
2.73%
|
Investor C
|
|
|
|
2.73%
|
Institutional
|
|
|
|
1.39%
|
Class R
|
|
|
|
2.57%
|
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.
|
With respect
to each contractual agreement, if during a Funds 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 of which the share
class is a part has more than $50 million in assets and (ii)
BlackRock or an affiliate serves as the Funds manager
or administrator.
For the fiscal
year ended September 30, 2012, each Fund paid BlackRock management
fees, net of any applicable waivers, as a percentage of each
Funds average daily net assets as follows:
|
|
|
|
|
Global Opportunities
|
|
|
|
0.89%
|
International Opportunities
|
|
|
|
0.98%
|
U.S. Opportunities
|
|
|
|
0.95%
|
Health Sciences Opportunities
|
|
|
|
0.73%
|
Science & Technology Opportunities
|
|
|
|
0.90%
|
A discussion
of the basis for the Boards approval of the Management
Agreement and sub-advisory agreement, if any, with respect
to each of the Funds is included in the respective Funds
annual shareholder report for the fiscal year ended September
30, 2012.
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 Funds are based on numerous factors, may not be relied
on as an indication of trading intent on behalf of the Funds.
Portfolio
Manager Information
Information
regarding the portfolio managers of each Fund is set forth
below. Further information regarding the portfolio managers,
including other accounts managed, compensation, ownership of
Fund shares, and possible conflicts of interest, is available
in the Funds SAI.
65
Global Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent
Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2006
|
|
Managing Director of BlackRock, Inc. since
1998; Head of BlackRocks Global Opportunities equity team.
|
Ian Jamieson, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2011
|
|
Managing Director of BlackRock, Inc. since
2012; Director of BlackRock, Inc. from 2007 to 2011; Vice President of BlackRock, Inc. from 2004 to 2006.
|
Nigel Hart, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2012
|
|
Managing Director of BlackRock, Inc. since
2012; Managing Partner and Portfolio Manager of ReachCapital Management LP from 2000 to 2010.
|
International
Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent
Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
1999
|
|
Managing Director of BlackRock, Inc. since
1998; Head of BlackRocks Global Opportunities equity team.
|
Ian Jamieson, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2011
|
|
Managing Director of BlackRock, Inc. since
2012; Director of BlackRock, Inc. from 2007 to 2011; Vice President of BlackRock, Inc. from 2004 to 2006.
|
Nigel Hart, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2012
|
|
Managing Director of BlackRock, Inc. since
2012; Managing Partner and Portfolio Manager of ReachCapital Management LP from 2000 to 2010.
|
U.S. Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent
Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2002
|
|
Managing Director of BlackRock, Inc. since
1998; Head of BlackRocks Global Opportunities equity team.
|
Jean Rosenbaum, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2002
|
|
Managing Director of BlackRock, Inc. since
2006; Director of BlackRock, Inc. from 2002 to 2005.
|
66
Health Sciences
Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent
Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2005
|
|
Managing Director of BlackRock, Inc. since
1998; Head of BlackRocks Global Opportunities equity team.
|
Erin Xie, PhD
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2003
|
|
Managing Director of BlackRock, Inc. since
2006; Director of BlackRock, Inc. in 2005; Senior Vice President of State Street Research & Management from 2001 to 2005.
|
Science
& Technology Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent
Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2000
|
|
Managing Director of BlackRock, Inc. since
1998; Head of BlackRocks Global Opportunities equity team.
|
Jean Rosenbaum, CFA
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2000
|
|
Managing Director of BlackRock, Inc. since
2006; Director of BlackRock, Inc. from 2002 to 2005.
|
Erin Xie, PhD
|
|
Jointly and primarily responsible for the day-to-day
management of the Funds portfolio, including setting the Funds overall investment strategy and overseeing the
management of the Fund.
|
|
2005
|
|
Managing Director of BlackRock, Inc. since
2006; Director of BlackRock, Inc. in 2005; Senior Vice President of State Street Research & Management from 2001 to 2005.
|
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 Funds
and their 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 funds. 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 Funds. 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 Funds directly
and indirectly invest. Thus, it is likely that the Funds 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 similar
to those of the Funds and/or that engage in and compete for
transactions in the same types of securities, currencies and
other instruments as the Funds. The trading activities of these
Affiliates are carried out without reference to positions held
directly or indirectly by the Funds and may result in an Affiliate
having positions that are adverse to those of the Funds. No
Affiliate is under any obligation to share any investment opportunity,
idea or strategy with the Funds. As a result, an Affiliate
may compete with the Funds for appropriate investment opportunities.
The results of the Funds investment activities, therefore,
may differ from those of an Affiliate and of other accounts
managed by an Affiliate, and it is possible that the Funds
could sustain losses during periods in which one or more
67
Affiliates
and other accounts achieve profits on their trading for proprietary
or other accounts. The opposite result is also possible. In
addition, the Funds 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 Funds. 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 Funds. The Funds
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 Funds 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 Funds 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 Funds or who engage in transactions with or for the Funds,
and may receive compensation for such services. The Funds may
also make brokerage and other payments to Affiliates in connection
with the Funds portfolio investment transactions.
Under a securities
lending program approved by the Board, the Trust, on behalf
of the Funds, has retained an Affiliate of BlackRock to serve
as the securities lending agent for the Funds to the extent
that the Funds participate in the securities lending program.
For these services, the lending agent may receive a fee from
the Funds, including a fee based on the returns earned on the
Funds 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 Funds may lend their
portfolio securities under the securities lending program.
The activities
of Affiliates may give rise to other conflicts of interest
that could disadvantage the Funds and their 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. A Fund 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, Investor
C or Class R Shares, and Class R Shares will have a higher
net asset value than Investor B or Investor C Shares. Also,
dividends paid on Investor A, Institutional and Class R Shares
will generally be higher than dividends paid on Investor B
and Investor C Shares because Investor A, Institutional and
Class R Shares have lower expenses.
Each Funds
assets and liabilities are valued primarily on the basis of
market quotations. Equity investments and other investments
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.
Each 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 a Fund
may trade on weekends or other days when the Fund does not
price its shares. As a result, a Funds net asset value
may change on days when you will not be able to purchase or
redeem the Funds 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 a Funds shares are determined
as of such times.
When market
quotations are not readily available or are not believed by
BlackRock to be reliable, a Funds 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
68
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 a Funds 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 a Funds 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 a Funds 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 a Funds 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 the Fund pays a dividend.
The reason? If you buy shares
when a 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.
|
Each Fund will
distribute net investment income, if any, and net realized
capital gain, if any, at least annually. Each 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 a 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 applicable Fund. Although this
cannot be predicted with any certainty, each 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 a 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, each 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 a 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 a 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, each Funds 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 a 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.
69
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 a 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 a Fund. It is not a substitute for
personal tax advice. Consult your personal tax adviser about
the potential tax consequences of an investment in a Fund under
all applicable tax laws.
70
The Financial
Highlights tables are intended to help you understand each
Funds 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
indicated Fund (assuming reinvestment of all dividends and/or
distributions). The information has been audited by Deloitte
& Touche LLP, whose report, along with each Funds
financial statements, is included in each Funds Annual
Report, which is available upon request.
Global Opportunities
|
|
|
|
Institutional
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
9.32
|
|
|
$
|
10.52
|
|
|
$
|
10.13
|
|
|
$
|
9.96
|
|
|
$
|
13.31
|
|
Net investment income
1
|
|
|
|
|
0.14
|
|
|
|
0.08
|
|
|
|
0.06
|
|
|
|
0.06
|
|
|
|
0.09
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.67
|
|
|
|
(1.20
|
)
2
|
|
|
0.48
|
2
|
|
|
0.12
|
2
|
|
|
(2.77
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.81
|
|
|
|
(1.12
|
)
|
|
|
0.54
|
|
|
|
0.18
|
|
|
|
(2.68
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.02
|
)
|
|
|
(0.08
|
)
|
|
|
(0.15
|
)
|
|
|
(0.01
|
)
|
|
|
(0.17
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.50
|
)
|
Total dividends and distributions
|
|
|
|
|
(0.02
|
)
|
|
|
(0.08
|
)
|
|
|
(0.15
|
)
|
|
|
(0.01
|
)
|
|
|
(0.67
|
)
|
Net asset value, end of year
|
|
|
|
$
|
11.11
|
|
|
$
|
9.32
|
|
|
$
|
10.52
|
|
|
$
|
10.13
|
|
|
$
|
9.96
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
19.45
|
%
|
|
|
(10.81
|
)%
4
|
|
|
5.32
|
%
4
|
|
|
1.78
|
%
4
|
|
|
(21.16
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.25
|
%
|
|
|
1.53
|
%
|
|
|
1.43
|
%
|
|
|
1.50
|
%
|
|
|
1.33
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.25
|
%
|
|
|
1.52
|
%
|
|
|
1.42
|
%
|
|
|
1.49
|
%
|
|
|
1.33
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.06
|
%
|
|
|
1.34
|
%
|
|
|
1.37
|
%
|
|
|
1.36
|
%
|
|
|
1.32
|
%
|
Net investment income
|
|
|
|
|
1.35
|
%
|
|
|
0.68
|
%
|
|
|
0.64
|
%
|
|
|
0.70
|
%
|
|
|
0.77
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
54,448
|
|
|
$
|
58,793
|
|
|
$
|
21,699
|
|
|
$
|
16,971
|
|
|
$
|
36,625
|
|
Portfolio turnover
|
|
|
|
|
122
|
%
|
|
|
137
|
%
|
|
|
146
|
%
|
|
|
190
|
%
|
|
|
181
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
71
Financial
Highlights
(continued)
Global Opportunities
(continued)
|
|
|
|
Investor A
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
9.26
|
|
|
$
|
10.45
|
|
|
$
|
10.08
|
|
|
$
|
9.92
|
|
|
$
|
13.27
|
|
Net investment income (loss)
1
|
|
|
|
|
0.11
|
|
|
|
0.05
|
|
|
|
0.03
|
|
|
|
0.04
|
|
|
|
0.06
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.66
|
|
|
|
(1.20
|
)
2
|
|
|
0.46
|
2
|
|
|
0.12
|
2
|
|
|
(2.77
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.77
|
|
|
|
(1.15
|
)
|
|
|
0.49
|
|
|
|
0.16
|
|
|
|
(2.71
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
(0.14
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.50
|
)
|
Total dividends and distributions
|
|
|
|
|
(0.01
|
)
|
|
|
(0.04
|
)
|
|
|
(0.12
|
)
|
|
|
|
|
|
|
(0.64
|
)
|
Net asset value, end of year
|
|
|
|
$
|
11.02
|
|
|
$
|
9.26
|
|
|
$
|
10.45
|
|
|
$
|
10.08
|
|
|
$
|
9.92
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
19.16
|
%
|
|
|
(11.11
|
)%
4
|
|
|
4.92
|
%
4
|
|
|
1.61
|
%
4
|
|
|
(21.44
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.52
|
%
|
|
|
1.76
|
%
|
|
|
1.72
|
%
|
|
|
1.81
|
%
|
|
|
1.60
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.52
|
%
|
|
|
1.74
|
%
|
|
|
1.70
|
%
|
|
|
1.80
|
%
|
|
|
1.60
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.33
|
%
|
|
|
1.61
|
%
|
|
|
1.67
|
%
|
|
|
1.66
|
%
|
|
|
1.60
|
%
|
Net investment income (loss)
|
|
|
|
|
1.06
|
%
|
|
|
0.42
|
%
|
|
|
0.32
|
%
|
|
|
0.49
|
%
|
|
|
0.49
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
195,961
|
|
|
$
|
210,299
|
|
|
$
|
39,280
|
|
|
$
|
45,110
|
|
|
$
|
37,529
|
|
Portfolio turnover
|
|
|
|
|
122
|
%
|
|
|
137
|
%
|
|
|
146
|
%
|
|
|
190
|
%
|
|
|
181
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
72
Financial
Highlights
(continued)
Global Opportunities
(continued)
|
|
|
|
Investor B
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
9.10
|
|
|
$
|
10.31
|
|
|
$
|
9.93
|
|
|
$
|
9.83
|
|
|
$
|
13.16
|
|
Net investment income (loss)
1
|
|
|
|
|
0.02
|
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
(0.04
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.63
|
|
|
|
(1.17
|
)
2
|
|
|
0.45
|
2
|
|
|
0.12
|
2
|
|
|
(2.76
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.65
|
|
|
|
(1.21
|
)
|
|
|
0.41
|
|
|
|
0.10
|
|
|
|
(2.80
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
(0.03
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.50
|
)
|
Total dividends and distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
(0.53
|
)
|
Net asset value, end of year
|
|
|
|
$
|
10.75
|
|
|
$
|
9.10
|
|
|
$
|
10.31
|
|
|
$
|
9.93
|
|
|
$
|
9.83
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
18.13
|
%
|
|
|
(11.74
|
)%
4
|
|
|
4.09
|
%
4
|
|
|
1.02
|
%
4
|
|
|
(22.13
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.21
|
%
|
|
|
2.56
|
%
|
|
|
2.45
|
%
|
|
|
2.65
|
%
|
|
|
2.37
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.20
|
%
|
|
|
2.53
|
%
|
|
|
2.45
|
%
|
|
|
2.63
|
%
|
|
|
2.37
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.18
|
%
|
|
|
2.42
|
%
|
|
|
2.43
|
%
|
|
|
2.42
|
%
|
|
|
2.36
|
%
|
Net investment income (loss)
|
|
|
|
|
0.21
|
%
|
|
|
(0.39
|
)%
|
|
|
(0.44
|
)%
|
|
|
(0.25
|
)%
|
|
|
(0.30
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
5,412
|
|
|
$
|
6,750
|
|
|
$
|
3,617
|
|
|
$
|
4,351
|
|
|
$
|
5,665
|
|
Portfolio turnover
|
|
|
|
|
122
|
%
|
|
|
137
|
%
|
|
|
146
|
%
|
|
|
190
|
%
|
|
|
181
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
73
Financial
Highlights
(continued)
Global Opportunities
(continued)
|
|
|
|
Investor C
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
9.06
|
|
|
$
|
10.27
|
|
|
$
|
9.91
|
|
|
$
|
9.82
|
|
|
$
|
13.16
|
|
Net investment income (loss)
1
|
|
|
|
|
0.03
|
|
|
|
(0.04
|
)
|
|
|
(0.04
|
)
|
|
|
(0.02
|
)
|
|
|
(0.03
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.62
|
|
|
|
(1.17
|
)
2
|
|
|
0.45
|
2
|
|
|
0.11
|
2
|
|
|
(2.77
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.65
|
|
|
|
(1.21
|
)
|
|
|
0.41
|
|
|
|
0.09
|
|
|
|
(2.80
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
(0.04
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.50
|
)
|
Total dividends and distributions
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
(0.54
|
)
|
Net asset value, end of year
|
|
|
|
$
|
10.71
|
|
|
$
|
9.06
|
|
|
$
|
10.27
|
|
|
$
|
9.91
|
|
|
$
|
9.82
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
18.21
|
%
|
|
|
(11.78
|
)%
4
|
|
|
4.13
|
%
4
|
|
|
0.92
|
%
4
|
|
|
(22.14
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.32
|
%
|
|
|
2.59
|
%
|
|
|
2.49
|
%
|
|
|
2.62
|
%
|
|
|
2.38
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.32
|
%
|
|
|
2.57
|
%
|
|
|
2.49
|
%
|
|
|
2.62
|
%
|
|
|
2.38
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.14
|
%
|
|
|
2.42
|
%
|
|
|
2.44
|
%
|
|
|
2.42
|
%
|
|
|
2.37
|
%
|
Net investment income (loss)
|
|
|
|
|
0.26
|
%
|
|
|
(0.38
|
)%
|
|
|
(0.40
|
)%
|
|
|
(0.26
|
)%
|
|
|
(0.26
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
54,332
|
|
|
$
|
58,687
|
|
|
$
|
19,554
|
|
|
$
|
16,348
|
|
|
$
|
18,074
|
|
Portfolio turnover
|
|
|
|
|
122
|
%
|
|
|
137
|
%
|
|
|
146
|
%
|
|
|
190
|
%
|
|
|
181
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
74
Financial
Highlights
(continued)
Global Opportunities
(concluded)
|
|
|
|
Class R
|
|
|
|
|
|
Year Ended
September 30,
2012
|
|
Period
September
12, 2011
1
to
September 30, 2011
|
Per Share Operating
Performance
|
|
Net asset value, beginning of period
|
|
|
|
$
|
9.26
|
|
|
$
|
9.76
|
|
Net investment income (loss)
2
|
|
|
|
|
0.08
|
|
|
|
0.00
|
3
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.65
|
|
|
|
(0.50
|
)
4
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.73
|
|
|
|
(0.50
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.00
|
)
5
|
|
|
|
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period.
|
|
|
|
$
|
10.99
|
|
|
$
|
9.26
|
|
Total Investment Return
6
|
Based on net asset value
|
|
|
|
|
18.72
|
%
|
|
|
(4.83
|
)%
7,8
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.80
|
%
|
|
|
1.98%
9
|
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.79
|
%
|
|
|
1.98%
9
|
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.65
|
%
|
|
|
1.72%
9
|
|
Net investment income (loss)
|
|
|
|
|
0.74
|
%
|
|
|
0.23%
9
|
|
Supplemental Data
|
Net assets, end of period (000)
|
|
|
|
$
|
14,704
|
|
|
$
|
14,891
|
|
Portfolio turnover
|
|
|
|
|
122
|
%
|
|
|
137
|
%
|
1
|
|
Commencement of operations.
|
2
|
|
Based on average shares outstanding.
|
3
|
|
Less than $0.01 per share.
|
4
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
5
|
|
Less than $(0.01) per share.
|
6
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
7
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
8
|
|
Aggregate total investment return.
|
75
Financial
Highlights
(continued)
International
Opportunities
(continued)
|
|
|
|
Institutional
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
28.37
|
|
|
$
|
32.76
|
|
|
$
|
31.36
|
|
|
$
|
29.44
|
|
|
$
|
51.08
|
|
Net investment income
1
|
|
|
|
|
0.56
|
|
|
|
0.49
|
|
|
|
0.28
|
|
|
|
0.34
|
|
|
|
0.47
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
4.49
|
|
|
|
(4.52
|
)
2
|
|
|
1.58
|
2
|
|
|
1.68
|
2
|
|
|
(13.66
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
5.05
|
|
|
|
(4.03
|
)
|
|
|
1.86
|
|
|
|
2.02
|
|
|
|
(13.19
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.60
|
)
|
|
|
(0.36
|
)
|
|
|
(0.46
|
)
|
|
|
(0.10
|
)
|
|
|
(1.21
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.24
|
)
|
Total dividends and distributions
|
|
|
|
|
(0.60
|
)
|
|
|
(0.36
|
)
|
|
|
(0.46
|
)
|
|
|
(0.10
|
)
|
|
|
(8.45
|
)
|
Net asset value, end of year
|
|
|
|
$
|
32.82
|
|
|
$
|
28.37
|
|
|
$
|
32.76
|
|
|
$
|
31.36
|
|
|
$
|
29.44
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
18.08
|
%
|
|
|
(12.50
|
)%
4
|
|
|
5.99
|
%
4
|
|
|
6.99
|
%
4
|
|
|
(30.87
|
)%
4,5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.29
|
%
|
|
|
1.26
|
%
|
|
|
1.35
|
%
|
|
|
1.45
|
%
|
|
|
1.25
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.29
|
%
|
|
|
1.26
|
%
|
|
|
1.34
|
%
|
|
|
1.45
|
%
|
|
|
1.25
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.29
|
%
|
|
|
1.26
|
%
|
|
|
1.35
|
%
|
|
|
1.43
|
%
|
|
|
1.25
|
%
|
Net investment income
|
|
|
|
|
1.83
|
%
|
|
|
1.41
|
%
|
|
|
0.91
|
%
|
|
|
1.36
|
%
|
|
|
1.18
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
798,205
|
|
|
$
|
792,695
|
|
|
$
|
802,167
|
|
|
$
|
673,420
|
|
|
$
|
450,605
|
|
Portfolio turnover
|
|
|
|
|
99
|
%
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
143
|
%
|
|
|
138
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Payment from affiliate of $112,880 received
by the Fund is reflected in total return calculations. There was no impact to the return.
|
76
Financial
Highlights
(continued)
International
Opportunities
(continued)
|
|
|
|
Investor A
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
27.10
|
|
|
$
|
31.33
|
|
|
$
|
30.02
|
|
|
$
|
28.14
|
|
|
$
|
49.19
|
|
Net investment income (loss)
1
|
|
|
|
|
0.45
|
|
|
|
0.39
|
|
|
|
0.21
|
|
|
|
0.27
|
|
|
|
0.33
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
4.30
|
|
|
|
(4.34
|
)
2
|
|
|
1.50
|
2
|
|
|
1.62
|
2
|
|
|
(13.09
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
4.75
|
|
|
|
(3.95
|
)
|
|
|
1.71
|
|
|
|
1.89
|
|
|
|
(12.76
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.52
|
)
|
|
|
(0.28
|
)
|
|
|
(0.40
|
)
|
|
|
(0.01
|
)
|
|
|
(1.05
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.24
|
)
|
Total dividends and distributions
|
|
|
|
|
(0.52
|
)
|
|
|
(0.28
|
)
|
|
|
(0.40
|
)
|
|
|
(0.01
|
)
|
|
|
(8.29
|
)
|
Net asset value, end of year
|
|
|
|
$
|
31.33
|
|
|
$
|
27.10
|
|
|
$
|
31.33
|
|
|
$
|
30.02
|
|
|
$
|
28.14
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
17.74
|
%
|
|
|
(12.77
|
)%
4
|
|
|
5.73
|
%
4
|
|
|
6.73
|
%
4
|
|
|
(31.09
|
)%
4,5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.57
|
%
|
|
|
1.54
|
%
|
|
|
1.59
|
%
|
|
|
1.68
|
%
|
|
|
1.58
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.57
|
%
|
|
|
1.54
|
%
|
|
|
1.59
|
%
|
|
|
1.68
|
%
|
|
|
1.58
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.57
|
%
|
|
|
1.53
|
%
|
|
|
1.59
|
%
|
|
|
1.68
|
%
|
|
|
1.58
|
%
|
Net investment income (loss)
|
|
|
|
|
1.52
|
%
|
|
|
1.16
|
%
|
|
|
0.72
|
%
|
|
|
1.15
|
%
|
|
|
0.87
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
692,445
|
|
|
$
|
703,201
|
|
|
$
|
794,034
|
|
|
$
|
604,283
|
|
|
$
|
482,526
|
|
Portfolio turnover
|
|
|
|
|
99
|
%
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
143
|
%
|
|
|
138
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Payment from affiliate of $112,880 received
by the Fund is reflected in total return calculations. There was no impact to the return.
|
77
Financial
Highlights
(continued)
International
Opportunities
(continued)
|
|
|
|
Investor B
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
25.18
|
|
|
$
|
29.10
|
|
|
$
|
27.83
|
|
|
$
|
26.29
|
|
|
$
|
46.43
|
|
Net investment income (loss)
1
|
|
|
|
|
0.16
|
|
|
|
0.10
|
|
|
|
(0.05
|
)
|
|
|
0.09
|
|
|
|
(0.06
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
4.03
|
|
|
|
(4.01
|
)
2
|
|
|
1.42
|
2
|
|
|
1.45
|
2
|
|
|
(12.16
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
4.19
|
|
|
|
(3.91
|
)
|
|
|
1.37
|
|
|
|
1.54
|
|
|
|
(12.22
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.22
|
)
|
|
|
(0.01
|
)
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
(0.68
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.24
|
)
|
Total dividends and distributions
|
|
|
|
|
(0.22
|
)
|
|
|
(0.01
|
)
|
|
|
(0.10
|
)
|
|
|
|
|
|
|
(7.92
|
)
|
Net asset value, end of year
|
|
|
|
$
|
29.15
|
|
|
$
|
25.18
|
|
|
$
|
29.10
|
|
|
$
|
27.83
|
|
|
$
|
26.29
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
16.72
|
%
|
|
|
(13.45
|
)%
4
|
|
|
4.92
|
%
4
|
|
|
5.86
|
%
4
|
|
|
(31.63
|
)%
4,5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.41
|
%
|
|
|
2.32
|
%
|
|
|
2.38
|
%
|
|
|
2.49
|
%
|
|
|
2.35
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.41
|
%
|
|
|
2.32
|
%
|
|
|
2.38
|
%
|
|
|
2.49
|
%
|
|
|
2.35
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.41
|
%
|
|
|
2.32
|
%
|
|
|
2.38
|
%
|
|
|
2.49
|
%
|
|
|
2.35
|
%
|
Net investment income (loss)
|
|
|
|
|
0.60
|
%
|
|
|
0.34
|
%
|
|
|
(0.18
|
)%
|
|
|
0.41
|
%
|
|
|
(0.15
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
10,813
|
|
|
$
|
15,568
|
|
|
$
|
25,080
|
|
|
$
|
33,094
|
|
|
$
|
42,927
|
|
Portfolio turnover
|
|
|
|
|
99
|
%
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
143
|
%
|
|
|
138
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Payment from affiliate of $112,880 received
by the Fund is reflected in total return calculations. There was no impact to the return.
|
78
Financial
Highlights
(continued)
International
Opportunities
(concluded)
|
|
|
|
Investor C
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
24.98
|
|
|
$
|
28.92
|
|
|
$
|
27.74
|
|
|
$
|
26.21
|
|
|
$
|
46.34
|
|
Net investment income (loss)
1
|
|
|
|
|
0.20
|
|
|
|
0.11
|
|
|
|
(0.02
|
)
|
|
|
0.08
|
|
|
|
0.03
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
3.98
|
|
|
|
(3.98
|
)
2
|
|
|
1.39
|
2
|
|
|
1.45
|
2
|
|
|
(12.20
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
4.18
|
|
|
|
(3.87
|
)
|
|
|
1.37
|
|
|
|
1.53
|
|
|
|
(12.17
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.25
|
)
|
|
|
(0.07
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
(0.72
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.24
|
)
|
Total dividends and distributions
|
|
|
|
|
(0.25
|
)
|
|
|
(0.07
|
)
|
|
|
(0.19
|
)
|
|
|
|
|
|
|
(7.96
|
)
|
Net asset value, end of year
|
|
|
|
$
|
28.91
|
|
|
$
|
24.98
|
|
|
$
|
28.92
|
|
|
$
|
27.74
|
|
|
$
|
26.21
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
16.83
|
%
|
|
|
(13.44
|
)%
4
|
|
|
4.95
|
%
4
|
|
|
5.84
|
%
4
|
|
|
(31.61
|
)%
4,5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.34
|
%
|
|
|
2.31
|
%
|
|
|
2.36
|
%
|
|
|
2.49
|
%
|
|
|
2.32
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.34
|
%
|
|
|
2.31
|
%
|
|
|
2.36
|
%
|
|
|
2.49
|
%
|
|
|
2.32
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.34
|
%
|
|
|
2.31
|
%
|
|
|
2.36
|
%
|
|
|
2.48
|
%
|
|
|
2.32
|
%
|
Net investment income (loss)
|
|
|
|
|
0.73
|
%
|
|
|
0.37
|
%
|
|
|
(0.06
|
)%
|
|
|
0.38
|
%
|
|
|
0.08
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
148,910
|
|
|
$
|
169,481
|
|
|
$
|
224,958
|
|
|
$
|
187,246
|
|
|
$
|
194,068
|
|
Portfolio turnover
|
|
|
|
|
99
|
%
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
143
|
%
|
|
|
138
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Payment from affiliate of $112,880 received
by the Fund is reflected in total return calculations. There was no impact to the return.
|
79
Financial
Highlights
(continued)
U.S. Opportunities
|
|
|
|
Institutional
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
33.86
|
|
|
$
|
36.94
|
|
|
$
|
32.20
|
|
|
$
|
31.69
|
|
|
$
|
37.05
|
|
Net investment income (loss)
1
|
|
|
|
|
0.19
|
|
|
|
0.05
|
|
|
|
0.04
|
|
|
|
0.09
|
|
|
|
0.09
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
6.31
|
|
|
|
(2.44
|
)
2
|
|
|
4.77
|
2
|
|
|
0.42
|
2
|
|
|
(5.45
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
6.50
|
|
|
|
(2.39
|
)
|
|
|
4.81
|
|
|
|
0.51
|
|
|
|
(5.36
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
(0.07
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
Net realized gains
|
|
|
|
|
(3.94
|
)
|
|
|
(0.69
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
|
|
(3.94
|
)
|
|
|
(0.69
|
)
|
|
|
(0.07
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
Redemption fees added to paid-in capital
|
|
|
|
|
|
|
|
|
0.00
|
3
|
|
|
0.00
|
3
|
|
|
0.01
|
|
|
|
0.00
3
|
|
Net asset value, end of year
|
|
|
|
$
|
36.42
|
|
|
$
|
33.86
|
|
|
$
|
36.94
|
|
|
$
|
32.20
|
|
|
$
|
31.69
|
|
Total Investment Return
4
|
Based on net asset value
|
|
|
|
|
20.40
|
%
|
|
|
(6.75
|
)%
5
|
|
|
14.96
|
%
5,6
|
|
|
1.63
|
%
7
|
|
|
(14.47
|
)%
5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.30
|
%
|
|
|
1.36
|
%
|
|
|
1.30
|
%
|
|
|
1.40
|
%
|
|
|
1.42
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.30
|
%
|
|
|
1.36
|
%
|
|
|
1.30
|
%
|
|
|
1.40
|
%
|
|
|
1.42
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.03
|
%
|
|
|
1.03
|
%
|
|
|
1.03
|
%
|
|
|
1.01
|
%
|
|
|
1.00
|
%
|
Net investment income (loss)
|
|
|
|
|
0.52
|
%
|
|
|
0.12
|
%
|
|
|
0.13
|
%
|
|
|
0.36
|
%
|
|
|
0.26
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
1,294,928
|
|
|
$
|
1,905,254
|
|
|
$
|
1,588,509
|
|
|
$
|
890,264
|
|
|
$
|
298,166
|
|
Portfolio turnover
|
|
|
|
|
106
|
%
|
|
|
120
|
%
|
|
|
123
|
%
|
|
|
166
|
%
|
|
|
164
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Less than $0.01 per share.
|
4
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
5
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
7
|
|
Redemption fee of 2.00% is reflected in
total return calculations. The impact to the return from redemption fees received during the period was an increase of 0.03%.
|
80
Financial
Highlights
(continued)
U.S. Opportunities
(continued)
|
|
|
|
Investor A
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
32.08
|
|
|
$
|
35.02
|
|
|
$
|
30.61
|
|
|
$
|
30.29
|
|
|
$
|
35.57
|
|
Net investment income (loss)
1
|
|
|
|
|
0.01
|
|
|
|
(0.13
|
)
|
|
|
(0.12
|
)
|
|
|
(0.04
|
)
|
|
|
(0.08
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
5.97
|
|
|
|
(2.31
|
)
2
|
|
|
4.53
|
2
|
|
|
0.35
|
2
|
|
|
(5.20
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
5.98
|
|
|
|
(2.44
|
)
|
|
|
4.41
|
|
|
|
0.31
|
|
|
|
(5.28
|
)
|
Distributions from net realized gains
|
|
|
|
|
(3.76
|
)
|
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption fees added to paid-in capital
|
|
|
|
|
|
|
|
|
0.00
|
3
|
|
|
0.00
|
3
|
|
|
0.01
|
|
|
|
0.00
|
3
|
Net asset value, end of year
|
|
|
|
$
|
34.30
|
|
|
$
|
32.08
|
|
|
$
|
35.02
|
|
|
$
|
30.61
|
|
|
$
|
30.29
|
|
Total Investment Return
4
|
Based on net asset value
|
|
|
|
|
19.82
|
%
|
|
|
(7.19
|
)%
5
|
|
|
14.41
|
%
5,6
|
|
|
1.06
|
%
7
|
|
|
(14.84
|
)%
5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.62
|
%
|
|
|
1.59
|
%
|
|
|
1.64
|
%
|
|
|
1.76
|
%
|
|
|
1.73
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.62
|
%
|
|
|
1.59
|
%
|
|
|
1.64
|
%
|
|
|
1.75
|
%
|
|
|
1.73
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.51
|
%
|
|
|
1.49
|
%
|
|
|
1.51
|
%
|
|
|
1.56
|
%
|
|
|
1.48
|
%
|
Net investment loss
|
|
|
|
|
0.03
|
%
|
|
|
(0.34
|
)%
|
|
|
(0.37
|
)%
|
|
|
(0.15
|
)%
|
|
|
(0.22
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
610,343
|
|
|
$
|
888,293
|
|
|
$
|
1,158,626
|
|
|
$
|
855,127
|
|
|
$
|
495,656
|
|
Portfolio turnover
|
|
|
|
|
106
|
%
|
|
|
120
|
%
|
|
|
123
|
%
|
|
|
166
|
%
|
|
|
164
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Less than $0.01 per share.
|
4
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
5
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
7
|
|
Redemption fee of 2.00% is reflected in
total return calculations. The impact to the return from redemption fees received during the period was an increase of 0.04%.
|
81
Financial
Highlights
(continued)
U.S. Opportunities
(continued)
|
|
|
|
Investor B
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
29.11
|
|
|
$
|
31.96
|
|
|
$
|
28.16
|
|
|
$
|
28.06
|
|
|
$
|
33.20
|
|
Net investment income (loss)
1
|
|
|
|
|
(0.23
|
)
|
|
|
(0.40
|
)
|
|
|
(0.35
|
)
|
|
|
(0.17
|
)
|
|
|
(0.31
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
5.39
|
|
|
|
(2.06
|
)
2
|
|
|
4.15
2
|
|
|
|
0.26
2
|
|
|
|
(4.83
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
5.16
|
|
|
|
(2.46
|
)
|
|
|
3.80
|
|
|
|
0.09
|
|
|
|
(5.14
|
)
|
Distributions from net realized gains
|
|
|
|
|
(3.55
|
)
|
|
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption fees added to paid-in capital
|
|
|
|
|
|
|
|
|
0.00
|
3
|
|
|
0.00
|
3
|
|
|
0.01
|
|
|
|
0.00
|
3
|
Net asset value, end of year
|
|
|
|
$
|
30.72
|
|
|
$
|
29.11
|
|
|
$
|
31.96
|
|
|
$
|
28.16
|
|
|
$
|
28.06
|
|
Total Investment Return
4
|
Based on net asset value
|
|
|
|
|
18.87
|
%
|
|
|
(7.90
|
)%
5
|
|
|
13.49
|
%
5,6
|
|
|
0.36
|
%
7
|
|
|
(15.48
|
)%
5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.42
|
%
|
|
|
2.39
|
%
|
|
|
2.44
|
%
|
|
|
2.59
|
%
|
|
|
2.56
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.42
|
%
|
|
|
2.37
|
%
|
|
|
2.44
|
%
|
|
|
2.59
|
%
|
|
|
2.56
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.30
|
%
|
|
|
2.28
|
%
|
|
|
2.30
|
%
|
|
|
2.27
|
%
|
|
|
2.22
|
%
|
Net investment loss
|
|
|
|
|
(0.74
|
)%
|
|
|
(1.12
|
)%
|
|
|
(1.18
|
)%
|
|
|
(0.77
|
)%
|
|
|
(0.95
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
12,833
|
|
|
$
|
15,047
|
|
|
$
|
20,255
|
|
|
$
|
21,849
|
|
|
$
|
20,998
|
|
Portfolio turnover
|
|
|
|
|
106
|
%
|
|
|
120
|
%
|
|
|
123
|
%
|
|
|
166
|
%
|
|
|
164
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Less than $0.01 per share.
|
4
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
5
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
7
|
|
Redemption fee of 2.00% is reflected in
total return calculations. The impact to the return from redemption fees received during the period was an increase of 0.04%.
|
82
Financial
Highlights
(continued)
U.S. Opportunities
(concluded)
|
|
|
|
Investor C
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
29.11
|
|
|
$
|
31.95
|
|
|
$
|
28.14
|
|
|
$
|
28.04
|
|
|
$
|
33.18
|
|
Net investment loss
1
|
|
|
|
|
(0.21
|
)
|
|
|
(0.38
|
)
|
|
|
(0.33
|
)
|
|
|
(0.19
|
)
|
|
|
(0.30
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
5.39
|
|
|
|
(2.07
|
)
2
|
|
|
4.14
|
2
|
|
|
0.28
|
2
|
|
|
(4.84
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
5.18
|
|
|
|
(2.45
|
)
|
|
|
3.81
|
|
|
|
0.09
|
|
|
|
(5.14
|
)
|
Distributions from net realized gains
|
|
|
|
|
(3.54
|
)
|
|
|
(0.39
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption fees added to paid-in capital
|
|
|
|
|
|
|
|
|
0.00
|
3
|
|
|
0.00
|
3
|
|
|
0.01
|
|
|
|
0.00
|
3
|
Net asset value, end of year
|
|
|
|
$
|
30.75
|
|
|
$
|
29.11
|
|
|
$
|
31.95
|
|
|
$
|
28.14
|
|
|
$
|
28.04
|
|
Total Investment Return
4
|
Based on net asset value
|
|
|
|
|
18.94
|
%
|
|
|
(7.87
|
)%
5
|
|
|
13.54
|
%
5,6
|
|
|
0.36
|
%
7
|
|
|
(15.49
|
)%
5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.35
|
%
|
|
|
2.34
|
%
|
|
|
2.39
|
%
|
|
|
2.52
|
%
|
|
|
2.46
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.35
|
%
|
|
|
2.33
|
%
|
|
|
2.38
|
%
|
|
|
2.52
|
%
|
|
|
2.46
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.25
|
%
|
|
|
2.24
|
%
|
|
|
2.27
|
%
|
|
|
2.28
|
%
|
|
|
2.21
|
%
|
Net investment loss
|
|
|
|
|
(0.69
|
)%
|
|
|
(1.08
|
)%
|
|
|
(1.12
|
)%
|
|
|
(0.85
|
)%
|
|
|
(0.95
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
226,350
|
|
|
$
|
282,586
|
|
|
$
|
334,958
|
|
|
$
|
238,819
|
|
|
$
|
145,626
|
|
Portfolio turnover
|
|
|
|
|
106
|
%
|
|
|
120
|
%
|
|
|
123
|
%
|
|
|
166
|
%
|
|
|
164
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Less than $0.01 per share.
|
4
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
5
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
7
|
|
Redemption fee of 2.00% is reflected in
total return calculations. The impact to the return from redemption fees received during the period was an increase of 0.04%.
|
83
Financial
Highlights
(continued)
Health Sciences
Opportunities
|
|
|
|
Institutional
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
28.77
|
|
|
$
|
28.92
|
|
|
$
|
26.29
|
|
|
$
|
28.77
|
|
|
$
|
30.41
|
|
Net investment income (loss)
1
|
|
|
|
|
0.15
|
|
|
|
0.02
|
|
|
|
0.06
|
|
|
|
0.08
|
|
|
|
0.08
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
7.26
|
|
|
|
1.23
|
2
|
|
|
2.57
|
2
|
|
|
(0.14
|
)
2
|
|
|
(0.49
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
7.41
|
|
|
|
1.25
|
|
|
|
2.63
|
|
|
|
(0.06
|
)
|
|
|
(0.41
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
(0.05
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain
|
|
|
|
|
(1.56
|
)
|
|
|
(1.35
|
)
|
|
|
|
|
|
|
(2.42
|
)
|
|
|
(1.23
|
)
|
Total dividends and distributions
|
|
|
|
|
(1.56
|
)
|
|
|
(1.40
|
)
|
|
|
|
|
|
|
(2.42
|
)
|
|
|
(1.23
|
)
|
Net asset value, end of year
|
|
|
|
$
|
34.62
|
|
|
$
|
28.77
|
|
|
$
|
28.92
|
|
|
$
|
26.29
|
|
|
$
|
28.77
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
27.06
|
%
|
|
|
4.41
|
%
4
|
|
|
10.00
|
%
4,5
|
|
|
1.91
|
%
4
|
|
|
(1.64
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
0.98
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
1.03
|
%
|
|
|
1.00
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
0.98
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
1.03
|
%
|
|
|
1.00
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
0.98
|
%
|
|
|
1.00
|
%
|
|
|
1.00
|
%
|
|
|
1.03
|
%
|
|
|
1.00
|
%
|
Net investment income (loss)
|
|
|
|
|
0.47
|
%
|
|
|
0.07
|
%
|
|
|
0.21
|
%
|
|
|
0.36
|
%
|
|
|
0.28
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
473,193
|
|
|
$
|
362,292
|
|
|
$
|
232,697
|
|
|
$
|
171,607
|
|
|
$
|
185,933
|
|
Portfolio turnover
|
|
|
|
|
135
|
%
|
|
|
135
|
%
|
|
|
184
|
%
|
|
|
153
|
%
|
|
|
91
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
84
Financial
Highlights
(continued)
Health Sciences
Opportunities
(continued)
|
|
|
|
Investor A
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
28.00
|
|
|
$
|
28.18
|
|
|
$
|
25.69
|
|
|
$
|
28.14
|
|
|
$
|
29.77
|
|
Net investment income (loss)
1
|
|
|
|
|
0.05
|
|
|
|
(0.07
|
)
|
|
|
(0.03
|
)
|
|
|
0.01
|
|
|
|
(0.02
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
7.07
|
|
|
|
1.19
|
2
|
|
|
2.52
|
2
|
|
|
(0.15
|
)
2
|
|
|
(0.49
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
7.12
|
|
|
|
1.12
|
|
|
|
2.49
|
|
|
|
(0.14
|
)
|
|
|
(0.51
|
)
|
Distributions from net realized gain
|
|
|
|
|
(1.48
|
)
|
|
|
(1.30
|
)
|
|
|
|
|
|
|
(2.31
|
)
|
|
|
(1.12
|
)
|
Net asset value, end of year
|
|
|
|
$
|
33.64
|
|
|
$
|
28.00
|
|
|
$
|
28.18
|
|
|
$
|
25.69
|
|
|
$
|
28.14
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
26.68
|
%
|
|
|
4.03
|
%
4
|
|
|
9.69
|
%
4,5
|
|
|
1.57
|
%
4
|
|
|
(1.97
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.29
|
%
|
|
|
1.31
|
%
|
|
|
1.31
|
%
|
|
|
1.37
|
%
|
|
|
1.35
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.29
|
%
|
|
|
1.31
|
%
|
|
|
1.31
|
%
|
|
|
1.37
|
%
|
|
|
1.35
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.28
|
%
|
|
|
1.31
|
%
|
|
|
1.31
|
%
|
|
|
1.37
|
%
|
|
|
1.35
|
%
|
Net investment income (loss)
|
|
|
|
|
0.17
|
%
|
|
|
(0.24
|
)%
|
|
|
(0.11
|
)%
|
|
|
0.02
|
%
|
|
|
(0.06
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
1,018,429
|
|
|
$
|
825,046
|
|
|
$
|
682,857
|
|
|
$
|
478,273
|
|
|
$
|
564,943
|
|
Portfolio turnover
|
|
|
|
|
135
|
%
|
|
|
135
|
%
|
|
|
184
|
%
|
|
|
153
|
%
|
|
|
91
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
85
Financial
Highlights
(continued)
Health Sciences
Opportunities
(continued)
|
|
|
|
Investor B
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
26.26
|
|
|
$
|
26.39
|
|
|
$
|
24.25
|
|
|
$
|
26.73
|
|
|
$
|
28.28
|
|
Net investment income (loss)
1
|
|
|
|
|
(0.17
|
)
|
|
|
(0.28
|
)
|
|
|
(0.23
|
)
|
|
|
(0.17
|
)
|
|
|
(0.23
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
6.63
|
|
|
|
1.14
|
2
|
|
|
2.37
|
2
|
|
|
(0.16
|
)
2
|
|
|
(0.49
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
6.46
|
|
|
|
0.86
|
|
|
|
2.14
|
|
|
|
(0.33
|
)
|
|
|
(0.72
|
)
|
Distributions from net realized gain
|
|
|
|
|
(1.26
|
)
|
|
|
(0.99
|
)
|
|
|
|
|
|
|
(2.15
|
)
|
|
|
(0.83
|
)
|
Net asset value, end of year
|
|
|
|
$
|
31.46
|
|
|
$
|
26.26
|
|
|
$
|
26.39
|
|
|
$
|
24.25
|
|
|
$
|
26.73
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
25.70
|
%
|
|
|
3.27
|
%
4
|
|
|
8.82
|
%
4,5
|
|
|
0.73
|
%
4
|
|
|
(2.78
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.07
|
%
|
|
|
2.06
|
%
|
|
|
2.10
|
%
|
|
|
2.20
|
%
|
|
|
2.14
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.07
|
%
|
|
|
2.06
|
%
|
|
|
2.10
|
%
|
|
|
2.17
|
%
|
|
|
2.14
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.07
|
%
|
|
|
2.06
|
%
|
|
|
2.09
|
%
|
|
|
2.20
|
%
|
|
|
2.14
|
%
|
Net investment income (loss)
|
|
|
|
|
(0.59
|
)%
|
|
|
(0.99
|
)%
|
|
|
(0.88
|
)%
|
|
|
(0.80
|
)%
|
|
|
(0.85
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
40,452
|
|
|
$
|
46,180
|
|
|
$
|
47,855
|
|
|
$
|
57,835
|
|
|
$
|
80,269
|
|
Portfolio turnover
|
|
|
|
|
135
|
%
|
|
|
135
|
%
|
|
|
184
|
%
|
|
|
153
|
%
|
|
|
91
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
86
Financial
Highlights
(continued)
Health Sciences
Opportunities
(continued)
|
|
|
|
Investor C
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
26.18
|
|
|
$
|
26.37
|
|
|
$
|
24.22
|
|
|
$
|
26.70
|
|
|
$
|
28.27
|
|
Net investment loss
1
|
|
|
|
|
(0.16
|
)
|
|
|
(0.27
|
)
|
|
|
(0.21
|
)
|
|
|
(0.15
|
)
|
|
|
(0.21
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
6.62
|
|
|
|
1.14
2
|
|
|
|
2.36
2
|
|
|
|
(0.16
|
)
2
|
|
|
(0.47
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
6.46
|
|
|
|
0.87
|
|
|
|
2.15
|
|
|
|
(0.31
|
)
|
|
|
(0.68
|
)
|
Distributions from net realized gain
|
|
|
|
|
(1.30
|
)
|
|
|
(1.06
|
)
|
|
|
|
|
|
|
(2.17
|
)
|
|
|
(0.89
|
)
|
Net asset value, end of year
|
|
|
|
$
|
31.34
|
|
|
$
|
26.18
|
|
|
$
|
26.37
|
|
|
$
|
24.22
|
|
|
$
|
26.70
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
25.80
|
%
|
|
|
3.32
|
%
4
|
|
|
8.88
|
%
4,5
|
|
|
0.81
|
%
4
|
|
|
(2.66
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.01
|
%
|
|
|
2.02
|
%
|
|
|
2.04
|
%
|
|
|
2.09
|
%
|
|
|
2.05
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.01
|
%
|
|
|
2.02
|
%
|
|
|
2.04
|
%
|
|
|
2.09
|
%
|
|
|
2.05
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.01
|
%
|
|
|
2.02
|
%
|
|
|
2.04
|
%
|
|
|
2.09
|
%
|
|
|
2.05
|
%
|
Net investment loss
|
|
|
|
|
(0.55
|
)%
|
|
|
(0.95
|
)%
|
|
|
(0.83
|
)%
|
|
|
(0.70
|
)%
|
|
|
(0.76
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
384,910
|
|
|
$
|
327,855
|
|
|
$
|
285,428
|
|
|
$
|
255,340
|
|
|
$
|
305,015
|
|
Portfolio turnover
|
|
|
|
|
135
|
%
|
|
|
135
|
%
|
|
|
184
|
%
|
|
|
153
|
%
|
|
|
91
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which had no impact on the Funds total return.
|
87
Financial
Highlights
(continued)
Health Sciences
Opportunities
(concluded)
|
|
|
|
Class R
|
|
|
|
|
|
Year Ended
September 30,
2012
|
|
Period
September 12, 2011
1
to
September 30,
2011
|
Per Share Operating
Performance
|
|
Net asset value, beginning of period
|
|
|
|
$
|
28.00
|
|
|
$
|
28.19
|
|
Net investment loss
2
|
|
|
|
|
(0.07
|
)
|
|
|
(0.01
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
7.05
|
|
|
|
(0.18
|
)
3
|
Net increase (decrease) from investment operations
|
|
|
|
|
6.98
|
|
|
|
(0.19
|
)
|
Distributions from net realized gain
|
|
|
|
|
(1.52
|
)
|
|
|
|
|
Net asset value, end of period
|
|
|
|
$
|
33.46
|
|
|
$
|
28.00
|
|
Total Investment Return
4
|
Based
on net asset value
|
|
|
|
|
26.17
|
%
|
|
|
(0.64
|
)%
5,6
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.70
|
%
|
|
|
1.75
|
%
7
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.70
|
%
|
|
|
1.75
|
%
7
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.68
|
%
|
|
|
1.75
|
%
7
|
Net investment loss
|
|
|
|
|
(0.24
|
)%
|
|
|
(0.82
|
)%
7
|
Supplemental Data
|
Net assets, end of period (000)
|
|
|
|
$
|
14,613
|
|
|
$
|
9,580
|
|
Portfolio turnover
|
|
|
|
|
135
|
%
|
|
|
135
|
%
|
1
|
|
Commencement of operations.
|
2
|
|
Based on average shares outstanding.
|
3
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
4
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
5
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
6
|
|
Aggregate total investment return.
|
88
Financial
Highlights
(continued)
Science
& Technology Opportunities
|
|
|
|
Institutional
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
8.61
|
|
|
$
|
9.02
|
|
|
$
|
7.79
|
|
|
$
|
6.98
|
|
|
$
|
9.03
|
|
Net investment loss
1
|
|
|
|
|
(0.06
|
)
|
|
|
(0.06
|
)
|
|
|
(0.05
|
)
|
|
|
(0.02
|
)
|
|
|
(0.05
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.46
|
|
|
|
(0.35
|
)
2
|
|
|
1.28
|
2
|
|
|
0.83
|
2
|
|
|
(2.00
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.40
|
|
|
|
(0.41
|
)
|
|
|
1.23
|
|
|
|
0.81
|
|
|
|
(2.05
|
)
|
Net asset value, end of year
|
|
|
|
$
|
10.01
|
|
|
$
|
8.61
|
|
|
$
|
9.02
|
|
|
$
|
7.79
|
|
|
$
|
6.98
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
16.26
|
%
|
|
|
(4.55
|
)%
4
|
|
|
15.79
|
%
4,5
|
|
|
11.60
|
%
4,6
|
|
|
(22.70
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.45
|
%
|
|
|
1.46
|
%
|
|
|
1.55
|
%
|
|
|
1.90
|
%
|
|
|
1.70
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.44
|
%
|
|
|
1.46
|
%
|
|
|
1.55
|
%
|
|
|
1.90
|
%
|
|
|
1.70
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.39
|
%
|
|
|
1.39
|
%
|
|
|
1.39
|
%
|
|
|
1.36
|
%
|
|
|
1.35
|
%
|
Net investment loss
|
|
|
|
|
(0.63
|
)%
|
|
|
(0.60
|
)%
|
|
|
(0.59
|
)%
|
|
|
(0.27
|
)%
|
|
|
(0.55
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
34,022
|
|
|
$
|
33,982
|
|
|
$
|
33,135
|
|
|
$
|
27,013
|
|
|
$
|
42,886
|
|
Portfolio turnover
|
|
|
|
|
320
|
%
|
|
|
103
|
%
|
|
|
97
|
%
|
|
|
158
|
%
|
|
|
89
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 15.53%.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 9.03%.
|
89
Financial
Highlights
(continued)
Science
& Technology Opportunities
(continued)
|
|
|
|
Investor A
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
8.21
|
|
|
$
|
8.62
|
|
|
$
|
7.48
|
|
|
$
|
6.73
|
|
|
$
|
8.74
|
|
Net investment loss
1
|
|
|
|
|
(0.09
|
)
|
|
|
(0.09
|
)
|
|
|
(0.08
|
)
|
|
|
(0.04
|
)
|
|
|
(0.06
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.39
|
|
|
|
(0.32
|
)
2
|
|
|
1.22
|
2
|
|
|
0.79
|
2
|
|
|
(1.95
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.30
|
|
|
|
(0.41
|
)
|
|
|
1.14
|
|
|
|
0.75
|
|
|
|
(2.01
|
)
|
Net asset value, end of year
|
|
|
|
$
|
9.51
|
|
|
$
|
8.21
|
|
|
$
|
8.62
|
|
|
$
|
7.48
|
|
|
$
|
6.73
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
15.84
|
%
|
|
|
(4.76
|
)%
4
|
|
|
15.24
|
%
4,5
|
|
|
11.14
|
%
4,6
|
|
|
(23.00
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.72
|
%
|
|
|
1.79
|
%
|
|
|
1.82
|
%
|
|
|
2.24
|
%
|
|
|
2.04
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.70
|
%
|
|
|
1.71
|
%
|
|
|
1.81
|
%
|
|
|
2.24
|
%
|
|
|
2.04
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.71
|
%
|
|
|
1.78
|
%
|
|
|
1.79
|
%
|
|
|
1.77
|
%
|
|
|
1.75
|
%
|
Net investment loss
|
|
|
|
|
(0.95
|
)%
|
|
|
(0.98
|
)%
|
|
|
(0.99
|
)%
|
|
|
(0.68
|
)%
|
|
|
(0.77
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
106,466
|
|
|
$
|
106,632
|
|
|
$
|
105,577
|
|
|
$
|
83,734
|
|
|
$
|
72,659
|
|
Portfolio turnover
|
|
|
|
|
320
|
%
|
|
|
103
|
%
|
|
|
97
|
%
|
|
|
158
|
%
|
|
|
89
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 14.97%.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 8.47%.
|
90
Financial
Highlights
(continued)
Science
& Technology Opportunities
(continued)
|
|
|
|
Investor B
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
7.48
|
|
|
$
|
7.93
|
|
|
$
|
6.94
|
|
|
$
|
6.30
|
|
|
$
|
8.26
|
|
Net investment loss
1
|
|
|
|
|
(0.15
|
)
|
|
|
(0.16
|
)
|
|
|
(0.14
|
)
|
|
|
(0.08
|
)
|
|
|
(0.13
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.27
|
|
|
|
(0.29
|
)
2
|
|
|
1.13
|
2
|
|
|
0.72
|
2
|
|
|
(1.83
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.12
|
|
|
|
(0.45
|
)
|
|
|
0.99
|
|
|
|
0.64
|
|
|
|
(1.96
|
)
|
Net asset value, end of year
|
|
|
|
$
|
8.60
|
|
|
$
|
7.48
|
|
|
$
|
7.93
|
|
|
$
|
6.94
|
|
|
$
|
6.30
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
14.97
|
%
|
|
|
(5.68
|
)%
4
|
|
|
14.27
|
%
4,5
|
|
|
10.16
|
%
4,6
|
|
|
(23.73
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.52
|
%
|
|
|
2.67
|
%
|
|
|
2.70
|
%
|
|
|
3.13
|
%
|
|
|
2.96
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.52
|
%
|
|
|
2.44
|
%
|
|
|
2.65
|
%
|
|
|
3.00
|
%
|
|
|
2.96
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.52
|
%
|
|
|
2.66
|
%
|
|
|
2.69
|
%
|
|
|
2.65
|
%
|
|
|
2.65
|
%
|
Net investment loss
|
|
|
|
|
(1.76
|
)%
|
|
|
(1.87
|
)%
|
|
|
(1.90
|
)%
|
|
|
(1.53
|
)%
|
|
|
(1.70
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
2,645
|
|
|
$
|
3,130
|
|
|
$
|
4,390
|
|
|
$
|
6,538
|
|
|
$
|
11,473
|
|
Portfolio turnover
|
|
|
|
|
320
|
%
|
|
|
103
|
%
|
|
|
97
|
%
|
|
|
158
|
%
|
|
|
89
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 13.98%.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 7.30%.
|
91
Financial
Highlights
(continued)
Science
& Technology Opportunities
(continued)
|
|
|
|
Investor C
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
7.47
|
|
|
$
|
7.92
|
|
|
$
|
6.94
|
|
|
$
|
6.29
|
|
|
$
|
8.25
|
|
Net investment loss
1
|
|
|
|
|
(0.15
|
)
|
|
|
(0.16
|
)
|
|
|
(0.14
|
)
|
|
|
(0.09
|
)
|
|
|
(0.13
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.26
|
|
|
|
(0.29
|
)
2
|
|
|
1.12
|
2
|
|
|
0.74
|
2
|
|
|
(1.83
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.11
|
|
|
|
(0.45
|
)
|
|
|
0.98
|
|
|
|
0.65
|
|
|
|
(1.96
|
)
|
Net asset value, end of year
|
|
|
|
$
|
8.58
|
|
|
$
|
7.47
|
|
|
$
|
7.92
|
|
|
$
|
6.94
|
|
|
$
|
6.29
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
14.86
|
%
|
|
|
(5.68
|
)%
4
|
|
|
14.12
|
%
4,5
|
|
|
10.33
|
%
4,6
|
|
|
(23.76
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.60
|
%
|
|
|
2.68
|
%
|
|
|
2.73
|
%
|
|
|
3.23
|
%
|
|
|
2.73
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
2.59
|
%
|
|
|
2.59
|
%
|
|
|
2.73
|
%
|
|
|
3.23
|
%
|
|
|
2.73
|
%
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
2.60
|
%
|
|
|
2.67
|
%
|
|
|
2.71
|
%
|
|
|
2.68
|
%
|
|
|
2.62
|
%
|
Net investment loss
|
|
|
|
|
(1.84
|
)%
|
|
|
(1.88
|
)%
|
|
|
(1.92
|
)%
|
|
|
(1.59
|
)%
|
|
|
(1.67
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
26,543
|
|
|
$
|
27,651
|
|
|
$
|
27,053
|
|
|
$
|
22,575
|
|
|
$
|
22,003
|
|
Portfolio turnover
|
|
|
|
|
320
|
%
|
|
|
103
|
%
|
|
|
97
|
%
|
|
|
158
|
%
|
|
|
89
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 13.83%.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 7.47%.
|
92
Financial
Highlights
(concluded)
Science
& Technology Opportunities
(concluded)
|
|
|
|
Class R
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
Period
September 8, 2008
1
to
September 30,
2008
|
Per Share Operating Performance
|
Net asset value, beginning of period
|
|
|
|
$
|
8.43
|
|
|
$
|
8.88
|
|
|
$
|
7.72
|
|
|
$
|
6.97
|
|
|
$
|
7.38
|
|
Net investment loss
2
|
|
|
|
|
(0.12
|
)
|
|
|
(0.12
|
)
|
|
|
(0.11
|
)
|
|
|
(0.06
|
)
|
|
|
(0.01
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.43
|
|
|
|
(0.33
|
)
3
|
|
|
1.27
|
3
|
|
|
0.81
|
3
|
|
|
(0.40
|
)
3
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.31
|
|
|
|
(0.45
|
)
|
|
|
1.16
|
|
|
|
0.75
|
|
|
|
(0.41
|
)
|
Net asset value, end of period
|
|
|
|
$
|
9.74
|
|
|
$
|
8.43
|
|
|
$
|
8.88
|
|
|
$
|
7.72
|
|
|
$
|
6.97
|
|
Total Investment Return
4
|
Based on net asset value
|
|
|
|
|
15.54
|
%
|
|
|
(5.07
|
)%
5
|
|
|
15.03
|
%
5,6
|
|
|
10.76
|
%
5,7
|
|
|
(5.56
|
)%
5,8
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
2.00
|
%
|
|
|
2.00
|
%
|
|
|
2.10
|
%
|
|
|
2.42
|
%
|
|
|
2.36
|
%
9
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.99
|
%
|
|
|
2.00
|
%
|
|
|
2.10
|
%
|
|
|
2.42
|
%
|
|
|
2.36
|
%
9
|
Total expenses after fees waived, reimbursed and paid
indirectly
|
|
|
|
|
1.99
|
%
|
|
|
2.00
|
%
|
|
|
2.09
|
%
|
|
|
2.13
|
%
|
|
|
2.13
|
%
9
|
Net investment loss
|
|
|
|
|
(1.23
|
)%
|
|
|
(1.21
|
)%
|
|
|
(1.29
|
)%
|
|
|
(1.04
|
)%
|
|
|
(1.49
|
)%
9
|
Supplemental Data
|
Net assets, end of period (000)
|
|
|
|
$
|
4,329
|
|
|
$
|
3,518
|
|
|
$
|
2,961
|
|
|
$
|
1,904
|
|
|
$
|
1,362
|
|
Portfolio turnover
|
|
|
|
|
320
|
%
|
|
|
103
|
%
|
|
|
97
|
%
|
|
|
158
|
%
|
|
|
89
|
%
|
1
|
|
Commencement of operations.
|
2
|
|
Based on average shares outstanding.
|
3
|
|
Includes redemption fees, which are less
than $0.01 per share.
|
4
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
5
|
|
Redemption fee of 2.00% is reflected in
total return calculations. There was no impact to the return.
|
6
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 14.77%.
|
7
|
|
Includes proceeds received from a settlement
of litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would
have been 8.18%.
|
8
|
|
Aggregate total investment return.
|
93
General Information
Electronic
Access to Annual Reports, Semi-Annual Reports and Prospectuses
Electronic
copies of most financial reports and prospectuses are available
on BlackRocks website. Shareholders can sign up for e-mail
notifications of quarterly statements, annual and semi-annual
reports and prospectuses by enrolling in a Funds 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 Funds deliver
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 your Fund at (800) 441-7762.
Anti-Money
Laundering Requirements
The Funds are
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, a 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 Funds reserve
the right to reject purchase orders from persons who have not
submitted information sufficient to allow a Fund to verify
their identity. Each Fund also reserves the right to redeem
any amounts in a Fund from persons whose identity it is unable
to verify on a timely basis. It is the Funds 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 the Funds, including how each
Fund invests, please see the SAI.
For a discussion
of the each Funds policies and procedures regarding the
selective disclosure of its portfolio holdings, please see
the SAI. The Funds make their 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 the Funds,
please see the SAI.
Acquired
Fund Fees and Expenses
fees and expenses charged
by other investment companies in which a Fund invests a portion
of its assets.
Annual
Fund Operating Expenses
expenses that cover
the costs of operating a Fund.
Distribution
Fees
fees used to support the Funds marketing
and distribution efforts, such as compensating financial professionals
and other financial intermediaries, advertising and promotion.
Management
Fee
a fee paid to BlackRock for managing a Fund.
MSCI
All Country World Index
a free float-adjusted
market capitalization weighted index that is designed to measure
the equity market performance of developed and emerging markets.
The MSCI All Country World Index consists of 45 country indices
comprising 24 developed and 21 emerging market country indices.
MSCI
All Country World Index Ex-U.S.
a market capitalization
weighted index designed to provide a broad measure of stock
performance throughout the world, with the exception of U.S.-based
companies. The MSCI All Country World Index Ex-U.S. includes
both developed and emerging markets.
NYSE
Arca Tech 100 Index
a price-weighted index comprised
of common stocks and ADRs of technology-related companies listed
on US exchanges. Modeled as a multi-industry technology index,
the objective of the NYSE Arca Tech 100 Index is to provide
a benchmark for measuring the performance of companies using
technology innovation across a broad spectrum of industries.
Other
Expenses
include accounting, transfer agency,
custody, professional and registration fees.
Russell
3000
®
Health Care Index
an unmanaged
index representative of companies involved in medical services
or health care in the Russell 3000
®
Index,
which is comprised of the 3,000 largest U.S. companies as determined
by total market capitalization.
Russell
Midcap
®
Index
a market index
that measures the performance of the mid-cap segment of the
U.S. equities universe. It is a subset of the Russell 1000
®
Index including approximately 800 of the smallest securities
based on a combination of their market cap and current index
membership. The Russell Midcap
®
Index represents
approximately 31% of the total market capitalization of the
Russell 1000
®
companies.
S&P
500
®
Index
an unmanaged total
return index, which covers 500 industrial, utility, transportation,
and financial companies of the U.S. markets (mostly New York
Stock Exchange (NYSE) issues) representing about
75% of NYSE market capitalization and 30% of NYSE issues.
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 a Fund.
96
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Funds
and Service Providers
FUNDS
BlackRock
Funds
SM
BlackRock Global
Opportunities Portfolio
BlackRock
International Opportunities Portfolio
BlackRock
U.S. Opportunities Portfolio
BlackRock
Health Sciences Opportunities Portfolio
BlackRock
Science & Technology
Opportunities
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
To
BlackRock Global Opportunities Portfolio:
BlackRock
Financial Management, Inc.
55 East 52nd Street
New
York, New York 10055
To
BlackRock International Opportunities Portfolio:
BlackRock
International Limited
40 Torphichen Street
Edinburgh,
Scotland EH3 8JB
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
Funds is available at no charge upon request. This information
includes:
Annual/Semi-Annual
Reports
These
reports contain additional information about each of the Funds
investments. The annual report describes each Funds performance,
lists portfolio holdings, and discusses recent market conditions,
economic trends and Fund investment strategies that significantly
affected the Funds 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 each Fund, may be obtained free of charge,
along with the Funds 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 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 a Funds 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 each Fund,
including the SAI, by visiting the EDGAR database on the SECs
website (http://www.sec.gov) or the SECs 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 SECs 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
JANUARY 28, 2013
PROSPECTUS
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BlackRock
Funds
SM
| Service Shares
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>
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BlackRock International Opportunities
Portfolio
Service: BRESX
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>
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BlackRock U.S. Opportunities Portfolio
Service:
BMCSX
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>
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BlackRock Health Sciences Opportunities
Portfolio
Service: SHISX
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>
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BlackRock Science & Technology Opportunities
Portfolio
Service: BSTSX
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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.
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 Funds, including investment objectives, principal strategies, risk factors, fee and expense information, and
historical performance information
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3
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12
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17
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21
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Details About the Funds
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22
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27
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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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34
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35
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38
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39
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Management of the Funds
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Information about BlackRock and the Portfolio Managers
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40
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42
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45
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46
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Financial Highlights
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47
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General Information
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51
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51
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52
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Glossary
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53
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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
Key Facts About BlackRock
International Opportunities Portfolio
Investment Objective
The investment objective of BlackRock International Opportunities
Portfolio (International Opportunities or the Fund), a series of BlackRock Funds
SM
(the Trust), is to
seek long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you
buy and hold Services Shares of International Opportunities.
Annual Fund Operating
Expenses
(expenses that you pay each year as a percentage of the value of your investment)
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Service Shares
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Management Fee
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0.98
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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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Other Expenses
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0.67
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%
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Acquired Fund Fees and Expenses
1
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0.01
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%
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Total Annual Fund Operating Expenses
1
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1.91
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%
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Fee Waivers and/or Expense Reimbursements
2
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(0.10
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)%
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Total Annual Fund Operating Expenses After Waivers and/or Expense
Reimbursements
2
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1.81
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%
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1
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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 Funds most recent annual report which does not include the Acquired Fund
Fees and Expenses.
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2
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As described in the Management of the
Funds section of the Funds prospectus on pages 40-46, BlackRock Advisors, LLC (BlackRock)
has contractually agreed to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses After Waivers and/or Expense
Reimbursements (excluding Dividend Expense, Interest Expense, Acquired Fund Fees and Expenses and certain other Fund expenses) to 1.80% 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.
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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 $10,000 in the Fund for the time periods indicated
and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the
Funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these assumptions your costs would
be:
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1 Year
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3 Years
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5 Years
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10 Years
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Service Shares
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$
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184
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$
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590
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$
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1,022
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$
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2,225
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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 Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 99% of the average
value of its portfolio.
3
Principal Investment Strategies of the Fund
Under normal market conditions, International Opportunities
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 initial
public offerings (IPOs).
The Fund may, when consistent with the Funds 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).
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in
International Opportunities, 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 following is a
summary description of principal risks of investing in the Fund.
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 issuers credit rating or the markets perception of the issuers
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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n
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Derivatives Risk
The Funds use of
derivatives may reduce the Funds 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 Funds 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 to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more
difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the 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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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.
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Equity Securities Risk
Stock markets are volatile. The price of equity securities fluctuates based on changes in a companys financial
condition and overall market and economic conditions.
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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 will lose money. These risks
include:
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The Fund generally holds its 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 Funds portfolio.
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4
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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 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 Funds investments.
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n
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Investment Style Risk
Under certain market
conditions, growth investments have performed better during the later stages of economic expansion. Therefore, this investment style may over time go
in and out of favor. At times when the investment style used by the Fund is out of favor, the Fund may underperform other equity funds that use
different investment styles.
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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 to greater risk and
increase its costs. The use of leverage may cause the 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 Funds portfolio will be
magnified when the Fund uses leverage.
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n
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Market Risk and Selection Risk
Market risk is
the risk that one or more markets in which the 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 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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n
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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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n
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New Issues Risk
New
Issues are initial public offerings of equity securities of U.S. and non-U.S. issuers. 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.
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n
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Small Cap Securities Risk
Small cap 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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5
Performance Information
The information shows you how International Opportunities
performance has varied year by year and provides some indication of the risks of investing in the Fund. The table compares the Funds performance
to that of the MSCI All Country World Index Ex-U.S. 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
Funds returns would have been lower. Updated information on the Funds results can be obtained by visiting http://www.blackrock.com/funds or
can be obtained by phone at (800) 882-0052.
Service Shares
ANNUAL TOTAL RETURNS
BlackRock
International Opportunities Portfolio
As of 12/31
During the ten-year period shown in the bar chart, the highest
return for a quarter was 28.04% (quarter ended June 30, 2009) and the lowest return for a quarter was 24.50% (quarter ended September 30,
2008).
As of
12/31/12
Average Annual Total Returns
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1 Year
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5 Years
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10 Years
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BlackRock International Opportunities Portfolio Service
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Return Before Taxes
|
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17.77
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%
|
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(2.83
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)%
|
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12.57
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%
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Return After Taxes on Distributions
|
|
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17.56
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%
|
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(2.91
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)%
|
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11.75
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%
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Return After Taxes on Distributions and Sale of Shares
|
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11.82
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%
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(2.35
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)%
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11.19
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%
|
MSCI All Country World Index Ex-U.S
(Reflects no deduction for fees, expenses or
taxes)
|
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16.83
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%
|
|
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(2.89
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)%
|
|
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9.74
|
%
|
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
investors 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.
6
Investment Manager
International Opportunities investment manager is BlackRock
Advisors, LLC (previously defined as BlackRock). The Funds sub-adviser is BlackRock International Limited (the
Sub-Adviser). Where applicable, BlackRock refers also to the
Sub-Adviser.
Portfolio Managers
Name
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Portfolio Manager
of the Fund
Since
|
|
Title
|
Thomas Callan, CFA
|
|
|
|
1999
|
|
Managing Director of BlackRock, Inc.
|
Ian Jamieson, CFA
|
|
|
|
2011
|
|
Managing Director of BlackRock, Inc.
|
Nigel Hart, CFA
|
|
|
|
2012
|
|
Managing Director of BlackRock, Inc.
|
* * *
For important information about purchase and sale of Fund shares,
tax information, and financial intermediary compensation, please turn to Important Additional Information on page 21 of the
prospectus.
7
Fund Overview
Key Facts About BlackRock U.S.
Opportunities Portfolio
Investment Objective
The investment objective of BlackRock U.S. Opportunities Portfolio
(U.S. Opportunities or the Fund), a series of BlackRock Funds
SM
(the Trust), is to provide long-term
capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you
buy and hold Services Shares of U.S. Opportunities.
Annual Fund Operating
Expenses
(expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
Service Shares
|
Management Fee
|
|
|
|
1.06
|
%
|
Distribution and/or Service (12b-1) Fees
|
|
|
|
0.25
|
%
|
Other Expenses
|
|
|
|
0.31
|
%
|
Acquired Fund Fees and Expenses
1
|
|
|
|
0.01
|
%
|
Total Annual Fund Operating Expenses
1
|
|
|
|
1.63
|
%
|
Fee Waivers and/or Expense Reimbursements
2
|
|
|
|
|
|
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense
Reimbursements
2
|
|
|
|
1.63
|
%
|
1
|
|
The Total Annual Fund Operating Expenses do not
correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which does not include the Acquired Fund
Fees and Expenses.
|
2
|
|
As described in the Management of the
Funds section of the Funds prospectus on pages 40-46, BlackRock Advisors, LLC (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 1.65% 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
Funds 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
|
|
|
|
$
|
166
|
|
|
$
|
514
|
|
|
$
|
887
|
|
|
$
|
1,933
|
|
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 Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 106% of the average
value of its portfolio.
Principal Investment Strategies of the Fund
Under normal market conditions, U.S. Opportunities
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,
8
at the time of the Funds investment, as those with market capitalizations comparable in size to
those within the universe of 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 initial
public offerings (IPOs).
The Fund may, when consistent with the Funds investment
objective, 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.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in
U.S. Opportunities, 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 following is a summary
description of principal risks of investing in the Fund.
n
|
|
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 issuers credit rating or the markets perception of the issuers
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
|
|
Derivatives Risk
The Funds use of
derivatives may reduce the Funds 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 Funds 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 to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more
difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the 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
|
|
Equity Securities Risk
Stock markets are volatile. The price of equity securities fluctuates based on changes in a companys financial
condition and overall market and economic conditions.
|
n
|
|
Investment Style Risk
Under certain market
conditions, growth investments have performed better during the later stages of economic expansion. Therefore, this investment style may over time go
in and out of favor. At times when the investment style used by the Fund is out of favor, the Fund may underperform other equity funds that use
different investment styles.
|
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 to greater risk and
increase its costs. The use of leverage may cause the 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 Funds portfolio will be
magnified when the Fund uses leverage.
|
n
|
|
Market Risk and Selection Risk
Market risk is
the risk that one or more markets in which the 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 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.
|
9
n
|
|
New Issues Risk
New
Issues are initial public offerings of equity securities of U.S. and non-U.S. issuers. 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.
|
n
|
|
Small Cap and Emerging Growth Securities Risk
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.
|
Performance Information
The information shows you how U.S. Opportunities performance
has varied year by year and provides some indication of the risks of investing in the Fund. The table compares the Funds performance to that of
the Russell Midcap
®
Index. 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
Funds returns would have been lower. Updated information on the Funds results can be obtained by visiting http://www.blackrock.com/funds or
can be obtained by phone at (800) 882-0052.
Service Shares
ANNUAL TOTAL RETURNS
BlackRock U.S.
Opportunities Portfolio
As of 12/31
During the ten-year period shown in the bar chart, the highest
return for a quarter was 19.27% (quarter ended June 30, 2003) and the lowest return for a quarter was 22.40% (quarter ended September 30,
2011).
As of
12/31/12
Average Annual Total Returns
|
|
|
|
1 Year
|
|
5 Years
|
|
10 Years
|
BlackRock U.S. Opportunities Portfolio Service
|
Return Before Taxes
|
|
|
|
|
10.35
|
%
|
|
|
1.75
|
%
|
|
|
11.97
|
%
|
Return After Taxes on Distributions
|
|
|
|
|
9.93
|
%
|
|
|
1.29
|
%
|
|
|
11.71
|
%
|
Return After Taxes on Distributions and Sale of Shares
|
|
|
|
|
7.27
|
%
|
|
|
1.44
|
%
|
|
|
10.74
|
%
|
Russell Midcap
®
Index
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
17.28
|
%
|
|
|
3.57
|
%
|
|
|
10.65
|
%
|
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
investors 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.
Investment Manager
U.S. Opportunities investment manager is BlackRock Advisors,
LLC (previously defined as BlackRock).
10
Portfolio Managers
Name
|
|
|
|
Portfolio Manager
of the Fund
Since
|
|
Title
|
Thomas Callan, CFA
|
|
|
|
2002
|
|
Managing Director of BlackRock, Inc.
|
Jean Rosenbaum, CFA
|
|
|
|
2002
|
|
Managing Director of BlackRock, Inc.
|
* * *
For important information about purchase and sale of Fund shares, tax information, and financial intermediary compensation, please turn to
Important Additional Information on page 21 of the prospectus.
11
Fund Overview
Key Facts About BlackRock Health
Sciences Opportunities Portfolio
Investment Objective
The investment objective of BlackRock Health Sciences
Opportunities Portfolio (Health Sciences Opportunities or the Fund), one portfolio of BlackRock Funds
SM
(the
Trust), is to provide long-term growth of capital.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you
buy and hold Services Shares of Health Sciences Opportunities.
Annual Fund Operating
Expenses
(expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
Service Shares
|
Management Fee
|
|
|
|
0.73%
|
Distribution and/or Service (12b-1) Fees
|
|
|
|
0.25%
|
Other Expenses
|
|
|
|
0.30%
|
Acquired Fund Fees and Expenses
1
|
|
|
|
0.01%
|
Total Annual Fund Operating Expenses
1
|
|
|
|
1.29%
|
1
|
|
The Total Annual Fund Operating Expenses do not
correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which does not include the Acquired Fund
Fees and Expenses.
|
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
Funds 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
|
|
|
|
$
|
131
|
|
|
$
|
409
|
|
|
$
|
708
|
|
|
$
|
1,556
|
|
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 Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 135% of the average value of its
portfolio.
12
Principal Investment Strategies of the Fund
Under normal market conditions, Health Sciences Opportunities
invests at least 80% of total assets in equity 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 of 1940, as amended, which means that it can invest more of its assets in fewer companies than a diversified fund.
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in
Health Sciences Opportunities, 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 following is
a summary description of principal risks of investing in the Fund.
n
|
|
Concentration Risk
The Funds strategy
of concentrating in health sciences and related companies means that its performance will be closely tied to the performance of a particular market
segment. The Funds concentration in these companies may present more risks than if it were broadly diversified over numerous industries and
sectors of the economy. A downturn in these companies would have a larger impact on the Fund than on a mutual fund that does not concentrate in such
companies. At times, the performance of these companies will lag the performance of other industries or the broader market as a whole.
|
n
|
|
Equity Securities Risk
Stock markets are
volatile. The price of equity securities fluctuates based on changes in a companys financial condition and overall market and economic
conditions.
|
n
|
|
Foreign Securities Risk
Foreign investments
often involve special risks not present in U.S. investments that can increase the chances that the Fund will lose money. These risks
include:
|
|
|
The Fund generally holds its 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 Funds 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.
|
|
|
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 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 Funds investments.
|
13
n
|
|
Healthcare-Related Securities Risk
Many
healthcare-related companies are smaller and less seasoned than companies in other sectors. Healthcare-related companies may also be strongly affected
by scientific or technological developments and their products may quickly become obsolete. Many healthcare companies are heavily dependent on patent
protection and the actual or perceived safety and efficiency of their products. The expiration of patents may adversely affect the profitability of
these companies. Many healthcare companies are subject to extensive litigation based on product liability and similar claims. Finally, many
healthcare-related companies offer products and services that are subject to governmental regulation and may be adversely affected by changes in
governmental policies or laws. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act designed to reform the
healthcare industry. The Fund cannot predict the impact of this legislation on healthcare-related companies or what healthcare-related proposals might
be proposed or enacted in the future.
|
n
|
|
Investment Style Risk
Under certain market
conditions, growth investments have performed better during the later stages of economic expansion. Therefore, this investment style may over time go
in and out of favor. At times when the investment style used by the Fund is out of favor, the Fund may underperform other equity funds that use
different investment styles.
|
n
|
|
Market Risk and Selection Risk
Market risk is
the risk that one or more markets in which the 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 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
|
|
Non-Diversification Risk
The Fund is a
non-diversified fund. Because the Fund may invest in securities of a smaller number of issuers, it may be more exposed to the risks associated with and
developments affecting an individual issuer than a fund that invests more widely.
|
n
|
|
Small Cap Securities Risk
Small cap 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.
|
14
Performance Information
On January 31, 2005, Health Sciences Opportunities reorganized
with the State Street Research Health Sciences Fund (the SSR Fund), which had investment objectives and strategies substantially similar to
the Fund. For periods prior to January 31, 2005, the chart and table show performance information for the SSR Fund. The performance of Service Shares
for the period before January 28, 2005 is based on the performance of Investor A Shares, adjusted to reflect the class specific fees applicable to
Service Shares at the time of such share class launch. This information may be considered when assessing the Funds performance, but does
not represent the actual performance of Service Shares.
The information shows you how the Funds performance has
varied year by year and provides some indication of the risks of investing in the Fund. The table compares the Funds performance to that of the
Standard &
Poors (S&P) 500
®
Index. The table also compares the Funds performance to that of the Russell 3000
®
Health Care Index, which is relevant to the Fund because it has characteristics similar to
the Funds investment strategies. 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 Funds returns
would have been lower. Updated information on the Funds results can be obtained by visiting http://www.blackrock.com/funds or can be obtained by
phone at (800) 882-0052.
Service Shares
ANNUAL TOTAL RETURNS
BlackRock
Health Sciences Opportunities Portfolio
As of 12/31
During the ten-year period shown in the bar chart, the highest
return for a quarter was 34.69% (quarter ended June 30, 2003) and the lowest return for a quarter was 13.96%
(quarter ended December 31, 2008).
As of 12/31/12
Average
Annual Total Returns
|
|
|
|
1 Year
|
|
5 Years
|
|
10 Years
|
BlackRock Health Sciences Opportunities Portfolio Service Shares
|
Return Before Taxes
|
|
|
|
|
18.37
|
%
|
|
|
6.64
|
%
|
|
|
14.92
|
%
|
Return After Taxes on Distributions
|
|
|
|
|
16.93
|
%
|
|
|
5.63
|
%
|
|
|
13.95
|
%
|
Return After Taxes on Distributions and Sale of Shares
|
|
|
|
|
13.34
|
%
|
|
|
5.41
|
%
|
|
|
13.09
|
%
|
Russell 3000
®
Health Care Index
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
19.32
|
%
|
|
|
5.52
|
%
|
|
|
7.13
|
%
|
S&P 500
®
Index
(Reflects no deduction for fees, expenses or taxes)
|
|
|
|
|
16.00
|
%
|
|
|
1.66
|
%
|
|
|
7.10
|
%
|
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
investors 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.
15
Investment Manager
Health Sciences Opportunities investment manager is
BlackRock Advisors, LLC (previously defined as BlackRock).
Portfolio Managers
Name
|
|
|
|
Portfolio Manager
of the Fund
Since
|
|
Title
|
Thomas Callan, CFA
|
|
|
|
2005
|
|
Managing Director of BlackRock, Inc.
|
Erin Xie, PhD
|
|
|
|
2003
|
|
Managing Director of BlackRock, Inc.
|
* * *
For more important information about purchase and sale of Fund
shares, tax information, and financial intermediary compensation, please turn to Important Additional Information on page 21
of the prospectus.
16
Fund Overview
Key Facts About BlackRock Science
& Technology Opportunities Portfolio
Investment Objective
The investment objective of BlackRock Science & Technology
Opportunities Portfolio (Science & Technology Opportunities or the Fund), a series of BlackRock Funds
SM
(the
Trust), is to provide long-term capital appreciation.
Fees and Expenses of the Fund
This table describes the fees and expenses that you may pay if you
buy and hold Services Shares of Science & Technology Opportunities.
Annual Fund Operating
Expenses
(expenses that you pay each year as a percentage of the value of your investment)
|
|
|
|
Service Shares
|
Management Fee
|
|
|
|
0.90
|
%
|
Distribution and/or Service (12b-1) Fees
|
|
|
|
0.25
|
%
|
Other Expenses
|
|
|
|
0.42
|
%
|
Acquired Fund Fees and Expenses
1
|
|
|
|
0.01
|
%
|
Total Annual Fund Operating Expenses
1
|
|
|
|
1.58
|
%
|
Fee Waivers and/or Expense Reimbursements
2
|
|
|
|
|
|
Total Annual Fund Operating Expenses After Fee Waivers and/or Expense
Reimbursements
2
|
|
|
|
1.58
|
%
|
1
|
|
The Total Annual Fund Operating Expenses do not
correlate to the ratio of expenses to average net assets given in the Funds most recent annual report which does not include the Acquired Fund
Fees and Expenses.
|
2
|
|
As described in the Management of the
Funds section of the Funds prospectus on pages 40-46, BlackRock Advisors, LLC (BlackRock) has
contractually agreed to waive 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 1.78% 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
Funds 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
|
|
|
|
$
|
161
|
|
|
$
|
499
|
|
|
$
|
860
|
|
|
$
|
1,878
|
|
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 Funds performance. During the most recent fiscal year, the Funds portfolio turnover rate was 320% of the average
value of its portfolio.
17
Principal Investment Strategies of the Fund
Under normal market conditions, Science & Technology
Opportunities 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 Funds
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, internet and catalog retail, integrated telecom
services, alternative carriers and wireless telecommunication services.
The Fund seeks to invest primarily 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 initial public
offerings (IPOs).
The Fund may, when consistent with the Funds 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).
Principal Risks of Investing in the Fund
Risk is inherent in all investing. The value of your investment in
Science & Technology Opportunities, 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
following is a summary description of principal risks of investing in the Fund.
n
|
|
Concentration Risk
The Funds strategy
of concentrating in science and technology and related companies means that its performance will be closely tied to the performance of a
particular market segment. The Funds concentration in these companies may present more risks than if it were broadly diversified over numerous
industries and sectors of the economy. A downturn in these companies would have a larger impact on the Fund than on a mutual fund that does not
concentrate in such companies. At times, the performance of these companies will lag the performance of other industries or the broader market as a
whole.
|
n
|
|
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 issuers credit rating or the markets perception of the issuers
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
|
|
Derivatives Risk
The Funds use of
derivatives may reduce the Funds 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 Funds 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 to sell or otherwise close a derivatives position could expose the Fund to losses and could make derivatives more
difficult for the Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the 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.
|
18
n
|
|
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
|
|
Equity Securities Risk
Stock markets are volatile. The price of equity securities fluctuates based on changes in a companys financial
condition and overall market and economic conditions.
|
n
|
|
Foreign Securities Risk
Foreign investments
often involve special risks not present in U.S. investments that can increase the chances that the Fund will lose money. These risks
include:
|
|
|
The Fund generally holds its 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 Funds 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.
|
|
|
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 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 Funds investments.
|
n
|
|
Geographic Concentration Risk
From time to
time the Fund may invest a substantial amount of its assets in issuers located in a single country or a limited number of countries. If the Fund
concentrates its investments in this manner, it assumes the risk that economic, political and social conditions in those countries will have a
significant impact on its investment performance. The Funds investment performance may also be more volatile if it concentrates its investments
in certain countries, especially emerging market countries.
|
n
|
|
Investment Style Risk
Under certain market
conditions, growth investments have performed better during the later stages of economic expansion. Therefore, this investment style may over time go
in and out of favor. At times when the investment style used by the Fund is out of favor, the Fund may underperform other equity funds that use
different investment styles.
|
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 to greater risk and
increase its costs. The use of leverage may cause the 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 Funds portfolio will be
magnified when the Fund uses leverage.
|
n
|
|
Market Risk and Selection Risk
Market risk is
the risk that one or more markets in which the 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 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
|
|
New Issues Risk
New Issues are initial public offerings of equity securities of U.S. and non-U.S. issuers.
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.
|
19
n
|
|
Small Cap Securities Risk
Small cap 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
|
|
Technology Securities Risk
Certain technology
related companies may face special risks that their products or services may not prove to be commercially successful. Technology related companies are
also strongly affected by worldwide scientific or technological developments. As a result, their products may rapidly become obsolete. Such companies
are also often subject to governmental regulation and may, therefore, be adversely affected by governmental policies.
|
Performance Information
The information shows you how Science & Technology
Opportunities performance has varied year by year and provides some indication of the risks of investing in the Fund. The table compares the
Funds performance to that of the NYSE Arca Tech 100 Index
SM
. 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 Funds returns would have been lower. Updated information on the Funds results can be obtained by visiting
http://www.blackrock.com/funds or can be obtained by phone at (800) 882-0052.
Service Shares
ANNUAL TOTAL RETURNS
1
BlackRock Science & Technology Opportunities Portfolio
As of 12/31
During the ten-year period shown in the bar chart, the highest
return for a quarter was 30.03% (quarter ended June 30, 2003) and the lowest return for a quarter was 22.21% (quarter ended December 31,
2008).
As of
12/31/12
Average Annual Total Returns
|
|
|
|
1 Year
|
|
5 Years
1
|
|
10 Years
1
|
BlackRock Science & Technology Opportunities Portfolio Service Shares
|
Return Before Taxes
|
|
|
|
|
7.38
|
%
|
|
|
1.16
|
%
|
|
|
9.40
|
%
|
Return After Taxes on Distributions
|
|
|
|
|
7.38
|
%
|
|
|
1.16
|
%
|
|
|
9.40
|
%
|
Return After Taxes on Distributions and Sale of Shares
|
|
|
|
|
4.80
|
%
|
|
|
0.99
|
%
|
|
|
8.39
|
%
|
NYSE Arca Tech 100 Index
SM
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
21.46
|
%
|
|
|
7.62
|
%
|
|
|
11.69
|
%
|
1
|
|
A portion of the Funds total return was
attributable to proceeds received in the fiscal year ended September 30, 2009 in a 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
investors 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.
20
Investment Manager
Science & Technology Opportunities investment manager is
BlackRock Advisors, LLC (previously defined as BlackRock).
Portfolio Managers
|
|
|
|
Portfolio Manager
|
|
|
Name
|
|
|
|
of the Fund Since
|
|
Title
|
Thomas Callan, CFA
|
|
|
|
2000
|
|
Managing Director of BlackRock, Inc.
|
Jean Rosenbaum, CFA
|
|
|
|
2000
|
|
Managing Director of BlackRock, Inc.
|
Erin Xie, PhD
|
|
|
|
2005
|
|
Managing Director of BlackRock, Inc.
|
* * *
For important information about purchase and sale of Fund shares,
tax information, and financial intermediary compensation, please see Important Additional Information below.
Important Additional
Information
Purchase and Sale of Fund Shares
You may purchase or redeem shares of a Fund each day the New York
Stock Exchange is open. You should contact your financial intermediary or financial professional, or, if you hold your shares through a 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. Each Funds 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.
|
Tax Information
The Funds 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 the Fund through a broker-dealer or
other financial intermediary, the Fund and BlackRock Investments, LLC, the Funds 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 intermediarys website for more information.
21
Details About the Funds
Included in this prospectus are sections that tell you about
buying and selling shares, management information, and shareholder features of BlackRock International Opportunities Portfolio
(International Opportunities), BlackRock U.S. Opportunities Portfolio (U.S. Opportunities), BlackRock Health Sciences
Opportunities Portfolio (Health Sciences Opportunities) and BlackRock Science & Technology Opportunities Portfolio (Science &
Technology Opportunities) (each, a Fund and, collectively, the Funds), each a series of BlackRock Funds
SM
(the
Trust), and your rights as a shareholder.
Should the Trusts Board of Trustees (the Board)
determine that the investment objective of a 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.
International Opportunities
The investment objective of International Opportunities is to seek
long-term capital appreciation.
Investment Process
BlackRock considers a variety of factors when choosing investments
for International Opportunities, such as:
n
|
|
identifying companies that appear to have above-average earnings
growth potential;
|
n
|
|
identifying companies and industries that appear to have the
potential for above-average long-term performance based on projections of supply and demand of a resource and the state of the market; and
|
n
|
|
identifying companies that are expected to show above-average
return potential based on factors such as relative value and earnings estimate revisions, depending on market conditions.
|
The Fund generally will sell a stock
when, in the Fund management teams opinion, the stock reaches its price target, there is a deterioration in the companys fundamentals, a
change in macroeconomic outlook, technical deterioration, valuation issues, a need to rebalance the portfolio or a better opportunity
elsewhere.
The Fund may engage in active and frequent trading of portfolio
securities to achieve its primary investment strategies.
Principal Investment Strategies
Under normal market conditions, International Opportunities
invests at least 80% of its net assets (which means net assets plus any borrowings for investment purposes) in equity securities issued by foreign
companies of any market capitalization. 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 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 Funds 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). 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 swap is an agreement whereby one party exchanges its right to receive or its obligation to pay one type of
currency for another partys obligation to pay or its right to receive another type of currency in the future or for a period of time. 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
22
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 does not limit its investments to companies of any
particular size, and may invest in securities of companies with small to large capitalizations.
ABOUT THE PORTFOLIO MANAGEMENT TEAM OF
INTERNATIONAL OPPORTUNITIES
|
|
|
|
International Opportunities is managed by a team of financial professionals. Thomas Callan, CFA, Ian Jamieson, CFA,
and Nigel Hart, CFA, are the portfolio managers and are jointly and primarily responsible for the day-to-day management of the Fund.
Please see Management of the Funds Portfolio Manager Information for additional information about the portfolio management
team.
|
|
|
|
U.S. Opportunities
The investment objective of U.S. Opportunities is to seek
long-term capital appreciation.
Investment Process
BlackRock considers a variety of factors when choosing investments
for U.S. Opportunities, such as:
n
|
|
identifying companies and industries that appear to have the
potential for above-average long-term performance based on projections of supply and demand of a resource and the state of the market; and
|
n
|
|
identifying companies that are expected to show above-average
growth over the long-term as well as those that appear to be trading below their true worth.
|
The Fund generally will sell a stock when, in the Fund management
teams opinion, the stock reaches its price target, there is a deterioration in the companys fundamentals, a change in macroeconomic
outlook, technical deterioration, valuation issues, a need to rebalance the portfolio or a better opportunity elsewhere.
The Fund may engage in active and frequent trading of portfolio
securities to achieve its primary investment strategies.
Principal Investment Strategies
Under normal market conditions, U.S. Opportunities invests at least 80% of its net assets (which means net
assets plus any borrowings for investment purposes) 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 Funds
investment, as those with market capitalizations comparable in size to those within the universe of 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 Funds investment
objective, buy or sell options or futures on a security or an index of securities (collectively, commonly known as derivatives). 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. 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.
23
ABOUT THE PORTFOLIO MANAGEMENT TEAM OF
U.S. OPPORTUNITIES
|
|
|
|
U.S. Opportunities is managed by a team of financial professionals. Jean Rosenbaum, CFA, and Thomas Callan, CFA, are the portfolio managers and
are jointly and primarily responsible for the day-to-day management of the Fund. Please see Management of the Funds Portfolio Manager
Information for additional information about the portfolio management team.
|
|
|
|
Health Sciences Opportunities
The investment objective of Health Sciences Opportunities is to
provide long-term growth of capital.
Investment Process
BlackRock considers a variety of factors when choosing investments
for Health Sciences Opportunities, such as:
n
|
|
identifying companies and industries that appear to have the
potential for above-average returns; and
|
n
|
|
identifying companies that are expected to show above-average
growth over the long-term as well as those that appear to be trading below their true worth.
|
The Fund expects to invest in health sciences companies comparable
in size to those in the health sector of the Russell 3000
®
Health Care Index or in similar companies, including non-U.S.
companies.
The Fund generally will sell a stock when, in the Fund management
teams opinion, the stock reaches its price target, there is a deterioration in the companys fundamentals, a change in macroeconomic
outlook, technical deterioration, valuation issues, a need to rebalance the portfolio or a better opportunity elsewhere.
The Fund may engage in active and frequent trading of portfolio
securities to achieve its primary investment strategies.
Principal Investment Strategies
Under normal market conditions, Health Sciences Opportunities
invests at least 80% of total assets in equity 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 does not limit its investments to companies of any particular
size.
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 of 1940, as amended, which means that it can invest more of its assets in fewer companies than a diversified fund.
ABOUT THE PORTFOLIO MANAGEMENT TEAM OF
HEALTH SCIENCES OPPORTUNITIES
|
|
|
|
Health Sciences Opportunities is managed by a team of financial professionals. Erin Xie, PhD, and Thomas Callan, CFA, are the portfolio managers
and are jointly and primarily responsible for the day-to-day management of the Fund. Please see Management of the Funds Portfolio Manager
Information for additional information about the portfolio management team.
|
|
|
|
24
Science & Technology Opportunities
The investment objective of Science & Technology Opportunities
is to provide long-term capital appreciation.
Investment Process
BlackRock considers a variety of factors when choosing investments
for Science & Technology Opportunities, such as:
n
|
|
selecting companies with the potential for rapid and sustainable
growth from the development, advancement and use of science and/or technology; and
|
n
|
|
identifying companies that have above-average return potential
based on factors such as revenue and earnings growth, estimate revisions, profitability and relative value. The factors and the weight assigned to a
factor may change depending on market conditions.
|
In addition, a variety of countries, including emerging market
countries, and industries are likely to be represented.
The Fund generally will sell a stock when, in the Fund management
teams opinion, there is a deterioration in the companys fundamentals, a change in macroeconomic outlook, technical deterioration, valuation
issues, a need to rebalance the portfolio or a better opportunity elsewhere. The team uses a broad set of quantitative tools to enhance the timing of
purchase or sell decisions.
The Fund may engage in active and frequent trading of portfolio
securities to achieve its primary investment strategies.
Principal Investment Strategies
Under normal market conditions, Science & Technology
Opportunities invests at least 80% of its net assets (which means net assets plus any borrowings for investment purposes) 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 Funds
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, internet and catalog retail, integrated telecom services,
alternative carriers and wireless telecommunication services.
The Fund seeks to invest primarily 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 Funds 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). 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 swap is an agreement whereby one party exchanges its right to receive or its obligation to pay one type of
currency for another partys obligation to pay or its right to receive another type of currency in the future or for a period of time. 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).
ABOUT THE PORTFOLIO MANAGEMENT TEAM OF
SCIENCE & TECHNOLOGY OPPORTUNITIES
|
|
|
|
Science & Technology Opportunities is managed by a team of financial professionals. Thomas Callan, CFA, Jean Rosenbaum, CFA, and Erin
Xie, PhD are the portfolio managers and are jointly and primarily responsible for the day-to-day management of the Fund. Please see
Management of the Funds Portfolio Manager Information for additional information about the portfolio management
team.
|
|
|
|
25
Other Strategies Applicable to the Funds
In addition to the principal strategies discussed above, each Fund
(except as noted below) may also invest or engage in the following investments/strategies:
n
|
|
Convertible Securities (Health Sciences
Opportunities)
The Fund may invest in convertible securities, which 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 securitys value usually reflects both the stream of current income payments and the market value of the
underlying common stock.
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Credit Default Swaps (International Opportunities, U.S.
Opportunities and Science & Technology Opportunities)
Each Fund may invest in credit default swaps, 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.
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Depositary Receipts
Each Fund may invest in
securities of foreign issuers in the form of depositary receipts or other securities that are convertible into securities of foreign issuers. American
Depositary Receipts are receipts typically issued by an American bank or trust company that evidence underlying securities issued by a foreign
corporation. European Depositary Receipts (issued in Europe) and Global Depositary Receipts (issued throughout the world) each evidence a similar
ownership arrangement. The Funds may invest in unsponsored depositary receipts.
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Derivative Transactions (Health Sciences
Opportunities)
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.
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Foreign Securities (U.S. Opportunities)
The Fund may invest in companies located in countries other than the United States.
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Illiquid/Restricted Securities
Each Fund may
invest up to 15% of its net assets in illiquid securities that it cannot sell within seven days at approximately current value. Each 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.
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Indexed and Inverse Securities
Each Fund may
invest in securities the potential return of which is based on the change in a specified interest rate or equity index (an indexed
security). For example, a Fund may invest in a security that pays a variable amount of interest or principal based on the current level of the
French or Korean stock markets. A Fund may also invest in securities whose return is inversely related to changes in an interest rate or index
(inverse securities). In general, the return on inverse securities will decrease when the underlying index or interest rate goes up and
increase when that index or interest rate goes down.
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Investment Companies
Each Fund has the
ability to invest in other investment companies, such as exchange-traded funds, unit investment trusts, and open-end and closed-end funds. Each Fund
may invest in affiliated investment companies, including affiliated money market funds and affiliated exchange traded funds.
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Money Market Securities
Each Fund may invest
in high quality money market securities pending investments or when it expects to need cash to pay redeeming shareholders. A Fund will not be deemed to
deviate from its normal strategies if it holds these securities pending investments.
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New Issues (Health Sciences
Opportunities)
The Fund may invest in shares of companies through initial public offerings.
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Real Estate Investment Trusts (REITs) (International
Opportunities and U.S. Opportunities)
Each Fund may invest in REITs. REITs are companies that own interests in real estate or in real
estate related loans or other interests, and have revenue primarily consisting of rent derived from owned, income producing real estate properties and
capital gains from the sale of such properties. 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
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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.
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Repurchase Agreements and Purchase and Sale Contracts
(International Opportunities, U.S. Opportunities and Science & Technology Opportunities)
Each Fund may enter into certain types of
repurchase agreements or purchase and sale contracts. Under a repurchase agreement, the seller agrees to repurchase a security at a mutually
agreed-upon time and price. A purchase and sale contract is similar to a repurchase agreement, but purchase and sale contracts also provide that the
purchaser receives any interest on the security paid during the period.
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Securities Lending
Each 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.
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Temporary Defensive Strategies
It is possible
that in extreme market conditions each Fund temporarily may invest some or all of its assets in high quality money market securities. Such a temporary
defensive strategy would be inconsistent with the Funds primary investment strategies. The reason for acquiring money market securities would be
to avoid market losses. However, if market conditions improve, this strategy could result in reducing the potential gain from the market upswing, thus
reducing the Funds opportunity to achieve its investment objective.
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Warrants
A warrant gives a Fund the right to
buy stock. The warrant specifies the amount of underlying stock, the purchase (or exercise) price and the date the warrant expires. The
Fund has no obligation to exercise the warrant and buy the stock. A warrant has value only if the Fund is able to exercise it or sell it before it
expires.
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When-Issued and Delayed Delivery Securities and Forward
Commitments (International Opportunities, U.S. Opportunities and Science & Technology Opportunities)
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 a Fund
at an established price with payment and delivery taking place in the future. A Fund enters into these transactions to obtain what is considered an
advantageous price to a Fund at the time of entering into the transaction.
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This section contains a discussion of the general risks of
investing in the Funds. The Investment Objectives and Policies section in the Statement of Additional Information (SAI) also
includes more information about the Funds, their investments and the related risks. There can be no guarantee that any Fund will meet its objective or
that a Funds performance will be positive for any period of time. An investment in a 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.
Principal Risks of Investing in a Fund
Concentration Risk (Health Sciences Opportunities and Science & Technology Opportunities)
Each Funds
strategy of concentrating in health sciences and related companies (Health Sciences Opportunities) or science and technology and related companies
(Science & Technology Opportunities) means that its performance will be closely tied to the performance of a particular market segment. Each
Funds concentration in these companies may present more risks than if it were broadly diversified over numerous industries and sectors of the
economy. A downturn in these companies would have a larger impact on a Fund than on a mutual fund that does not concentrate in such companies. At
times, the performance of these companies will lag the performance of other industries or the broader market as a whole.
Convertible Securities Risk (International Opportunities,
U.S. Opportunities and Science & Technology Opportunities Principal Risk; Health Sciences Opportunities Other 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 issuers credit rating or the markets perception of the issuers
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.
Derivatives Risk (International Opportunities, U.S.
Opportunities and Science & Technology Opportunities Principal Risk; Health Sciences Opportunities Other Risk)
A Funds use of
derivatives may reduce the Funds 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 a Funds use of derivatives is that the fluctuations in their
values may not
27
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 a Fund to sell or otherwise close
a derivatives position could expose the Fund to losses
and could make derivatives more difficult for a Fund to
value
accurately. A Fund could also suffer losses related to its derivatives positions as a result of unanticipated market
movements, which losses are potentially unlimited. Finally, BlackRock may not be able to predict correctly the direction of
securities prices, interest rates and other economic factors, which could cause the Funds derivatives positions to
lose value. When a derivative is used as a hedge against
a position that the 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 Funds 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 a Fund has entered into the swap will default on its obligation to pay the Fund and the risk that the
Fund will not be able to meet its obligations to pay the other party to the agreement. International Opportunities, U.S. Opportunities and Science & Technology Opportunities may each invest in
credit default
swaps. 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). Each of the Funds may invest in foreign forward currency exchange contracts. Forward foreign currency exchange contracts do
not eliminate fluctuations in the value of non-U.S. securities but rather allow the 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 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.
Emerging Growth Securities Risk (U.S. Opportunities)
Emerging growth companies are subject to the growth investment style risk described under Investment Style Risk and the risk of
investing in small cap companies described under Small Cap Securities Risk.
Emerging Markets Risk (International Opportunities and
Science & Technology Opportunities Principal Risk; Health Sciences Opportunities Other 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 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 Funds investment
opportunities include restrictions on investment in issuers or industries deemed sensitive to national interests.
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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 a 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 that ownership exists in some emerging markets, and, along with other factors, could result in
ownership registration being completely lost. A 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 a Fund could decline if the financial condition of the
companies the 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.
Foreign Securities Risk (International Opportunities, Health
Sciences Opportunities and Science & Technology Opportunities Principal Risk; U.S. Opportunities Other 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 a Fund will lose money. In particular, a 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 a 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 Funds generally holds 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 a Funds 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 a 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 a Fund can
earn on its investments and typically results in a higher operating expense ratio for a Fund than for investment companies invested only in the United
States.
Currency Risk
Securities
and other instruments in which a 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 a Funds 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 a Funds ability to purchase or sell foreign securities or transfer a Funds assets or income back into the United States, or
otherwise adversely affect the Funds 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
a Funds investments, in non-U.S. countries. These factors are extremely difficult, if not impossible, to predict and take into account with
respect to a Funds 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 companys securities based on material non-public information about that company. In addition, some countries may have legal systems that
may make it difficult for a 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 management to completely and accurately determine a companys
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 a Fund to carry out transactions. If
a 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 a 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, a 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 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
a Funds 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.
Geographic Concentration Risk (Science & Technology
Opportunities)
From time to time Science & Technology Opportunities may invest a substantial amount of its assets in issuers located
in a single country or a limited number of countries. If the Fund concentrates its investments in this manner, it assumes the risk that economic,
political and social conditions in those countries will have a significant impact on its investment performance. The Funds investment performance
may also be more volatile if it concentrates its investments in certain countries, especially emerging market countries.
Healthcare-Related Securities Risk (Health Sciences
Opportunities)
Many healthcare-related companies are smaller and less seasoned than companies in other sectors. Healthcare-related
companies may also be strongly affected by scientific or technological developments and their products may quickly become obsolete. Many healthcare
companies are heavily dependent on patent protection and the actual or perceived safety and efficiency of their products. The expiration of patents may
adversely affect the profitability of these companies. Many healthcare companies are subject to extensive litigation based on product liability and
similar claims. Finally, many healthcare-related companies offer products and services that are subject to governmental regulation and may be adversely
affected by changes in governmental policies or laws. In March 2010, President Obama signed into law the Patient Protection and Affordable Care Act
designed to reform the healthcare industry. The Fund cannot predict the impact of this legislation on healthcare-related companies or what
healthcare-related proposals might be proposed or enacted in the future.
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Investment Style Risk
Under certain market
conditions, growth investments have performed better during the later stages of economic expansion. Therefore, this investment style may over time go
in and out of favor. At times when the investment style used by a Fund is out of favor, the Fund may underperform other equity funds that use different
investment styles.
Leverage Risk (International Opportunities, U.S.
Opportunities and Science & Technology Opportunities Principal Risk; Health Sciences Opportunities Other Risk)
Some
transactions may give rise to a form of economic leverage. These transactions may include, among others, derivatives, and may expose
a Fund to greater risk and increase its costs. As an open-end investment company registered with the Securities and Exchange
Commission (the SEC), each Fund is subject to the federal securities laws, including the Investment Company Act of
1940, as amended (the Investment Company Act), the rules thereunder, and various SEC and SEC staff interpretive positions. In
accordance with these laws, rules and positions, each Fund 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 a 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
a Funds portfolio will be magnified when the Fund uses leverage.
Market Risk and Selection Risk
Market risk is
the risk that one or more markets in which a 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 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.
New Issues Risk (International Opportunities,
U.S. Opportunities and Science & Technology Opportunities Principal Risk; Health Sciences Opportunities Other Risk)
New
Issues are initial public offerings 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 a Fund. However, there is no assurance that a 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 a Fund during
periods when it is unable to invest significantly or at all in IPOs may be lower than during periods when a Fund is able to do so. In addition, as a
Fund increases in size, the impact of IPOs on a Funds 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 a 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.
Non-Diversification Risk (Health Sciences
Opportunities)
Health Sciences Opportunities is a non-diversified fund. Because the Fund may invest in securities of a smaller number of
issuers, it may be more exposed to the risks associated with and developments affecting an individual issuer than a fund that invests more
widely.
Small Cap Securities Risk
Small cap 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 Funds 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 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.
Technology Securities Risk (Science & Technology
Opportunities)
Certain technology related companies may face special risks that their products or services may not prove to be
commercially successful. Technology related companies are also strongly affected by worldwide scientific or technological developments. As a result,
their products may rapidly become obsolete. Such companies are also often subject to governmental regulation and may, therefore, be adversely affected
by governmental policies.
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Other Risks of Investing in a Fund
Each Fund (except as noted below) may also be subject to certain
other risks associated with its investments and investment strategies, including:
Borrowing Risk
Borrowing may exaggerate
changes in the net asset value of Fund shares and in the return on a Funds portfolio. Borrowing will cost the Fund interest expense and other
fees. The costs of borrowing may reduce a Funds return. Borrowing may cause a Fund to liquidate positions when it may not be advantageous to do
so to satisfy its obligations.
Depositary Receipts Risk
The issuers of
unsponsored depositary receipts are not obligated to disclose information that is, in the United States, considered material. Therefore, there may be
less information available regarding these issuers and there may not be a correlation between such information and the market value of the depositary
receipts. Depositary receipts are generally subject to the same risks as the foreign securities that they evidence or into which they may be
converted.
Expense Risk
Fund expenses are subject to a
variety of factors, including fluctuations in the Funds net assets. Accordingly, actual expenses may be greater or less than those indicated. For
example, to the extent that a Funds net assets decrease due to market declines or redemptions, a Funds expenses will increase as a
percentage of Fund net assets. During periods of high market volatility, these increases in a Funds expense ratio could be
significant.
High Portfolio Turnover Risk
Each 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 a 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 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
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 a Funds
investment in such instruments may decline significantly in value if interest rates or index levels move in a way Fund management does not
anticipate.
Investment in Other Investment Companies Risk
As with other investments, investments in other investment companies are subject to market and selection risk. In addition, if a Fund acquires shares
of investment companies, including ones affiliated with the Fund, shareholders bear both their proportionate share of expenses in the Fund (including
management and advisory fees) and, indirectly, the expenses of the investment companies. To the extent a Fund is held by an affiliated fund, the
ability of the Fund itself to hold other investment companies may be limited.
Liquidity Risk
Liquidity risk exists when
particular investments are difficult to purchase or sell. A Funds investments in illiquid securities may reduce the returns of the Fund because
it may be difficult to sell the illiquid securities at an advantageous time or price. To the extent that the Funds principal investment
strategies involve derivatives or securities with substantial market and/or credit risk, the Fund will tend to have the greatest exposure to liquidity
risk. Liquid investments may become illiquid after purchase by a Fund, particularly during periods of market turmoil. Illiquid investments may be
harder to value, especially in changing markets, and if a Fund is forced to sell these investments to meet redemption requests or for other cash needs,
the Fund may suffer a loss. In addition, when there is illiquidity in the market for certain securities, a Fund, due to limitations on illiquid
investments, may be subject to purchase and sale restrictions.
REIT Investment Risk (International Opportunities and U.S.
Opportunities)
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 Risk
(International Opportunities, U.S. Opportunities and Science & Technology Opportunities)
If the other party to a repurchase
agreement or purchase and sale contract defaults on its obligation under the agreement, a 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, a Fund may lose money.
32
Securities Lending Risk
Securities lending
involves the risk that the borrower may fail to return the securities in a timely manner or at all. As a result, the Fund may lose money and there may
be a delay in recovering the loaned securities. A Fund could also lose money if it does not recover the securities and/or the value of the collateral
falls, including the value of investments made with cash collateral. These events could trigger adverse tax consequences for the Fund.
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 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.
When-Issued and Delayed Delivery Securities and Forward
Commitments Risk (International Opportunities, U.S. Opportunities and Science & Technology Opportunities)
When-issued and delayed
delivery securities and forward commitments involve the risk that the security a 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, a Fund loses both
the investment opportunity for the assets it set aside to pay for the security and any gain in the securitys price.
33
Account Information
How to Choose the Share Class that
Best Suits Your Needs
Each Fund currently offers multiple share classes (Service Shares
in this prospectus), 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 particular 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 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.
Each Funds 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
|
|
|
|
Service Shares
|
Availability
|
|
|
|
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 customers 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 customers 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.
|
Minimum Investment
|
|
|
|
$5,000. However, financial intermediaries may set a higher minimum for their customers.
|
Initial Sales Charge?
|
|
|
|
No. Entire purchase price is invested in shares of the Fund.
|
Deferred Sales Charge?
|
|
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No.
|
Service and Distribution Fees?
|
|
|
|
No Distribution Fee. 0.25% Annual Service Fee.
|
Redemption Fees?
|
|
|
|
No.
|
Advantage
|
|
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|
No up-front sales charge so you start off owning more shares.
|
Disadvantage
|
|
|
|
Limited availability.
|
Distribution and Service
Payments
The Trust, on behalf of the Funds, has adopted a plan (the
Plan) that allows each Fund to pay a distribution fee 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 Funds do not make distribution payments under the Plan with respect
to Service Shares.
Plan Payments
Under the Plan, the Trust also pays shareholder servicing fees
(also referred to as shareholder liaison services fees) on behalf of each 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 each Fund. All Service Shares pay this shareholder servicing fee.
34
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:
n
|
|
Responding to customer questions on the services performed by the
Financial Intermediary and investments in Service Shares;
|
n
|
|
Assisting customers in choosing and changing dividend options,
account designations and addresses; and
|
n
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|
Providing other similar shareholder liaison services.
|
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 a Funds shares. Because the fees paid by the Funds 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 a Fund may pay
to a Financial Intermediary pursuant to the Plan and fees that a Fund pays to its transfer agent, BNY Mellon Investment Servicing (US) Inc. (the
Transfer Agent), BlackRock, on behalf of a 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 Funds). 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 profits. BlackRock, the Distributor and their affiliates may compensate affiliated and unaffiliated Financial Intermediaries for the sale and
distribution of shares of the Funds or for these other services to the Funds 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 a Fund to you. Please contact your Financial Intermediary for details
about payments it may receive from a 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 other 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.
Each Fund 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 shareholders shares in a Fund may be transferred to that state.
35
How to Buy Shares
|
|
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|
Your Choices
|
|
|
|
Important Information for You to
Know
|
Initial Purchase
|
|
|
|
Determine the amount of your investment
|
|
|
|
Refer to the minimum initial investment in the Service Share Class at a Glance table in this
prospectus.
|
|
|
|
|
Have your financial intermediary submit your purchase order
|
|
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|
The
price of your shares is based on the next calculation of a Funds 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 applicable Funds 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.
|
Add to your
investment
|
|
|
|
Purchase additional shares
|
|
|
|
There is no minimum amount for additional investments.
|
|
|
|
|
Have your financial intermediary submit your purchase order for additional
shares
|
|
|
|
To purchase additional shares you may contact your financial intermediary.
|
|
|
|
|
Or contact BlackRock (for accounts held directly with BlackRock)
|
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|
Purchase by Telephone:
Call the Fund at (800) 537-4942 and speak with one of our representatives. The Fund has the right to reject any
telephone request for any reason.
|
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|
|
|
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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 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. Limits on amounts that
may be purchased via Internet may vary. For additional information call BlackRock at (800) 537-4942.
|
|
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|
|
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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 Funds employ reasonable procedures to confirm that transactions entered over the Internet are genuine.
By entering into the User Agreement with a Fund in order to open an account through the website, the shareholder waives any right to reclaim any losses
from a Fund or any of its affiliates, incurred through fraudulent activity.
|
|
|
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|
Acquire additional shares by reinvesting dividends and capital gains
|
|
|
|
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
intermediary (if your account is not held directly with BlackRock).
|
How to Pay for
Shares
|
|
|
|
Making payment for purchases
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|
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|
Payment for Service Shares must normally be made in Federal funds or other immediately available funds by
your financial intermediary but in no event later than 4:00 p.m. (Eastern time) on the first business day following 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 respective 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.
|
36
How to Sell Shares
|
|
|
|
Your Choices
|
|
|
|
Important Information for You to
Know
|
Full or Partial Redemption of
Shares
|
|
|
|
Have your financial intermediary submit your sales order
|
|
|
|
You
can also make redemption requests through your financial intermediary in accordance with the procedures applicable to your accounts. These
procedures may vary according to the type of account and the financial intermediary involved and customers should consult their financial intermediary
in this regard. Financial intermediaries are responsible for transmitting redemption orders and crediting their customers accounts with
redemption proceeds on a timely basis. Information relating to such redemption services and charges to process a redemption of shares, if any, should
be obtained by customers from their financial intermediaries. Financial intermediaries may place redemption orders by telephoning (800) 537-4942. The
price of your shares is based on the next calculation of 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 intermediary prior to that days 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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|
|
|
Shareholders who hold more than one class should indicate which class of shares they are redeeming.
The Funds may reject an order to sell shares under certain circumstances.
|
|
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|
|
Selling shares held directly with BlackRock
|
|
|
|
Methods of Redeeming:
|
|
|
|
|
|
|
|
|
Redeem by Telephone:
Financial intermediaries may place redemption orders by telephoning (800) 537-4942.
|
|
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|
Each
Fund, its administrators and the Distributor will employ reasonable procedures to confirm that instructions communicated by telephone are genuine. Each
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. Each Fund may refuse a telephone redemption request if it believes it is advisable to do
so.
|
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|
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|
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|
During periods of substantial economic or market change, telephone redemptions may be difficult to complete. Please find below alternative
redemption methods.
|
|
|
|
|
|
|
|
|
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.
|
|
|
|
|
|
|
|
|
Redeem in Writing:
Redemption requests may be sent in proper form to BlackRock Funds, P.O. Box 9819, Providence, RI 02940-8019. Under
certain circumstances, a medallion signature guarantee will be required.
|
|
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|
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|
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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 Funds custodian is also open for business. Payment for redemption orders received after 4:00 p.m. (Eastern time)
or on a day when the Funds custodian is closed is normally wired in Federal funds on the next business day following redemption on which the
Funds custodian is open for business. Each 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 a Fund.
|
37
How to Sell Shares (continued)
|
|
|
|
Your Choices
|
|
|
|
Important Information for You to
Know
|
Full or Partial Redemption of Shares (continued)
|
|
|
|
Selling shares held directly with BlackRock (continued)
|
|
|
|
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
Funds are not responsible for the efficiency of the Federal wire system or the shareholders 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 Funds 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 a 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
|
|
|
|
|
|
|
|
|
Transfer Shares to Another Financial Intermediary
|
|
|
|
Transfer to a participating financial intermediary
|
|
|
|
You may transfer your shares of a Fund only to another financial intermediary that has 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.
|
|
|
|
|
Transfer to a non-participating financial intermediary
|
|
|
|
You must either:
· Transfer your shares to an
account with a Fund; or
· Sell your shares, paying any applicable deferred sales
charge.
|
Each Fund 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 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
|
|
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
|
|
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 mutual funds sponsored and advised by BlackRock or its affiliates, regardless of a Funds minimum investment
38
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 Board has determined that the interests of long-term
shareholders and each Funds 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 Funds are 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 a Fund and its returns to shareholders. For example, large flows of cash into and out of a 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 Funds investment objective. Frequent trading may cause a Fund to sell securities at less favorable prices, and
transaction costs, such as brokerage commissions, can reduce a Funds performance.
Each Funds 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 Funds portfolio securities and the
determination of the Funds 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. Each
Fund will seek to eliminate these opportunities by using fair value pricing, as described in Valuation of Fund Investments
below.
The Funds discourage market timing and seek to prevent frequent
purchases and sales or exchanges of Fund shares that they determine may be detrimental to a 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 Funds or shareholders.
If as a result of its own investigation, information provided by a
financial intermediary or other third party, or otherwise, a 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 a 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 a 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 a Fund. Certain accounts, such as omnibus accounts and accounts at financial intermediaries,
however, include multiple investors and such accounts typically provide a 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 a Fund. While the Funds monitor for market timing activity, the Funds 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 Funds. The
Distributor has entered into agreements with respect to financial professionals, and other financial intermediaries that maintain omnibus accounts with
the Funds 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 Funds 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 Funds Distributor may
terminate such financial intermediarys agreement with the Distributor, suspend such financial intermediarys 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 Funds may from time to time use other methods that they
believe are appropriate to deter market timing or other trading activity that may be detrimental to a Fund or long-term shareholders.
39
Management of the Funds
BlackRock manages the Funds investments and its business
operations subject to the oversight of the Trusts Board. While BlackRock is ultimately responsible for the management of the Funds, 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 International Limited (the Sub-Adviser), a registered investment adviser
organized in 1995 and an affiliate of BlackRock, acts as sub-adviser for International Opportunities. 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 each Fund pursuant to a management
agreement (the Management Agreement). BlackRock has entered into a sub-advisory agreement with the Sub-Adviser with respect to
International Opportunities, under which BlackRock pays the Sub-Adviser for services it provides a fee equal to a percentage of the management fee paid
to BlackRock under the Management Agreement. Pursuant to the Management Agreement, BlackRock is entitled to fees computed daily and payable monthly as
described below.
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 Funds investments; and (iv) other extraordinary
expenses (including litigation expenses) not incurred in the ordinary course of the Funds business, if any), of Service Shares of certain Funds
at the levels shown below (and in the case of contractual caps, at the levels shown both below and in a Funds 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 or reimburse fees or expenses if these operating expenses exceed a certain limit.
International Opportunities Total Annual Management
Fee
With respect to International Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
1.000%
|
$1 billion $2 billion
|
|
|
|
0.950%
|
$2 billion $3 billion
|
|
|
|
0.900%
|
Greater than $3 billion
|
|
|
|
0.850%
|
40
With respect to International Opportunities, BlackRock has agreed
contractually to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses for Service Shares to the amounts noted
in the table below.
|
|
|
|
Contractual
Cap
1
on Total
Annual Fund Operating Expenses
2
(excluding Dividend Expense, Interest
Expense, Acquired Fund Fees and Expenses
and certain other Fund expenses)
|
International Opportunities
|
|
|
|
1.80%
|
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.
|
U.S. Opportunities Total Annual Management
Fee
With respect to U.S. Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
1.100%
|
$1 billion $2 billion
|
|
|
|
1.050%
|
$2 billion $3 billion
|
|
|
|
1.025%
|
Greater than $3 billion
|
|
|
|
1.000%
|
With respect to U.S. Opportunities, BlackRock has agreed
contractually to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses for Service Shares to the amounts noted
in the table below.
|
|
|
|
Contractual
Cap
1
on Total
Annual Fund Operating Expenses
2
(excluding Dividend Expense, Interest
Expense, Acquired Fund Fees and Expenses
and certain other Fund expenses)
|
U.S. Opportunities
|
|
|
|
1.65%
|
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.
|
Health Sciences Opportunities Total Annual Management
Fee
With respect to Health Sciences Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
0.750%
|
$1 billion $2 billion
|
|
|
|
0.700%
|
$2 billion $3 billion
|
|
|
|
0.675%
|
Greater than $3 billion
|
|
|
|
0.650%
|
41
Science & Technology Opportunities Total Annual Management
Fee
With respect to Science & Technology Opportunities, 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
|
|
|
|
Rate of
Management Fee
|
First $1 billion
|
|
|
|
0.900%
|
$1 billion $2 billion
|
|
|
|
0.850%
|
$2 billion $3 billion
|
|
|
|
0.800%
|
Greater than $3 billion
|
|
|
|
0.750%
|
With respect to Science & Technology Opportunities, BlackRock
has agreed contractually to waive and/or reimburse fees or expenses in order to limit Total Annual Fund Operating Expenses for Service Shares to the
amounts noted in the table below.
|
|
|
|
Contractual
Cap
1
on Total
Annual Fund Operating Expenses
2
(excluding Dividend Expense, Interest
Expense,
Acquired Fund Fees and Expenses
and certain other Fund expenses)
|
Science & Technology Opportunities
|
|
|
|
1.78%
|
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.
|
With respect to each contractual agreement, if during a
Funds 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 of which the share class is a
part has more than $50 million in assets and (ii) BlackRock or an affiliate serves as the Funds manager or administrator.
For the fiscal year ended September 30, 2012, each
Fund paid BlackRock management fees, net of any applicable waiver, as a percentage of the Funds average daily net assets as
follows:
|
|
|
|
|
International Opportunities
|
|
|
|
0.98%
|
U.S. Opportunities
|
|
|
|
0.95%
|
Health Sciences Opportunities
|
|
|
|
0.73%
|
Science & Technology Opportunities
|
|
|
|
0.90%
|
A discussion of the basis for the Boards approval of the
Management Agreement and sub-advisory agreement, if any, with respect to each of the Funds is included in the respective Funds annual shareholder
report for the fiscal year ended September 30, 2012.
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
Funds are based on numerous factors, may not be relied on as an indication of trading intent on behalf of the Funds.
Portfolio Manager
Information
Information regarding the portfolio managers of each Fund is set
forth below. Further information regarding the portfolio managers, including other accounts managed, compensation, ownership of Fund shares, and
possible conflicts of interest, is available in the Funds SAI.
42
International Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
1999
|
|
Managing Director of BlackRock, Inc. since 1998; Head of BlackRocks Global Opportunities equity
team.
|
Ian Jamieson, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2011
|
|
Managing Director of BlackRock, Inc. since 2012; Director of BlackRock, Inc. from 2007 to 2011; Vice
President of BlackRock, Inc. from 2004 to 2006.
|
Nigel Hart, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio,
including setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2012
|
|
Managing Director of BlackRock, Inc. since 2012; Managing Partner and Portfolio Manager of ReachCapital
Management LP from 2000 to 2010.
|
U.S. Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2002
|
|
Managing Director of BlackRock, Inc. since 1998; Head of BlackRocks Global Opportunities equity
team.
|
Jean Rosenbaum, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2002
|
|
Managing Director of BlackRock, Inc. since 2006; Director of BlackRock, Inc. from 2002 to
2005.
|
Health Sciences Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2005
|
|
Managing Director of BlackRock, Inc. since 1998; Head of BlackRocks Global Opportunities equity
team.
|
Erin Xie, PhD
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2003
|
|
Managing Director of BlackRock, Inc. since 2006; Director of BlackRock, Inc. in 2005; Senior Vice President
of State Street Research & Management from 2001 to 2005.
|
43
Science & Technology Opportunities
Portfolio Manager
|
|
Primary Role
|
|
Since
|
|
Title and Recent Biography
|
Thomas Callan, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2000
|
|
Managing Director of BlackRock, Inc. since 1998; Head of BlackRocks Global Opportunities equity
team.
|
Jean Rosenbaum, CFA
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2000
|
|
Managing Director of BlackRock, Inc. since 2006; Director of BlackRock, Inc. from 2002 to
2005.
|
Erin Xie, PhD
|
|
Jointly and primarily responsible for the day-to-day management of the Funds portfolio, including
setting the Funds overall investment strategy and overseeing the management of the Fund.
|
|
2005
|
|
Managing Director of BlackRock since 2006; Director of BlackRock, Inc. in 2005; Senior Vice President of
State Street Research & Management from 2001 to 2005.
|
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 Funds and their 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 funds. 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 Funds. 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 Funds directly and indirectly
invest. Thus, it is likely that the Funds 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 similar to
those of the Funds and/or that engage in and compete for transactions in the same types of securities, currencies and other instruments as the Funds.
The trading activities of these Affiliates are carried out without reference to positions held directly or indirectly by the Funds and may
result in an Affiliate having positions that are adverse to those of the Funds. No Affiliate is under any obligation to share any
investment opportunity, idea or strategy with the Funds. As a result, an Affiliate may compete with the Funds for appropriate investment
opportunities. The results of the Funds investment activities, therefore, may differ from those of an Affiliate and of other accounts
managed by an Affiliate, and it is possible that the Funds 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 Funds 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 Funds. 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 Funds. The Funds 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 Funds 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 Funds 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 Funds or who engage in transactions with or
for the Funds, and may receive compensation for such services. The Funds may also make brokerage and other payments to Affiliates in connection
with the Funds portfolio investment transactions.
44
Under a securities lending program approved by the Board, the
Trust, on behalf of the Funds, has retained an Affiliate of BlackRock to serve as the securities lending agent for the Funds to the extent that the
Funds participate in the securities lending program. For these services, the lending agent may receive a fee from the Funds, including a fee based on
the returns earned on the Funds 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 Funds may lend their portfolio securities under the securities lending program.
The activities of Affiliates may give rise to other conflicts of
interest that could disadvantage the Funds and their 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. A
Fund 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.
Each Funds assets and liabilities are valued primarily on
the basis of market quotations. Equity investments and other investments 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. Each 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 a Fund may trade on weekends or other days when the Fund does not price its shares. As a
result, a Funds net asset value may change on days when you will not be able to purchase or redeem the Funds 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 a Funds
shares are determined as of such times.
When market quotations are not readily available or are not
believed by BlackRock to be reliable, a Funds 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 a
Funds 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 a Funds 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 a Funds 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 a Funds net asset value.
45
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 the Fund pays a dividend. The reason? If
you buy shares when a 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.
|
Each Fund will distribute net investment income, if any,
and net realized capital gain, if any, at least annually. Each 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 a 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 applicable Fund. Although this
cannot be predicted with any certainty, each 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 a 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, each 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 a
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 a 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, each Funds 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 a 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 a 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 a Fund. It is not a substitute for personal tax advice. Consult your personal tax adviser about the potential tax
consequences of an investment in a Fund under all applicable tax laws.
46
The Financial Highlights tables are intended to help you
understand each Funds 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 indicated Fund (assuming
reinvestment of all dividends and/or distributions). The information has been audited by Deloitte & Touche LLP, whose report, along with each
Funds financial statements, is included in each Funds Annual Report, which is available upon request.
International Opportunities
|
|
|
|
Service
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
27.34
|
|
|
$
|
31.58
|
|
|
$
|
30.26
|
|
|
$
|
28.36
|
|
|
$
|
49.52
|
|
Net investment income
1
|
|
|
|
|
0.39
|
|
|
|
0.34
|
|
|
|
0.16
|
|
|
|
0.27
|
|
|
|
0.28
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
4.33
|
|
|
|
(4.37
|
)
2
|
|
|
1.53
|
2
|
|
|
1.63
|
2
|
|
|
(13.14
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
4.72
|
|
|
|
(4.03
|
)
|
|
|
1.69
|
|
|
|
1.90
|
|
|
|
(12.86
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
(0.44
|
)
|
|
|
(0.21
|
)
|
|
|
(0.37
|
)
|
|
|
|
|
|
|
(1.06
|
)
|
Net realized gain
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(7.24
|
)
|
Total dividends and distributions
|
|
|
|
|
(0.44
|
)
|
|
|
(0.21
|
)
|
|
|
(0.37
|
)
|
|
|
|
|
|
|
(8.30
|
)
|
Net asset value, end of year
|
|
|
|
$
|
31.62
|
|
|
$
|
27.34
|
|
|
$
|
31.58
|
|
|
$
|
30.26
|
|
|
$
|
28.36
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
17.48
|
%
|
|
|
(12.88
|
)%
4
|
|
|
5.63
|
%
4
|
|
|
6.70
|
%
4
|
|
|
(31.10
|
)%
4,5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.90
|
%
|
|
|
1.66
|
%
|
|
|
1.72
|
%
|
|
|
1.75
|
%
|
|
|
1.58
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.90
|
%
|
|
|
1.66
|
%
|
|
|
1.69
|
%
|
|
|
1.73
|
%
|
|
|
1.58
|
%
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
1.80
|
%
|
|
|
1.65
|
%
|
|
|
1.72
|
%
|
|
|
1.70
|
%
|
|
|
1.58
|
%
|
Net investment income
|
|
|
|
|
1.31
|
%
|
|
|
1.02
|
%
|
|
|
0.53
|
%
|
|
|
1.13
|
%
|
|
|
0.72
|
%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
47,598
|
|
|
$
|
47,846
|
|
|
$
|
70,365
|
|
|
$
|
83,093
|
|
|
$
|
64,368
|
|
Portfolio turnover
|
|
|
|
|
99
|
%
|
|
|
116
|
%
|
|
|
116
|
%
|
|
|
143
|
%
|
|
|
138
|
%
|
1
|
|
Based on average shares
outstanding.
|
2
|
|
Includes redemption fees, which are less than
$0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in total
return calculations. There was no impact to the return.
|
5
|
|
Payment from affiliate of $112,880 received by
the Fund is reflected in total return calculations. There was no impact to the return.
|
47
Financial Highlights
(continued)
U.S. Opportunities
|
|
|
|
Service
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
32.44
|
|
|
$
|
35.40
|
|
|
$
|
30.93
|
|
|
$
|
30.58
|
|
|
$
|
35.89
|
|
Net investment income (loss)
1
|
|
|
|
|
0.02
|
|
|
|
(0.12
|
)
|
|
|
(0.11
|
)
|
|
|
(0.01
|
)
|
|
|
(0.06
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
6.03
|
|
|
|
(2.34
|
)
2
|
|
|
4.58
|
2
|
|
|
0.35
|
2
|
|
|
(5.25
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
6.05
|
|
|
|
(2.46
|
)
|
|
|
4.47
|
|
|
|
0.34
|
|
|
|
(5.31
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gains
|
|
|
|
|
(3.78
|
)
|
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dividends and distributions
|
|
|
|
|
(3.78
|
)
|
|
|
(0.50
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Redemption fees added to paid-in capital
|
|
|
|
|
|
|
|
|
0.00
|
3
|
|
|
0.00
|
3
|
|
|
0.01
|
|
|
|
0.00
|
3
|
Net asset value, end of year
|
|
|
|
$
|
34.71
|
|
|
$
|
32.44
|
|
|
$
|
35.40
|
|
|
$
|
30.93
|
|
|
$
|
30.58
|
|
Total Investment Return
4
|
Based on net asset value
|
|
|
|
|
19.80
|
%
|
|
|
(7.16
|
)%
5
|
|
|
14.45
|
%
5,6
|
|
|
1.14%
7
|
|
|
|
(14.80
|
)%
5
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.62
|
%
|
|
|
1.57
|
%
|
|
|
1.60
|
%
|
|
|
1.71
|
%
|
|
|
1.68
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.62
|
%
|
|
|
1.57
|
%
|
|
|
1.60
|
%
|
|
|
1.70
|
%
|
|
|
1.68
|
%
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
1.51
|
%
|
|
|
1.46
|
%
|
|
|
1.48
|
%
|
|
|
1.49
|
%
|
|
|
1.43
|
%
|
Net investment income (loss)
|
|
|
|
|
0.05
|
%
|
|
|
(0.30
|
)%
|
|
|
(0.34
|
)%
|
|
|
(0.06
|
)%
|
|
|
(0.17
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
159,939
|
|
|
$
|
183,604
|
|
|
$
|
235,926
|
|
|
$
|
191,318
|
|
|
$
|
109,679
|
|
Portfolio turnover
|
|
|
|
|
106
|
%
|
|
|
120
|
%
|
|
|
123
|
%
|
|
|
166
|
%
|
|
|
164
|
%
|
1
|
|
Based on average shares outstanding.
|
2
|
|
Includes redemption fees, which are less than
$0.01 per share.
|
3
|
|
Less than $0.01 per share.
|
4
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
5
|
|
Redemption fee of 2.00% is reflected in total
return calculations. There was no impact to the return.
|
6
|
|
Includes proceeds received from a settlement of
litigation, which had no impact on the Funds total return.
|
7
|
|
Redemption fee of 2.00% is reflected in total
return calculations. The impact to the return from redemption fees received during the period was an increase of 0.03%.
|
48
Financial Highlights
(continued)
Health Sciences Opportunities
|
|
|
|
Service
|
|
|
|
|
|
Year Ended September
30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
28.05
|
|
|
$
|
28.22
|
|
|
$
|
25.74
|
|
|
$
|
28.20
|
|
|
$
|
29.85
|
|
Net investment income (loss)
1
|
|
|
|
|
0.05
|
|
|
|
(0.07
|
)
|
|
|
(0.03
|
)
|
|
|
0.01
|
|
|
|
(0.02
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
7.10
|
|
|
|
1.19
2
|
|
|
|
2.51
2
|
|
|
|
(0.14
|
)
2
|
|
|
(0.49
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
7.15
|
|
|
|
1.12
|
|
|
|
2.48
|
|
|
|
(0.13
|
)
|
|
|
(0.51
|
)
|
Dividends and distributions from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net investment income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net realized gain
|
|
|
|
|
(1.48
|
)
|
|
|
(1.29
|
)
|
|
|
|
|
|
|
(2.33
|
)
|
|
|
(1.14
|
)
|
Total dividends and distributions
|
|
|
|
|
(1.48
|
)
|
|
|
(1.29
|
)
|
|
|
|
|
|
|
(2.33
|
)
|
|
|
(1.14
|
)
|
Net asset value, end of year
|
|
|
|
$
|
33.72
|
|
|
$
|
28.05
|
|
|
$
|
28.22
|
|
|
$
|
25.74
|
|
|
$
|
28.20
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
26.73
|
%
|
|
|
4.04
|
%
4
|
|
|
9.64
|
%
4,5
|
|
|
1.59
|
%
4
|
|
|
(1.98
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.28
|
%
|
|
|
1.32
|
%
|
|
|
1.33
|
%
|
|
|
1.37
|
%
|
|
|
1.35
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.28
|
%
|
|
|
1.31
|
%
|
|
|
1.33
|
%
|
|
|
1.35
|
%
|
|
|
1.35
|
%
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
1.28
|
%
|
|
|
1.31
|
%
|
|
|
1.32
|
%
|
|
|
1.36
|
%
|
|
|
1.35
|
%
|
Net investment income (loss)
|
|
|
|
|
0.18
|
%
|
|
|
(0.24
|
)%
|
|
|
(0.12
|
)%
|
|
|
0.03
|
%
|
|
|
(0.06
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
14,921
|
|
|
$
|
13,478
|
|
|
$
|
11,704
|
|
|
$
|
8,110
|
|
|
$
|
5,764
|
|
Portfolio turnover
|
|
|
|
|
135
|
%
|
|
|
135
|
%
|
|
|
184
|
%
|
|
|
153
|
%
|
|
|
91
|
%
|
1
|
|
Based on average shares
outstanding.
|
2
|
|
Includes redemption fees, which are less than
$0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in total
return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement of
litigation, which had no impact on the Funds total return.
|
49
Financial Highlights
(concluded)
Science & Technology Opportunities
|
|
|
|
Service
|
|
|
|
|
|
Year Ended September
30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
|
2009
|
|
2008
|
Per Share Operating Performance
|
Net asset value, beginning of year
|
|
|
|
$
|
8.32
|
|
|
$
|
8.72
|
|
|
$
|
7.56
|
|
|
$
|
6.80
|
|
|
$
|
8.83
|
|
Net investment loss
1
|
|
|
|
|
(0.08
|
)
|
|
|
(0.07
|
)
|
|
|
(0.08
|
)
|
|
|
(0.04
|
)
|
|
|
(0.06
|
)
|
Net realized and unrealized gain (loss)
|
|
|
|
|
1.42
|
|
|
|
(0.33
|
)
2
|
|
|
1.24
|
2
|
|
|
0.80
|
2
|
|
|
(1.97
|
)
2
|
Net increase (decrease) from investment operations
|
|
|
|
|
1.34
|
|
|
|
(0.40
|
)
|
|
|
1.16
|
|
|
|
0.76
|
|
|
|
(2.03
|
)
|
Net asset value, end of year
|
|
|
|
$
|
9.66
|
|
|
$
|
8.32
|
|
|
$
|
8.72
|
|
|
$
|
7.56
|
|
|
$
|
6.80
|
|
Total Investment Return
3
|
Based on net asset value
|
|
|
|
|
16.11
|
%
|
|
|
(4.59
|
)%
4
|
|
|
15.34
|
%
4,5
|
|
|
11.18
|
%
4,6
|
|
|
(22.99
|
)%
4
|
Ratios to Average Net Assets
|
Total expenses
|
|
|
|
|
1.57
|
%
|
|
|
1.55
|
%
|
|
|
1.76
|
%
|
|
|
1.96
|
%
|
|
|
2.01
|
%
|
Total expenses excluding recoupment of past waived fees
|
|
|
|
|
1.56
|
%
|
|
|
1.54
|
%
|
|
|
1.67
|
%
|
|
|
1.96
|
%
|
|
|
2.01
|
%
|
Total expenses after fees waived, reimbursed and paid indirectly
|
|
|
|
|
1.57
|
%
|
|
|
1.53
|
%
|
|
|
1.74
|
%
|
|
|
1.75
|
%
|
|
|
1.73
|
%
|
Net investment loss
|
|
|
|
|
(0.81
|
)%
|
|
|
(0.74
|
)%
|
|
|
(0.94
|
)%
|
|
|
(0.71
|
)%
|
|
|
(0.75
|
)%
|
Supplemental Data
|
Net assets, end of year (000)
|
|
|
|
$
|
944
|
|
|
$
|
851
|
|
|
$
|
659
|
|
|
$
|
193
|
|
|
$
|
106
|
|
Portfolio turnover
|
|
|
|
|
320
|
%
|
|
|
103
|
%
|
|
|
97
|
%
|
|
|
158
|
%
|
|
|
89
|
%
|
1
|
|
Based on average shares
outstanding.
|
2
|
|
Includes redemption fees, which are less than
$0.01 per share.
|
3
|
|
Where applicable, total investment returns
exclude the effects of any sales charges and include the reinvestment of dividends and distributions.
|
4
|
|
Redemption fee of 2.00% is reflected in total
return calculations. There was no impact to the return.
|
5
|
|
Includes proceeds received from a settlement of
litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would have been
15.08%.
|
6
|
|
Includes proceeds received from a settlement of
litigation, which impacted the Funds total return. Excluding these proceeds, the Funds total return would have been
8.53%.
|
50
General Information
Electronic Access to Annual Reports, Semi-Annual Reports and
Prospectuses
Electronic copies of most financial reports and prospectuses are
available on BlackRocks website. Shareholders can sign up for e-mail notifications of quarterly statements, annual and semi-annual reports and
prospectuses by enrolling in a Funds 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 Funds deliver 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 your Fund at (800) 537-4942.
Anti-Money Laundering Requirements
The Funds are 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, a 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 Funds reserve the right to reject purchase orders from
persons who have not submitted information sufficient to allow a Fund to verify their identity. Each Fund also reserves the right to redeem any amounts
in a Fund from persons whose identity it is unable to verify on a timely basis. It is the Funds 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.
51
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 the Funds, including
how each Fund invests, please see the SAI.
For a discussion of the each Funds policies and procedures
regarding the selective disclosure of its portfolio holdings, please see the SAI. The Funds make their 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.
52
This glossary contains an explanation of some of the common
terms used in this prospectus. For additional information about the Funds, please see the SAI.
Acquired Fund Fees and Expenses
fees and
expenses charged by other investment companies in which a Fund invests a portion of its assets.
Annual Fund Operating Expenses
expenses that
cover the costs of operating a Fund.
Distribution Fees
fees used to support the
Funds marketing and distribution efforts, such as compensating financial professionals and other financial intermediaries, advertising and
promotion.
Management Fee
a fee paid to BlackRock for
managing a Fund.
MSCI All Country World Index Ex-U.S.
a market
capitalization weighted index designed to provide a broad measure of stock performance throughout the world, with the exception of U.S.-based
companies. The MSCI All Country World Index Ex-U.S. includes both developed and emerging markets.
NYSE Arca Tech 100 Index
a
price-weighted index comprised of common stocks and ADRs of technology-related companies listed on US exchanges. Modeled as a multi-industry
technology index, the objective of the NYSE Arca Tech 100 Index is to provide a benchmark for measuring the performance of companies using
technology innovation across a broad spectrum of industries.
Other Expenses
include accounting, transfer
agency, custody, professional and registration fees.
Russell 3000
®
Health Care Index
an unmanaged index representative of companies involved in medical services or health care in the Russell 3000
®
Index, which is
comprised of the 3,000 largest U.S. companies as determined by total market capitalization.
Russell Midcap
®
Index
a
market index that measures the performance of the mid-cap segment of the U.S. equities universe. It is a subset of the Russell 1000
®
Index including approximately 800 of the smallest securities based on a combination of their market cap and current index membership. The Russell
Midcap
®
Index represents approximately 31% of the total market capitalization of the Russell 1000
®
companies.
S&P 500
®
Index
an
unmanaged total return index, which covers 500 industrial, utility, transportation, and financial companies of the U.S. markets (mostly New York Stock
Exchange (NYSE) issues) representing about 75% of NYSE market capitalization and 30% of NYSE issues.
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 a Fund.
53
[This page intentionally left blank]
Funds and Service Providers
FUNDS
BlackRock Funds
SM
BlackRock International Opportunities Portfolio
BlackRock U.S. Opportunities Portfolio
BlackRock Health Sciences Opportunities Portfolio
BlackRock Science & Technology
Opportunities
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-ADVISER
To BlackRock International
Opportunities Portfolio:
BlackRock International Limited
40 Torphichen Street
Edinburgh, Scotland EH3 8JB
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 Funds is available at no charge upon request. This information includes:
Annual/Semi-Annual Reports
These reports contain additional
information about each Funds investments. The annual report describes each Funds performance, lists portfolio holdings, and discusses
recent market conditions, economic trends and Fund investment strategies that significantly affected the Funds performance for the last fiscal
year.
Statement of Additional Information (SAI)
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 each Fund, may be obtained free of charge, along with the Funds 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 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, Massachusetts 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 a Funds
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 each Fund, including the SAI, by visiting the EDGAR database on the SECs website (http://www.sec.gov) or the SECs
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 SECs 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
STATEMENT OF ADDITIONAL INFORMATION
BlackRock Funds
SM
BlackRock Global Opportunities Portfolio
BlackRock
International Opportunities Portfolio
BlackRock U.S. Opportunities Portfolio
BlackRock Health Sciences Opportunities Portfolio
BlackRock
Science & Technology Opportunities Portfolio
100 Bellevue Parkway, Wilmington, Delaware 19809 Phone
No. (800) 441-7762
This Statement of Additional
Information of BlackRock Global Opportunities Portfolio, BlackRock International Opportunities Portfolio, BlackRock U.S. Opportunities Portfolio,
BlackRock Health Sciences Opportunities Portfolio and BlackRock Science & Technology Opportunities Portfolio (each, a Fund, and
collectively, the Funds), each a series of BlackRock Funds
SM
(the Trust) is not a prospectus and should be read in
conjunction with the Prospectuses of the Funds, dated January 28, 2013, as amended or supplemented, which have been filed
with the Securities and Exchange Commission (the Commission) and can be obtained, without charge, by calling (800) 441-7762 or by writing
to the Funds at the above address. Each Funds Prospectus is incorporated by reference into this Statement of Additional Information, and Part I
of this Statement of Additional Information and the portions of Part II of this Statement of Additional Information that relate to the Funds have been
incorporated by reference into each Funds Prospectus. The portions of Part II of this Statement of Additional Information that do not relate to
the Funds do not form a part of the Funds Statement of Additional Information, have not been incorporated by reference into the Funds
Prospectuses and should not be relied upon by investors in the Funds. The audited financial statements of each Fund are incorporated into this
Statement of Additional Information by reference to each Funds 2012 Annual Report. You may request a copy of each Annual Report at
no charge by calling (800) 441-7762 between 8:00 a.m. and 6:00 p.m. Eastern time on any business day.
References to the Investment
Company Act of 1940, as amended (the Investment Company Act), or other applicable law, will include any rules promulgated thereunder
and any guidance, interpretations or modifications by the Commission, Commission staff or other authority with appropriate jurisdiction,
including court interpretations, and exemptive, no-action or other relief or permission from the Commission, Commission staff or other
authority.
BlackRock Advisors, LLC Manager
BlackRock Investments,
LLC Distributor
Class
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BlackRock
Global
Opportunities
Portfolio
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BlackRock
International
Opportunities
Portfolio
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BlackRock
U.S. Opportunities
Portfolio
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BlackRock
Health Sciences
Opportunities
Portfolio
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BlackRock
Science &
Technology
Opportunities
Portfolio
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Investor A Shares
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BROAX
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BREAX
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BMEAX
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SHSAX
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BGSAX
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Investor B Shares
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BROBX
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BREBX
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BRMBX
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SHSPX
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BGSBX
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Investor C Shares
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BROCX
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BRECX
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BMECX
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SHSCX
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BGSCX
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Institutional Shares
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BROIX
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BISIX
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BMCIX
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SHSSX
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BGSIX
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Class R Shares
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BGORX
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BHSRX
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BGSRX
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Service Shares
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BRESX
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BMCSX
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SHISX
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BSTSX
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The date of this Statement of Additional Information is
January 28, 2013.
PART I: INFORMATION ABOUT BLACKROCK GLOBAL OPPORTUNITIES PORTFOLIO, BLACKROCK INTERNATIONAL OPPORTUNITIES PORTFOLIO, BLACKROCK U.S.
OPPORTUNITIES PORTFOLIO, BLACKROCK HEALTH SCIENCES OPPORTUNITIES PORTFOLIO AND BLACKROCK SCIENCE & TECHNOLOGY OPPORTUNITIES
PORTFOLIO
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I-1
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I-5
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I-7
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I-21
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I-27
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I-31
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I-31
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I-32
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I-38
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PART II
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II-1
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II-47
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II-50
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II-58
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II-68
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II-70
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II-74
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II-76
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II-80
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II-85
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II-86
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II-87
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A-1
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B-1
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PART I: BLACKROCK GLOBAL OPPORTUNITIES PORTFOLIO,
BLACKROCK INTERNATIONAL OPPORTUNITIES PORTFOLIO,
BLACKROCK U.S. OPPORTUNITIES PORTFOLIO,
BLACKROCK HEALTH SCIENCES OPPORTUNITIES PORTFOLIO
AND
BLACKROCK SCIENCE & TECHNOLOGY OPPORTUNITIES PORTFOLIO
Part I of this Statement of
Additional Information sets forth information about BlackRock Global Opportunities Portfolio (Global Opportunities), BlackRock
International Opportunities Portfolio (International Opportunities), BlackRock U.S. Opportunities Portfolio (U.S.
Opportunities), BlackRock Health Sciences Opportunities Portfolio (Health Sciences Opportunities) and BlackRock Science &
Technology Opportunities Portfolio (Science & Technology Opportunities) (each, a Fund and collectively, the
Funds), each a series of BlackRock Funds
SM
(the Trust). It includes information about the Trusts Board of
Trustees (the Board), the management services provided to the Funds, performance data for the Funds, and information about other fees paid
by and services provided to the Funds. This Part I should be read in conjunction with each Funds Prospectus and those portions of Part II of this
Statement of Additional Information that pertain to each Fund.
I. Investment Objectives and
Policies
Please see the section
Details About the Funds How Each Fund Invests in each Funds Prospectus for information about a Funds investment
objectives and policies.
The Funds that are subject to Rule
35d-1 under the Investment Company Act will not change their investment policies required by that Rule without giving shareholders 60
days prior written notice.
All Funds
Each Fund may
invest in rights offerings and warrants. A Fund will not invest more than 5% of its net assets, taken at market value, in warrants, or more than 2% of
its net assets, taken at market value, in warrants not listed on the New York Stock Exchange (NYSE) or NYSE Alternext U.S. (formerly known
as The American Stock Exchange). Warrants acquired by a Fund in units or attached to other securities are not subject to this
restriction.
Global Opportunities
Tax-Exempt
Derivatives.
The Fund may hold tax-exempt derivatives which may be in the form of tender option bonds, participations, beneficial interests in a
trust, partnership interests or other forms. A number of different structures have been used. For example, interests in long-term fixed-rate municipal
debt obligations, held by a bank as trustee or custodian, are coupled with tender option, demand and other features when the tax-exempt derivatives are
created. Together, these features entitle the holder of the interest to tender (or put) the underlying municipal debt obligation to a third party at
periodic intervals and to receive the principal amount thereof. In some cases, municipal debt obligations are represented by custodial receipts
evidencing rights to receive specific future interest payments, principal payments, or both, on the underlying securities held by the custodian. Under
such arrangements, the holder of the custodial receipt has the option to tender the underlying securities at their face value to the sponsor (usually a
bank or broker dealer or other financial institution), which is paid periodic fees equal to the difference between the securities fixed coupon
rate and the rate that would cause the securities, coupled with the tender option, to trade at par on the date of a rate adjustment. A participation
interest gives the Fund an undivided interest in a municipal obligation, such as short-term obligations issued by or on behalf of states, territories
and possessions of the United States, the District of Columbia and their political sub-divisions, agencies, instrumentalities and authorities and
related tax-exempt derivative securities the interest on which is exempt from regular Federal income tax (Municipal Obligation), in the
proportion the Funds participation bears to the total principal amount of the Municipal Obligation, and typically provides for a repurchase
feature for all or any part of the full principal amount of the participation interest, plus accrued interest. Trusts and partnerships are typically
used to convert long-term fixed rate high quality bonds of a single state or municipal issuer into variable or floating rate demand instruments. The
Internal Revenue Service has not ruled on whether the interest received on tax-exempt derivatives in the form of participation interests or custodial
receipts is tax-exempt, and accordingly, purchases of any such interests or receipts are based on the opinions of counsel to the sponsors of such
derivative securities. Neither the Fund nor BlackRock Advisors, LLC (BlackRock or the Manager) will review the
proceedings related to the creation of any tax-exempt derivatives or the basis for such opinions.
I-1
Tax-Exempt Preferred
Shares.
The Fund may invest in preferred interests of other investment funds that pay dividends that are exempt from regular Federal income tax.
Such funds in turn invest in municipal bonds and other assets that pay interest or make distributions that are exempt from regular Federal income tax,
such as revenue bonds issued by state or local agencies to fund the development of low-income, multi-family housing. Investment in such tax-exempt
preferred shares involves many of the same issues as investing in other open- or closed-end investment companies as discussed below. These investments
also have additional risks, including liquidity risk, the absence of regulation governing investment practices, capital structure and leverage,
affiliated transactions and other matters, and concentration of investments in particular issuers or industries.
Variable and Floating Rate
Instruments.
The Fund may purchase rated and unrated variable and floating rate instruments. These instruments may include variable amount master
demand notes that permit the indebtedness thereunder to vary in addition to providing for periodic adjustments in the interest rate. The Fund may
invest up to 10% of its total assets in leveraged inverse floating rate debt instruments (inverse floaters). Tender option bonds (including
residual interests thereon) are excluded from this 10% limitation. The interest rate of an inverse floater resets in the opposite direction from the
market rate of interest on a security or index to which it is related. An inverse floater may be considered to be leveraged to the extent that its
interest rate varies by a magnitude that exceeds the magnitude of the change in the index rate of interest, and is subject to many of the same risks as
derivatives. The higher degree of leverage inherent in inverse floaters is associated with greater volatility in their market values. To seek to limit
the volatility of these securities, the Fund may purchase inverse floating obligations that have shorter-term maturities or that contain limitations on
the extent to which the interest rate may vary. Certain investments in such obligations may be illiquid. BlackRock believes that indexed and inverse
floating obligations represent flexible Fund management instruments for the Fund that allow the Fund to seek potential investment rewards, hedge other
Fund positions or vary the degree of investment leverage relatively efficiently under different market conditions. The Fund may invest in indexed and
inverse securities for hedging purposes or to seek to increase returns. When used for hedging purposes, indexed and inverse securities involve
correlation risk. Furthermore, where such a security includes a contingent liability, in the event of an adverse movement in the underlying index or
interest rate, the Fund may be required to pay substantial additional margin to maintain the position.
With respect to purchasable
variable and floating rate instruments, the Manager will consider the earning power, cash flows and liquidity ratios of the issuers and guarantors of
such instruments and, if the instruments are subject to a demand feature, will monitor their financial status to meet payment on demand. Such
instruments may include variable amount master demand notes that permit the indebtedness thereunder to vary in addition to providing for periodic
adjustments in the interest rate. The absence of an active secondary market with respect to particular variable and floating rate instruments could
make it difficult for the Fund to dispose of a variable or floating rate note if the issuer defaulted on its payment obligation or during periods that
the Fund is not entitled to exercise its demand rights, and the Fund could, for these or other reasons, suffer a loss with respect to such
instruments.
Set forth below
is a listing of some of the types of investments and investment strategies that the Funds may use, and the risks and considerations associated with
those investments and investment strategies. Please see Part II of this Statement of Additional Information for further information on these
investments and investment strategies.
Only information that is clearly
identified as applicable to a Fund is considered to form a part of the Funds Statement of Additional Information.
|
Global
Opportunities
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International
Opportunities
|
U.S.
Opportunities
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Health Sciences
Opportunities
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Science &
Technology
Opportunities
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144A
Securities
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X
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X
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X
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X
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X
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Asset-Backed Securities
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X
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X
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X
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X
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X
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Asset-Based Securities
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|
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Precious Metal-Related Securities
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X
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X
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X
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X
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X
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Bank
Loans
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X
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Borrowing and Leverage
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X
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X
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X
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X
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X
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Cash
Flows; Expenses
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Cash
Management
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Collateralized Debt Obligations
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X
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X
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X
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X
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Collateralized Loan Obligations
|
X
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X
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X
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X
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I-2
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Global
Opportunities
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International
Opportunities
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U.S.
Opportunities
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Health Sciences
Opportunities
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Science &
Technology
Opportunities
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Collateralized Bond Obligations
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X
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X
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X
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X
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Commercial Paper
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Commodity-Linked Derivative Instruments and Hybrid Instruments
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Qualifying Hybrid Instruments
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Hybrid Instruments Without Principal Protection
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Limitations on Leverage
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Counterparty Risk
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Convertible Securities
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X
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X
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X
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X
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X
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Debt
Securities
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X
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X
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X
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X
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X
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Depositary Receipts (ADRs, EDRs and GDRs)
|
X
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X
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X
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X
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X
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Derivatives
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X
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X
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X
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X
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X
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Hedging
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X
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X
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X
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X
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X
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Indexed and Inverse Securities
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X
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X
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X
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X
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X
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Swap Agreements
|
X
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X
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X
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X
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X
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Credit Default Swap Agreements and Similar Instruments
|
X
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X
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X
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X
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Credit Linked Securities
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X
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Interest Rate Transactions and Swaptions
|
X
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X
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X
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X
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Total Return Swap Agreements
|
X
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X
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X
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X
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Types of Options
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X
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X
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X
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X
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X
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Options on Securities and Securities Indices
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X
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X
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X
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X
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X
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Call Options
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X
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X
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X
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X
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X
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Put Options
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X
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X
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X
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X
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X
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Risks Associated with Options
|
X
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X
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X
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X
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X
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Futures
|
X
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X
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X
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X
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X
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Risks Associated with Futures
|
X
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X
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X
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X
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X
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Foreign Exchange Transactions
|
X
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X
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X
|
X
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X
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Forward Foreign Exchange Transactions
|
X
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X
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X
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X
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X
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Currency Futures
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X
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X
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X
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X
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Currency Options
|
See note 1 below
|
See note 1 below
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See note 1
below
|
See note 1 below
|
Currency Swaps
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X
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X
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X
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X
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Limitations on Currency Transactions
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Risk Factors in Hedging Foreign Currency
|
X
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X
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X
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X
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Risk Factors in Derivatives
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X
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X
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X
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X
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X
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Credit Risk
|
X
|
X
|
X
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X
|
X
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Currency Risk
|
X
|
X
|
X
|
X
|
X
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Leverage Risk
|
X
|
X
|
X
|
X
|
X
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Liquidity Risk
|
X
|
X
|
X
|
X
|
X
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Correlation Risk
|
X
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X
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X
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X
|
X
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Index Risk
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X
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X
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X
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X
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X
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Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives
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X
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X
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X
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X
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X
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Distressed Securities
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X
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Dollar Rolls
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X
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X
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X
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Equity Securities
|
X
|
X
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X
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X
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X
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Exchange Traded Notes (ETNs)
|
|
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|
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|
Foreign Investment Risks
|
X
|
X
|
X
|
X
|
X
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Foreign Market Risk
|
X
|
X
|
X
|
X
|
X
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Foreign Economy Risk
|
X
|
X
|
X
|
X
|
X
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Currency Risk and Exchange Risk
|
X
|
X
|
X
|
X
|
X
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Governmental Supervision and Regulation/Accounting Standards
|
X
|
X
|
X
|
X
|
X
|
1
Fund may purchase (but not write)
currency options.
I-3
|
Global
Opportunities
|
International
Opportunities
|
U.S.
Opportunities
|
Health Sciences
Opportunities
|
Science &
Technology
Opportunities
|
Certain Risks of Holding Fund Assets Outside the United States
|
X
|
X
|
X
|
X
|
X
|
Publicly Available Information
|
X
|
X
|
X
|
X
|
X
|
Settlement Risk
|
X
|
X
|
X
|
X
|
X
|
Funding Agreements
|
|
|
|
|
|
Guarantees
|
X
|
X
|
X
|
X
|
X
|
Illiquid or Restricted Securities
|
X
|
X
|
X
|
X
|
X
|
Inflation-Indexed Bonds
|
|
|
|
|
|
Inflation Risk
|
X
|
X
|
X
|
X
|
X
|
Information Concerning the Indices
|
|
|
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|
Standard & Poors 500 Index
|
|
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|
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|
Russell 2000 Index
|
|
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|
EAFE Index
|
|
|
|
|
|
Initial Public Offering (IPO) Risk
|
X
|
X
|
X
|
X
|
X
|
Investment Grade Debt Obligations
|
X
|
X
|
X
|
X
|
X
|
Investment in Emerging Markets
|
X
|
X
|
X
|
X
|
X
|
Brady Bonds
|
|
|
|
|
|
Investment in Other Investment Companies
|
X
|
X
|
X
|
X
|
X
|
Exchange Traded Funds
|
X
|
X
|
X
|
X
|
X
|
Junk
Bonds
|
X
|
|
|
|
|
Lease Obligations
|
X
|
X
|
X
|
|
X
|
Liquidity Management
|
X
|
X
|
X
|
X
|
X
|
Master Limited Partnerships
|
X
|
X
|
X
|
|
X
|
Merger Transaction Risk
|
|
|
|
|
|
Mezzanine Investments
|
X
|
|
|
|
|
Money Market Obligations of Domestic Banks, Foreign Banks and Foreign Branches of U.S. Banks
|
X
|
X
|
X
|
X
|
X
|
Mortgage-Related Securities
|
X
|
X
|
X
|
X
|
X
|
Mortgage-Backed Securities
|
X
|
X
|
X
|
X
|
X
|
Collateralized Mortgage Obligations (CMOs)
|
X
|
X
|
X
|
X
|
X
|
Adjustable Rate Mortgage Securities
|
|
|
|
|
|
CMO Residuals
|
|
|
|
|
|
Stripped Mortgage-Backed Securities
|
|
|
|
|
|
Tiered Index Bonds
|
|
|
|
|
|
Municipal Bonds
|
|
|
|
|
|
General Obligation Bonds
|
|
|
|
|
|
Revenue Bonds
|
|
|
|
|
|
PABs
|
|
|
|
|
|
Participation Notes
|
|
|
|
|
|
Pay-in-Kind Bonds
|
X
|
X
|
X
|
|
X
|
Portfolio Turnover Rates
|
X
|
X
|
X
|
X
|
X
|
Preferred Stock
|
X
|
X
|
X
|
X
|
X
|
Real
Estate Related Securities
|
X
|
X
|
X
|
|
|
Real
Estate Investment Trusts (REITS)
|
X
|
X
|
X
|
|
X
|
Repurchase Agreements and Purchase and Sale Contracts
|
X
|
X
|
X
|
|
X
|
Reverse Repurchase Agreements
|
X
|
X
|
X
|
|
X
|
Rights Offerings and Warrants to Purchase
|
X
|
X
|
X
|
X
|
X
|
Securities Lending
|
X
|
X
|
X
|
X
|
X
|
Securities of Smaller or Emerging Growth Companies
|
X
|
X
|
X
|
X
|
X
|
Short Sales
|
See note 2 below
|
See note 2 below
|
See note 2 below
|
|
See note 2 below
|
2
Fund may only make short sales
against the box and with respect to futures contracts and related options.
I-4
|
Global
Opportunities
|
International
Opportunities
|
U.S.
Opportunities
|
Health Sciences
Opportunities
|
Science &
Technology
Opportunities
|
Sovereign Debt
|
X
|
X
|
|
|
X
|
Standby Commitment Agreements
|
|
|
|
|
|
Stripped Securities
|
X
|
X
|
X
|
X
|
X
|
Structured Notes
|
|
|
|
|
|
Supranational Entities
|
X
|
X
|
X
|
X
|
X
|
Trust Preferred Securities
|
|
|
|
|
|
U.S.
Government Obligations
|
X
|
X
|
X
|
|
X
|
U.S. Treasury Obligations
|
X
|
X
|
X
|
|
X
|
Utility Industries
|
X
|
X
|
X
|
X
|
X
|
When
Issued Securities, Delayed Delivery
Securities and Forward Commitments
|
X
|
X
|
X
|
|
X
|
Yields and Ratings
|
X
|
X
|
X
|
X
|
X
|
Zero
Coupon Securities
|
X
|
X
|
X
|
X
|
X
|
Regulation Regarding Derivatives.
Effective December 31, 2012, the Commodity Futures Trading Commission (CFTC) adopted certain regulatory changes
that subject registered investment companies and advisers to registered investment companies to regulation by the CFTC if a
fund invests more than a prescribed level of its liquidation value in CFTC-regulated futures, options and swaps (CFTC
Derivatives), or if the fund markets itself as providing investment exposure to such instruments. To the extent a Fund
uses CFTC-regulated futures, options and swaps, it intends to do so below such prescribed levels and will not market itself
as a commodity pool or a vehicle for trading such instruments. Accordingly, BlackRock
has claimed an exclusion from the definition of the term commodity pool operator under the Commodity Exchange
Act (CEA) pursuant to Rule 4.5 under the CEA. BlackRock is not, therefore, subject to
registration or regulation as a commodity pool operator under the CEA in respect of the Funds.
II. Investment
Restrictions
Each Fund has adopted restrictions
and policies relating to the investment of the Funds assets and its activities. Certain of the restrictions are fundamental policies of the Fund
and may not be changed without the approval of the holders of a majority of the Funds outstanding voting securities (which for this purpose and
under the Investment Company Act, means the lesser of (i) 67% of the shares represented at a meeting at which more than 50% of the outstanding
shares are represented or (ii) more than 50% of the outstanding shares).
Each of the Funds (other than
Health Sciences Opportunities) may not purchase securities of any one issuer (other than securities issued or guaranteed by the U.S. Government, its
agencies or instrumentalities or certificates of deposit for any such securities) if more than 5% of the value of the Funds total assets would
(taken at current value) be invested in the securities of such issuer, or more than 10% of the issuers outstanding voting securities would be
owned by the Fund or the Trust, except that up to 25% of the value of the Funds total assets may (taken at current value) be invested without
regard to these limitations. For purposes of this limitation, a security is considered to be issued by the entity (or entities) whose assets and
revenues back the security. A guarantee of a security shall not be deemed to be a security issued by the guarantors when the value of all securities
issued and guaranteed by the guarantor, and owned by the Fund, does not exceed 10% of the value of the Funds total assets.
Each of the Funds (other than
Global Opportunities) may not borrow money or issue senior securities, except that each Fund may borrow from banks and enter into reverse repurchase
agreements for temporary purposes in amounts up to one-third of the value of its total assets at the time of such borrowing; or mortgage, pledge or
hypothecate any assets, except in connection with any such borrowing and then in amounts not in excess of one-third of the value of the Funds
total assets at the time of such borrowing. No Fund will purchase securities while its aggregate borrowings (including reverse repurchase agreements
and borrowings from banks) in excess of 5% of its total assets are outstanding. Securities held in escrow or separate accounts in connection with a
Funds investment practices are not deemed to be pledged for purposes of this limitation.
Global Opportunities
may not issue senior securities, borrow money or pledge its assets, except that the Fund may borrow from banks or enter into reverse
repurchase agreements or dollar rolls in amounts aggregating not more than 33
1
⁄
3
%
of the value of its total assets (calculated when the loan is made) to take advantage of investment opportunities and may pledge
up to 33
1
⁄
3
% of the value
of its total assets to secure such borrowings. The Fund is
I-5
also
authorized to borrow an additional 5% of its total assets without regard to the foregoing limitations for temporary purposes such
as clearance of portfolio transactions and share redemptions. For purposes of these restrictions, the purchase or sale of securities
on a when-issued, delayed delivery or forward commitment basis, the purchase and sale of options and futures contracts
and collateral arrangements with respect thereto are not deemed to be the issuance of a senior security, a borrowing or a pledge
of assets.
No Fund may:
1.
Purchase any securities which would cause 25% or more of the value of the Funds total assets at the time of purchase to
be invested in the securities of one or more issuers conducting their principal business activities in the same industry, provided that (a) there is no
limitation with respect to (i) instruments issued or guaranteed by the United States and tax exempt instruments issued by any state, territory or
possession of the United States, the District of Columbia or any of their authorities, agencies, instrumentalities or political subdivisions, and (ii)
repurchase agreements secured by the instruments described in clause (i); (b) wholly-owned finance companies will be considered to be in the industries
of their parents if their activities are primarily related to financing the activities of the parents; (c) utilities will be divided according to their
services; for example, gas, gas transmission, electric and gas, electric and telephone will each be considered a separate industry; (d) Science &
Technology Opportunities may cause 25% or more of its total assets at the time of purchase to be invested in the securities of one or more issuers
conducting their principal business activities in a single industry in the science and technology sectors as defined in its prospectuses; and (e)
Health Sciences Opportunities will cause 25% or more of its total assets at the time of purchase to be invested in the securities of one or more
issuers conducting their principal business activities in health sciences or related industries as described in the prospectuses.
2.
Purchase or sell real estate, except that each Fund may purchase securities of issuers which deal in real estate and may
purchase securities which are secured by interests in real estate.
3.
Acquire any other investment company or investment company security except in connection with a merger, consolidation,
reorganization or acquisition of assets or where otherwise permitted by the Investment Company Act.
4.
Act as an underwriter of securities within the meaning of the Securities Act of 1933, as amended, except to the extent that the
purchase of obligations directly from the issuer thereof, or the disposition of securities, in accordance with the Funds investment objective,
policies and limitations may be deemed to be underwriting.
5.
Write or sell put options, call options, straddles, spreads, or any combination thereof, except for transactions in options on
securities and securities indices, futures contracts and options on futures contracts.
6.
Purchase securities of companies for the purpose of exercising control.
7.
Purchase securities on margin, make short sales of securities or maintain a short position, except that (a) this investment
limitation shall not apply to a Funds transactions in futures contracts and related options or a Funds sale of securities short against the
box, and (b) a Fund may obtain short-term credit as may be necessary for the clearance of purchases and sales of portfolio securities.
8.
Purchase or sell commodity contracts, or invest in oil, gas or mineral exploration or development programs, except that each
Fund may, to the extent appropriate to its investment policies, purchase securities of companies engaging in whole or in part in such activities and
may enter into futures contracts and related options.
9.
Make loans, except that each Fund may purchase and hold debt instruments and enter into repurchase agreements in accordance
with its investment objective and policies and may lend portfolio securities.
10.
Purchase or sell commodities except that each Fund may, to the extent appropriate to its investment policies, purchase
securities of companies engaging in whole or in part in such activities, may engage in currency transactions and may enter into futures contracts and
related options.
Unless otherwise indicated, all
limitations apply only at the time that a transaction is undertaken. Any change in the percentage of a Funds assets invested in certain
securities or other instruments resulting from market fluctuations or other changes in the Funds total assets will not require the Fund to
dispose of an investment until BlackRock Advisors, LLC (BlackRock or the Manager) determines that it is practicable to sell or
close out the investment without undue market or tax consequences.
I-6
III. Information on Trustees and
Officers
The Board consists of
fourteen individuals (each, a Trustee), twelve of whom are not interested persons of the Trust as
defined in the Investment Company Act (the Independent Trustees). The registered investment companies advised by the Manager or its
affiliates (the BlackRock-advised Funds) are organized into one complex of closed-end funds (the Closed-End Complex), two
complexes of open-end funds (the Equity-Liquidity Complex and the Equity-Bond Complex), and one
complex of exchange traded funds (each, a BlackRock Fund Complex). The Trust is included in the BlackRock Fund Complex
referred to as the Equity-Liquidity Complex. The Trustees also oversee as board members the operation of the other open-end registered
investment companies included in the Equity-Liquidity Complex.
The Board has the overall
responsibility for the oversight of the Trust and of each Fund. The Co-Chairs of the Board are Independent Trustees, and the Chair of each Board
committee (each, a Committee) is an Independent Trustee. The Board has five standing Committees: an Audit Committee, a Governance and
Nominating Committee, a Compliance Committee, a Performance Oversight and Contract Committee and an Executive Committee. The role of the
Co-Chairs of the Board is to preside at all meetings of the Board and to act as a liaison with service providers, officers, attorneys and other
Trustees generally between meetings. The Chair of each Committee performs a similar role with respect to the Committee. The Co-Chairs of the Board or
the Chair of a Committee may also perform such other functions as may be delegated by the Board or the Committee from time to time. The Independent
Trustees meet regularly outside the presence of Fund management, in executive session or with other service providers of each Fund. The Board has
regular meetings five times a year and may hold special meetings if required before its next regular meeting. Each Committee meets regularly to conduct
the oversight functions delegated to that Committee by the Board and reports its findings to the Board. The Board and each standing Committee conduct
annual assessments of their oversight function and structure. The Board has determined that the Boards leadership structure is appropriate
because it allows the Board to exercise independent judgment over management and to allocate areas of responsibility among Committees and the full
Board to enhance effective oversight.
The Board has engaged the Manager
to manage each Fund on a day-to-day basis. The Board is responsible for overseeing the Manager, other service providers, the operations of the Fund and
associated risks in accordance with the provisions of the Investment Company Act, state law, other applicable laws, the Trusts charter and each
Funds investment objective and strategies. The Board reviews, on an ongoing basis, each Funds performance, operations and investment
strategies and techniques. The Board also conducts reviews of the Manager and its role in running the operations of each Fund.
Day-to-day risk management with
respect to a Fund is the responsibility of the Manager or of sub-advisers or other service providers (depending on the nature of the risk), subject to
the supervision of the Manager. Each Fund is subject to a number of risks, including investment, compliance, operational and valuation risks, among
others. While there are a number of risk management functions performed by the Manager and the sub-advisers or other service providers, as applicable,
it is not possible to eliminate all of the risks applicable to a Fund. Risk oversight forms part of the Boards general oversight of a Fund and is
addressed as part of various Board and Committee activities. The Board, directly or through a Committee, also reviews reports from, among others,
management, the independent registered public accounting firm for each Fund, sub-advisers and internal auditors for the Manager or its affiliates, as
appropriate, regarding risks faced by a Fund and managements or the service providers risk functions. The Committee system facilitates the
timely and efficient consideration of matters by the Trustees and facilitates effective oversight of compliance with legal and regulatory requirements
and of the Funds activities and associated
risks. The Board has appointed a Chief Compliance Officer, who oversees the implementation and testing of the Funds compliance program and
reports to the Board regarding compliance matters for each Fund and its service providers. The Independent Trustees have engaged independent legal
counsel to assist them in performing oversight responsibilities.
The members of the Audit Committee
(the Audit Committee) are Kenneth L. Urish (Chair), Herbert I. London, Robert C. Robb, Jr. and Frederick W. Winter, all of whom are
Independent Trustees. The principal responsibilities of the Audit Committee are to approve the selection, retention, termination and compensation of
the Trusts independent registered public accounting firm (the independent auditors) and to oversee the independent auditors
work. The Audit Committees responsibilities include, without limitation, to (1) evaluate the qualifications and independence of the independent
auditors; (2) approve all audit engagement terms and fees for the Trust; (3) review the conduct and results of each independent audit of the
Trusts financial statements; (4) review
I-7
any issues raised by the independent auditors or Fund management regarding the accounting or financial
reporting policies and practices of each Fund and the internal controls of each Fund and certain service providers; (5) oversee the performance of (a)
each Funds internal audit function provided by its investment adviser and (b) the independent auditors; (6) discuss with Fund management its
policies regarding risk assessment and risk management as such matters relate to a Funds financial reporting and controls; and (7) resolve
any disagreements between Fund management and the independent auditors regarding financial reporting. The Board has adopted a written charter for the
Audit Committee. During the fiscal year ended September 30, 2012, the Audit Committee met four
times.
The members of the Governance and
Nominating Committee (the Governance Committee) are Dr. Matina S. Horner (Chair), Herbert I. London, Cynthia A.
Montgomery, Robert C. Robb, Jr. and Toby Rosenblatt, all of whom are Independent Trustees. The principal responsibilities of the
Governance Committee are to (1) identify individuals qualified to serve as Independent Trustees of the Trust and recommend Independent Trustee nominees
for election by shareholders or appointment by the Board; (2) advise the Board with respect to Board composition, procedures and Committees (other than
the Audit Committee); (3) oversee periodic self-assessments of the Board and Committees of the Board (other than the Audit Committee); (4) review and
make recommendations regarding Independent Trustee compensation; and (5) monitor corporate governance matters and develop appropriate recommendations
to the Board. The Governance Committee may consider nominations for the office of Trustee made by Trust shareholders as it deems appropriate. Trust
shareholders who wish to recommend a nominee should send nominations to the Secretary of the Trust that include biographical information and set forth
the qualifications of the proposed nominee. The Board has adopted a written charter for the Governance Committee. During the fiscal year ended
September 30, 2012, the Governance Committee met five times.
The members of the Compliance
Committee (the Compliance Committee) are Joseph P. Platt (Chair), Rodney D. Johnson, Ian A. MacKinnon and Cynthia A.
Montgomery, all of whom are Independent Trustees. The Compliance Committees purpose is to assist the Board in fulfilling its
responsibility to oversee regulatory and fiduciary compliance matters involving the Trust, the fund-related activities of BlackRock and the
Trusts third-party service providers. The Compliance Committees responsibilities include, without limitation, to (1) oversee the compliance
policies and procedures of the Trust and its service providers and recommend changes or additions to such policies and procedures; (2) review
information on and, where appropriate, recommend policies concerning the Trusts compliance with applicable law; and (3) review reports from, and
oversee the annual performance review of, and make certain recommendations regarding the Trusts Chief Compliance Officer. The Board has adopted a
written charter for the Compliance Committee. During the fiscal year ended September 30, 2012, the Compliance Committee met
ten times.
The members of the Performance
Oversight and Contract Committee (the Performance Oversight Committee) are David O. Beim (Chair), Toby Rosenblatt (Vice Chair), Ronald W.
Forbes, Ian A. MacKinnon and Frederick W. Winter, all of whom are Independent Trustees. The Performance Oversight Committees
purpose is to assist the Board in fulfilling its responsibility to oversee each Funds investment performance relative to its agreed-upon
performance objectives and to assist the Independent Trustees in their consideration of investment advisory agreements. The Performance Oversight
Committees responsibilities include, without limitation, to (1) review each Funds investment objective, policies and practices and each
Funds investment performance; (2) review information on appropriate benchmarks and competitive universes and unusual or exceptional investment
matters; (3) review personnel and resources devoted to management of each Fund and evaluate the nature and quality of information furnished to the
Performance Oversight Committee; (4) recommend any required action regarding change in fundamental and
non-fundamental investment policies and restrictions, Fund mergers or liquidations; (5) request and review information on the nature, extent and
quality of services provided to the shareholders; and (6) make recommendations to the Board concerning the approval or renewal of investment advisory
agreements. The Board has adopted a written charter for the Performance Oversight Committee. During the fiscal year ended September 30,
2012, the Performance Oversight Committee met six times.
The members of the Executive
Committee (the Executive Committee) are Ronald W. Forbes and Rodney D. Johnson, both of whom are
Independent Trustees, and Paul L. Audet, who serves as an interested Trustee. The principal responsibilities of the
Executive Committee are to (1) act on routine matters between meetings of the Board of Trustees; (2) act on such matters as may require urgent action
between meetings of the Board of Trustees; and (3) exercise such other authority as may from time to time be delegated to the Committee by the Board of
Trustees.
I-8
The Board has adopted a written charter for the Executive Committee. During the fiscal year ended September 30, 2012, the
Executive Committee did not hold a formal meeting.
The Governance Committee has
adopted a statement of policy that describes the experience, qualifications, skills and attributes that are necessary and desirable for potential
Independent Trustee candidates (the Statement of Policy). The Board believes that each Independent Trustee satisfied, at the time he or she
was initially elected or appointed a Trustee, and continues to satisfy, the standards contemplated by the Statement of Policy. Furthermore, in
determining that a particular Trustee was and continues to be qualified to serve as a Trustee, the Board has considered a variety of criteria, none of
which, in isolation, was controlling. The Board believes that, collectively, the Trustees have balanced and diverse experience, skills, attributes and
qualifications, which allow the Board to operate effectively in governing the Trust and protecting the interests of shareholders. Among the attributes
common to all Trustees are their ability to review critically, evaluate, question and discuss information provided to them, to interact effectively
with a Funds investment adviser, sub-advisers, other service providers, counsel and independent auditors, and to exercise effective business
judgment in the performance of their duties as Trustees.
Each Trustees ability to
perform his or her duties effectively is evidenced by his or her educational background or professional training; business, consulting, public service
or academic positions; experience from service as a board member of the Corporation and the other funds in the BlackRock Fund Complex (and any
predecessor funds), other investment funds, public companies, or non-profit entities or other organizations; ongoing commitment and participation in
Board and Committee meetings, as well as his or her leadership of standing and
ad hoc
committees throughout the years; or other
relevant life experiences.
The table below discusses some of
the experiences, qualifications and skills of each of the Trustees that support the conclusion that each Trustee should serve (or continue to serve) on
the Board.
Trustees
|
|
|
|
Experience, Qualifications
and Skills
|
Independent Trustees
|
|
|
|
|
David O. Beim
|
|
|
|
David O. Beim has served for approximately 14 years on the boards of registered investment companies, most recently as
a member of the boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy Merrill Lynch Investment Managers,
LP (MLIM) funds. Mr. Beim has served as a professor of finance and economics at the Columbia University Graduate School of Business since
1991 and has taught courses on corporate finance, international banking and emerging financial markets. The Board benefits from the perspective and
background gained by his almost 20 years of academic experience. He has published numerous articles and books on a range of topics, including, among
others, banking and finance. In addition, Mr. Beim spent 25 years in investment banking, including starting and running the investment banking business
at Bankers Trust Company.
|
Ronald W. Forbes
|
|
|
|
Ronald W. Forbes has served for more than 30 years on the boards of registered investment companies, most recently as a member of the
boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy MLIM funds. This length of service provided Mr.
Forbes with direct knowledge of the operation of the Funds and the business and regulatory issues facing the Funds. He currently serves as professor
emeritus at the School of Business at the State University of New York at Albany, and has served as a professor of finance thereof since 1989. Mr.
Forbes experience as a professor of finance provides valuable background for his service on the board. Mr. Forbes has also served as a member of
the task force on municipal securities markets for Twentieth Century Fund.
|
I-9
Trustees
|
|
|
|
Experience, Qualifications
and Skills
|
Dr.
Matina S. Horner
|
|
|
|
Dr. Matina S. Horner has served for approximately eight years on the boards of registered investment companies, most
recently as a member of the boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy BlackRock funds. The
Board benefits from her service as executive vice president of Teachers Insurance and Annuity Association and College Retirement Equities Fund. This
experience provides Dr. Horner with management and corporate governance experience. In addition, Dr. Horner served as a professor in the Department of
Psychology at Harvard University and served as President of Radcliffe College for 17 years. Dr. Horner also served on various public, private and
non-profit boards.
|
Rodney D. Johnson
|
|
|
|
Rodney D. Johnson has served for over 20 years on the boards of registered investment companies, most recently as a member of the
boards of the funds in the Equity- Liquidity Complex and its predecessor funds, including the legacy BlackRock funds. He has over 25 years of
experience as a financial advisor covering a range of engagements, which has broadened his knowledge of and experience with the investment management
business. Prior to founding Fairmount Capital Advisors, Inc., Mr. Johnson served as Chief Investment Officer of Temple University for two years. He
served as Director of Finance and Managing Director, in addition to a variety of other roles, for the City of Philadelphia, and has extensive
experience in municipal finance. Mr. Johnson was also a tenured associate professor of finance at Temple University and a research economist with the
Federal Reserve Bank of Philadelphia.
|
Herbert I. London
|
|
|
|
Herbert I. London has served for over 20 years on the boards of registered investment companies, most recently as a member of the
boards of the funds in the Equity- Liquidity Complex and its predecessor funds, including the legacy MLIM funds. Dr. Londons experience as
president of the Hudson Institute, a world renowned think tank in Washington D.C., since 1997 and in various positions at New York University provide
both background and perspective on financial, economic and global issues, which enhance his service on the Board. He has authored several books and
numerous articles, which have appeared in major newspapers and journals throughout the United States.
|
Ian A. MacKinnon
|
|
|
|
Ian A. MacKinnon recently joined as a member of the boards of the funds in the Equity-Liquidity Complex. Mr. MacKinnon spent over 25
years in fixed income investing. He served over 20 years as a portfolio manager at The Vanguard Group and was managing director and head of the
Vanguard Fixed Income Group. The Board benefits from the perspective and experience he has gained over 25 years in portfolio
management and his expertise in the fixed income markets. Mr. MacKinnon has also served as a board member of the Municipal Securities Rulemaking
Board.
|
Cynthia A. Montgomery
|
|
|
|
Cynthia A. Montgomery has served for over 15 years on the boards of registered investment companies, most recently as a member of the
boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy MLIM funds. The Board benefits from Ms.
Montgomerys more than 20 years of academic experience as a professor at Harvard Business School where she taught courses on corporate strategy
and corporate governance. Ms. Montgomery also has business management and corporate governance experience through her service on the corporate boards
of a variety of public companies. She has also authored numerous articles and books on these topics.
|
I-10
Trustees
|
|
|
|
Experience, Qualifications
and Skills
|
Joseph P. Platt
|
|
|
|
Joseph P. Platt has served for over 12 years on the boards of registered investment companies, most recently as a
member of the boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy BlackRock funds. Mr. Platt currently
serves as general partner at Thorn Partners, LP, a private investment company. Prior to his joining Thorn Partners, LP, he was an owner, director and
executive vice president with Johnson and Higgins, an insurance broker and employee benefits consultant. He has over 25 years experience in the areas
of insurance, compensation and benefits. Mr. Platt also serves on the boards of public, private and non-profit companies.
|
Robert C. Robb, Jr.
|
|
|
|
Robert C. Robb, Jr. has served for over 12 years on the boards of registered investment companies, most recently as a
member of the boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy BlackRock funds. Mr. Robb has over 30
years of experience in management consulting and has worked with many companies and business associations located throughout the United States. Mr.
Robb brings to the Board a wealth of practical business experience across a range of industries.
|
Toby
Rosenblatt
|
|
|
|
Toby Rosenblatt has served for over 20 years on the boards of registered investment companies, most recently as a
member of the boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy BlackRock funds. He has served as
president and general partner of Founders Investments, Ltd., a private investment limited partnership, since 1999, providing him with relevant
experience with the issues faced by investment management firms and their clients. Mr. Rosenblatt has been active in the civic arena and has served as
a trustee of a number of community and educational organizations for over 30 years.
|
Kenneth L. Urish
|
|
|
|
Kenneth L. Urish has served for over 12 years on the boards of registered investment companies, most recently as a
member of the boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy BlackRock funds. He has over 30 years
of experience in public accounting. Mr. Urish has served as a managing member of an accounting and consulting firm. Mr. Urish has been determined by
the Audit Committee to be an audit committee financial expert, as such term is defined in the applicable SEC rules.
|
Frederick W. Winter
|
|
|
|
Frederick W. Winter has served for over 12 years on the boards of registered investment companies, most recently as a
member of the boards of the funds in the Equity-Liquidity Complex and its predecessor funds, including the legacy BlackRock funds. The Board benefits
from Mr. Winters years of academic experience, having served as a professor and dean emeritus of the Joseph M. Katz Graduate School of Business
at the University of Pittsburgh since 2005, and dean thereof from 1997 to 2005. He is widely regarded as a specialist in marketing
strategy, marketing management, business-to-business marketing and services marketing. He has also served as a consultant to more than 50 different
firms.
|
I-11
Trustees
|
|
|
|
Experience, Qualifications
and Skills
|
Interested Trustees
|
|
|
|
|
Paul
L. Audet
|
|
|
|
Paul L. Audet has a wealth of experience in the investment management industry, including more than 13 years with BlackRock and over
30 years in finance and asset management. His expertise in finance is demonstrated by his positions as Chief
Financial Officer of BlackRock and Head of BlackRocks Global Cash Management business. Mr. Audet currently is a member of BlackRocks Global
Operating and Corporate Risk Management Committees, the BlackRock Alternative Investors Executive Committee and the Investment Committee for the
Private Equity Fund of Funds. Prior to joining BlackRock, Mr. Audet was the Senior Vice President of Finance at PNC Bank Corp. and Chief Financial
Officer of the investment management and mutual fund processing businesses and Head of PNCs Mergers and Acquisitions
unit.
|
Henry Gabbay
|
|
|
|
Henry Gabbays many years of experience in finance provide the Board with a wealth of practical business knowledge and
leadership. In particular, Mr. Gabbays experience as a Consultant for and Managing Director of BlackRock, Inc., Chief Administrative Officer of
BlackRock and President of BlackRock Funds provides the Funds with greater insight into the analysis and evaluation of both its existing investment
portfolios and potential future investments as well as enhanced oversight of their investment decisions and investment valuation processes. In
addition, Mr. Gabbays former positions as Chief Administrative Officer of BlackRock and as Treasurer of certain closed-end funds in the BlackRock
Fund Complex provide the Board with direct knowledge of the operations of the Funds and their investment advisers. Mr. Gabbays previous service
on and long-standing relationship with the Board also provides him with a specific understanding of the Funds, their operations, and the business and
regulatory issues facing the Funds.
|
I-12
Biographical
Information
Certain biographical and other
information relating to the Trustees of the Trust is set forth below, including address and year of birth, principal occupations for at least the last
five years, length of time served, and total number of registered investment companies and investment portfolios overseen in the BlackRock-advised
Funds and any currently held public company and investment company directorships.
Name, Address
and Year of
Birth
|
|
|
|
Position(s)
Held with
the
Trust
|
|
Length of
Time
Served
2
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen
|
|
Public Company
and
Investment
Company
Directorships
|
Independent Trustees
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David O. Beim
3
55 East 52nd Street
New York, NY 10055
1940
|
|
|
|
Trustee
|
|
2007
to present
|
|
Professor of Professional Practice at the Columbia University Graduate School of Business since 1991; Trustee, Phillips Exeter
Academy since 2002; Chairman, Wave Hill Inc. (public garden and cultural center) from 1990 to 2006.
|
|
33
RICs
consisting of
106 Portfolios
|
|
None
|
|
Ronald W. Forbes
4
55 East 52nd Street
New York, NY 10055
1940
|
|
|
|
Trustee
|
|
2007
to present
|
|
Professor Emeritus of Finance, School of Business, State University of New York at Albany since 2000.
|
|
33
RICs
consisting of
106 Portfolios
|
|
None
|
|
Dr. Matina S. Horner
5
55 East 52nd Street
New York, NY 10055
1939
|
|
|
|
Trustee
|
|
2004
to present
|
|
Executive Vice President of Teachers Insurance and Annuity Association and College Retirement Equities Fund from 1989 to
2003.
|
|
33
RICs
consisting of
106 Portfolios
|
|
NSTAR (electric and gas utility)
|
|
Rodney D. Johnson
4
55 East 52nd Street
New York, NY 10055
1941
|
|
|
|
Trustee
|
|
2007
to present
|
|
President, Fairmount Capital Advisors, Inc. since 1987; Member of the Archdiocesan Investment Committee of the Archdiocese of
Philadelphia since 2004; Director, The Committee of Seventy (civic) since 2006; Director, Fox Chase Cancer Center from 2004 to
2011.
|
|
33
RICs
consisting of
106 Portfolios
|
|
None
|
|
Herbert I. London
55 East 52nd Street
New York, NY 10055
1939
|
|
|
|
Trustee
|
|
2007
to present
|
|
Professor Emeritus, New York University since 2005; John M. Olin Professor of Humanities, New York University from 1993 to 2005 and
Professor thereof from 1980 to 2005; President Emeritus, Hudson Institute (policy research organization) since 2011, President thereof
from 1997 to 2011 and Trustee since 1980; Chairman of the Board of Trustees for Grantham University since 2006; Director, InnoCentive, Inc.
(strategic solutions company) since 2005; Director, Cerego, LLC (software development and design) since 2005; Director, Cybersettle (dispute resolution
technology) since 2009.
|
|
33
RICs
consisting of
106 Portfolios
|
|
AIMS
Worldwide, Inc. (marketing)
|
I-13
Name, Address
and Year of
Birth
|
|
|
|
Position(s)
Held with
the
Trust
|
|
Length of
Time
Served
2
|
|
Principal
Occupation(s)
During Past Five Years
|
|
Number of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen
|
|
Public Company
and
Investment
Company
Directorships
|
|
Ian A. MacKinnon
55 East 52nd Street
New York, NY 10055
1948
|
|
|
|
Trustee
|
|
2012
to present
|
|
Director, Kennett Capital, Inc. (investments) since 2006; Director, Free Library of Philadelphia from 1999 to
2008.
|
|
33 RICs consisting of 106 Portfolios
|
|
None
|
|
Cynthia A. Montgomery
55 East 52nd Street
New York, NY 10055
1952
|
|
|
|
Trustee
|
|
2007
to present
|
|
Professor, Harvard Business School since 1989; Director, McLean Hospital since 2005; Director, Harvard Business School Publishing
from 2005 to 2010.
|
|
33
RICs
consisting of
106 Portfolios
|
|
Newell Rubbermaid, Inc. (manufacturing)
|
|
Joseph P. Platt
6
55 East 52nd Street
New York, NY 10055
1947
|
|
|
|
Trustee
|
|
2007
to present
|
|
Director, The West Penn Allegheny Health System (a not-for-profit health system) since 2008; Director, Jones and Brown (Canadian
insurance broker) since 1998; General Partner, Thorn Partners, LP (private investments) since 1998; Director, WQED Multi-Media (public
broadcasting not-for-profit) since 2001; Partner, Amarna Corporation, LLC (private investment company) from 2002 to 2008.
|
|
33
RICs
consisting of
106 Portfolios
|
|
Greenlight Capital Re, Ltd. (reinsurance company)
|
|
Robert C. Robb, Jr.
55 East 52nd Street
New York, NY 10055
1945
|
|
|
|
Trustee
|
|
2007
to present
|
|
Partner, Lewis, Eckert, Robb and Company (management and financial consulting firm) since 1981.
|
|
33
RICs
consisting of
106 Portfolios
|
|
None
|
|
Toby Rosenblatt
7
55 East 52nd Street
New York, NY 10055
1938
|
|
|
|
Trustee
|
|
2005
to present
|
|
President, Founders Investments Ltd. (private investments) since 1999; Director, Forward Management, LLC since 2007;
Director, College Access Foundation of California (philanthropic foundation) since 2009; Director, A.P. Pharma, Inc.
(pharmaceuticals) from 1983 to 2011; Director, The James Irvine Foundation (philanthropic foundation)
from 1998 to 2008.
|
|
33
RICs
consisting of
106 Portfolios
|
|
None
|
I-14
Name, Address
and Year of
Birth
|
|
|
|
Position(s)
Held with
the
Trust
|
|
Length of
Time
Served
2
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen
|
|
Public Company
and
Investment
Company
Directorships
|
|
Kenneth L. Urish
8
55 East 52nd Street
New York, NY 10055
1951
|
|
|
|
Trustee
|
|
2007
to present
|
|
Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Chairman of the Professional
Ethics Committee of the Pennsylvania Institute of Certified Public Accountants since 2010 and Committee Member thereof since 2007; Member of External
Advisory Board, The Pennsylvania State University Accounting Department since 2001; Trustee, The Holy Family Institute from 2001 to 2010;
President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter-Tel from 2006 to 2007.
|
|
33
RICs
consisting of
106 Portfolios
|
|
None
|
|
Frederick W. Winter
55 East 52nd Street
New York, NY 10055
1945
|
|
|
|
Trustee
|
|
2007
to present
|
|
Professor and Dean Emeritus of the Joseph M. Katz School of Business, University of Pittsburgh since 2005 and Dean thereof from 1997
to 2005; Director, Alkon Corporation (pneumatics) since 1992; Director, Tippman Sports (recreation) since 2005; Director, Indotronix International (IT
services) from 2004 to 2008.
|
|
33
RICs
consisting of
106 Portfolios
|
|
None
|
Interested Trustees
1,9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul L. Audet
55 East 52nd Street
New York, NY 10055
1953
|
|
|
|
Trustee
|
|
2011
to present
|
|
Senior Managing Director of BlackRock, Inc. and Head of U.S. Mutual Funds since 2011; Chair of The U.S.
Mutual Funds Committee reporting to the Global Executive Committee since 2011; Head of BlackRocks Real Estate business from 2008 to 2011;
Member of BlackRocks Global Operating and Corporate Risk Management Committees and of the BlackRock Alternative Investors Executive Committee and
Investment Committee for the Private Equity Fund of Funds business since 2008; Head of BlackRocks Global Cash Management business from 2005 to
2010; Acting Chief Financial Officer of BlackRock from 2007 to 2008; Chief Financial Officer of BlackRock from 1998 to 2005.
|
|
158 RICs consisting of
280 Portfolios
|
|
None
|
I-15
Name, Address
and Year of
Birth
|
|
|
|
Position(s)
Held with
the
Trust
|
|
Length of
Time
Served
2
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen
|
|
Public Company
and
Investment
Company
Directorships
|
Henry Gabbay
55 East 52nd Street
New York, NY 10055
1947
|
|
|
|
Trustee
|
|
2007
to present
|
|
Consultant, BlackRock, Inc. from 2007 to 2008; Managing Director, BlackRock, Inc. from 1989 to 2007; Chief Administrative Officer,
BlackRock Advisors, LLC from 1998 to 2007; President of BlackRock Funds and BlackRock Bond Allocation Target Shares from 2005 to 2007 and Treasurer of
certain closed-end funds in the BlackRock fund complex from 1989 to 2006.
|
|
158 RICs
consisting of
280 Portfolios
|
|
None
|
1
|
|
Trustees serve until their resignation, removal or death, or until
December 31 of the year in which they turn 72. The Board has approved one-year extensions in the terms of Trustees who turn 72 prior to December 31,
2013.
|
2
|
|
Following the combination of MLIM and BlackRock, Inc. in September
2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new fund boards in 2007. As a result,
although the chart shows certain Independent Trustees as joining the Trusts board in 2007, those Independent Trustees
first became members of the boards of other legacy MLIM or legacy BlackRock funds as follows: David O. Beim, 1998; Ronald W. Forbes,
1977; Dr. Matina S. Horner, 2004; Rodney D. Johnson, 1995; Herbert I. London, 1987; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Robert C. Robb,
Jr., 1999; Toby Rosenblatt, 2005; Kenneth L. Urish, 1999; and Frederick W. Winter, 1999.
|
3
|
|
Chair of the Performance Oversight Committee.
|
5
|
|
Chair of the Governance Committee.
|
6
|
|
Chair of the Compliance Committee.
|
7
|
|
Vice Chair of the Performance Oversight Committee.
|
8
|
|
Chair of the Audit Committee.
|
9
|
|
Mr. Audet is an interested person, as defined in the
Investment Company Act, of the Trust based on his position with BlackRock, Inc. and its affiliates. Mr. Gabbay is an interested person of
the Trust based on his former positions with BlackRock, Inc. and its affiliates as well as his ownership of BlackRock, Inc. and The PNC Financial
Services Group, Inc. securities.
|
I-16
Certain biographical and other
information relating to the officers of the Trust is set forth below, including their address and year of birth, their principal occupations for at
least the last five years, length of time served, the total number of registered investment companies and investment portfolios overseen in the
BlackRock-advised Funds and any currently held public company and investment company directorships:
Name, Address
and Year of
Birth
|
|
|
|
Position(s)
Held with
the
Trust
|
|
Length of
Time
Served
1
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen
|
|
Public Company
and
Investment
Company
Directorships
|
|
John M. Perlowski
55 East 52nd Street
New York, NY 10055
1964
|
|
|
|
President and Chief Executive Officer
|
|
2009
to present
|
|
Managing Director of BlackRock, Inc. since 2009; Global Head of BlackRock Fund Administration since 2009; Managing Director and Chief
Operating Officer of the Global Product Group at Goldman Sachs Asset Management, L.P. from 2003 to 2009; Treasurer of Goldman Sachs Mutual Funds from
2003 to 2009 and Senior Vice President thereof from 2007 to 2009; Director of Goldman Sachs Offshore Funds from 2002 to 2009; Director of Family
Resource Network (charitable foundation) since 2009.
|
|
62
RICs
consisting of
188 Portfolios
|
|
None
|
|
Richard Hoerner, CFA
55 East 52nd Street
New York, NY 10055
1958
|
|
|
|
Vice
President
|
|
2009
to present
|
|
Managing Director of BlackRock, Inc. since 2000; Co-head of BlackRocks Cash Management Portfolio Management Group since 2002;
Member of the Cash Management Group Executive Committee since 2005.
|
|
24
RICs
consisting of
94 Portfolios
|
|
None
|
|
Brendan Kyne
55 East 52nd Street
New York, NY 10055
1977
|
|
|
|
Vice
President
|
|
2009
to present
|
|
Managing Director of BlackRock, Inc. since 2010; Director of BlackRock, Inc. from 2008 to 2009; Head of Product Development and
Management for BlackRocks U.S. Retail Group since 2009, and Co-head thereof from 2007 to 2009; Vice President of BlackRock, Inc. from 2005 to
2008.
|
|
158 RICs
consisting of
280 Portfolios
|
|
None
|
|
Simon Mendelson
55 East 52nd Street
New York, NY 10055
1964
|
|
|
|
Vice
President
|
|
2009
to present
|
|
Managing Director of BlackRock, Inc. since 2005; Co-Head of the Global Cash and Securities Lending Group since 2010; Chief Operating
Officer and Head of the Global Client Group for BlackRocks Global Cash Management Business from 2007 to 2010; Head of BlackRocks Strategy
and Development Group from 2005 to 2007; Partner of McKinsey & Co. from 1997 to 2005.
|
|
24
RICs
consisting of
94 Portfolios
|
|
None
|
I-17
Name, Address
and Year of
Birth
|
|
|
|
Position(s)
Held with
the
Trust
|
|
Length of
Time
Served
1
|
|
Principal Occupation(s)
During Past Five Years
|
|
Number of
BlackRock-
Advised
Registered
Investment
Companies
(RICs)
Consisting of
Investment
Portfolios
(Portfolios)
Overseen
|
|
Public Company
and
Investment
Company
Directorships
|
|
Christopher Stavrakos, CFA
55 East 52nd Street
New York, NY 10055
1959
|
|
|
|
Vice
President
|
|
2009
to present
|
|
Managing Director of BlackRock, Inc. since 2006; Co-head of BlackRocks Cash Management Portfolio Management Group since 2006;
Senior Vice President, CIO, and Director of Liability Management for the Securities Lending Group at Mellon Bank from 1999 to 2006.
|
|
24
RICs
consisting of
94 Portfolios
|
|
|
|
|
|
Neal J. Andrews
55 East 52nd Street
New York, NY 10055
1966
|
|
|
|
Chief Financial Officer and Assistant Treasurer
|
|
2007
to present
|
|
Managing Director of BlackRock, Inc. since 2006; Senior Vice President and Line of Business Head of Fund Accounting and
Administration at PNC Global Investment Servicing (U.S.) Inc. from 1992 to 2006.
|
|
158 RICs
consisting of
280 Portfolios
|
|
None
|
|
Jay M. Fife
55 East 52nd Street
New York, NY 10055
1970
|
|
|
|
Treasurer
|
|
2007
to present
|
|
Managing Director of BlackRock, Inc. since 2007; Director of BlackRock, Inc. in 2006; Assistant Treasurer of MLIM and Fund Asset
Management, L.P. advised funds from 2005 to 2006; Director of MLIM Fund Services Group from 2001 to 2006.
|
|
158 RICs
consisting of
280 Portfolios
|
|
None
|
|
Brian P. Kindelan
55 East 52nd Street
New York, NY 10055
1959
|
|
|
|
Chief Compliance Officer and Anti-Money Laundering Officer
|
|
2007
to present
|
|
Chief Compliance Officer of the BlackRock-advised funds since 2007; Managing Director and Senior Counsel, BlackRock, Inc. since
2005.
|
|
158 RICs
consisting of
280 Portfolios
|
|
None
|
|
Benjamin Archibald
55 East 52nd Street
New York, NY 10055
1975
|
|
|
|
Secretary
|
|
2012 to present
|
|
Director of BlackRock, Inc. since 2010; Assistant Secretary to the Trust from 2010 to 2012; General Counsel and
Chief Operating Officer of Uhuru Capital Management from 2009 to 2010; Executive Director and Counsel of Goldman Sachs Asset Management from
2005 to 2009.
|
|
62 RICs
consisting of
188 Portfolios
|
|
None
|
1
|
|
Officers of the Trust serve at the pleasure of the
Board.
|
I-18
Share Ownership
Information relating to each
Trustees share ownership in the Funds and in all BlackRock-advised Funds that are overseen by the respective Trustee (Supervised
Funds) as of December 31, 2012 is set forth in the chart below:
Name of Trustee
|
|
Aggregate
Dollar Range
of Equity
Securities in
Global
Opportunities
|
|
Aggregate
Dollar Range
of Equity
Securities in
International
Opportunities
|
|
Aggregate
Dollar Range
of Equity
Securities
in U.S.
Opportunities
|
|
Aggregate
Dollar Range
of Equity
Securities
in Health
Sciences
Opportunities
|
|
Aggregate
Dollar Range
of Equity
Securities in
Science &
Technology
Opportunities
|
|
Aggregate
Dollar Range
of Equity
Securities in
Supervised Funds
|
Interested Trustees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul L. Audet
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Over $100,000
|
Henry Gabbay
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Over $100,000
|
Independent Trustees:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David O. Beim
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Over $100,000
|
Ronald W. Forbes
|
|
$10,001$50,000
|
|
$1$10,000
|
|
$10,001$50,000
|
|
$50,001$100,000
|
|
$10,001$50,000
|
|
Over $100,000
|
Dr. Matina S. Horner
|
|
None
|
|
Over $100,000
|
|
None
|
|
None
|
|
None
|
|
Over $100,000
|
Rodney D. Johnson
|
|
$50,001$100,000
|
|
None
|
|
Over $100,000
|
|
None
|
|
None
|
|
Over $100,000
|
Herbert I. London
|
|
None
|
|
$10,001$50,000
|
|
$10,001$50,000
|
|
None
|
|
None
|
|
$50,001$100,000
|
Ian A. MacKinnon
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
Cynthia A. Montgomery
|
|
None
|
|
None
|
|
Over $100,000
|
|
None
|
|
Over $100,000
|
|
Over $100,000
|
Joseph P. Platt
|
|
None
|
|
None
|
|
Over $100,000
|
|
None
|
|
None
|
|
Over $100,000
|
Robert C. Robb, Jr.
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
Over $100,000
|
Toby Rosenblatt
|
|
Over $100,000
|
|
$10,001$50,000
|
|
Over $100,000
|
|
None
|
|
None
|
|
Over $100,000
|
Kenneth L. Urish
|
|
$10,001$50,000
|
|
$1$10,000
|
|
$50,001$100,000
|
|
$1$10,000
|
|
None
|
|
Over $100,000
|
Frederick W. Winter
|
|
$10,001$50,000
|
|
None
|
|
$10,001$50,000
|
|
None
|
|
None
|
|
Over $100,000
|
As of January
2, 2013, the Trustees and officers of the Trust as a group owned an aggregate of less than 1% of any class of the outstanding shares
of any Fund. As of December 31, 2012, none of the Independent Trustees or their immediate family members owned beneficially or of
record any securities of affiliates of the Manager.
Compensation of
Trustees
Each Trustee who is an Independent
Trustee is paid as compensation an annual retainer of $250,000 per year for his or her services as a Board member to the BlackRock-advised Funds in the
Equity-Liquidity Complex, including the Trust, and a $5,000 Board meeting fee to be paid for each in-person Board meeting attended (a $2,500 Board
meeting fee for telephonic attendance at regular Board meetings), for up to five Board meetings held in a calendar year (compensation for meetings in
excess of this number to be determined on a case-by-case basis), together with out-of-pocket expenses in accordance with a Board policy on travel and
other business expenses relating to attendance at meetings. The Co-Chairs of the Boards of Trustees are each paid an additional annual retainer of
$45,000. The Chairs of the Audit Committees, Compliance Committees, Governance Committees and Performance Oversight Committees and the Vice-Chair of
the Performance Oversight Committees are each paid an additional annual retainer of $25,000.
Mr. Gabbay is an interested
Trustee of the Trust and serves as an interested board member of the other funds which comprise the Equity-Liquidity, the Equity-Bond and the
closed-end BlackRock Fund Complexes. Mr. Gabbay receives as compensation for his services as a board member of each of these three BlackRock Fund
Complexes, (i) an annual retainer of $531,250, paid quarterly in arrears, allocated to the BlackRock-advised Funds in these three
BlackRock Fund Complexes, including the Trust, and (ii) with respect to each of the two open end BlackRock Fund Complexes, a board meeting fee of
$3,750 (with respect to meetings of the Equity-Liquidity Complex) and $18,750 (with respect to meetings of the Equity-Bond Complex) to be paid for
attendance at each board meeting up to five board meetings held in a calendar year by each such Complex (compensation for meetings in excess of this
number to be determined on a case-by-case basis). Mr. Gabbay will also be reimbursed for out of pocket expenses in accordance with a board policy on
travel and other business expenses relating to attendance at meetings. Mr. Gabbays compensation for serving on the boards of funds in these three
BlackRock Fund Complexes (including the Trust) is equal to 75% of each retainer and, as applicable, of each meeting fee (without regard to additional
fees paid to Board and Committee chairs) received by the independent board members serving on such boards. The Board of the Trust or the board of any
other BlackRock-advised Fund may modify the board members
I-19
compensation from time to time
depending on market conditions and Mr. Gabbays compensation would be impacted by those modifications.
The following table sets forth the
compensation paid to the Trustees from the Funds for the fiscal year ended September 30, 2012 and the aggregate compensation paid to them
by all BlackRock-advised Funds for the calendar year ended December 31, 2012.
Name
|
|
Compensation
from Global
Opportunities
|
|
Compensation
from
International
Opportunities
|
|
Compensation
from U.S.
Opportunities
|
|
Compensation
From Health
Sciences
Opportunities
|
|
Compensation
from Science &
Technology
Opportunities
|
|
Estimate of
Annual
Benefits upon
Retirement
|
|
Aggregate
Compensation
from the Funds
and other RICs
and Portfolios
Overseen
1
|
Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David O. Beim
2
|
|
$941
|
|
$3,812
|
|
$6,379
|
|
$3,733
|
|
$612
|
|
None
|
|
$300,000
|
Ronald W. Forbes
3
|
|
$992
|
|
$4,072
|
|
$6,826
|
|
$3,987
|
|
$639
|
|
None
|
|
$326,250
|
Dr. Matina S. Horner
4
|
|
$941
|
|
$3,812
|
|
$6,379
|
|
$3,733
|
|
$612
|
|
None
|
|
$300,000
|
Rodney D. Johnson
3
|
|
$992
|
|
$4,072
|
|
$6,826
|
|
$3,987
|
|
$639
|
|
None
|
|
$326,250
|
Herbert I. London
|
|
$878
|
|
$3,488
|
|
$5,821
|
|
$3,416
|
|
$579
|
|
None
|
|
$275,000
|
Ian A. MacKinnon
5
|
|
$339
|
|
$1,358
|
|
$2,119
|
|
$1,420
|
|
$233
|
|
None
|
|
$172,967
|
Cynthia A. Montgomery
|
|
$878
|
|
$3,488
|
|
$5,821
|
|
$3,416
|
|
$579
|
|
None
|
|
$275,000
|
Joseph P. Platt
6
|
|
$941
|
|
$3,812
|
|
$6,379
|
|
$3,733
|
|
$612
|
|
None
|
|
$313,750
|
Robert C. Robb, Jr.
|
|
$878
|
|
$3,488
|
|
$5,821
|
|
$3,416
|
|
$579
|
|
None
|
|
$275,000
|
Toby Rosenblatt
7
|
|
$918
|
|
$3,789
|
|
$6,356
|
|
$3,710
|
|
$589
|
|
None
|
|
$297,500
|
Kenneth L. Urish
8
|
|
$941
|
|
$3,812
|
|
$6,379
|
|
$3,733
|
|
$612
|
|
None
|
|
$310,000
|
Frederick W. Winter
|
|
$878
|
|
$3,488
|
|
$5,821
|
|
$3,416
|
|
$579
|
|
None
|
|
$275,000
|
Interested Trustees
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paul L. Audet
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
|
None
|
Henry Gabbay
|
|
$692
|
|
$2,672
|
|
$4,110
|
|
$2,760
|
|
$473
|
|
None
|
|
$641,250
|
1
|
|
For the number of RICs and Portfolios from which each Trustee
receives compensation, see the Biographical Information chart beginning on page I-13.
|
2
|
|
Chair of the Performance Oversight Committee.
|
4
|
|
Chair of the Governance Committee.
|
5
|
|
Mr. MacKinnon was appointed to serve as a Trustee of the Trust
and as a director or trustee of all of the other funds in the Equity-Liquidity Complex effective May 14, 2012.
|
6
|
|
Chair of the Compliance Committee.
|
7
|
|
Vice-Chair of the Performance Oversight Committee.
|
8
|
|
Chair of the Audit Committee.
|
I-20
IV. Management and Advisory
Arrangements
The Trust, on behalf of each Fund,
entered into a management agreement with BlackRock pursuant to which BlackRock is entitled to receive fees for the services it provides (the
Management Agreement). The table below sets forth information about the total management fees paid by the Trust to BlackRock, on
behalf of each Fund, and the amounts waived and reimbursed, for the periods indicated.
|
|
|
|
Fiscal Year Ended September 30,
2012
|
|
Fund
|
|
|
|
Fees Paid
to BlackRock
|
|
Fees Waived
by BlackRock
|
|
Expenses
Reimbursed
by BlackRock
|
Global Opportunities
|
|
|
|
$
|
3,106,875
|
|
|
$
|
36,215
|
|
|
$
|
490,057
|
|
International Opportunities
|
|
|
|
$
|
17,464,422
|
|
|
$
|
42,291
|
|
|
$
|
17,477
|
|
U.S. Opportunities
|
|
|
|
$
|
31,593,740
|
|
|
$
|
3,261,610
|
|
|
$
|
2,439,827
|
|
Health Sciences Opportunities
|
|
|
|
$
|
12,797,950
|
|
|
$
|
55,297
|
|
|
$
|
531
|
|
Science & Technology Opportunities
|
|
|
|
$
|
1,659,969
|
|
|
$
|
4,385
|
|
|
$
|
11,061
|
|
|
|
|
|
Fiscal Year Ended September 30,
2011
|
|
Fund
|
|
|
|
Fees Paid
to
BlackRock
|
|
Fees Waived
by
BlackRock
|
|
Expenses
Reimbursed
by BlackRock
|
Global Opportunities
|
|
|
|
$
|
918,796
|
|
|
$
|
101,744
|
|
|
$
|
49,994
|
|
International Opportunities
|
|
|
|
$
|
21,549,570
|
|
|
$
|
43,641
|
|
|
$
|
547
|
|
U.S.
Opportunities
|
|
|
|
$
|
43,291,738
|
|
|
$
|
4,353,530
|
|
|
$
|
4,698,855
|
|
Health Sciences Opportunities
|
|
|
|
$
|
10,032,366
|
|
|
$
|
45,452
|
|
|
$
|
0
|
|
Science & Technology Opportunities
|
|
|
|
$
|
1,826,059
|
|
|
$
|
5,988
|
|
|
$
|
32,999
|
|
|
|
|
|
Fiscal Year Ended September 30,
2010
|
|
Fund
|
|
|
|
Fees Paid
to
BlackRock
|
|
Fees Waived
by
BlackRock
|
|
Expenses
Reimbursed
by BlackRock
|
Global Opportunities
|
|
|
|
$
|
801,044
|
|
|
$
|
8,444
|
|
|
$
|
27,906
|
|
International Opportunities
|
|
|
|
$
|
17,538,457
|
|
|
$
|
53,245
|
|
|
$
|
0
|
|
U.S.
Opportunities
|
|
|
|
$
|
29,715,503
|
|
|
$
|
3,532,902
|
|
|
$
|
1,539,371
|
|
Health Sciences Opportunities
|
|
|
|
$
|
8,691,246
|
|
|
$
|
34,735
|
|
|
$
|
399
|
|
Science & Technology Opportunities
|
|
|
|
$
|
1,482,020
|
|
|
$
|
4,132
|
|
|
$
|
55,011
|
|
Pursuant to the
Management Agreement, BlackRock may from time to time, in its sole discretion to the extent permitted by applicable law, appoint one or more
sub-advisers, including, without limitation, affiliates of BlackRock, to perform investment advisory services with respect to the Funds. In addition,
BlackRock may delegate certain of its investment advisory functions under the Management Agreement to one or more of its affiliates to the extent
permitted by applicable law. BlackRock may terminate any or all sub-advisers or such delegation arrangements in its sole discretion at any time to the
extent permitted by applicable law.
BlackRock has entered into
separate sub-advisory agreements (the Sub-Advisory Agreements) with BlackRock Financial Management, Inc. (BFM), which acts as
sub-adviser for Global Opportunities, and BlackRock International Limited (BIL, and together with BFM, the Sub-Advisers), which
acts as sub-adviser for International Opportunities, pursuant to which BlackRock pays each Sub-Adviser for providing services to BlackRock with respect
to the relevant Fund, a monthly fee at an annual rate equal to a percentage of the management fee paid to BlackRock by the applicable Fund under the
Management Agreement. BFM is responsible for the day-to-day management of a portion of the portfolio of Global Opportunities and BIL is responsible for
the day-to-day management of International Opportunities. The table below sets forth information about the total sub-advisory fees paid by BlackRock to
BFM with respect to Global Opportunities and BIL with respect to International Opportunities for the periods indicated.
Fiscal Year Ended
|
|
|
|
Paid to BFM with respect to
Global
Opportunities
|
|
Paid to BIL with respect to
International Opportunities
|
September 30, 2012
|
|
|
|
$
|
1,368,059
|
|
|
$
|
14,669,643
|
|
September 30, 2011
|
|
|
|
$
|
362,143
|
|
|
$
|
18,302,281
|
|
September 30, 2010
|
|
|
|
$
|
352,161
|
|
|
$
|
14,923,722
|
|
I-21
Administration Agreement
BlackRock and BNY Mellon
Investment Servicing (US) Inc. (BNY Mellon), formerly PNC Global Investment Servicing (U.S.) Inc. (PNC GIS), serve as the
Trusts co-administrators (the Administrators) pursuant to an administration agreement (the Administration Agreement).
Effective July 1, 2010, PNC GIS was sold to The Bank of New York Mellon Corporation and is no longer considered an affiliate of the Manager. At the
close of the sale, PNC GIS changed its name to BNY Mellon Investment Servicing (US) Inc. (previously defined as BNY Mellon). BNY Mellon has
agreed to maintain office facilities for the Trust; furnish the Trust with statistical and research data, clerical, accounting, and bookkeeping
services; provide and supervise the operation of an automated data processing system to process purchase and redemption orders; prepare and file
certain reports required by regulatory authorities; prepare and file Federal and state tax returns; prepare and file material requested by state
securities regulators; calculate various contractual expenses; compute each Funds net asset value, net income and net capital gain or loss; and
serve as a liaison with the Trusts independent public accountants. The Administrators may from time to time voluntarily waive administration fees
with respect to the Trust and may voluntarily reimburse the Trust for expenses.
Under the Administration
Agreement, the Trust pays to BlackRock and BNY Mellon on behalf of each Fund a fee, computed daily and payable monthly, at an aggregate annual rate of
(i) .075% of the first $500 million of each Funds average daily net assets, .065% of the next $500 million of each Funds average daily net
assets and .055% of the average daily net assets of each Fund in excess of $1 billion and (ii) .025% of the first $500 million of average daily net
assets allocated to each class of shares of each Fund, .015% of the next $500 million of such average daily net assets and .005% of the average daily
net assets allocated to each class of shares of each Fund in excess of $1 billion.
Under the Administration
Agreement, BlackRock is responsible for: (i) the supervision and coordination of the performance of the Trusts service providers; (ii) the
negotiation of service contracts and arrangements between the Trust and its service providers; (iii) acting as liaison between the Trustees of the
Trust and the Trusts service providers; and (iv) providing ongoing business management and support services in connection with the Trusts
operations.
The Administration Agreement
provides that BlackRock and BNY Mellon will not be liable for any error of judgment or mistake of law or for any loss suffered by the Trust or a Fund
in connection with the performance of the Administration Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence in
the performance of their respective duties or from reckless disregard of their respective duties and obligations thereunder. In addition, the Trust
will indemnify each of BlackRock and BNY Mellon and their affiliates against any loss arising in connection with their provision of services under the
Administration Agreement, except that neither BlackRock nor BNY Mellon nor their affiliates shall be indemnified against any loss arising out of
willful misfeasance, bad faith, gross negligence or reckless disregard of their respective duties under the Administration Agreement.
For the last three fiscal years,
the Trust, on behalf of each Fund, paid the Administrators combined administration fees, and the Administrators waived combined administration
fees and reimbursed expenses, as follows:
|
|
|
|
Fiscal Year Ended September 30,
2012
|
|
Fund
|
|
|
|
Fees Paid
to
the
Administrators
|
|
Fees Waived
by
the
Administrators
|
|
Expenses
Reimbursed
by the
Administrators
|
Global Opportunities
|
|
|
|
$
|
345,386
|
|
|
$
|
83,262
|
|
|
$
|
0
|
|
International Opportunities
|
|
|
|
$
|
1,522,867
|
|
|
$
|
7,485
|
|
|
$
|
0
|
|
U.S. Opportunities
|
|
|
|
$
|
2,313,937
|
|
|
$
|
239,989
|
|
|
$
|
0
|
|
Health Sciences Opportunities
|
|
|
|
$
|
1,513,183
|
|
|
$
|
658
|
|
|
$
|
0
|
|
Science & Technology Opportunities
|
|
|
|
$
|
184,496
|
|
|
$
|
8,479
|
|
|
$
|
0
|
|
I-22
|
|
|
|
Fiscal Year Ended September 30,
2011
|
|
Fund
|
|
|
|
Fees Paid
to
the
Administrators
|
|
Fees Waived
by
the
Administrators
|
|
Expenses
Reimbursed
by the
Administrators
|
Global Opportunities
|
|
|
|
$
|
102,114
|
|
|
$
|
14,827
|
|
|
$
|
0
|
|
International Opportunities
|
|
|
|
$
|
1,834,495
|
|
|
$
|
719
|
|
|
$
|
0
|
|
U.S.
Opportunities
|
|
|
|
$
|
3,071,894
|
|
|
$
|
263,011
|
|
|
$
|
0
|
|
Health Sciences Opportunities
|
|
|
|
$
|
1,216,509
|
|
|
$
|
0
|
|
|
$
|
0
|
|
Science & Technology Opportunities
|
|
|
|
$
|
202,882
|
|
|
$
|
9,762
|
|
|
$
|
0
|
|
|
|
|
|
Fiscal Year Ended September 30,
2010
|
|
Fund
|
|
|
|
Fees Paid
to
the
Administrators
|
|
Fees Waived
by
the
Administrators
|
|
Expenses
Reimbursed
by the
Administrators
|
Global Opportunities
|
|
|
|
$
|
89,022
|
|
|
$
|
8,657
|
|
|
$
|
0
|
|
International Opportunities
|
|
|
|
$
|
1,537,123
|
|
|
$
|
121
|
|
|
$
|
0
|
|
U.S.
Opportunities
|
|
|
|
$
|
2,233,583
|
|
|
$
|
216,848
|
|
|
$
|
0
|
|
Health Sciences Opportunities
|
|
|
|
$
|
1,074,312
|
|
|
$
|
181
|
|
|
$
|
0
|
|
Science & Technology Opportunities
|
|
|
|
$
|
164,646
|
|
|
$
|
23,684
|
|
|
$
|
0
|
|
The Trust and its
service providers may engage third party plan administrators who provide trustee, administrative and recordkeeping services for certain employee
benefit, profit-sharing and retirement plans as agent for the Trust with respect to such plans, for the purpose of accepting orders for the purchase
and redemption of shares of the Trust.
In addition, pursuant to a
shareholders administrative services agreement (the Shareholders Administrative Services Agreement), BlackRock provides certain
shareholder liaison services in connection with the Trusts investor service center. The Trust reimburses BlackRock for its costs in maintaining
the service center, which costs include, among other things, employee salaries, leasehold expenses, and other out-of-pocket expenses. For the last
three fiscal years, the Trust on behalf of each Fund reimbursed BlackRock for shareholder liaison services pursuant to such agreement in the amounts
set forth below.
|
|
|
|
Fiscal Year Ended September
30,
|
|
Fund
|
|
|
|
2012
|
|
2011
|
|
2010
|
Global Opportunities
|
|
|
|
$
|
22,598
|
|
|
$
|
4,300
|
|
|
$
|
4,351
|
|
International Opportunities
|
|
|
|
$
|
64,985
|
|
|
$
|
55,500
|
|
|
$
|
63,973
|
|
U.S.
Opportunities
|
|
|
|
$
|
127,017
|
|
|
$
|
292,694
|
|
|
$
|
108,079
|
|
Health Sciences Opportunities
|
|
|
|
$
|
110,440
|
|
|
$
|
75,040
|
|
|
$
|
61,764
|
|
Science & Technology Opportunities
|
|
|
|
$
|
17,535
|
|
|
$
|
14,370
|
|
|
$
|
10,772
|
|
Information Regarding the Portfolio
Managers
Thomas Callan, CFA, Ian
Jamieson, CFA and Nigel Hart, CFA are the portfolio managers and are jointly and primarily responsible for the day-to-day management
of Global Opportunities and International Opportunities.
Thomas Callan, CFA and Jean
Rosenbaum, CFA are the portfolio managers and are jointly and primarily responsible for the day-to-day management of U.S.
Opportunities.
Thomas Callan, CFA and Erin Xie,
PhD are the portfolio managers and are jointly and primarily responsible for the day-to-day management of Health Sciences
Opportunities.
Thomas Callan, CFA, Jean
Rosenbaum, CFA and Erin Xie, PhD are the portfolio managers and are jointly and primarily responsible for the day-to-day
management of Science & Technology Opportunities.
Other Funds and Accounts
Managed
The following table sets forth
information about funds and accounts other than the Fund for which each Funds portfolio managers are primarily responsible for the day-to-day
portfolio management as of the Funds fiscal year ended September 30, 2012.
I-23
Global Opportunities
|
|
|
|
Number of Other Accounts Managed
and Assets by Account Type
|
|
Number of Other Accounts and Assets
for
Which Advisory Fee is Performance-Based
|
|
Name of Portfolio
Manager
|
|
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
Thomas Callan, CFA
|
|
|
|
11
|
|
11
|
|
8
|
|
0
|
|
0
|
|
3
|
|
|
|
|
$9.05 Billion
|
|
$2.03 Billion
|
|
$2.05 Billion
|
|
$0
|
|
$0
|
|
$1.67 Billion
|
Ian Jamieson, CFA
|
|
|
|
5
|
|
6
|
|
2
|
|
0
|
|
0
|
|
1
|
|
|
|
|
$3.82 Billion
|
|
$773.4 Million
|
|
$995 Million
|
|
$0
|
|
$0
|
|
$938.7 Million
|
Nigel Hart, CFA
|
|
|
|
5
|
|
5
|
|
3
|
|
0
|
|
0
|
|
1
|
|
|
|
|
$3.82 Billion
|
|
$623.2 Million
|
|
$995.1 Million
|
|
$0
|
|
$0
|
|
$938.7 Million
|
International Opportunities
|
|
|
|
Number of Other Accounts Managed
and Assets by Account Type
|
|
Number of Other Accounts and Assets
for
Which Advisory Fee is Performance-Based
|
|
Name of Portfolio
Manager
|
|
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
Thomas Callan, CFA
|
|
|
|
11
|
|
11
|
|
8
|
|
0
|
|
0
|
|
3
|
|
|
|
|
$7.67 Billion
|
|
$2.03 Billion
|
|
$2.05 Billion
|
|
$0
|
|
$0
|
|
$1.67 Billion
|
Ian Jamieson, CFA
|
|
|
|
5
|
|
6
|
|
2
|
|
0
|
|
0
|
|
1
|
|
|
|
|
$2.12 Billion
|
|
$773.4 Million
|
|
$995 Million
|
|
$0
|
|
$0
|
|
$938.7 Million
|
Nigel Hart, CFA
|
|
|
|
5
|
|
5
|
|
3
|
|
0
|
|
0
|
|
1
|
|
|
|
|
$2.44 Billion
|
|
$623.2 Million
|
|
$995.1 Million
|
|
$0
|
|
$0
|
|
$938.7 Million
|
|
|
|
|
Number of Other Accounts Managed
and
Assets by Account Type
|
|
Number of Other Accounts and Assets
for
Which Advisory Fee is Performance-Based
|
|
Name of Portfolio Manager
|
|
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
Thomas Callan, CFA
|
|
|
|
11
|
|
11
|
|
8
|
|
0
|
|
0
|
|
3
|
|
|
|
|
$7.06 Billion
|
|
$2.03 Billion
|
|
$2.05 Billion
|
|
$0
|
|
$0
|
|
$1.67 Billion
|
Jean Rosenbaum, CFA
|
|
|
|
4
|
|
2
|
|
2
|
|
0
|
|
0
|
|
0
|
|
|
|
|
$5.42 Billion
|
|
$451.5 Million
|
|
$301.1 Million
|
|
$0
|
|
$0
|
|
$0
|
Health Sciences Opportunities
|
|
|
|
Number of Other Accounts Managed
and
Assets by Account Type
|
|
Number of Other Accounts and Assets
for
Which Advisory Fee is Performance-Based
|
|
Name of Portfolio Manager
|
|
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
Thomas Callan, CFA
|
|
|
|
11
|
|
11
|
|
8
|
|
0
|
|
0
|
|
3
|
|
|
|
|
$7.42 Billion
|
|
$2.03 Billion
|
|
$2.05 Billion
|
|
$0
|
|
$0
|
|
$1.67 Billion
|
Erin Xie, PhD
|
|
|
|
5
|
|
4
|
|
3
|
|
0
|
|
1
|
|
2
|
|
|
|
|
$1.88 Billion
|
|
$960.2 Million
|
|
$757.9 Million
|
|
$0
|
|
$242.8 Million
|
|
$732.3 Million
|
Science & Technology Opportunities
|
|
|
|
Number of Other Accounts Managed
and Assets by Account Type
|
|
Number of Other Accounts and Assets
for
Which Advisory Fee is Performance-Based
|
|
Name of Portfolio
Manager
|
|
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
|
Other
Registered
Investment
Companies
|
|
Other Pooled
Investment
Vehicles
|
|
Other
Accounts
|
Thomas Callan, CFA
|
|
|
|
11
|
|
11
|
|
8
|
|
0
|
|
0
|
|
3
|
|
|
|
|
$9.2 Billion
|
|
$2.03 Billion
|
|
$2.05 Billion
|
|
$0
|
|
$0
|
|
$1.67 Billion
|
Jean Rosenbaum, CFA
|
|
|
|
4
|
|
2
|
|
2
|
|
0
|
|
0
|
|
0
|
|
|
|
|
$7.55 Billion
|
|
$451.5 Million
|
|
$301.1 Million
|
|
$0
|
|
$0
|
|
$0
|
Erin Xie, PhD
|
|
|
|
5
|
|
4
|
|
3
|
|
0
|
|
1
|
|
2
|
|
|
|
|
$3.65 Billion
|
|
$960.2 Million
|
|
$757.9 Million
|
|
$0
|
|
$242.8 Million
|
|
$732.3 Million
|
I-24
Portfolio Manager Compensation
Overview
BlackRocks financial
arrangements with its portfolio managers, its competitive compensation and its career path emphasis at all levels reflect the value senior management
places on key resources. Compensation may include a variety of components and may vary from year to year based on a number of factors. The principal
components of compensation include a base salary, a performance-based discretionary bonus, participation in various benefits programs and one or more
of the incentive compensation programs established by BlackRock.
Base Compensation.
Generally, portfolio
managers receive base compensation based on their position with the firm.
Discretionary Incentive Compensation.
Generally,
discretionary incentive compensation for Active Equity portfolio managers is based on a formulaic compensation program. BlackRocks formulaic
portfolio manager compensation program is based on team revenue and pre-tax investment performance relative to appropriate competitors or benchmarks
over 1-, 3- and 5-year performance periods, as applicable. In most cases, these benchmarks are the same as the benchmark or benchmarks against which
the performance of the Funds or other accounts managed by the portfolio managers are measured. BlackRocks Chief Investment Officers determine the
benchmarks or rankings against which the performance of funds and other accounts managed by each portfolio management team is compared and the period
of time over which performance is evaluated. With respect to these portfolio managers, such benchmarks for the Fund and other accounts
are: Lipper Mid-Cap Core Fund classification, Lipper International Multi-Cap Core Fund classification and Lipper
Global/Health/Biotechnology Fund classification.
A smaller element of portfolio
manager discretionary compensation may include consideration of: financial results, expense control, profit margins, strategic planning and
implementation, quality of client service, market share, corporate reputation, capital allocation, compliance and risk control, leadership, technology
and innovation. These factors are considered collectively by BlackRock management and the relevant Chief Investment Officers.
Distribution of Discretionary Incentive Compensation.
Discretionary incentive compensation is distributed to portfolio managers in a combination of cash and BlackRock, Inc. restricted stock units which
vest ratably over a number of years. For some portfolio managers, discretionary incentive compensation is also distributed in deferred cash awards that
notionally track the returns of select BlackRock investment products they manage and that vest ratably over a number of years. The BlackRock, Inc.
restricted stock units, upon vesting, will be settled in BlackRock, Inc. common stock. Typically, the cash portion of the discretionary
incentive compensation, when combined with base salary, represents more than 60% of total compensation for the portfolio managers. Paying a portion
of discretionary incentive compensation in BlackRock stock puts compensation earned by a portfolio manager for a given year
at risk based on BlackRocks ability to sustain and improve its performance over future periods. Providing a portion of
discretionary incentive compensation in deferred cash awards that notionally track the BlackRock investment products they manage provides
direct alignment with investment product results.
Long-Term Incentive Plan Awards
From time to time long-term incentive equity awards are granted to certain key employees to aid in retention, align their interests with
long-term shareholder interests and motivate performance. Equity awards are generally granted in the form of BlackRock, Inc. restricted stock units
that, once vested, settle in BlackRock, Inc. common stock. Messrs. Callan and Jamieson and Mdmes. Rosenbaum and Xie have
each received long-term incentive awards.
Deferred Compensation Program
A portion of the compensation paid to eligible BlackRock employees may be voluntarily deferred at their election for defined periods of
time into an account that tracks the performance of certain of the firms investment products. All of the eligible portfolio
managers have participated in the deferred compensation program.
I-25
Other Compensation Benefits.
In
addition to base compensation and discretionary incentive compensation, portfolio managers may be eligible to receive or participate in one or more of
the following:
Incentive Savings Plans
BlackRock, Inc. has created a variety of incentive savings plans in which BlackRock employees are eligible to participate, including a
401(k) plan, the BlackRock Retirement Savings Plan (RSP), and the BlackRock Employee Stock Purchase Plan (ESPP). The employer contribution components
of the RSP include a company match equal to 50% of the first 8% of eligible pay contributed to the plan capped at $5,000 per year, and a company
retirement contribution equal to 3-5% of eligible compensation up to the Internal Revenue Service limit ($250,000 for 2012). The
RSP offers a range of investment options, including registered investment companies and collective investment funds managed by the firm. BlackRock
contributions follow the investment direction set by participants for their own contributions or, absent participant investment direction, are invested
into an index target date fund that corresponds to, or is closest to, the year in which the participant attains age 65. The ESPP allows for investment
in BlackRock common stock at a 5% discount on the fair market value of the stock on the purchase date. Annual participation in the ESPP is limited to
the purchase of 1,000 shares of common stock or a dollar value of $25,000 based on its fair market value on the purchase date. Messrs.
Callan, Hart and Jamieson and Mdmes. Rosenbaum and Xie are each eligible to participate in these plans.
Portfolio Manager Beneficial
Holdings
As of September 30,
2012, the end of each Funds most recently completed fiscal year, the dollar range of securities beneficially owned by each
portfolio manager in the Funds is shown below:
Portfolio Manager
|
|
|
|
Fund(s) Managed
|
|
Dollar Range of
Equity
Securities Beneficially Owned
|
Thomas Callan, CFA
|
|
|
|
Global Opportunities
|
|
Over $1 Million
|
|
|
|
|
International Opportunities
|
|
Over $1 Million
|
|
|
|
|
U.S. Opportunities
|
|
Over $1 Million
|
|
|
|
|
Health Sciences Opportunities
|
|
$100,001$500,000
|
|
|
|
|
Science & Technology Opportunities
|
|
$100,001$500,000
|
|
Ian Jamieson, CFA
|
|
|
|
Global Opportunities
|
|
$100,001$500,000
|
|
|
|
|
International Opportunities
|
|
$100,001$500,000
|
|
Nigel Hart, CFA
|
|
|
|
Global Opportunities
|
|
None
|
|
|
|
|
International Opportunities
|
|
None
|
|
Jean M. Rosenbaum, CFA
|
|
|
|
U.S. Opportunities
|
|
Over $1 Million
|
|
|
|
|
Science & Technology Opportunities
|
|
$100,001$500,000
|
|
Erin Xie, PhD
|
|
|
|
Health Sciences Opportunities
|
|
Over $1 Million
|
|
|
|
|
Science & Technology Opportunities
|
|
None
|
Portfolio Manager Potential Material Conflicts of Interest
BlackRock has built a professional
working environment, firm-wide compliance culture and compliance procedures and systems designed to protect against potential incentives that may favor
one account over another. BlackRock has adopted policies and procedures that address the allocation of investment opportunities, execution of portfolio
transactions, personal trading by employees and other potential conflicts of interest that are designed to ensure that all client accounts are treated
equitably over time. Nevertheless, BlackRock furnishes investment management and advisory services to numerous clients in addition to the Funds, and
BlackRock may, consistent with applicable law, make investment recommendations to other clients or accounts (including accounts which are hedge funds
or have performance or higher fees paid to BlackRock, or in which portfolio managers have a personal interest in the receipt of such fees), which may
be the same as or different from those made to a Fund. In addition, BlackRock, its affiliates and significant shareholders and any officer, director,
shareholder or employee may or may not have an interest in the securities whose purchase and sale BlackRock recommends to a Fund. BlackRock, or any of
its affiliates or significant shareholders, or any officer, director, shareholder, employee or any member of their families may take different actions
than those recommended to a Fund by BlackRock with respect to the same securities. Moreover, BlackRock may refrain from rendering any advice or
services concerning securities of companies of which any of BlackRocks (or its affiliates or significant shareholders) officers,
directors or employees are directors or officers, or companies as to which BlackRock or any of its affiliates or significant
I-26
shareholders
or the officers, directors and employees of any of them
has any substantial economic interest or possesses material
non-public information. Certain portfolio managers also
may manage accounts whose investment strategies may at
times be opposed to the strategy utilized for a Fund. It
should also be noted that Messrs. Callan, Hart and
Jamieson and Mdmes. Rosenbaum and Xie may be managing hedge
fund and/or long only accounts, or may be part of a team
managing hedge fund and/or long only accounts, subject
to incentive fees. Messrs. Callan, Hart and Jamieson and
Mdmes. Rosenbaum and Xie may therefore be entitled to receive
a portion of any incentive fees earned on such accounts.
As a fiduciary, BlackRock owes a
duty of loyalty to its clients and must treat each client fairly. When BlackRock purchases or sells securities for more than one account, the trades
must be allocated in a manner consistent with its fiduciary duties. BlackRock attempts to allocate investments in a fair and equitable manner among
client accounts, with no account receiving preferential treatment. To this end, BlackRock has adopted policies that are intended to ensure reasonable
efficiency in client transactions and provide BlackRock with sufficient flexibility to allocate investments in a manner that is consistent with the
particular investment discipline and client base, as appropriate.
Custodian and Transfer Agency Agreements
The Bank of New York Mellon, which
has its principal place of business at One Wall Street, New York, NY 10286, serves as the custodian for each Fund (the
Custodian). On a monthly basis, the Custodian nets each Funds daily positive and negative cash balances and calculates
a credit (custody credit) or a charge based on that net amount. The custodian fees, including the amount of any overdraft
charges, may be reduced by that amount of such custody credits, and any unused credits at the end of a given month may be carried forward to a
subsequent month. Any such credits unused by the end of each Funds fiscal year will not expire. Net debits at the end of a given month are
added to each Funds custody bill and paid by the respective Fund.
BNY Mellon Investment Servicing
(US) Inc., which has its principal place of business at 301 Bellevue Parkway, Wilmington, DE 19809, serves as transfer agent and dividend disbursing
agent for each Fund.
Credit Agreement
The Trust, on behalf of the Funds, along with certain
other funds managed by the Manager and its affiliates, is a party to a $500 million credit agreement with a group of lenders, which is renewed annually
(the Credit Agreement). Each Fund may borrow under the Credit Agreement to meet shareholder redemptions and for other lawful purposes. A
Fund may not borrow under the Credit Agreement for leverage. A Fund may borrow up to the maximum amount allowable under its current Prospectus and
Statement of Additional Information, subject to various other legal, regulatory or contractual limits. Borrowing results in interest expense and other fees and expenses
for a Fund which may impact the Funds net expenses. The costs of borrowing may reduce a Funds return. Each Fund is charged its pro rata
share of upfront fees and commitment fees on the aggregate commitment amount based on its net assets. If a Fund borrows pursuant to the Credit
Agreement, the Fund is charged interest at a variable rate.
V. Information on Sales Charges and
Distribution Related Expenses
Set forth below is information on
sales charges (including any contingent deferred sales charges (CDSCs)) received by each Fund, including the amounts paid to affiliates of
the Manager (affiliates) for the periods indicated. BlackRock Investments, LLC (BRIL or the Distributor)
acts as each Funds sole distributor.
Global Opportunities
|
|
|
|
Investor A Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
Gross
Sales
Charges
Collected
|
|
Sales Charges
Retained by
BRIL
|
|
Sales Charges
Paid To
Affiliates
|
|
CDSCs
Received on
Redemption
of
Load-Waived
Shares
|
2012
|
|
|
|
$
|
49,363
|
|
|
$
|
3,422
|
|
|
$
|
3,422
|
|
|
$
|
28,919
|
|
2011
|
|
|
|
$
|
96,574
|
|
|
$
|
6,244
|
|
|
$
|
6,266
|
|
|
$
|
0
|
|
2010
|
|
|
|
$
|
155,837
|
|
|
$
|
9,747
|
|
|
$
|
9,782
|
|
|
$
|
200
|
|
I-27
|
|
|
|
Investor B Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
10,272
|
|
|
$
|
10,272
|
|
2011
|
|
|
|
$
|
14,162
|
|
|
$
|
14,162
|
|
2010
|
|
|
|
$
|
12,116
|
|
|
$
|
12,116
|
|
|
|
|
|
Investor C Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
2,759
|
|
|
$
|
2,759
|
|
2011
|
|
|
|
$
|
3,022
|
|
|
$
|
3,022
|
|
2010
|
|
|
|
$
|
3,152
|
|
|
$
|
3,152
|
|
International Opportunities
|
|
|
|
Investor A Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
Gross
Sales
Charges
Collected
|
|
Sales Charges
Retained by
BRIL
|
|
Sales Charges
Paid To
Affiliates
|
|
CDSCs
Received on
Redemption
of
Load-Waived
Shares
|
2012
|
|
|
|
$
|
404,237
|
|
|
$
|
28,854
|
|
|
$
|
28,959
|
|
|
$
|
6,532
|
|
2011
|
|
|
|
$
|
918,941
|
|
|
$
|
64,515
|
|
|
$
|
80,691
|
|
|
$
|
28,663
|
|
2010
|
|
|
|
$
|
1,590,275
|
|
|
$
|
111,163
|
|
|
$
|
141,062
|
|
|
$
|
21,222
|
|
|
|
|
|
Investor B Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
13,684
|
|
|
$
|
13,684
|
|
2011
|
|
|
|
$
|
33,474
|
|
|
$
|
33,474
|
|
2010
|
|
|
|
$
|
63,177
|
|
|
$
|
63,177
|
|
|
|
|
|
Investor C Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
15,757
|
|
|
$
|
15,757
|
|
2011
|
|
|
|
$
|
26,374
|
|
|
$
|
26,374
|
|
2010
|
|
|
|
$
|
47,333
|
|
|
$
|
47,333
|
|
|
|
|
|
Investor A Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
Gross
Sales
Charges
Collected
|
|
Sales Charges
Retained by
BRIL
|
|
Sales Charges
Paid To
Affiliates
|
|
CDSCs
Received on
Redemption
of
Load-Waived
Shares
|
2012
|
|
|
|
$
|
94,071
|
|
|
$
|
6,334
|
|
|
$
|
6,409
|
|
|
$
|
2,829
|
|
2011
|
|
|
|
$
|
860,243
|
|
|
$
|
62,727
|
|
|
$
|
74,477
|
|
|
$
|
22,662
|
|
2010
|
|
|
|
$
|
1,428,652
|
|
|
$
|
96,224
|
|
|
$
|
109,573
|
|
|
$
|
11,510
|
|
|
|
|
|
Investor B Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
33,093
|
|
|
$
|
33,093
|
|
2011
|
|
|
|
$
|
44,517
|
|
|
$
|
44,517
|
|
2010
|
|
|
|
$
|
44,070
|
|
|
$
|
44,070
|
|
I-28
|
|
|
|
Investor C Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
27,516
|
|
|
$
|
27,516
|
|
2011
|
|
|
|
$
|
57,271
|
|
|
$
|
57,271
|
|
2010
|
|
|
|
$
|
69,500
|
|
|
$
|
69,500
|
|
Health Sciences Opportunities
|
|
|
|
Investor A Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
Gross
Sales
Charges
Collected
|
|
Sales Charges
Retained by
BRIL
|
|
Sales Charges
Paid To
Affiliates
|
|
CDSCs
Received on
Redemption
of
Load-Waived
Shares
|
2012
|
|
|
|
$
|
1,443,268
|
|
|
$
|
88,562
|
|
|
$
|
106,293
|
|
|
$
|
15,511
|
|
2011
|
|
|
|
$
|
1,409,214
|
|
|
$
|
105,767
|
|
|
$
|
112,118
|
|
|
$
|
15,793
|
|
2010
|
|
|
|
$
|
1,867,786
|
|
|
$
|
122,861
|
|
|
$
|
140,728
|
|
|
$
|
8,617
|
|
|
|
|
|
Investor B Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
35,359
|
|
|
$
|
35,359
|
|
2011
|
|
|
|
$
|
64,292
|
|
|
$
|
64,292
|
|
2010
|
|
|
|
$
|
135,259
|
|
|
$
|
135,259
|
|
|
|
|
|
Investor C Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
31,588
|
|
|
$
|
31,588
|
|
2011
|
|
|
|
$
|
37,434
|
|
|
$
|
37,434
|
|
2010
|
|
|
|
$
|
44,277
|
|
|
$
|
44,277
|
|
Science & Technology Opportunities
|
|
|
|
Investor A Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
Gross
Sales
Charges
Collected
|
|
Sales Charges
Retained by
BRIL
|
|
Sales Charges
Paid To
Affiliates
|
|
CDSCs
Received on
Redemption
of
Load-Waived
Shares
|
2012
|
|
|
|
$
|
89,534
|
|
|
$
|
5,789
|
|
|
$
|
5,824
|
|
|
$
|
943
|
|
2011
|
|
|
|
$
|
223,491
|
|
|
$
|
15,853
|
|
|
$
|
18,878
|
|
|
$
|
45
|
|
2010
|
|
|
|
$
|
210,850
|
|
|
$
|
13,578
|
|
|
$
|
17,325
|
|
|
$
|
4,364
|
|
|
|
|
|
Investor B Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
3,334
|
|
|
$
|
3,334
|
|
2011
|
|
|
|
$
|
4,788
|
|
|
$
|
4,788
|
|
2010
|
|
|
|
$
|
5,243
|
|
|
$
|
5,243
|
|
|
|
|
|
Investor C Shares
|
|
For the Fiscal Year Ended September
30,
|
|
|
|
CDSCs Received
by BRIL
|
|
CDSCs Paid
to Affiliates
|
2012
|
|
|
|
$
|
4,098
|
|
|
$
|
4,098
|
|
2011
|
|
|
|
$
|
4,768
|
|
|
$
|
4,768
|
|
2010
|
|
|
|
$
|
17,569
|
|
|
$
|
17,569
|
|
I-29
The tables below provide
information for the fiscal year ended September 30, 2012 about the 12b-1 fees the Funds paid to BRIL under each Funds 12b-1 plan.
A portion of the fees collected by BRIL were paid to affiliates for providing shareholder servicing activities for Investor A and Service
Shares and for providing shareholder servicing and distribution related activities and services for Investor B, Investor C and Class R
Shares.
For the twelve months ended
September 30, 2012, the Funds share classes bore the following distribution and shareholder servicing fees under the
Plan:
Fund
|
|
|
|
Net Shareholder
Servicing
Fees
|
Global Opportunities
|
|
|
|
$
|
518,027
|
|
International Opportunities
|
|
|
|
$
|
1,799,138
|
|
U.S. Opportunities
|
|
|
|
$
|
1,930,510
|
|
Health Sciences Opportunities
|
|
|
|
$
|
2,309,224
|
|
Science & Technology Opportunities
|
|
|
|
$
|
277,023
|
|
Investor B Shares
Fund
|
|
|
|
Net Distribution
Fees
|
|
Net Shareholder
Servicing
Fees
|
Global Opportunities
|
|
|
|
$
|
46,127
|
|
|
$
|
15,376
|
|
International Opportunities
|
|
|
|
$
|
98,833
|
|
|
$
|
32,944
|
|
U.S. Opportunities
|
|
|
|
$
|
109,656
|
|
|
$
|
36,552
|
|
Health Sciences Opportunities
|
|
|
|
$
|
328,091
|
|
|
$
|
109,364
|
|
Science & Technology Opportunities
|
|
|
|
$
|
22,034
|
|
|
$
|
7,410
|
|
Investor C Shares
Fund
|
|
|
|
Net Distribution
Fees
|
|
Net Shareholder
Servicing
Fees
|
Global Opportunities
|
|
|
|
$
|
437,179
|
|
|
$
|
145,726
|
|
International Opportunities
|
|
|
|
$
|
1,220,429
|
|
|
$
|
406,569
|
|
U.S. Opportunities
|
|
|
|
$
|
2,019,057
|
|
|
$
|
673,016
|
|
Health Sciences Opportunities
|
|
|
|
$
|
2,658,356
|
|
|
$
|
886,119
|
|
Science & Technology Opportunities
|
|
|
|
$
|
214,208
|
|
|
$
|
71,402
|
|
Service Shares
Fund
|
|
|
|
Net Shareholder
Servicing
Fees
|
International Opportunities
|
|
|
|
$
|
121,939
|
|
U.S. Opportunities
|
|
|
|
$
|
449,385
|
|
Health Sciences Opportunities
|
|
|
|
$
|
37,282
|
|
Science & Technology Opportunities
|
|
|
|
$
|
2,460
|
|
Class R Shares
Fund
|
|
|
|
Net Distribution
Fees
|
|
Net Shareholder
Servicing
Fees
|
Global Opportunities
|
|
|
|
$
|
38,123
|
|
|
$
|
38,123
|
|
Health Sciences Opportunities
|
|
|
|
$
|
30,073
|
|
|
$
|
30,073
|
|
Science & Technology Opportunities
|
|
|
|
$
|
10,241
|
|
|
$
|
10,241
|
|
I-30
VI. Computation of Offering Price Per
Share
An illustration of the computation
of the offering price for the Investor A Shares of each Fund based on the value of each Funds Investor A net assets and number of Investor A
Shares outstanding on September 30, 2012 is set forth below.
|
|
|
|
Investor A
|
|
|
|
|
|
Global
Opportunities
|
|
International
Opportunities
|
|
U.S.
Opportunities
|
|
Health
Sciences
Opportunities
|
|
Science &
Technology
Opportunities
|
Net
Assets
|
|
|
|
$
|
195,960,688
|
|
|
$
|
692,444,785
|
|
|
$
|
610,343,463
|
|
|
$
|
1,018,429,210
|
|
|
$
|
106,466,096
|
|
Number of Shares Outstanding
|
|
|
|
|
17,779,114
|
|
|
|
22,101,095
|
|
|
|
17,793,687
|
|
|
|
30,270,155
|
|
|
|
11,197,253
|
|
Net
Asset Value Per Share
(net assets divided by number
of shares outstanding)
|
|
|
|
$
|
11.02
|
|
|
$
|
31.33
|
|
|
$
|
34.30
|
|
|
$
|
33.64
|
|
|
$
|
9.51
|
|
Sales Charge (5.25% of offering price; 5.54% of net asset value
per share)
1
|
|
|
|
$
|
0.61
|
|
|
$
|
1.74
|
|
|
$
|
1.90
|
|
|
$
|
1.86
|
|
|
$
|
0.53
|
|
Offering Price
|
|
|
|
$
|
11.63
|
|
|
$
|
33.07
|
|
|
$
|
36.20
|
|
|
$
|
35.50
|
|
|
$
|
10.04
|
|
1
|
|
Rounded to the nearest one-hundredth percent; assumes maximum
sales charge is applicable.
|
The offering price for each
Funds other share classes is equal to the share class net asset value computed as set forth above for Investor A Shares. Though not subject
to a sales charge, certain share classes may be subject to a CDSC on redemption. For more information on the purchasing and valuation of shares, please
see Purchase of Shares and Pricing of Shares in Part II of this Statement of Additional Information.
VII. Portfolio Transactions and
Brokerage
See Portfolio Transactions
and Brokerage in Part II of this Statement of Additional Information for more information.
Information about the brokerage
commissions paid by each Fund is set forth in the following tables:
|
|
|
|
Aggregate Brokerage Commissions Paid
Fiscal Year Ended September 30,
|
|
|
|
|
|
2012
|
|
2011
|
|
2010
|
Global Opportunities
|
|
|
|
$
|
783,735
|
|
|
$
|
299,792
|
|
|
$
|
282,357
|
|
International Opportunities
|
|
|
|
$
|
4,125,054
|
|
|
$
|
6,333,733
|
|
|
$
|
5,600,603
|
|
U.S. Opportunities
|
|
|
|
$
|
6,046,028
|
|
|
$
|
7,544,963
|
|
|
$
|
7,882,031
|
|
Health Sciences Opportunities
|
|
|
|
$
|
3,450,865
|
|
|
$
|
3,221,849
|
|
|
$
|
3,600,029
|
|
Science & Technology Opportunities
|
|
|
|
$
|
831,913
|
|
|
$
|
280,695
|
|
|
$
|
237,515
|
|
The following table shows the
dollar amount of brokerage commissions paid to brokers for providing research/brokerage services and the approximate dollar amount of the transactions
involved for the fiscal year ended September 30, 2012. The provision of research/brokerage services was not necessarily a factor in the
placement of all brokerage business with such brokers.
Fund
|
|
|
|
Amount of Commissions
Paid to
Brokers for
Providing Third-Party
Research Services
|
|
Amount of Brokerage
Transactions
Involved
|
Global Opportunities
|
|
|
|
$
|
715,949
|
|
|
$
|
825,294,262
|
|
International Opportunities
|
|
|
|
$
|
3,796,142
|
|
|
$
|
3,277,174,428
|
|
U.S. Opportunities
|
|
|
|
$
|
5,623,757
|
|
|
$
|
6,289,048,777
|
|
Health Sciences Opportunities
|
|
|
|
$
|
3,085,219
|
|
|
$
|
3,864,954,588
|
|
Science & Technology Opportunities
|
|
|
|
$
|
773,192
|
|
|
$
|
1,032,326,448
|
|
U.S.
Opportunities, Health Sciences Opportunities and Science & Technology Opportunities held no securities of their regular brokers or dealers (as
defined in Rule 10b-1 of the Investment Company Act) during the fiscal year ended September 30, 2012.
I-31
The value of Global
Opportunities and International Opportunities aggregate holdings of the securities of their regular brokers or dealers (as defined in Rule
10b-1 of the Investment Company Act) if any portion of such holdings were purchased during the fiscal year ended September 30, 2012 are
as follows:
Regular Broker/Dealer
|
|
|
|
Debt (D)/Equity (E)
|
|
Aggregate Holdings (000s)
|
Global Opportunities
|
|
|
|
|
|
|
|
|
JPMorgan Securities, Inc.
|
|
|
|
E
|
|
$
|
3,417
|
|
CitiGroup Global Markets, Inc.
|
|
|
|
E
|
|
$
|
1,128
|
|
Deutsche Bank Securities, Inc.
|
|
|
|
E
|
|
$
|
2,523
|
|
Barclays Bank PLC
|
|
|
|
E
|
|
$
|
2,238
|
|
Goldman, Sachs & Co.
|
|
|
|
E
|
|
$
|
2,092
|
|
BNP Paribas Securities Corp.
|
|
|
|
E
|
|
$
|
1,104
|
|
|
International Opportunities
|
|
|
|
|
|
|
|
|
|
|
Deutsche Bank Securities, Inc.
|
|
|
|
E
|
|
$
|
12,944
|
|
Barclays Bank PLC
|
|
|
|
E
|
|
$
|
7,694
|
|
BNP Paribas Securities Corp.
|
|
|
|
E
|
|
$
|
6,584
|
|
RBC Capital Markets Corp.
|
|
|
|
E
|
|
$
|
12,451
|
|
For the last
three fiscal years, the Funds securities lending agent received securities lending agent fees as follows:
|
|
|
|
Fiscal Year Ended September
30,
|
|
Fund
|
|
|
|
2012
|
|
2011
|
|
2010
|
Global Opportunities
|
|
|
|
$
|
0
|
|
|
$
|
0
|
|
|
$
|
0
|
|
International Opportunities
|
|
|
|
$
|
3,644
|
|
|
$
|
8,539
|
|
|
$
|
15,316
|
|
U.
S. Opportunities
|
|
|
|
$
|
896,033
|
|
|
$
|
156,251
|
|
|
$
|
92,140
|
|
Health Sciences Opportunities
|
|
|
|
$
|
158,720
|
|
|
$
|
83,607
|
|
|
$
|
18,352
|
|
Science & Technology Opportunities
|
|
|
|
$
|
34,457
|
|
|
$
|
9,664
|
|
|
$
|
931
|
|
Portfolio Turnover
Science & Technology
Opportunities experienced significant variation in the portfolio turnover rate in the most recent fiscal year ended September 30, 2012 when
compared to the prior fiscal year. The portfolio turnover rate increased from 103% during the fiscal year ended September 30, 2011 to 320%
during the fiscal year ended September 30, 2012. The increase in portfolio turnover was due to the general market volatility and related
investment management. The portfolio managers expect the portfolio turnover rate to return to the historical level in the future although it is
not possible to predict portfolio turnover with certainty due to changes in market conditions.
VIII. Additional
Information
The
Trust
The Trust was organized as a
Massachusetts business trust on December 22, 1988, and is registered under the Investment Company Act as an open-end management investment company.
Each of the Funds, except Health Sciences Opportunities, is diversified. Effective January 31, 1998, the Trust changed its name from Compass Capital
Funds
SM
to BlackRock Funds
SM
. The Trust is authorized to issue an unlimited number of shares of beneficial interest with a par
value of $0.001 per share, which may be divided into different series and classes.
Under Massachusetts law,
shareholders of a business trust may, under certain circumstances, be held personally liable as partners for the obligations of the Trust. However, the
Trusts Declaration of Trust provides that shareholders shall not be subject to any personal liability in connection with the assets of the Trust
for the acts or obligations of the Trust, and that every note, bond, contract, order or other undertaking made by the Trust shall contain a provision
to the effect that the shareholders are not personally liable thereunder. The Declaration of Trust provides for indemnification out of the Trust
property of any shareholder held personally liable solely by reason of his or her being or having been a shareholder and not because of his or her acts
or omissions or some other reason.
I-32
The Declaration of Trust also
provides that the Trust shall, upon request, assume the defense of any claim made against any shareholder for any act or obligation of the Trust, and
shall satisfy any judgment thereon.
The Declaration of Trust further
provides that all persons having any claim against the Trustees or Trust shall look solely to the Trust property for payment; that no Trustee of the
Trust shall be personally liable for or on account of any contract, debt, tort, claim, damage, judgment or decree arising out of or connected with the
administration or preservation of the Trust property or the conduct of any business of the Trust; and that no Trustee shall be personally liable to any
person for any action or failure to act except by reason of such Trustees own bad faith, willful misfeasance, gross negligence or reckless
disregard of his duties as a Trustee. With the exception stated, the Declaration of Trust provides that a Trustee is entitled to be indemnified against
all liabilities and expenses reasonably incurred by such Trustee in connection with the defense or disposition of any proceeding in which he or she may
be involved or with which he or she may be threatened by reason of his or her being or having been a Trustee, and that the Trust will indemnify
officers, representatives and employees of the Trust to the same extent that Trustees are entitled to indemnification.
Principal
Shareholders
To the knowledge of each Fund, the
following entities owned beneficially or of record 5% or more of a class of the respective Funds shares as of December 31,
2012.
Global Opportunities
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
64.92%
|
|
Investor A Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
56.97%
|
|
Investor B Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
7.06%
|
|
Investor B Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
7.00%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
6.04%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
5.08%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
63.68%
|
|
Investor C Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
9.97%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
5.44%
|
|
Investor C Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
64.07%
|
|
Institutional Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Charles Schwab & Co Inc
|
|
|
|
101 Montgomery Street
|
|
5.54%
|
|
Institutional Shares
|
|
|
|
|
San Francisco, CA 94104-4122
|
|
|
|
|
|
|
|
|
|
*State Street Bank TTEE Cust
|
|
|
|
1 Lincoln Street
|
|
42.19%
|
|
Class R Shares
|
(FBO) ADP Access
|
|
|
|
Boston, MA 02111
|
|
I-33
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
35.93%
|
|
Class R Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, Fl 32246-6484
|
|
|
|
|
|
|
|
|
|
*Hartford Securities Distribution Company Inc
|
|
|
|
PO Box 2999
Hartford, CT 06104-2999
|
|
6.88%
|
|
Class R Shares
|
As Agent For Reliance Trust Company FBO Agents Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
|
Record holder that does not beneficially own the
shares.
|
International Opportunities
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
16.63%
|
|
Investor A Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Charles Schwab & Co Inc
|
|
|
|
101 Montgomery Street
|
|
10.58%
|
|
Investor A Shares
|
|
|
|
|
San Francisco, CA 94104-4122
|
|
|
|
|
|
|
|
|
|
*UBS WM USA
|
|
|
|
499 Washington Blvd.
|
|
10.13%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07310-2055
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
9.28%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*American Enterprise Investment Svc
|
|
|
|
707 2nd Ave. S.
|
|
8.10%
|
|
Investor A Shares
|
|
|
|
|
Minneapolis, MN 55402
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
6.13%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
18.43%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
16.44%
|
|
Investor B Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
16.28%
|
|
Investor B Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
12.18%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
5.84%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Charles Schwab & Co Inc
|
|
|
|
101 Montgomery Street
|
|
5.79%
|
|
Investor B Shares
|
|
|
|
|
San Francisco, CA 94104-4122
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
31.53%
|
|
Investor C Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
16.77%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
11.43%
|
|
Investor C Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Raymond James Omnibus for
Mutual Funds
|
|
|
|
880 Carillon Parkway
St. Petersburg, FL 33716
|
|
6.82%
|
|
Investor C Shares
|
|
*UBS WM USA
|
|
|
|
499 Washington Blvd.
|
|
5.76%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07310-2055
|
|
I-34
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
9.99%
|
|
Institutional Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
9.73%
|
|
Institutional Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Blackrock Advisors LLC
|
|
|
|
100 Bellevue Parkway
|
|
5.89%
|
|
Institutional Shares
|
International Opportunities Option
|
|
|
|
Wilmington, DE 19809
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
5.14%
|
|
Institutional Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*Charles Schwab & Co Inc
|
|
|
|
101 Montgomery Street
|
|
36.85%
|
|
Service Shares
|
|
|
|
|
San Francisco, CA 94104-4122
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
21.47%
|
|
Service Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Saxon and Co
|
|
|
|
PO Box 7780-1888
|
|
10.15%
|
|
Service Shares
|
|
|
|
|
Philadelphia, PA 19182
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
6.45%
|
|
Service Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*MassMutual Life Insurance Company
|
|
|
|
1295 State St. Mip C105
|
|
5.07%
|
|
Service Shares
|
|
|
|
|
Springfield, MA 01111-0001
|
|
|
|
|
|
|
|
|
*
|
|
Record holder that does not beneficially own the
shares.
|
U.S. Opportunities
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
*UBS WM USA
|
|
|
|
499 Washington Blvd.
|
|
15.71%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07310-2055
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
11.25%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
9.90%
|
|
Investor A Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
7.02%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*American Enterprise Investment Svc
|
|
|
|
707 2nd Ave. S.
|
|
6.94%
|
|
Investor A Shares
|
|
|
|
|
Minneapolis, MN 55402
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
19.83%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
17.83%
|
|
Investor B Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
14.04%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
13.99%
|
|
Investor B Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
8.97%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
27.15%
|
|
Investor C Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
I-35
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
22.86%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*UBS WM USA
|
|
|
|
499 Washington Blvd.
|
|
9.05%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07310-2055
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
8.46%
|
|
Investor C Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
5.50%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*Charles Schwab & Co Inc
|
|
|
|
101 Montgomery Street
|
|
28.40%
|
|
Institutional Shares
|
|
|
|
|
San Francisco, CA 94104-4122
|
|
|
|
|
|
|
|
|
|
*Fidelity Investments Institutional
Op Co Inc As Agent For Certain Employee Ben Plan
|
|
|
|
100 Magellan Way (KW1C)
Covington, KY 41015-0000
|
|
10.57%
|
|
Institutional Shares
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
7.70%
|
|
Institutional Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
7.32%
|
|
Institutional Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
87.02%
|
|
Service Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
*
|
|
Record holder that does not beneficially own the
shares.
|
Health Sciences Opportunities
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
17.56%
|
|
Investor A Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
11.74%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Charles Schwab & Co Inc
|
|
|
|
101 Montgomery Street
|
|
10.95%
|
|
Investor A Shares
|
|
|
|
|
San Francisco, CA 94104-4122
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
8.67%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*American Enterprise Investment Svc
|
|
|
|
707 2nd Ave. S.
|
|
7.01%
|
|
Investor A Shares
|
|
|
|
|
Minneapolis, MN 55402
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
28.64%
|
|
Investor B Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
15.41%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
9.99%
|
|
Investor B Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
8.34%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
42.48%
|
|
Investor C Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
I-36
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
11.20%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
7.27%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*UBS WM USA
|
|
|
|
499 Washington Blvd.
|
|
6.69%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07310-2055
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
6.45%
|
|
Investor C Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
5.19%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
39.59%
|
|
Institutional Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
13.13%
|
|
Institutional Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
10.61%
|
|
Institutional Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
8.01%
|
|
Institutional Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Charles Schwab & Co Inc
|
|
|
|
101 Montgomery Street
|
|
5.37%
|
|
Institutional Shares
|
|
|
|
|
San Francisco, CA 94104-4122
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
30.60%
|
|
Service Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*TD Ameritrade Inc
|
|
|
|
PO Box 2226
|
|
13.27%
|
|
Service Shares
|
|
|
|
|
Omaha, NE 68103-2226
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
5.91%
|
|
Service Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
61.97%
|
|
Class R Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Hartford Securities Distribution Company Inc
As Agent For Reliance Trust Company FBO Agents Plan
|
|
|
|
PO Box 2999
Hartford, CT 06104-2999
|
|
5.02%
|
|
Class R Shares
|
*
|
|
Record holder does not beneficially own the shares.
|
Science & Technology Opportunities
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
47.77%
|
|
Investor A Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
9.26%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
6.82%
|
|
Investor A Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
47.33%
|
|
Investor B Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
I-37
Name
|
|
|
|
Address
|
|
Percentage
|
|
Class
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
13.84%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
11.02%
|
|
Investor B Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
7.74%
|
|
Investor B Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
53.16%
|
|
Investor C Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
6.81%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
6.59%
|
|
Investor C Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
5.53%
|
|
Investor C Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
46.98%
|
|
Institutional Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*First Clearing, LLC
|
|
|
|
2801 Market Street
|
|
7.58%
|
|
Institutional Shares
|
|
|
|
|
St. Louis, MO 63103
|
|
|
|
|
|
|
|
|
|
*Morgan Stanley & Co.
|
|
|
|
Harborside Financial Center Plaza II
|
|
5.06%
|
|
Institutional Shares
|
|
|
|
|
Jersey City, NJ 07311
|
|
|
|
|
|
|
|
|
|
*NFS LLC FEBO
|
|
|
|
499 Washington Blvd.
|
|
49.25%
|
|
Service Shares
|
|
|
|
|
Jersey City, NJ 07310
|
|
|
|
|
|
|
|
|
|
*TD Ameritrade Inc
|
|
|
|
PO Box 2226
|
|
20.18%
|
|
Service Shares
|
|
|
|
|
Omaha, NE 68103-2226
|
|
|
|
|
|
|
|
|
|
*Ed Sabo, Martin Coughlin,
Dave Kotowski FBO
Specialty Chemical Sales Inc
401(K) Profit Sharing Plan &
Trust
|
|
|
|
4561 W 160th Street
Cleveland, OH 44135-2647
|
|
9.40%
|
|
Service Shares
|
|
*Pershing LLC
|
|
|
|
1 Pershing Plaza
|
|
5.35%
|
|
Service Shares
|
|
|
|
|
Jersey City, NJ 07399-0001
|
|
|
|
|
|
|
|
|
|
*Merrill Lynch, Pierce,
|
|
|
|
4800 Deer Lake Drive East
|
|
60.97%
|
|
Class R Shares
|
Fenner & Smith Incorporated
|
|
|
|
Jacksonville, FL 32246-6484
|
|
|
|
|
|
|
|
|
|
*Michael Dimitrou
|
|
|
|
375 Fairfield Avenue
|
|
6.57%
|
|
Class R Shares
|
FBO Landmark Print Inc. 401(K) Profit Sharing Plan & Trust
|
|
|
|
Stamford, CT 06902
|
|
|
|
|
|
|
|
|
*
|
|
Record holder that does not beneficially own the
shares.
|
The Funds audited financial
statements, including the report of the independent registered public accounting firm, are incorporated in this Statement of Additional Information by
reference to the Funds 2012 Annual Report. You may request a copy of the Annual Report at no charge by
calling (800) 441-7762 between 8:00 a.m. and 6:00 p.m. Eastern time on any business day.
I-38
Part
II
Throughout this Statement of Additional Information (“SAI”),
each BlackRock-advised fund may be referred to as a “Fund” or collectively with others as the “Funds.”
Each Fund is organized either as a Maryland corporation,
a Massachusetts business trust or a Delaware statutory trust. In each jurisdiction, nomenclature varies. For ease and clarity of
presentation, shares of common stock and shares of beneficial interest are referred to herein as “shares” or “Common
Stock,” holders of shares of Common Stock are referred to as “shareholders,” the trustees or directors of each
Fund are referred to as “Directors,” BlackRock Advisors, LLC or its affiliates is the investment adviser or manager
of each Fund and is referred to herein as the “Manager” or “BlackRock,” and the investment advisory agreement
or management agreement applicable to each Fund is referred to as the “Management Agreement.” Each Fund’s Articles
of Incorporation or Declaration of Trust, together with all amendments thereto, is referred to as its “charter.” The
Investment Company Act of 1940, as amended, is referred to herein as the “Investment Company Act.” The Securities Act
of 1933, as amended, is referred to herein as the “Securities Act.” The Securities and Exchange Commission is referred
to herein as the “Commission” or the “SEC.”
Certain Funds are “feeder” funds (each, a “Feeder
Fund”) that invest all or a portion of their assets in a corresponding “master” portfolio (each, a “Master
Portfolio”) of a master limited liability company (each, a “Master LLC”), a mutual fund that has the same objective
and strategies as the Feeder Fund. All investments are generally made at the level of the Master Portfolio. This structure is sometimes
called a “master/feeder” structure. A Feeder Fund’s investment results will correspond directly to the investment
results of the underlying Master Portfolio in which it invests. For simplicity, this SAI uses the term “Fund” to include
both a Feeder Fund and its Master Portfolio.
In addition to containing information about the Fund, Part II
of this SAI contains general information about all funds in the BlackRock-advised fund complex. Certain information contained herein
may not be relevant to a particular Fund.
Investment
Risks and Considerations
Set forth below are descriptions of some of the types of
investments and investment strategies that one or more of the Funds may use, and the risks and considerations associated with those
investments and investment strategies. Please see each Fund’s Prospectus and the “Investment Objectives and Policies”
section of Part I of this SAI for further information on each Fund’s investment policies and risks. Information contained
in this section about the risks and considerations associated with a Fund’s investments and/or investment strategies applies
only to those Funds specifically identified in Part I of this Statement of Additional Information as making each type of investment
or using each investment strategy (each, a “Covered Fund”). Information that does not apply to a Covered Fund does
not form a part of that Covered Fund’s Statement of Additional Information and should not be relied on by investors in that
Covered Fund.
Only information that is clearly identified as applicable
to a Covered Fund is considered to form a part of that Covered Fund’s Statement of Additional Information.
144A Securities.
A Fund may purchase securities
that can be offered and sold only to “qualified institutional buyers” under Rule 144A under the Securities Act.
The Directors have determined to treat as liquid Rule 144A securities that are either freely tradable in their primary markets
offshore or have been determined to be liquid in accordance with the policies and procedures adopted by the Fund’s Directors.
The Directors have adopted guidelines and delegated to the Manager the daily function of determining and monitoring liquidity of
144A securities. The Directors, however, will retain sufficient oversight and will ultimately be responsible for the determinations.
Since it is not possible to predict with assurance exactly how the market for securities sold and offered under Rule 144A
will continue to develop, the Directors will carefully monitor a Fund’s investments in these securities. This investment
practice could have the effect of increasing the level of illiquidity in a Fund to the extent that qualified institutional buyers
become for a time uninterested in purchasing these securities.
Asset-Backed Securities.
Asset-backed securities
are securities backed by home equity loans, installment sale contracts, credit card receivables or other assets. Asset-backed securities
are “pass-through” securities, meaning that principal and interest payments — net of expenses — made by
the borrower on the underlying assets (such as credit card receivables) are passed through to a Fund. The value of asset-backed
securities, like that of traditional fixed income securities, typically increases when interest rates fall and decreases when interest
rates rise. However, asset-backed securities differ from traditional fixed income securities because of their potential for prepayment.
The price paid by a Fund for its asset-backed securities, the yield the Fund expects to receive from such securities and the average
life of the securities are based on a number of factors, including the anticipated rate of prepayment of the underlying assets.
In a period of declining interest rates, borrowers may prepay the underlying assets more quickly than anticipated,
thereby reducing the yield to maturity and the average
life of the asset-backed securities. Moreover, when a Fund reinvests the proceeds of a prepayment in these circumstances, it will
likely receive a rate of interest that is lower than the rate on the security that was prepaid. To the extent that a Fund purchases
asset-backed securities at a premium, prepayments may result in a loss to the extent of the premium paid. If a Fund buys such securities
at a discount, both scheduled payments and unscheduled prepayments will increase current and total returns and unscheduled prepayments
will also accelerate the recognition of income which, when distributed to shareholders, will be taxable as ordinary income. In
a period of rising interest rates, prepayments of the underlying assets may occur at a slower than expected rate, creating maturity
extension risk. This particular risk may effectively change a security that was considered short- or intermediate-term at the time
of purchase into a longer term security. Since the value of longer-term securities generally fluctuates more widely in response
to changes in interest rates than does the value of shorter term securities, maturity extension risk could increase the volatility
of the Fund. When interest rates decline, the value of an asset-backed security with prepayment features may not increase as much
as that of other fixed-income securities, and, as noted above, changes in market rates of interest may accelerate or retard prepayments
and thus affect maturities.
Asset-Based Securities.
Certain Funds may
invest in debt, preferred or convertible securities, the principal amount, redemption terms or conversion terms of which are related
to the market price of some natural resource asset such as gold bullion. These securities are referred to as “asset-based
securities.” A Fund will purchase only asset-based securities that are rated, or are issued by issuers that have outstanding
debt obligations rated, investment grade (for example, AAA, AA, A or BBB by Standard & Poor’s (“S&P”)
or Fitch Ratings (“Fitch”), or Baa by Moody’s Investors Service, Inc. (“Moody’s”) or commercial
paper rated A-1 by S&P or Prime-1 by Moody’s) or by issuers that the Manager has determined to be of similar creditworthiness.
Obligations ranked in the fourth highest rating category, while considered “investment grade,” may have certain speculative
characteristics and may be more likely to be downgraded than securities rated in the three highest rating categories. If an asset-based
security is backed by a bank letter of credit or other similar facility, the Manager may take such backing into account in determining
the creditworthiness of the issuer. While the market prices for an asset-based security and the related natural resource asset
generally are expected to move in the same direction, there may not be perfect correlation in the two price movements. Asset-based
securities may not be secured by a security interest in or claim on the underlying natural resource asset. The asset-based securities
in which a Fund may invest may bear interest or pay preferred dividends at below market (or even relatively nominal) rates. Certain
asset-based securities may be payable at maturity in cash at the stated principal amount or, at the option of the holder, directly
in a stated amount of the asset to which it is related. In such instance, because no Fund presently intends to invest directly
in natural resource assets, a Fund would sell the asset-based security in the secondary market, to the extent one exists, prior
to maturity if the value of the stated amount of the asset exceeds the stated principal amount and thereby realize the appreciation
in the underlying asset.
Precious Metal-Related Securities
. A Fund may invest
in the equity securities of companies that explore for, extract, process or deal in precious metals (
e.g.
, gold, silver
and platinum), and in asset-based securities indexed to the value of such metals. Such securities may be purchased when they are
believed to be attractively priced in relation to the value of a company’s precious metal-related assets or when the values
of precious metals are expected to benefit from inflationary pressure or other economic, political or financial uncertainty or
instability. Based on historical experience, during periods of economic or financial instability the securities of companies involved
in precious metals may be subject to extreme price fluctuations, reflecting the high volatility of precious metal prices during
such periods. In addition, the instability of precious metal prices may result in volatile earnings of precious metal-related companies,
which may, in turn, adversely affect the financial condition of such companies.
The major producers of gold include the Republic of South
Africa, Russia, Canada, the United States, Brazil and Australia. Sales of gold by Russia are largely unpredictable and often relate
to political and economic considerations rather than to market forces. Economic, financial, social and political factors within
South Africa may significantly affect South African gold production.
Bank Loans.
Certain Funds may invest in bank
loans. Bank loans are generally non-investment grade floating rate instruments. Usually, they are freely callable at the issuer’s
option. Certain Funds may invest in fixed and floating rate loans (“Loans”) arranged through private negotiations between
a corporate borrower or a foreign sovereign entity and one or more financial institutions (“Lenders”). A Fund may invest
in such Loans in the form of participations in Loans (“Participations”) and assignments of all or a portion of Loans
from third parties (“Assignments”). A Fund considers these investments to be investments in debt securities for purposes
of its investment policies. Participations typically will result in the Fund having a contractual relationship only with the Lender,
not with the borrower. The Fund will have the right to receive payments of principal, interest and any fees to which it is entitled
only from the Lender selling the Participation and only upon receipt by the Lender of the payments from the borrower. In connection
with purchasing Participations, the Fund generally will have no right to enforce compliance by the borrower with the terms of the
loan agreement relating to the Loans, nor any rights of set-off against the borrower, and the Fund may not benefit directly from
any collateral supporting the Loan in which it has purchased the Participation. As a result, the Fund will assume 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 the
Participation, the
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. The Fund will acquire Participations only if the Lender
interpositioned between the Fund and the borrower is determined by the Fund’s manager to be creditworthy. When the Fund purchases
Assignments from Lenders, the Fund will acquire direct rights against the borrower on the Loan, and will not have exposure to a
counterparty’s credit risk. The Funds may enter into Participations and Assignments on a forward commitment or “when-issued”
basis, whereby a Fund would agree to purchase a Participation or Assignment at set terms in the future. For more information on
forward commitments and when-issued securities, see “When-Issued Purchases and Forward Commitments” below.
A Fund may have difficulty disposing of Assignments and
Participations. In certain cases, the market for such instruments is not highly liquid, and therefore the Fund anticipates that
in such cases such instruments could be sold only to a limited number of institutional investors. The lack of a highly liquid secondary
market may have an adverse impact on the value of such instruments and on the Fund’s ability to dispose of particular Assignments
or Participations in response to a specific economic event, such as deterioration in the creditworthiness of the borrower. Assignments
and Participations will not be considered illiquid so long as it is determined by the Funds’ manager that an adequate trading
market exists for these securities. To the extent that liquid Assignments and Participations that a Fund holds become illiquid,
due to the lack of sufficient buyers or market or other conditions, the percentage of the Fund’s assets invested in illiquid
assets would increase.
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 loans, holds collateral
and accepts payments of principal and interest. If the agent develops financial problems, a Fund may not recover its investment
or recovery may be delayed.
The Loans in which the Fund may invest 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 a 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 Loan may not recover its principal, may experience a long delay in recovering its
investment and may not receive interest during the delay.
Borrowing and Leverage.
Each Fund may borrow
as a temporary measure for extraordinary or emergency purposes, including to meet redemptions or to settle securities transactions.
Certain Funds will not purchase securities at any time when borrowings exceed 5% of their total assets, except (a) to honor
prior commitments or (b) to exercise subscription rights when outstanding borrowings have been obtained exclusively for settlements
of other securities transactions. Certain Funds may also borrow in order to make investments. The purchase of securities while
borrowings are outstanding will have the effect of leveraging the Fund. Such leveraging increases the Fund’s exposure to
capital risk, and borrowed funds are subject to interest costs that will reduce net income. The use of leverage by a Fund creates
an opportunity for greater total return, but, at the same time, creates special risks. For example, leveraging may exaggerate changes
in the net asset value of Fund shares and in the yield on the Fund’s portfolio. Although the principal of such borrowings
will be fixed, the Fund’s assets may change in value during the time the borrowings are outstanding. Borrowings will create
interest expenses for the Fund that can exceed the income from the assets purchased with the borrowings. To the extent the income
or capital appreciation derived from securities purchased with borrowed funds exceeds the interest the Fund will have to pay on
the borrowings, the Fund’s return will be greater than if leverage had not been used. Conversely, if the income or capital
appreciation from the securities purchased with such borrowed funds is not sufficient to cover the cost of borrowing, the return
to the Fund will be less than if leverage had not been used and, therefore, the amount available for distribution to shareholders
as dividends will be reduced. In the latter case, the Manager in its best judgment nevertheless may determine to maintain the Fund’s
leveraged position if it expects that the benefits to the Fund’s shareholders of maintaining the leveraged position will
outweigh the current reduced return.
Certain types of borrowings by a Fund may result in the
Fund being subject to covenants in credit agreements relating to asset coverage, portfolio composition requirements and other matters.
It is not anticipated that observance of such covenants would impede the Manager from managing a Fund’s portfolio in accordance
with the Fund’s investment objectives and policies. However, a breach of any such covenants not cured within the specified
cure period may result in acceleration of outstanding indebtedness and require the Fund to dispose of portfolio investments at
a time when it may be disadvantageous to do so.
Each Fund may at times borrow from affiliates of the Manager,
provided that the terms of such borrowings are no less favorable than those available from comparable sources of funds in the marketplace.
Cash Flows; Expenses.
The ability of each
Fund to satisfy its investment objective depends to some extent on the Manager’s ability to manage cash flow (primarily from
purchases and redemptions and distributions from the Fund’s investments). The Manager will make
investment changes to a Fund’s portfolio to accommodate
cash flow while continuing to seek to replicate the total return of the Fund’s target index. Investors should also be aware
that the investment performance of each index is a hypothetical number which does not take into account brokerage commissions and
other transaction costs, custody and other costs of investing, and any incremental operating costs (
e.g.
, transfer agency
and accounting costs) that will be borne by the Funds. Finally, since each Fund seeks to replicate the total return of its target
index, the Manager generally will not attempt to judge the merits of any particular security as an investment.
Cash Management.
Generally, the Manager will
employ futures and options on futures to provide liquidity necessary to meet anticipated redemptions or for day-to-day operating
purposes. However, if considered appropriate in the opinion of the Manager, a portion of a Fund’s assets may be invested
in certain types of instruments with remaining maturities of 397 days or less for liquidity purposes. Such instruments would
consist of: (i) obligations of the U.S. Government, its agencies, instrumentalities, authorities or political subdivisions
(“U.S. Government Securities”); (ii) other fixed-income securities rated Aa or higher by Moody’s or AA or
higher by S&P or, if unrated, of comparable quality in the opinion of the Manager; (iii) commercial paper; (iv) bank
obligations, including negotiable certificates of deposit, time deposits and bankers’ acceptances; and (v) repurchase
agreements. At the time the Fund invests in commercial paper, bank obligations or repurchase agreements, the issuer or the issuer’s
parent must have outstanding debt rated Aa or higher by Moody’s or AA or higher by S&P or outstanding commercial paper,
bank obligations or other short-term obligations rated Prime-1 by Moody’s or A-1 by S&P; or, if no such ratings are available,
the instrument must be of comparable quality in the opinion of the Manager.
Collateralized Debt Obligations.
Certain Funds
may invest in collateralized debt obligations (“CDOs”), which include collateralized bond obligations (“CBOs”),
collateralized loan obligations (“CLOs”) and other similarly structured securities. CDOs are types of asset-backed
securities. A CBO is ordinarily issued by a trust or other special purpose entity (“SPE”) and is typically backed by
a diversified pool of fixed income securities (which may include high risk, below investment grade securities) held by such issuer.
A CLO is ordinarily issued by a trust or other SPE and is typically collateralized by a pool of loans, which may include, among
others, domestic and non-U.S. senior secured loans, senior unsecured loans, and subordinate corporate loans, including loans that
may be rated below investment grade or equivalent unrated loans, held by such issuer. Although certain CDOs may benefit from credit
enhancement in the form of a senior-subordinate structure, overcollateralization or bond insurance, such enhancement may not always
be present, and may fail to protect a Fund against the risk of loss on default of the collateral. Certain CDO issuers may use derivatives
contracts to create “synthetic” exposure to assets rather than holding such assets directly, which entails the risks
of derivative instruments described elsewhere in this SAI. CDOs may charge management fees and administrative expenses, which are
in addition to those of a Fund.
For both CBOs and CLOs, the cash flows from the SPE are split into
two or more portions, called tranches, varying in risk and yield. The riskiest portion is the “equity” tranche, which
bears the first loss from defaults from the bonds or loans in the SPE and serves to protect the other, more senior tranches from
default (though such protection is not complete). Since it is partially protected from defaults, a senior tranche from a CBO or
CLO typically has higher ratings and lower yields than its underlying securities, and may be rated investment grade. Despite the
protection from the equity tranche, CBO or CLO tranches can experience substantial losses due to actual defaults, downgrades of
the underlying collateral by rating agencies, forced liquidation of the collateral pool due to a failure of coverage tests, increased
sensitivity to defaults due to collateral default and disappearance of protecting tranches, market anticipation of defaults as
well as investor aversion to CBO or CLO securities as a class. Interest on certain tranches of a CDO may be paid in kind or deferred
and capitalized (paid in the form of obligations of the same type rather than cash), which involves continued exposure to default
risk with respect to such payments.
The risks of an investment in a CDO depend largely on the
type of the collateral securities and the class of the CDO in which a Fund invests. Normally, CBOs, CLOs and other CDOs are privately
offered and sold, and thus are not registered under the securities laws. As a result, investments in CDOs may be characterized
by a Fund as illiquid securities. However, an active dealer market may exist for CDOs, allowing a CDO to qualify for Rule 144A
transactions. In addition to the normal risks associated with fixed income securities and asset-backed securities generally discussed
elsewhere in this SAI, CDOs carry additional risks including, but not limited to: (i) the possibility that distributions from collateral
securities will not be adequate to make interest or other payments; (ii) the risk that the collateral may default or decline in
value or be downgraded, if rated by a nationally recognized statistical rating organization (“NRSRO”); (iii) a Fund
may invest in tranches of CDOs that are subordinate to other tranches; (iv) the structure and complexity of the transaction and
the legal documents could lead to disputes among investors regarding the characterization of proceeds; (v) the investment return
achieved by the Fund could be significantly different than those predicted by financial models; (vi) the lack of a readily available
secondary market for CDOs; (vii) risk of forced “fire sale” liquidation due to technical defaults such as coverage
test failures; and (viii) the CDO’s manager may perform poorly.
Commercial Paper
.
Certain Funds may purchase
commercial paper. Commercial paper purchasable by each Fund includes “Section 4(2) paper,” a term that includes
debt obligations issued in reliance on the “private placement” exemption from registration afforded by Section 4(2)
of the Securities Act. Section 4(2) paper is restricted as to disposition under the Federal securities laws, and is frequently
sold (and resold) to institutional investors such as the Fund through or with the assistance of investment dealers who make a market
in the Section 4(2) paper, thereby providing liquidity. Certain transactions in Section 4(2) paper may qualify for the
registration exemption provided in Rule 144A under the Securities Act. Most Funds can purchase commercial paper rated (at
the time of purchase) “A-1” by S&P or “Prime-1” by Moody’s or when deemed advisable by a Fund’s
Manager or sub-adviser, “high quality” issues rated “A-2”, “Prime-2” or “F-2” by
S&P, Moody’s or Fitch, respectively.
Commodity-Linked Derivative Instruments and Hybrid
Instruments
.
Certain Funds seek to gain exposure to the commodities markets primarily through investments in hybrid instruments.
Hybrid instruments are either equity or debt derivative securities with one or more commodity-dependent components that have payment
features similar to a commodity futures contract, a commodity option contract, or a combination of both. Therefore, these instruments
are “commodity-linked.” They are considered “hybrid” instruments because they have both commodity-like
and security-like characteristics. Hybrid instruments are derivative instruments because at least part of their value is derived
from the value of an underlying commodity, futures contract, index or other readily measurable economic variable.
The prices of commodity-linked derivative instruments may
move in different directions than investments in traditional equity and debt securities when the value of those traditional securities
is declining due to adverse economic conditions. As an example, during periods of rising inflation, debt securities have historically
tended to decline in value due to the general increase in prevailing interest rates. Conversely, during those same periods of rising
inflation, the prices of certain commodities, such as oil and metals, have historically tended to increase. Of course, there cannot
be any guarantee that these investments will perform in that manner in the future, and at certain times the price movements of
commodity-linked instruments have been parallel to those of debt and equity securities. Commodities have historically tended to
increase and decrease in value during different parts of the business cycle than financial assets. Nevertheless, at various times,
commodities prices may move in tandem with the prices of financial assets and thus may not provide overall portfolio diversification
benefits. Under favorable economic conditions, the Fund’s investments may be expected to under-perform an investment in traditional
securities. Over the long term, the returns on the Fund’s investments are expected to exhibit low or negative correlation
with stocks and bonds.
Qualifying Hybrid Instruments.
Certain Funds may
invest in hybrid instruments that qualify for exclusion from regulation under the Commodity Exchange Act and the regulations adopted
thereunder. A hybrid instrument that qualifies for this exclusion from regulation must be “predominantly a security.”
A hybrid instrument is considered to be predominantly a security if (a) the issuer of the hybrid instrument receives payment
in full of the purchase price of the hybrid instrument, substantially contemporaneously with delivery of the hybrid instrument;
(b) the purchaser or holder of the hybrid instrument is not required to make any payment to the issuer in addition to the
purchase price paid under subparagraph (a), whether as margin, settlement payment, or otherwise, during the life of the hybrid
instrument or at maturity; (c) the issuer of the hybrid instrument is not subject by the terms of the instrument to mark-to-market
margining requirements; and (d) the hybrid instrument is not marketed as a contract of sale of a commodity for future delivery
(or option on such a contract) subject to applicable provisions of the Commodity Exchange Act. Hybrid instruments may be principal
protected, partially protected, or offer no principal protection. A principal protected hybrid instrument means that the issuer
will pay, at a minimum, the par value of the note at maturity. Therefore, if the commodity value to which the hybrid instrument
is linked declines over the life of the note, the Fund will receive at maturity the face or stated value of the note. With a principal
protected hybrid instrument, the Fund will receive at maturity the greater of the par value of the note or the increase in its
value based on the underlying commodity or index. This protection is, in effect, an option whose value is subject to the volatility
and price level of the underlying commodity. The Manager’s decision whether to use principal protection depends in part on
the cost of the protection. In addition, the protection feature depends upon the ability of the issuer to meet its obligation to
buy back the security, and, therefore, depends on the creditworthiness of the issuer. With full principal protection, the Fund
will receive at maturity of the hybrid instrument either the stated par value of the hybrid instrument, or potentially, an amount
greater than the stated par value if the underlying commodity, index, futures contract or economic variable to which the hybrid
instrument is linked has increased in value. Partially protected hybrid instruments may suffer some loss of principal if the underlying
commodity, index, futures contract or economic variable to which the hybrid instrument is linked declines in value during the term
of the hybrid instrument. However, partially protected hybrid instruments have a specified limit as to the amount of principal
that they may lose.
Hybrid Instruments Without Principal Protection.
Certain
Funds may invest in hybrid instruments that offer no principal protection. At maturity, there is a risk that the underlying commodity
price, futures contract, index or other economic variable may have declined sufficiently in value such that some or all of the
face value of the hybrid instrument might not be returned. The Manager, at its discretion, may invest in a partially protected
principal structured note or a note without principal protection. In deciding to purchase a
note without principal protection, the Manager may consider,
among other things, the expected performance of the underlying commodity futures contract, index or other economic variable over
the term of the note, the cost of the note, and any other economic factors that the Manager believes are relevant.
Limitations on Leverage.
Some of the hybrid instruments
in which a Fund may invest may involve leverage. To avoid being subject to undue leverage risk, a Fund will seek to limit the amount
of economic leverage it has under any one hybrid instrument that it buys and the leverage of the Fund’s overall portfolio.
A Fund will not invest in a hybrid instrument if, at the time of purchase: (i) that instrument’s “leverage ratio”
exceeds 300% of the price increase in the underlying commodity, futures contract, index or other economic variable or (ii) the
Fund’s “portfolio leverage ratio” exceeds 150%, measured at the time of purchase. “Leverage ratio”
is the expected increase in the value of a hybrid instrument, assuming a one percent price increase in the underlying commodity,
futures contract, index or other economic factor. In other words, for a hybrid instrument with a leverage factor of 150%, a 1%
gain in the underlying economic variable would be expected to result in a 1.5% gain in value for the hybrid instrument. Conversely,
a hybrid instrument with a leverage factor of 150% would suffer a 1.5% loss if the underlying economic variable lost 1% of its
value. “Portfolio leverage ratio” is defined as the average (mean) leverage ratio of all instruments in a Fund’s
portfolio, weighted by the market values of such instruments or, in the case of futures contracts, their notional values. To the
extent that the policy on a Fund’s use of leverage stated above conflicts with the Investment Company Act or the rules and
regulations thereunder, the Fund will comply with the applicable provisions of the Investment Company Act. A Fund may at times
or from time to time decide not to use leverage in its investments or use less leverage than may otherwise be allowable.
Counterparty Risk.
A significant risk of hybrid
instruments is counterparty risk. Unlike exchange-traded futures and options, which are standard contracts, hybrid instruments
are customized securities, tailor-made by a specific issuer. With a listed futures or options contract, an investor’s counterparty
is the exchange clearinghouse. Exchange clearinghouses are capitalized by the exchange members and typically have high investment
grade ratings (
e.g.
, ratings of AAA or AA by S&P). Therefore, the risk is small that an exchange clearinghouse might
be unable to meet its obligations at maturity. However, with a hybrid instrument, a Fund will take on the counterparty credit risk
of the issuer. That is, at maturity of the hybrid instrument, there is a risk that the issuer may be unable to perform its obligations
under the structured note.
Convertible Securities.
A convertible security
is a bond, debenture, note, preferred stock or other security that may be converted into or exchanged for a prescribed amount of
common stock or other equity security of the same or a different issuer within a particular period of time at a specified price
or formula. A convertible security entitles the holder to receive interest paid or accrued on debt or the dividend paid on preferred
stock until the convertible security matures or is redeemed, converted or exchanged. Before conversion, convertible securities
have characteristics similar to nonconvertible income securities in that they ordinarily provide a stable stream of income with
generally higher yields than those of common stocks of the same or similar issuers, but lower yields than comparable nonconvertible
securities. The value of a convertible security is influenced by changes in interest rates, with investment value declining as
interest rates increase and increasing as interest rates decline. The credit standing of the issuer and other factors also may
have an effect on the convertible security’s investment value. Convertible securities rank senior to common stock in a corporation’s
capital structure but are usually subordinated to comparable nonconvertible securities. Convertible securities may be subject to
redemption at the option of the issuer at a price established in the convertible security’s governing instrument.
The characteristics of convertible securities make them
potentially attractive investments for an investment company seeking a high total return from capital appreciation and investment
income. These characteristics include the potential for capital appreciation as the value of the underlying common stock increases,
the relatively high yield received from dividend or interest payments as compared to common stock dividends and decreased risks
of decline in value relative to the underlying common stock due to their fixed income nature. As a result of the conversion feature,
however, the interest rate or dividend preference on a convertible security is generally less than would be the case if the securities
were issued in nonconvertible form.
In analyzing convertible securities, the Manager will consider
both the yield on the convertible security relative to its credit quality and the potential capital appreciation that is offered
by the underlying common stock, among other things.
Convertible securities are issued and traded in a number
of securities markets. Even in cases where a substantial portion of the convertible securities held by a Fund are denominated in
U.S. dollars, the underlying equity securities may be quoted in the currency of the country where the issuer is domiciled. As a
result, fluctuations in the exchange rate between the currency in which the debt security is denominated and the currency in which
the share price is quoted will affect the value of the convertible security. With respect to convertible securities denominated
in a currency different from that of the underlying equity securities, the conversion price may be based on a fixed exchange rate
established at the time the security is issued, which may increase the effects of currency risk. As described below, a Fund is
authorized to enter into foreign currency hedging transactions in which it may seek to reduce the effect of exchange rate fluctuations.
Apart from currency considerations, the value of convertible
securities is influenced by both the yield on nonconvertible securities of comparable issuers and by the value of the underlying
common stock. The value of a convertible security viewed without regard to its conversion feature (
i.e.,
strictly on the
basis of its yield) is sometimes referred to as its “investment value.” To the extent interest rates change, the investment
value of the convertible security typically will fluctuate. At the same time, however, the value of the convertible security will
be influenced by its “conversion value,” which is the market value of the underlying common stock that would be obtained
if the convertible security were converted. Conversion value fluctuates directly with the price of the underlying common stock.
If the conversion value of a convertible security is substantially below its investment value, the price of the convertible security
is governed principally by its investment value. To the extent the conversion value of a convertible security increases to a point
that approximates or exceeds its investment value, the price of the convertible security will be influenced principally by its
conversion value. A convertible security will sell at a premium over the conversion value to the extent investors place value on
the right to acquire the underlying common stock while holding a fixed income security. The yield and conversion premium of convertible
securities issued in Japan and the Euromarket are frequently determined at levels that cause the conversion value to affect their
market value more than the securities’ investment value.
Holders of convertible securities generally have a claim
on the assets of the issuer prior to the common stockholders but may be subordinated to other debt securities of the same issuer.
A convertible security may be subject to redemption at the option of the issuer at a price established in a charter provision,
indenture or other governing instrument pursuant to which the convertible security was issued. If a convertible security held by
a Fund is called for redemption, the Fund will be required to redeem the security, convert it into the underlying common stock
or sell it to a third party. Certain convertible debt securities may provide a put option to the holder, which entitles the holder
to cause the security to be redeemed by the issuer at a premium over the stated principal amount of the debt security under certain
circumstances.
A Fund may also invest in synthetic convertible securities.
Synthetic convertible securities may include either Cash-Settled Convertibles or Manufactured Convertibles. Cash-Settled Convertibles
are instruments that are created by the issuer and have the economic characteristics of traditional convertible securities but
may not actually permit conversion into the underlying equity securities in all circumstances. As an example, a private company
may issue a Cash-Settled Convertible that is convertible into common stock only if the company successfully completes a public
offering of its common stock prior to maturity and otherwise pays a cash amount to reflect any equity appreciation. Manufactured
Convertibles are created by the Manager or another party by combining separate securities that possess one of the two principal
characteristics of a convertible security,
i.e.,
fixed income (“fixed income component”) or a right to acquire
equity securities (“convertibility component”). The fixed income component is achieved by investing in nonconvertible
fixed income securities, such as nonconvertible bonds, preferred stocks and money market instruments. The convertibility component
is achieved by investing in call options, warrants, or other securities with equity conversion features (“equity features”)
granting the holder the right to purchase a specified quantity of the underlying stocks within a specified period of time at a
specified price or, in the case of a stock index option, the right to receive a cash payment based on the value of the underlying
stock index.
A Manufactured Convertible differs from traditional convertible
securities in several respects. Unlike a traditional convertible security, which is a single security that has a unitary market
value, a Manufactured Convertible is comprised of two or more separate securities, each with its own market value. Therefore, the
total “market value” of such a Manufactured Convertible is the sum of the values of its fixed income component and
its convertibility component.
More flexibility is possible in the creation of a Manufactured
Convertible than in the purchase of a traditional convertible security. Because many corporations have not issued convertible securities,
the Manager may combine a fixed income instrument and an equity feature with respect to the stock of the issuer of the fixed income
instrument to create a synthetic convertible security otherwise unavailable in the market. The Manager may also combine a fixed
income instrument of an issuer with an equity feature with respect to the stock of a different issuer when the Manager believes
such a Manufactured Convertible would better promote a Fund’s objective than alternative investments. For example, the Manager
may combine an equity feature with respect to an issuer’s stock with a fixed income security of a different issuer in the
same industry to diversify the Fund’s credit exposure, or with a U.S. Treasury instrument to create a Manufactured Convertible
with a higher credit profile than a traditional convertible security issued by that issuer. A Manufactured Convertible also is
a more flexible investment in that its two components may be purchased separately and, upon purchasing the separate securities,
“combined” to create a Manufactured Convertible. For example, the Fund may purchase a warrant for eventual inclusion
in a Manufactured Convertible while postponing the purchase of a suitable bond to pair with the warrant pending development of
more favorable market conditions.
The value of a Manufactured Convertible may respond to
certain market fluctuations differently from a traditional convertible security with similar characteristics. For example, in the
event a Fund created a Manufactured Convertible by combining a short-term U.S. Treasury instrument and a call option on a stock,
the Manufactured Convertible would be expected to outperform a traditional
convertible of similar maturity that is convertible into
that stock during periods when Treasury instruments outperform corporate fixed income securities and underperform during periods
when corporate fixed income securities outperform Treasury instruments.
Debt Securities.
Debt securities, such as
bonds, involve credit risk. This is the risk that the issuer will not make timely payments of principal and interest. The degree
of credit risk depends on the issuer’s financial condition and on the terms of the debt securities. Changes in an issuer’s
credit rating or the market’s perception of an issuer’s creditworthiness may also affect the value of a Fund’s
investment in that issuer. Credit risk is reduced to the extent a Fund limits its debt investments to U.S. Government securities.
All debt securities, however, are subject to interest rate risk. This is the risk that the value of the security may fall when
interest rates rise. If interest rates move sharply in a manner not anticipated by Fund management, a Fund’s investments
in debt securities could be adversely affected and the Fund could lose money. 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 will the market price of shorter-term debt
securities.
During periods of rising interest rates, the average life
of certain fixed income securities is extended because of slower than expected principal payments. This may lock in a below-market
interest rate and extend the duration of these fixed-income securities, especially mortgage-related securities, making them more
sensitive to changes in interest rates. As a result, in a period of rising interest rates, these securities may exhibit additional
volatility and lose value. This is known as extension risk.
The value of fixed income securities in the Funds can be
expected to vary inversely with changes in prevailing interest rates. Fixed income securities with longer maturities, which tend
to produce higher yields, are subject to potentially greater capital appreciation and depreciation than securities with shorter
maturities. The Funds are not restricted to any maximum or minimum time to maturity in purchasing individual portfolio securities,
and the average maturity of a Fund’s assets will vary.
Depositary Receipts (ADRs, EDRs and GDRs).
Certain
Funds may invest in the securities of foreign issuers in the form of Depositary Receipts or other securities convertible into securities
of foreign issuers. Depositary Receipts may not necessarily be denominated in the same currency as the underlying securities into
which they may be converted. The Fund may invest in both sponsored and unsponsored American Depositary Receipts (“ADRs”),
European Depositary Receipts (“EDRs”), Global Depositary Receipts (“GDRs”) and other similar global instruments.
ADRs typically are issued by an American bank or trust company and evidence ownership of underlying securities issued by a foreign
corporation. EDRs, which are sometimes referred to as Continental Depositary Receipts, are receipts issued in Europe, typically
by foreign banks and trust companies, that evidence ownership of either foreign or domestic underlying securities. GDRs are depositary
receipts structured like global debt issues to facilitate trading on an international basis. Unsponsored ADR, EDR and GDR programs
are organized independently and without the cooperation of the issuer of the underlying securities. As a result, available information
concerning the issuer may not be as current as for sponsored ADRs, EDRs and GDRs, and the prices of unsponsored ADRs, EDRs and
GDRs may be more volatile than if such instruments were sponsored by the issuer. Depositary Receipts are generally subject to the
same risks as the foreign securities that they evidence or into which they may be converted. Investments in ADRs, EDRs and GDRs
present additional investment considerations as described under “Foreign Investment Risks.”
Derivatives
Each Fund may use instruments referred to as derivative
securities. Derivatives are financial instruments the value of which is derived from another security, a commodity (such as gold
or oil), a currency or an index (a measure of value or rates, such as the S&P 500 Index or the prime lending rate). Derivatives
allow a Fund to increase or decrease the level of risk to which the Fund is exposed more quickly and efficiently than transactions
in other types of instruments. Each Fund may use derivatives for hedging purposes. Certain Funds may also use derivatives for speculative
purposes to seek to enhance returns. The use of a derivative is speculative if the Fund is primarily seeking to achieve gains,
rather than offset the risk of other positions. When a Fund invests in a derivative for speculative purposes, the Fund will be
fully exposed to the risks of loss of that derivative, which may sometimes be greater than the derivative’s cost. Unless
otherwise permitted, no Fund may use any derivative to gain exposure to an asset or class of assets that it would be prohibited
by its investment restrictions from purchasing directly.
Hedging
. Hedging is a strategy in which a derivative
is used to offset the risks associated with other Fund holdings. Losses on the other investment may be substantially reduced by
gains on a derivative that reacts in an opposite manner to market movements. While hedging can reduce losses, it can also reduce
or eliminate gains or cause losses if the market moves in a manner different from that anticipated by the Fund or if the cost of
the derivative outweighs the benefit of the hedge. Hedging also involves correlation risk,
i.e.
the risk that changes in
the value of the derivative will not match those of the holdings being hedged as expected by a Fund, in which case any losses on
the holdings being hedged may not be reduced or may be increased. The inability to close options and futures positions also could
have an adverse impact on a Fund’s ability to hedge effectively its portfolio. There is also a risk of loss by the Fund of
margin deposits or collateral in the event of bankruptcy of a broker with whom the Fund has an open position in an option, a
futures contract or a related option. There can be no assurance
that a Fund’s hedging strategies will be effective. No Fund is required to engage in hedging transactions and each Fund may
choose not to do so.
A Fund may use derivative instruments and trading strategies,
including the following:
Indexed and Inverse Securities.
A Fund may invest
in securities the potential return of which is based on an index or interest rate. As an illustration, a Fund may invest in a debt
security that pays interest based on the current value of an interest rate index, such as the prime rate. A Fund may also invest
in a debt security that returns principal at maturity based on the level of a securities index or a basket of securities, or based
on the relative changes of two indices. In addition, certain Funds may invest in securities the potential return of which is based
inversely on the change in an index or interest rate (that is, a security the value of which will move in the opposite direction
of changes to an index or interest rate). For example, a Fund may invest in securities that pay a higher rate of interest when
a particular index decreases and pay a lower rate of interest (or do not fully return principal) when the value of the index increases.
If a Fund invests in such securities, it may be subject to reduced or eliminated interest payments or loss of principal in the
event of an adverse movement in the relevant interest rate, index or indices. Indexed and inverse securities involve credit risk,
and certain indexed and inverse securities may involve leverage risk, liquidity risk and currency risk. When used for hedging purposes,
indexed and inverse securities involve correlation risk. (Furthermore, where such a security includes a contingent liability, in
the event of an adverse movement in the underlying index or interest rate, a Fund may be required to pay substantial additional
margin to maintain the position.)
Swap Agreements.
Swap agreements are two-party contracts
entered into primarily by institutional investors for periods ranging from a few weeks to more than one year. In a standard “swap”
transaction, two parties agree to exchange the returns (or differentials in rates of return) earned or realized on particular predetermined
investments or instruments, which can be adjusted for an interest factor. The gross returns to be exchanged or “swapped”
between the parties are generally calculated with respect to a “notional amount,”
i.e.
, the return on or increase
in value of a particular dollar amount invested at a particular interest rate or in a “basket” of securities representing
a particular index.
Each Fund, other than BlackRock Managed Volatility Portfolio
(“Managed Volatility”), a series of BlackRock Funds
SM
, will enter into an equity swap transaction only if,
immediately following the time the Fund enters into the transaction, the aggregate notional principal amount of equity swap transactions
to which the Fund is a party would not exceed 5% of the Fund’s net assets.
Whether a Fund’s use of swap agreements or options
on swap agreements (“swaptions”) will be successful in furthering its investment objectives will depend on the Manager’s
or sub-adviser’s ability to predict correctly whether certain types of investments are likely to produce greater returns
than other investments. Because they are two-party contracts and because they may have terms of greater than seven days, swap agreements
may be considered to be illiquid. Moreover, a Fund bears the risk of loss of the amount expected to be received under a swap agreement
in the event of the default or bankruptcy of a swap agreement counterparty. A Fund will enter into swap agreements only with counterparties
that meet certain standards of creditworthiness. If there is a default by the other party to such a transaction, a Fund will have
contractual remedies pursuant to the agreements related to the transaction. Swap agreements are also subject to the risk that a
Fund will not be able to meet its obligations to the counterparty. The Fund, however, will deposit in a segregated account, liquid
assets permitted to be so segregated by the Commission in an amount equal to or greater than the market value of the liabilities
under the swap agreement or the amount it would cost the Fund initially to make an equivalent direct investment, plus or minus
any amount the Fund is obligated to pay or is to receive under the swap agreement. The swap market has grown substantially in recent
years with a large number of banks and investment banking firms acting both as principals and as agents utilizing standardized
swap documentation. As a result, the swap market has become relatively liquid. The swaps market is largely unregulated. It is possible
that developments in the swaps market, including potential government regulation, could adversely affect a Fund’s ability
to terminate existing swap agreements or to realize amounts to be received under such agreements.
Credit Default Swap Agreements and Similar Instruments.
Certain Funds may enter into credit default swap agreements and similar agreements, and may also buy credit-linked securities.
The credit default swap agreement or similar instrument may have as reference obligations one or more securities that are not currently
held by a Fund. The protection “buyer” in a credit default contract may be obligated to pay the protection “seller”
an up-front payment or a periodic stream of payments over the term of the contract, provided generally that no credit event on
a reference obligation has occurred. If a credit event occurs, the seller generally must pay the buyer the “par value”
(full notional value) of the swap in exchange for an equal face amount of deliverable obligations of the reference entity described
in the swap, or the seller may be required to deliver the related net cash amount, if the swap is cash settled. A Fund may be either
the buyer or seller in the transaction. If a Fund is a buyer and no credit event occurs, the Fund recovers nothing if the swap
is held through its termination date. However, if a credit event occurs, the Fund may elect to receive the full notional value
of the swap in exchange for an equal face amount of deliverable obligations of the reference entity that may have little or no
value. As a seller, a Fund generally receives an up-front payment or a fixed rate of income throughout the term of the swap, which
typically is between six
months and three years, provided that there is no credit
event. If a credit event occurs, generally the seller must pay the buyer the full notional value of the swap in exchange for an
equal face amount of deliverable obligations of the reference entity that may have little or no value.
Credit default swaps and similar instruments involve greater
risks than if a Fund had invested in the reference obligation directly, since, in addition to general market risks, they are subject
to illiquidity risk, counterparty risk and credit risk. A Fund will enter into credit default swap agreements and similar instruments
only with counterparties who are rated investment grade quality by at least one nationally recognized statistical rating organization
at the time of entering into such transaction or whose creditworthiness is believed by the Manager to be equivalent to such rating.
A buyer also will lose its investment and recover nothing should no credit event occur and the swap is held to its termination
date. If a credit event were to occur, the value of any deliverable obligation received by the seller, coupled with the up front
or periodic payments previously received, may be less than the full notional value it pays to the buyer, resulting in a loss of
value to the Fund. When a Fund acts as a seller of a credit default swap or a similar instrument, it is exposed to many of the
same risks of leverage since, if a credit event occurs, the seller may be required to pay the buyer the full notional value of
the contract net of any amounts owed by the buyer related to its delivery of deliverable obligations.
Credit Linked Securities
. Among the income producing
securities in which a Fund may invest are credit linked securities, which are issued by a limited purpose trust or other vehicle
that, in turn, invests in a derivative instrument or basket of derivative instruments, such as credit default swaps, interest rate
swaps and other securities, in order to provide exposure to certain fixed income markets. For instance, a Fund may invest in credit
linked securities as a cash management tool in order to gain exposure to a certain market and/or to remain fully invested when
more traditional income producing securities are not available.
Like an investment in a bond, investments in these credit
linked securities represent the right to receive periodic income payments (in the form of distributions) and payment of principal
at the end of the term of the security. However, these payments are conditioned on the issuer’s receipt of payments from,
and the issuer’s potential obligations to, the counterparties to the derivative instruments and other securities in which
the issuer invests. For instance, the issuer may sell one or more credit default swaps, under which the issuer would receive a
stream of payments over the term of the swap agreements provided that no event of default has occurred with respect to the referenced
debt obligation upon which the swap is based. If a default occurs, the stream of payments may stop and the issuer would be obligated
to pay the counterparty the par (or other agreed upon value) of the referenced debt obligation. This, in turn, would reduce the
amount of income and principal that a Fund would receive. A Fund’s investments in these instruments are indirectly subject
to the risks associated with derivative instruments, including, among others, credit risk, default or similar event risk, counterparty
risk, interest rate risk, leverage risk and management risk. It is also expected that the securities will be exempt from registration
under the Securities Act. Accordingly, there may be no established trading market for the securities and they may constitute illiquid
investments.
Interest Rate Transactions and Swaptions.
Certain
Funds, to the extent permitted under applicable law, may enter into forms of swap agreements including interest rate caps, under
which, in return for a premium, one party agrees to make payments to the other to the extent that interest rates exceed a specified
rate, or “cap”; and interest rate floors, under which, in return for a premium, one party agrees to make payments to
the other to the extent that interest rates fall below a specified rate, or “floor”. Caps and floors are less liquid
than swaps. A swaption is a contract that gives a counterparty the right (but not the obligation) to enter into a new swap agreement
or to shorten, extend, cancel or otherwise modify an existing swap agreement, at some designated future time on specified terms.
A Fund may write (sell) and purchase put and call swaptions. Certain Funds may also enter into swaptions on either an asset-based
or liability-based basis, depending on whether a Fund is hedging its assets or its liabilities. A Fund may enter into these transactions
primarily to preserve a return or spread on a particular investment or portion of their holdings, as a duration management technique
or to protect against an increase in the price of securities a Fund anticipates purchasing at a later date. They may also be used
for speculation to increase returns.
A Fund will usually enter into interest rate swaps on a
net basis,
i.e.
, the two payment streams are netted out, with the Fund receiving or paying, as the case may be, only the
net amount of the two payments.
Depending on the terms of the particular option agreement,
a Fund will generally incur a greater degree of risk when it writes a swaption than it will incur when it purchases a swaption.
When a Fund purchases a swaption, it risks losing only the amount of the premium it has paid should it decide to let the option
expire unexercised. However, when a Fund writes a swaption, upon exercise of the option the Fund will become obligated according
to the terms of the underlying agreement.
A Fund will accrue the net amount of the excess, if any,
of its obligations over its entitlements with respect to each interest rate or currency swap or swaption on a daily basis and its
Manager or sub-adviser will designate liquid assets on its books and records in an amount having an aggregate net asset value at
least equal to the accrued excess to the extent required by SEC guidelines. If the other
party to an interest rate swap defaults, a Fund’s
risk of loss consists of the net amount of interest payments that the Fund is contractually entitled to receive.
Total Return Swap Agreements.
Total return swap
agreements are contracts in which one party agrees to make periodic payments to another party based on the change in market value
of the assets underlying the contract, which may include a specified security, basket of securities or securities indices during
the specified period, in return for periodic payments based on a fixed or variable interest rate or the total return from other
underlying assets. Total return swap agreements may be used to obtain exposure to a security or market without owning or taking
physical custody of such security or investing directly in such market. Total return swap agreements may effectively add leverage
to the Fund’s portfolio because, in addition to its total net assets, the Fund would be subject to investment exposure on
the notional amount of the swap.
Total return swap agreements are subject to the risk that
a counterparty will default on its payment obligations to the Fund thereunder. Swap agreements also bear the risk that the Fund
will not be able to meet its obligation to the counterparty. Generally, the Fund will enter into total return swaps on a net basis
(
i.e.
, the two payment streams are netted against one another with the Fund receiving or paying, as the case may be, only
the net amount of the two payments). The net amount of the excess, if any, of the Fund’s obligations over its entitlements
with respect to each total return swap will be accrued on a daily basis, and an amount of liquid assets having an aggregate net
asset value at least equal to the accrued excess will be segregated by the Fund. If the total return swap transaction is entered
into on other than a net basis, the full amount of the Fund’s obligations will be accrued on a daily basis, and the full
amount of the Fund’s obligations will be segregated by the Fund in an amount equal to or greater than the market value of
the liabilities under the total return swap agreement or the amount it would have cost the Fund initially to make an equivalent
direct investment, plus or minus any amount the Fund is obligated to pay or is to receive under the total return swap agreement.
Types of Options
Options on Securities and Securities Indices.
A
Fund may engage in transactions in options on individual securities, baskets of securities or securities indices, or particular
measurements of value or rates (an “index”), such as an index of the price of treasury securities or an index representative
of short-term interest rates. Such investments may be made on exchanges and in the over-the-counter (“OTC”) markets.
In general, exchange-traded options have standardized exercise prices and expiration dates and require the parties to post margin
against their obligations, and the performance of the parties’ obligations in connection with such options is guaranteed
by the exchange or a related clearing corporation. OTC options have more flexible terms negotiated between the buyer and the seller,
but generally do not require the parties to post margin and are subject to greater credit risk. OTC options also involve greater
liquidity risk. See “Additional Risk Factors of OTC Transactions; Limitations on the Use of OTC Derivatives” below.
Call Options
. A Fund may purchase call options on
any of the types of securities or instruments in which it may invest. A purchased call option gives a Fund the right to buy, and
obligates the seller to sell, the underlying security at the exercise price at any time during the option period. A Fund also may
purchase and sell call options on indices. Index options are similar to options on securities except that, rather than taking or
making delivery of securities underlying the option at a specified price upon exercise, an index option gives the holder the right
to receive cash upon exercise of the option if the level of the index upon which the option is based is greater than the exercise
price of the option.
A Fund also is authorized to write (
i.e.
, sell)
covered call options on the securities or instruments in which it may invest and to enter into closing purchase transactions with
respect to certain of such options. A covered call option is an option in which a Fund, in return for a premium, gives another
party a right to buy specified securities owned by the Fund at a specified future date and price set at the time of the contract.
The principal reason for writing call options is the attempt to realize, through the receipt of premiums, a greater return than
would be realized on the securities alone. By writing covered call options, a Fund gives up the opportunity, while the option is
in effect, to profit from any price increase in the underlying security above the option exercise price. In addition, a Fund’s
ability to sell the underlying security will be limited while the option is in effect unless the Fund enters into a closing purchase
transaction. A closing purchase transaction cancels out a Fund’s position as the writer of an option by means of an offsetting
purchase of an identical option prior to the expiration of the option it has written. Covered call options also serve as a partial
hedge to the extent of the premium received against the price of the underlying security declining.
A call option is considered to be covered if a Fund holds
a call on the same security or index as the call written where the exercise price of the call held is (i) equal to or less
than the exercise price of the call written, or (ii) greater than the exercise price of the call written provided the difference
is maintained by the Fund in liquid assets designated on the Manager’s or sub-adviser’s books and records to the extent
required by SEC guidelines.
A Fund also is authorized to write (
i.e.
, sell)
uncovered call options on securities or instruments in which it may invest but that are not currently held by the Fund. The principal
reason for writing uncovered call options is to realize income without committing capital to the ownership of the underlying securities
or instruments. When writing uncovered call options, a Fund must deposit and maintain sufficient margin with the broker-dealer
through which it made the uncovered call option as collateral to ensure that the securities can be purchased for delivery if and
when the option is exercised. In addition, in connection with each such transaction a Fund will segregate unencumbered liquid securities
or cash with a value at least equal to the Fund’s exposure (the difference between the unpaid amounts owed by the Fund on
such transaction minus any collateral deposited with the broker-dealer), on a marked-to-market basis (as calculated pursuant to
requirements of the Commission). Such segregation will ensure that the Fund has assets available to satisfy its obligations with
respect to the transaction and will avoid any potential leveraging of the Fund’s portfolio. Such segregation will not limit
the Fund’s exposure to loss. During periods of declining securities prices or when prices are stable, writing uncovered calls
can be a profitable strategy to increase a Fund’s income with minimal capital risk. Uncovered calls are riskier than covered
calls because there is no underlying security held by a Fund that can act as a partial hedge. Uncovered calls have speculative
characteristics and the potential for loss is unlimited. When an uncovered call is exercised, a Fund must purchase the underlying
security to meet its call obligation. There is also a risk, especially with less liquid preferred and debt securities, that the
securities may not be available for purchase. If the purchase price exceeds the exercise price, a Fund will lose the difference.
Put Options
. A Fund is authorized to purchase put
options to seek to hedge against a decline in the value of its securities or to enhance its return. By buying a put option, a Fund
acquires a right to sell the underlying securities or instruments at the exercise price, thus limiting the Fund’s risk of
loss through a decline in the market value of the securities or instruments until the put option expires. The amount of any appreciation
in the value of the underlying securities or instruments will be partially offset by the amount of the premium paid for the put
option and any related transaction costs. Prior to its expiration, a put option may be sold in a closing sale transaction and profit
or loss from the sale will depend on whether the amount received is more or less than the premium paid for the put option plus
the related transaction costs. A closing sale transaction cancels out a Fund’s position as the purchaser of an option by
means of an offsetting sale of an identical option prior to the expiration of the option it has purchased. A Fund also may purchase
uncovered put options.
A Fund also has authority to write (
i.e.
, sell)
put options on the types of securities or instruments that may be held by the Fund, provided that such put options are covered,
meaning that such options are secured by segregated, liquid assets. A Fund will receive a premium for writing a put option, which
increases the Fund’s return. A Fund will not sell puts if, as a result, more than 50% of the Fund’s assets would be
required to cover its potential obligations under its hedging and other investment transactions.
A Fund is also authorized to write (
i.e.
, sell)
uncovered put options on securities or instruments in which it may invest but with respect to which the Fund does not currently
have a corresponding short position or has not deposited as collateral cash equal to the exercise value of the put option with
the broker-dealer through which it made the uncovered put option. The principal reason for writing uncovered put options is to
receive premium income and to acquire such securities or instruments at a net cost below the current market value. A Fund has the
obligation to buy the securities or instruments at an agreed upon price if the price of the securities or instruments decreases
below the exercise price. If the price of the securities or instruments increases during the option period, the option will expire
worthless and a Fund will retain the premium and will not have to purchase the securities or instruments at the exercise price.
In connection with such a transaction, a Fund will segregate unencumbered liquid assets with a value at least equal to the Fund’s
exposure, on a marked-to-market basis (as calculated pursuant to requirements of the Commission). Such segregation will ensure
that a Fund has assets available to satisfy its obligations with respect to the transaction and will avoid any potential leveraging
of the Fund’s portfolio. Such segregation will not limit the Fund’s exposure to loss.
Risks Associated with Options.
There are several
risks associated with transactions in options on securities and indexes. For example, there are significant differences between
the securities and options markets that could result in an imperfect correlation between these markets, causing a given transaction
not to achieve its objectives. In addition, a liquid secondary market for particular options, whether traded over-the-counter or
on a national securities exchange may be absent for reasons which include the following: there may be insufficient trading interest
in certain options; restrictions may be imposed by a national securities exchange on opening transactions or closing transactions
or both; trading halts, suspensions or other restrictions may be imposed with respect to particular classes or series of options
or underlying securities; unusual or unforeseen circumstances may interrupt normal operations on a national securities exchange;
the facilities of a national securities exchange or the Options Clearing Corporation may not at all times be adequate to handle
current trading volume; or one or more national securities exchanges could, for economic or other reasons, decide or be compelled
at some future date to discontinue the trading of options (or a particular class or series of options), in which event the secondary
market on that national securities exchange (or in that class or series of options) would cease to exist, although outstanding
options that had been issued by the Options Clearing Corporation as a result of trades on that national securities exchange would
continue to be exercisable in accordance with their terms.
Futures
A Fund may engage in transactions in futures and options
on futures. Futures are standardized, exchange-traded contracts that obligate a purchaser to take delivery, and a seller to make
delivery, of a specific amount of an asset at a specified future date at a specified price. No price is paid upon entering into
a futures contract. Rather, upon purchasing or selling a futures contract a Fund is required to deposit collateral (“margin”)
equal to a percentage (generally less than 10%) of the contract value. Each day thereafter until the futures position is closed,
the Fund will pay additional margin representing any loss experienced as a result of the futures position the prior day or be entitled
to a payment representing any profit experienced as a result of the futures position the prior day. Futures involve substantial
leverage risk.
The sale of a futures contract limits a Fund’s risk
of loss from a decline in the market value of portfolio holdings correlated with the futures contract prior to the futures contract’s
expiration date. In the event the market value of the portfolio holdings correlated with the futures contract increases rather
than decreases, however, a Fund will realize a loss on the futures position and a lower return on the portfolio holdings than would
have been realized without the purchase of the futures contract.
The purchase of a futures contract may protect a Fund from
having to pay more for securities as a consequence of increases in the market value for such securities during a period when the
Fund was attempting to identify specific securities in which to invest in a market the Fund believes to be attractive. In the event
that such securities decline in value or a Fund determines not to complete an anticipatory hedge transaction relating to a futures
contract, however, the Fund may realize a loss relating to the futures position.
A Fund is also authorized to purchase or sell call and
put options on futures contracts including financial futures and stock indices. Generally, these strategies would be used under
the same market and market sector conditions (
i.e.
, conditions relating to specific types of investments) in which the Fund
entered into futures transactions. A Fund may purchase put options or write call options on futures contracts and stock indices
in lieu of selling the underlying futures contract in anticipation of a decrease in the market value of its securities. Similarly,
a Fund can purchase call options, or write put options on futures contracts and stock indices, as a substitute for the purchase
of such futures to hedge against the increased cost resulting from an increase in the market value of securities which the Fund
intends to purchase.
To maintain greater flexibility, a Fund may invest in instruments
which have characteristics similar to futures contracts. These instruments may take a variety of forms, such as debt securities
with interest or principal payments determined by reference to the value of a security, an index of securities or a commodity at
a future point in time. The risks of such investments could reflect the risks of investing in futures and securities, including
volatility and illiquidity.
Risks Associated with Futures.
The primary risks
associated with the use of futures contracts and options are (a) the imperfect correlation between the change in market value
of the instruments held by a Fund and the price of the futures contract or option; (b) possible lack of a liquid secondary
market for a futures contract and the resulting inability to close a futures contract when desired; (c) losses caused by unanticipated
market movements, which are potentially unlimited; (d) the Manager’s or sub-adviser’s inability to predict correctly
the direction of securities prices, interest rates, currency exchange rates and other economic factors; and (e) the possibility
that the counterparty will default in the performance of its obligations.
Each Fund has filed a notice of eligibility for exclusion
from the definition of the term “commodity pool operator” in accordance with Rule 4.5 of the U.S. Commodity Exchange
Act, as amended (“Commodity Exchange Act”), and, therefore, the Funds are not subject to registration or regulation
as commodity pool operators under the Commodity Exchange Act.
Foreign Exchange Transactions.
A Fund may engage
in spot and forward foreign exchange transactions and currency swaps, purchase and sell options on currencies and purchase and
sell currency futures and related options thereon (collectively, “Currency Instruments”) for purposes of hedging against
the decline in the value of currencies in which its portfolio holdings are denominated against the U.S. dollar or, with respect
to certain Funds, to seek to enhance returns. Such transactions could be effected with respect to hedges on foreign dollar denominated
securities owned by a Fund, sold by a Fund but not yet delivered, or committed or anticipated to be purchased by a Fund. As an
illustration, a Fund may use such techniques to hedge the stated value in U.S. dollars of an investment in a yen-denominated security.
In such circumstances, for example, the Fund may purchase a foreign currency put option enabling it to sell a specified amount
of yen for dollars at a specified price by a future date. To the extent the hedge is successful, a loss in the value of the yen
relative to the dollar will tend to be offset by an increase in the value of the put option. To offset, in whole or in part, the
cost of acquiring such a put option, the Fund may also sell a call option which, if exercised, requires it to sell a specified
amount of yen for dollars at a specified price by a future date (a technique called a “straddle”). By selling such
a call option in this illustration, the Fund gives up the opportunity to profit without limit from increases in the relative value
of the yen to the dollar. “Straddles” of the
type that may be used by a Fund are considered to constitute
hedging transactions. Certain Funds have a fundamental investment restriction that restricts currency option strategies. No Fund
will attempt to hedge all of its foreign portfolio positions.
Forward Foreign Exchange Transactions.
Forward foreign
exchange transactions are OTC contracts to purchase or sell a specified amount of a specified currency or multinational currency
unit at a price and future date set at the time of the contract. Spot foreign exchange transactions are similar but require current,
rather than future, settlement. A Fund will enter into foreign exchange transactions for purposes of hedging either a specific
transaction or a portfolio position, or, with respect to certain Funds, to seek to enhance returns. A Fund may enter into a foreign
exchange transaction for purposes of hedging a specific transaction by, for example, purchasing a currency needed to settle a security
transaction or selling a currency in which the Fund has received or anticipates receiving a dividend or distribution. A Fund may
enter into a foreign exchange transaction for purposes of hedging a portfolio position by selling forward a currency in which a
portfolio position of the Fund is denominated or by purchasing a currency in which the Fund anticipates acquiring a portfolio position
in the near future. A Fund may also hedge portfolio positions through currency swaps, which are transactions in which one currency
is simultaneously bought for a second currency on a spot basis and sold for the second currency on a forward basis. A Fund may
also engage in proxy hedging transactions to reduce the effect of currency fluctuations on the value of existing or anticipated
holdings of portfolio securities. Proxy hedging is often used when the currency to which the Fund is exposed is difficult to hedge
or to hedge against the dollar. Proxy hedging entails entering into a forward contract to sell a currency whose changes in value
are generally considered to be linked to a currency or currencies in which some or all of the Fund’s securities are, or are
expected to be, denominated, and to buy U.S. dollars. Proxy hedging involves some of the same risks and considerations as other
transactions with similar instruments. Currency transactions can result in losses to the Fund if the currency being hedged fluctuates
in value to a degree or in a direction that is not anticipated. In addition, there is the risk that the perceived linkage between
various currencies may not be present or may not be present during the particular time that a Fund is engaged in proxy hedging.
A Fund may also cross-hedge currencies by entering into forward contracts to sell one or more currencies that are expected to decline
in value relative to other currencies to which the Fund has or in which the Fund expects to have portfolio exposure. For example,
a Fund may hold both Canadian government bonds and Japanese government bonds, and the Manager or sub-adviser may believe that Canadian
dollars will deteriorate against Japanese yen. This strategy would be a hedge against a decline in the value of Canadian dollars,
although it would expose the Fund to declines in the value of the Japanese yen relative to the US dollar. Forward foreign exchange
transactions involve substantial currency risk, and also involve credit and liquidity risk. A Fund may also hedge a currency by
entering into a transaction in a Currency Instrument denominated in a currency other than the currency being hedged (a “cross-hedge”).
A Fund will only enter into a cross-hedge if the Manager believes that (i) there is a demonstrably high correlation between
the currency in which the cross-hedge is denominated and the currency being hedged, and (ii) executing a cross-hedge through
the currency in which the cross-hedge is denominated will be significantly more cost-effective or provide substantially greater
liquidity than executing a similar hedging transaction by means of the currency being hedged.
Some of the forward foreign currency contracts entered
into by the Funds are classified as non-deliverable forwards (“NDF”). NDFs are cash-settled, short-term forward contracts
that may be thinly traded or are denominated in non-convertible foreign currency, where the profit or loss at the time at the settlement
date is calculated by taking the difference between the agreed upon exchange rate and the spot rate at the time of settlement,
for an agreed upon notional amount of funds. All NDFs have a fixing date and a settlement date. The fixing date is the date at
which the difference between the prevailing market exchange rate and the agreed upon exchange rate is calculated. The settlement
date is the date by which the payment of the difference is due to the party receiving payment. NDFs are commonly quoted for time
periods of one month up to two years, and are normally quoted and settled in U.S. dollars. They are often used to gain exposure
to and/or hedge exposure to foreign currencies that are not internationally traded.
Currency Futures.
A Fund may also seek to enhance
returns or hedge against the decline in the value of a currency through use of currency futures or options thereon. Currency futures
are similar to forward foreign exchange transactions except that futures are standardized, exchange-traded contracts while forward
foreign exchange transactions are traded in the OTC market. Currency futures involve substantial currency risk, and also involve
leverage risk.
Currency Options.
A Fund may also seek
to enhance returns or hedge against the decline in the value of a currency through the use of currency options. Certain Funds have
fundamental investment restrictions that permit the purchase of currency options, but prohibit the writing of currency options.
Currency options are similar to options on securities. For example, in consideration for an option premium the writer of a currency
option is obligated to sell (in the case of a call option) or purchase (in the case of a put option) a specified amount of a specified
currency on or before the expiration date for a specified amount of another currency. A Fund may engage in transactions in options
on currencies either on exchanges or OTC markets. Where a Fund is permitted to write currency options, it may write covered call
options on up to 100% of the currencies in its portfolio. See “Types of Options” above and “Additional Risk Factors
of OTC Transactions; Limitations on the Use of OTC Derivatives” below. Currency options involve substantial currency risk,
and may also involve credit, leverage or liquidity risk.
Currency Swaps.
In order to protect
against currency fluctuations, a Fund may enter into currency swaps.
A Fund may also hedge portfolio positions through currency
swaps, which are transactions in which one currency is simultaneously bought for a second currency on a spot basis and sold for
the second currency on a forward basis.
Currency swaps involve the exchange of the rights of a Fund
and another party to make or receive payments in specified currencies. Currency swaps usually involve the delivery of the entire
principal value of one designated currency in exchange for the other designated currency. Because currency swaps usually involve
the delivery of the entire principal value of one designated currency in exchange for the other designated currency, the entire
principal value of a currency swap is subject to the risk that the other party to the swap will default on its contractual delivery
obligations.
Limitations on Currency Transactions.
A Fund will
not hedge a currency in excess of the aggregate market value of the securities that it owns (including receivables for unsettled
securities sales), or has committed to purchase or anticipates purchasing, which are denominated in such currency. Open positions
in forward foreign exchange transactions used for non-hedging purposes will be covered by the segregation of liquid assets and
are marked to market daily. A Fund’s exposure to futures or options on currencies will be covered as described below under
“Risk Factors in Derivatives.”
Risk Factors in Hedging Foreign Currency.
Hedging
transactions involving Currency Instruments involve substantial risks, including correlation risk. While a Fund’s use of
Currency Instruments to effect hedging strategies is intended to reduce the volatility of the net asset value of the Fund’s
shares, the net asset value of the Fund’s shares will fluctuate. Moreover, although Currency Instruments will be used with
the intention of hedging against adverse currency movements, transactions in Currency Instruments involve the risk that anticipated
currency movements will not be accurately predicted and that the Fund’s hedging strategies will be ineffective. To the extent
that a Fund hedges against anticipated currency movements that do not occur, the Fund may realize losses and decrease its total
return as the result of its hedging transactions. Furthermore, a Fund will only engage in hedging activities from time to time
and may not be engaging in hedging activities when movements in currency exchange rates occur.
In connection with its trading in forward foreign currency
contracts, a Fund will contract with a foreign or domestic bank, or foreign or domestic securities dealer, to make or take future
delivery of a specified amount of a particular currency. There are no limitations on daily price moves in such forward contracts,
and banks and dealers are not required to continue to make markets in such contracts. There have been periods during which certain
banks or dealers have refused to quote prices for such forward contracts or have quoted prices with an unusually wide spread between
the price at which the bank or dealer is prepared to buy and that at which it is prepared to sell. Governmental imposition of credit
controls might limit any such forward contract trading. With respect to its trading of forward contracts, if any, a Fund will be
subject to the risk of bank or dealer failure and the inability of, or refusal by, a bank or dealer to perform with respect to
such contracts. Any such default would deprive the Fund of any profit potential or force the Fund to cover its commitments for
resale, if any, at the then market price and could result in a loss to the Fund.
It may not be possible for a Fund to hedge against currency
exchange rate movements, even if correctly anticipated, in the event that (i) the currency exchange rate movement is so generally
anticipated that the Fund is not able to enter into a hedging transaction at an effective price, or (ii) the currency exchange
rate movement relates to a market with respect to which Currency Instruments are not available and it is not possible to engage
in effective foreign currency hedging. The cost to a Fund of engaging in foreign currency transactions varies with such factors
as the currencies involved, the length of the contract period and the market conditions then prevailing. Since transactions in
foreign currency exchange usually are conducted on a principal basis, no fees or commissions are involved.
Risk Factors in Derivatives
Derivatives are volatile and involve significant risks,
including:
Credit Risk
— the risk that the counterparty
in a derivative transaction will be unable to honor its financial obligation to a Fund, or the risk that the reference entity in
a credit default swap or similar derivative will not be able to honor its financial obligations.
Currency Risk
— the risk that changes in the
exchange rate between two currencies will adversely affect the value (in U.S. dollar terms) of an investment.
Leverage Risk
— the risk associated with certain
types of investments or trading strategies (such as, for example, borrowing money to increase the amount of investments) that relatively
small market movements may result in large changes in the value of an investment. Certain investments or trading strategies that
involve leverage can result in losses that greatly exceed the amount originally invested.
Liquidity Risk
— the risk that certain securities
may be difficult or impossible to sell at the time that the seller would like or at the price that the seller believes the security
is currently worth.
Correlation Risk
— the risk that changes in
the value of a derivative will not match the changes in the value of the portfolio holdings that are being hedged or of the particular
market or security to which the Fund seeks exposure.
Index Risk
— If the derivative is linked to
the performance of an index, it will be subject to the risks associated with changes in that index. If the index changes, a Fund
could receive lower interest payments or experience a reduction in the value of the derivative to below what that Fund paid. Certain
indexed securities, including inverse securities (which move in an opposite direction to the index), may create leverage, to the
extent that they increase or decrease in value at a rate that is a multiple of the changes in the applicable index.
A Fund intends to enter into transactions involving derivatives
only if there appears to be a liquid secondary market for such instruments or, in the case of illiquid instruments traded in OTC
transactions, such instruments satisfy the criteria set forth below under “Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Derivatives.” However, there can be no assurance that, at any specific time, either a liquid secondary
market will exist for a derivative or the Fund will otherwise be able to sell such instrument at an acceptable price. It may, therefore,
not be possible to close a position in a derivative without incurring substantial losses, if at all.
Certain transactions in derivatives (such as futures transactions
or sales of put options) involve substantial leverage risk and may expose a Fund to potential losses that exceed the amount originally
invested by the Fund. When a Fund engages in such a transaction, the Fund will deposit in a segregated account liquid assets with
a value at least equal to the Fund’s exposure, on a mark-to-market basis, to the transaction (as calculated pursuant to requirements
of the Commission). Such segregation will ensure that a Fund has assets available to satisfy its obligations with respect to the
transaction, but will not limit the Fund’s exposure to loss.
Additional Risk Factors of OTC Transactions; Limitations
on the Use of OTC Derivatives
Certain derivatives traded in OTC markets, including indexed
securities, swaps and OTC options, involve substantial liquidity risk. The absence of liquidity may make it difficult or impossible
for a Fund to sell such instruments promptly at an acceptable price. The absence of liquidity may also make it more difficult for
a Fund to ascertain a market value for such instruments. A Fund will, therefore, acquire illiquid OTC instruments (i) if the
agreement pursuant to which the instrument is purchased contains a formula price at which the instrument may be terminated or sold,
or (ii) for which the Manager anticipates the Fund can receive on each business day at least two independent bids or offers,
unless a quotation from only one dealer is available, in which case that dealer’s quotation may be used.
Because derivatives traded in OTC markets are not guaranteed
by an exchange or clearing corporation and generally do not require payment of margin, to the extent that a Fund has unrealized
gains in such instruments or has deposited collateral with its counterparty the Fund is at risk that its counterparty will become
bankrupt or otherwise fail to honor its obligations. A Fund will attempt to minimize these risks by engaging in transactions in
derivatives traded in OTC markets only with financial institutions that have substantial capital or that have provided the Fund
with a third-party guaranty or other credit enhancement.
Distressed Securities.
A Fund may invest
in securities, including loans purchased in the secondary market, that are the subject of bankruptcy proceedings or otherwise in
default or in risk of being in default as to the repayment of principal and/or interest at the time of acquisition by the Fund
or that are rated in the lower rating categories by one or more nationally recognized statistical rating organizations (for example,
Ca or lower by Moody’s and CC or lower by S&P or Fitch or, if unrated, are in the judgment of the Manager of equivalent
quality (“Distressed Securities”). Investment in Distressed Securities is speculative and involves significant risks.
A Fund will generally make such investments only when the
Manager believes it is reasonably likely that the issuer of the Distressed Securities will make an exchange offer or will be the
subject of a plan of reorganization pursuant to which the Fund will receive new securities in return for the Distressed Securities.
However, there can be no assurance that such an exchange offer will be made or that such a plan of reorganization will be adopted.
In addition, a significant period of time may pass between the time at which a Fund makes its investment in Distressed Securities
and the time that any such exchange offer or plan of reorganization is completed. During this period, it is unlikely that a Fund
will receive any interest payments on the Distressed Securities, the Fund will be subject to significant uncertainty as to whether
or not the exchange offer or plan of reorganization will be completed and the Fund may be required to bear certain extraordinary
expenses to protect and recover its investment. Therefore, to the extent the Fund seeks capital appreciation through investment
in distressed securities, the Fund’s ability to achieve current income for its shareholders may be diminished. The Fund also
will be subject to significant uncertainty as to when and in what manner and for what value the obligations evidenced by the distressed
securities will eventually be satisfied (
e.g.
, through a liquidation of the obligor’s assets, an exchange offer or
plan of reorganization involving the distressed securities or a payment of some amount in satisfaction of the obligation). Even
if an
exchange offer is made or plan of reorganization is adopted
with respect to Distressed Securities held by a Fund, there can be no assurance that the securities or other assets received by
a Fund in connection with such exchange offer or plan of reorganization will not have a lower value or income potential than may
have been anticipated when the investment was made or no value. Moreover, any securities received by a Fund upon completion of
an exchange offer or plan of reorganization may be restricted as to resale. Similarly, if a Fund participates in negotiations with
respect to any exchange offer or plan of reorganization with respect to an issuer of Distressed Securities, the Fund may be restricted
from disposing of such securities. To the extent that a Fund becomes involved in such proceedings, the Fund may have a more active
participation in the affairs of the issuer than that assumed generally by an investor. The Fund, however, will not make investments
for the purpose of exercising day-to-day management of any issuer’s affairs.
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 a similar maturity
as those sold, but pools of mortgages collateralizing those securities may have different prepayment histories than those sold.
During the period between the sale and repurchase, a Fund will not be entitled to receive interest and principal payments on the
securities sold. Proceeds of the sale will be invested in additional instruments for the Fund, and the income from these investments
will generate income for the Fund. If such income does not exceed the income, capital appreciation and gain or loss that would
have been realized on the securities sold as part of the dollar roll, the use of this technique will diminish the investment performance
of a Fund compared with what the performance would have been without the use of dollar rolls. At the time a Fund enters into a
dollar roll transaction, the Manager or sub-adviser will designate assets on its books and records in an amount equal to the amount
of the Fund’s commitments and will subsequently monitor the account to ensure that its value is maintained.
Dollar rolls involve the risk that the market value of
the securities subject to a Fund’s forward purchase commitment may decline below, or the market value of the securities subject
to a Fund’s forward sale commitment may increase above, the exercise price of the forward commitment. In the event the buyer
of the securities files for bankruptcy or becomes insolvent, a Fund’s use of the proceeds of the current sale portion of
the transaction may be restricted pending a determination by the other party, or its trustee or receiver, whether to enforce the
Fund’s obligation to purchase the similar securities in the forward transaction. Dollar rolls are speculative techniques
that can be deemed to involve leverage. At the time a Fund sells securities and agrees to repurchase securities at a future date,
the Fund will segregate liquid assets with a value equal to the repurchase price. A Fund may engage in dollar roll transactions
to enhance return. Each dollar roll transaction is accounted for as a sale or purchase of a portfolio security and a subsequent
purchase or sale of a substantially similar security in the forward market. Successful use of mortgage dollar rolls may depend
upon the Manager’s ability to correctly predict interest rates and prepayments. There is no assurance that dollar rolls can
be successfully employed.
Equity Securities.
Certain Funds
may invest in equity securities, which include common stock and, for certain Funds, preferred stock (including convertible preferred
stock); bonds, notes and debentures convertible into common or preferred stock; stock purchase warrants and rights; equity interests
in trusts; general and limited partnerships and limited liability companies; and depositary receipts. For a discussion of the types
of equity securities in which your Fund may invest and the risks associated with investing in such equity securities, see your
Fund’s Prospectus.
Exchange Traded Notes (“ETNs”).
Certain
Funds may invest in ETNs. ETNs are generally notes representing debt of the issuer, usually a financial institution. ETNs combine
both aspects of bonds and ETFs. An ETN’s returns are based on the performance of one or more underlying assets, reference
rates or indexes, minus fees and expenses. Similar to ETFs, ETNs are listed on an exchange and traded in the secondary market.
However, unlike an ETF, an ETN can be held until the ETN’s maturity, at which time the issuer will pay a return linked to
the performance of the specific asset, index or rate (“reference instrument”) to which the ETN is linked minus certain
fees. Unlike regular bonds, ETNs do not make periodic interest payments, and principal is not protected.
The value of an ETN may be influenced by, among other things,
time to maturity, level of supply and demand for the ETN, volatility and lack of liquidity in underlying markets, changes in the
applicable interest rates, the performance of the reference instrument, changes in the issuer’s credit rating and economic,
legal, political or geographic events that affect the reference instrument. An ETN that is tied to a reference instrument may not
replicate the performance of the reference instrument. ETNs also incur certain expenses not incurred by their applicable reference
instrument. Some ETNs that use leverage can, at times, be relatively illiquid and, thus, they may be difficult to purchase or sell
at a fair price. Levered ETNs are subject to the same risk as other instruments that use leverage in any form. While leverage allows
for greater potential return, the potential for loss is also greater. Finally, additional losses may be incurred if the investment
loses value because, in addition to the money lost on the investment, the loan still needs to be repaid.
Because the return on the ETN is dependent on the issuer’s
ability or willingness to meet its obligations, the value of the ETN may change due to a change in the issuer’s credit rating,
despite no change in the underlying reference instrument. The market value of ETN shares may differ from the value of the reference
instrument. This difference in price may be due to the fact that the supply and
demand in the market for ETN shares at any point in time
is not always identical to the supply and demand in the market for the assets underlying the reference instrument that the ETN
seeks to track.
There may be restrictions on the Fund’s right to
redeem its investment in an ETN, which are generally meant to be held until maturity. The Fund’s decision to sell its ETN
holdings may be limited by the availability of a secondary market. An investor in an ETN could lose some or all of the amount invested.
Foreign Investment Risks.
Certain Funds may
invest in foreign securities, including securities from issuers located in emerging market countries. These securities may be denominated
in U.S. dollars or in a foreign currency. Investing in foreign securities involves risks not typically associated with investing
in securities of companies organized and operated in the United States that can increase the chances that a Fund will lose money.
Securities issued by certain companies organized outside
the United States may not be deemed to be foreign securities (but rather deemed to be U.S. securities) if (i) the company’s
principal operations are conducted from the U.S., (ii) the company’s equity securities trade principally on a U.S. stock
exchange, (iii) the company does a substantial amount of business in the U.S. or (iv) the issuer of securities is included in the
Fund’s primary U.S. benchmark index.
In addition to equity securities, foreign investments of
the Funds may include: (a) debt obligations issued or guaranteed by foreign sovereign governments or their agencies, authorities,
instrumentalities or political subdivisions, including a foreign state, province or municipality; (b) debt obligations of
supranational organizations; (c) debt obligations of foreign banks and bank holding companies; (d) debt obligations of
domestic banks and corporations issued in foreign currencies; (e) debt obligations denominated in the Euro; and (f) foreign
corporate debt securities and commercial paper. Such securities may include loan participations and assignments, convertible securities
and zero-coupon securities.
Dividends or interest on, or proceeds from the sale of,
foreign securities may be subject to foreign withholding taxes.
Foreign Market Risk.
Funds that may invest
in foreign securities offer the potential for more diversification than a Fund that invests only in the United States because securities
traded on foreign markets have often (though not always) performed differently from securities traded in the United States. However,
such investments often involve risks not present in U.S. investments that can increase the chances that a Fund will lose money.
In particular, a Fund is subject to the risk that, because there are generally fewer investors on foreign exchanges and a smaller
number of shares traded each day, it may be difficult for the Fund to buy and sell securities on those exchanges. In addition,
prices of foreign securities may fluctuate more than prices of securities traded in the United States. Investments in foreign markets
may also be adversely affected by governmental actions such as the imposition of punitive taxes. In addition, the governments of
certain countries may prohibit or impose substantial restrictions on foreign investing in their capital markets or in certain industries.
Any of these actions could severely affect security prices, impair a Fund’s ability to purchase or sell foreign securities
or transfer the Fund’s assets or income back into the United States, or otherwise adversely affect a Fund’s operations.
Other potential foreign market risks include exchange controls, difficulties in pricing securities, defaults on foreign government
securities, difficulties in enforcing favorable legal judgments in foreign courts, and political and social conditions, such as
diplomatic relations, confiscatory taxation, expropriation, limitation on the removal of funds or assets, or imposition of (or
change in) exchange control regulations. Legal remedies available to investors in certain foreign countries may be less extensive
than those available to investors in the United States or other foreign countries. In addition, changes in government administrations
or economic or monetary policies in the U.S. or abroad could result in appreciation or depreciation of portfolio securities and
could favorably or adversely affect a Fund’s operations. Also, brokerage commissions and other costs of buying or selling
securities often are higher in foreign countries than they are in the United States. This reduces the amount the Fund can earn
on its investments.
Foreign Economy Risk.
The economies of certain foreign
markets often do not compare favorably with that 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 such 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.
Currency Risk and Exchange Risk.
Because foreign
securities generally are denominated and pay dividends or interest in foreign currencies, the value of a Fund that invests in foreign
securities as measured in U.S. dollars will be affected favorably or unfavorably by changes in exchange rates. 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 stronger U.S. dollar will reduce returns for U.S. investors while a weak U.S. dollar will increase those returns.
Governmental Supervision and Regulation/Accounting Standards.
Many foreign governments supervise and regulate stock exchanges, brokers and the sale of securities less than does the United
States. Some countries may not have laws to protect investors comparable to the 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 nonpublic information about that company. 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 management to completely and accurately determine a company’s financial condition. In addition,
the U.S. Government has from time to time in the past imposed restrictions, through penalties and otherwise, on foreign investments
by U.S. investors such as the Fund. If such restrictions should be reinstituted, it might become necessary for the Fund to invest
all or substantially all of its assets in U.S. securities.
Certain Risks of Holding Fund Assets Outside the United
States.
A Fund generally holds its 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 over their operations. Also, the laws of certain countries may put limits on a Fund’s ability
to recover its assets if a foreign bank or depository or issuer of a security or any of their agents goes bankrupt. In addition,
it is often more expensive for a 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 a Fund can earn on its investments and typically results in
a higher operating expense ratio for the Fund as compared to investment companies that invest only in the United States.
Publicly Available Information.
In general, less
information is publicly available with respect to foreign issuers than is available with respect to U.S. companies. Most foreign
companies are also not subject to the uniform accounting and financial reporting requirements applicable to issuers in the United
States. While the volume of transactions effected on foreign stock exchanges has increased in recent years, it remains appreciably
below that of the New York Stock Exchange. Accordingly, a Fund’s foreign investments may be less liquid and their prices
may be more volatile than comparable investments in securities in U.S. companies. In addition, there is generally less government
supervision and regulation of securities exchanges, brokers and issuers in foreign countries than in the United States.
Settlement Risk.
Settlement and clearance procedures
in certain foreign markets differ significantly from those in the United States. Foreign settlement procedures and trade regulations
also may involve certain risks (such as delays in payment for or delivery of securities) not typically generated by the settlement
of U.S. investments. Communications between the United States and emerging market countries may be unreliable, increasing the risk
of delayed settlements or losses of security certificates in markets that still rely on physical settlement. Settlements in certain
foreign countries at times have not kept pace with the number of securities transactions; these problems may make it difficult
for a Fund to carry out transactions. If a 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 a 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 could be liable to that party for any losses incurred.
Funding Agreements.
Certain Funds may invest
in Guaranteed Investment Contracts and similar funding agreements. In connection with these investments, a Fund makes cash contributions
to a deposit fund of an insurance company’s general account. The insurance company then credits to the Fund on a monthly
basis guaranteed interest, which is based on an index (such as LIBOR). The funding agreements provide that this guaranteed interest
will not be less than a certain minimum rate. The purchase price paid for a funding agreement becomes part of the general assets
of the insurance company, and the contract is paid from the general assets of the insurance company. Generally, funding agreements
are not assignable or transferable without the permission of the issuing insurance companies, and an active secondary market in
some funding agreements does not currently exist.
Guarantees
.
A Fund may purchase securities
which contain guarantees issued by an entity separate from the issuer of the security. Generally, the guarantor of a security (often
an affiliate of the issuer) will fulfill an issuer’s payment obligations under a security if the issuer is unable to do so.
Illiquid or Restricted Securities.
Each Fund
may invest up to 15% of its net assets in securities that lack an established secondary trading market or otherwise are considered
illiquid. Liquidity of a security relates to the ability to dispose easily of the security and the price to be obtained upon disposition
of the security, which may be less than would be obtained for a comparable more liquid security. Illiquid securities may trade
at a discount from comparable, more liquid investments. Investment of a Fund’s assets in illiquid securities may restrict
the ability of the Fund to dispose of its investments in a timely fashion and for a fair price as well as its ability
to take advantage of market opportunities. The risks associated
with illiquidity will be particularly acute where a Fund’s operations require cash, such as when the Fund redeems shares
or pays dividends, and could result in the Fund borrowing to meet short-term cash requirements or incurring capital losses on the
sale of illiquid investments.
A Fund may invest in securities that are not registered
under the Securities Act (“restricted securities”). Restricted securities may be sold in private placement transactions
between issuers and their purchasers and may be neither listed on an exchange nor traded in other established markets. In many
cases, privately placed securities may not be freely transferable under the laws of the applicable jurisdiction or due to contractual
restrictions on resale. As a result of the absence of a public trading market, privately placed securities may be less liquid and
more difficult to value than publicly traded securities. To the extent that privately placed securities may be resold in privately
negotiated transactions, the prices realized from the sales, due to illiquidity, could be less than those originally paid by the
Fund or less than their fair market value. In addition, issuers whose securities are not publicly traded may not be subject to
the disclosure and other investor protection requirements that may be applicable if their securities were publicly traded. If any
privately placed securities held by a Fund are required to be registered under the securities laws of one or more jurisdictions
before being resold, the Fund may be required to bear the expenses of registration. Certain of the Fund’s investments in
private placements may consist of direct investments and may include investments in smaller, less seasoned issuers, which may involve
greater risks. These issuers may have limited product lines, markets or financial resources, or they may be dependent on a limited
management group. In making investments in such securities, a Fund may obtain access to material nonpublic information, which may
restrict the Fund’s ability to conduct portfolio transactions in such securities.
Some of these securities are new and complex, and trade
only among institutions; the markets for these securities are still developing, and may not function as efficiently as established
markets. Owning a large percentage of restricted or illiquid securities could hamper the Fund’s ability to raise cash to
meet redemptions. Also, because there may not be an established market price for these securities, the Fund may have to estimate
their value, which means that their valuation (and, to a much smaller extent, the valuation of the Fund) may have a subjective
element. Transactions in restricted or illiquid securities may entail registration expense and other transaction costs that are
higher than those for transactions in unrestricted or liquid securities. Where registration is required for restricted or illiquid
securities a considerable time period may elapse between the time the Fund decides to sell the security and the time it is actually
permitted to sell the security under an effective registration statement. If during such period, adverse market conditions were
to develop, the Fund might obtain less favorable pricing terms that when it decided to sell the security.
Inflation-Indexed Bonds
.
Certain Funds may
invest in inflation-indexed bonds, which are fixed income securities or other instruments whose principal value is periodically
adjusted according to the rate of inflation. Two structures are common. The U.S. Treasury and some other issuers use a structure
that accrues inflation into the principal value of the bond. Most other issuers pay out the Consumer Price Index (“CPI”)
accruals as part of a semi-annual coupon.
Inflation-indexed securities issued by the U.S. Treasury
have maturities of five, ten or thirty years, although it is possible that securities with other maturities will be issued in the
future. The U.S. Treasury securities pay interest on a semi-annual basis, equal to a fixed percentage of the inflation-adjusted
principal amount. For example, if a Fund purchased an inflation-indexed bond with a par value of $1,000 and a 3% real rate of return
coupon (payable 1.5% semi-annually), and inflation over the first six months was 1%, the mid-year par value of the bond would be
$1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If inflation during the second half of the
year resulted in the whole year’s inflation equaling 3%, the end-of-year par value of the bond would be $1,030 and the second
semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment rate 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, even during a period of deflation.
However, the current market value of the bonds is not guaranteed, and will fluctuate. Certain Funds may also invest in other inflation
related bonds which may or may not provide a similar guarantee. If a guarantee of principal is not provided, the adjusted principal
value of the bond repaid at maturity may be less than the original principal. In addition, if the Fund purchases inflation-indexed
bonds offered by foreign issuers, the rate of inflation measured by the foreign inflation index may not be correlated to the rate
of inflation in the United States.
The value of inflation-indexed bonds is expected to change
in response to changes in real interest rates. Real interest rates, in turn, are tied to the relationship between nominal interest
rates and the rate of inflation. Therefore, if inflation were to rise at a faster rate than nominal interest rates, real interest
rates might decline, leading to an increase in value of inflation-indexed bonds. In contrast, if nominal interest rates increased
at a faster rate than inflation, real interest rates might rise, leading to a decrease in value of inflation-indexed bonds. There
can be no assurance, however, that the value of inflation-indexed bonds will be directly correlated to changes in interest rates.
While these securities are expected to be protected from
long-term inflationary trends, short-term increases in inflation may lead to a decline in value. If interest rates rise due to
reasons other than inflation (for example, due to changes in currency exchange rates), investors in these securities may not be
protected to the extent that the increase is not reflected in the bond’s inflation measure.
In general, the measure used to determine the periodic
adjustment of U.S. inflation-indexed bonds is the Consumer Price Index for Urban Consumers (“CPI-U”), which is calculated
monthly by the U.S. Bureau of Labor Statistics. The CPI-U is a measurement of changes in the cost of living, made up of components
such as housing, food, transportation and energy. Inflation-indexed bonds issued by a foreign government are generally adjusted
to reflect a comparable inflation index, calculated by that government. There can be no assurance that the CPI-U or any foreign
inflation index will accurately measure the real rate of inflation in the prices of goods and services. Moreover, there can be
no assurance that the rate of inflation in a foreign country will be correlated to the rate of inflation in the United States.
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.
Inflation Risk
.
Like all mutual funds,
the Funds are subject to inflation risk. Inflation risk is the risk that the present value of assets or income from investments
will be less in the future as inflation decreases the value of money. As inflation increases, the present value of a Fund’s
assets can decline as can the value of a Fund’s distributions.
Information Concerning the Indices.
Standard & Poor’s
®
500 Index (“S&P 500”)
. “Standard & Poor’s
®
,
S&P
®
, “S&P 500
®
,
“Standard & Poor’s 500”, and “500” are trademarks of The McGraw-Hill Companies, Inc. and have
been licensed for use by certain BlackRock Funds. No Fund is sponsored, endorsed, sold or promoted by S&P, a division of The
McGraw Hill Companies, Inc. S&P makes no representation regarding the advisability of investing in any Fund. S&P makes
no representation or warranty, express or implied, to the owners of shares of a Fund or any member of the public regarding the
advisability of investing in securities generally or in a Fund particularly or the ability of the S&P 500 to track general
stock market performance. S&P’s only relationship to certain Funds is the licensing of certain trademarks and trade names
of S&P and of the S&P 500 which is determined, composed and calculated by S&P without regard to the Funds. S&P
has no obligation to take the needs of a Fund or the owners of shares of a Fund into consideration in determining, composing or
calculating the S&P 500. S&P is not responsible for and has not participated in the determination of the prices and amount
of any Fund or the timing of the issuance or sale of shares of a Fund or in the determination or calculation of the equation by
which a Fund is to be converted into cash. S&P has no obligation or liability in connection with the administration, marketing
or trading of any Fund.
S&P does not guarantee the accuracy and/or the completeness
of the S&P 500 Index or any data included therein, and S&P shall have no liability for any errors, omissions, or interruptions
therein. S&P makes no warranty, express or implied, as to results to be obtained by a Fund, owners of shares of a Fund, or
any other person or entity from the use of the S&P 500 Index or any data included therein. S&P makes no express or implied
warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to
the S&P 500 Index or any data included therein. Without limiting any of the foregoing, in no event shall S&P have any liability
for any special, punitive, indirect, or consequential damages (including lost profits), even if notified of the possibility of
such damages.
Russell
®
Indexes.
No Fund is promoted, sponsored or endorsed by, nor in any way affiliated with Frank Russell Company. Frank
Russell Company is not responsible for and has not reviewed any Fund nor any associated literature or publications and Frank Russell
Company makes no representation or warranty, express or implied, as to their accuracy, or completeness, or otherwise.
Frank Russell Company reserves the right, at any time
and without notice, to alter, amend, terminate or in any way change a Russell Index. Frank Russell Company has no obligation to
take the needs of any particular Fund or its participants or any other product or person into consideration in determining, composing
or calculating the Russell Index.
Frank Russell Company’s publication of the Russell
Indexes in no way suggests or implies an opinion by Frank Russell Company as to the attractiveness or appropriateness of investment
in any or all securities upon which the Russell Indexes is based. Frank Russell Company makes no representation, warranty, or guarantee
as to the accuracy, completeness, reliability, or otherwise of the Russell Indexes or any data included in the Russell Indexes.
Frank Russell Company makes no representation or warranty regarding the use, or the results of use, of the Russell Indexes or any
data included therein, or any security (or combination thereof) comprising the Russell Indexes. Frank Russell Company makes no
other express or implied warranty, and expressly disclaims any warranty, of any kind, including, without means of limitation, any
warranty of merchantability or fitness for a particular purpose with respect to the Russell Indexes or any data or any security
(or combination thereof) included therein.
MSCI Europe, Australasia and Far East (Capitalization
Weighted) Index (“EAFE Index”).
The EAFE Index is the exclusive property of MSCI, Inc. (“MSCI”). The
EAFE Index is a service mark of MSCI and has been licensed for use by the Manager and its affiliates.
No Fund is sponsored, endorsed, sold or promoted by
MSCI. MSCI makes no representation or warranty, express or implied, to the owners of shares of a Fund or any member of the public
regarding the advisability of investing in securities generally or in a Fund particularly or the ability of the EAFE Index to track
general stock market performance. MSCI is the licensor of certain trademarks, service marks and trade names of MSCI and of the
EAFE Index. MSCI has no obligation to take the needs of any Fund or the owners of shares of a Fund into consideration in determining,
composing or calculating the EAFE Index. MSCI is not responsible for and has not participated in the determination of the timing
of, prices at, or quantities of shares of any Fund to be issued or in the determination or calculation of the equation by which
the shares of a Fund are redeemable for cash. MSCI has no obligation or liability to owners of shares of a Fund in connection with
the administration, marketing or trading of the Fund.
Although MSCI shall obtain information for inclusion
in or for use in the calculation of the EAFE Index from sources which MSCI considers reliable, MSCI does not guarantee the accuracy
and/or the completeness of the EAFE Index or any data included therein. MSCI makes no warranty, express or implied, as to results
to be obtained by licensee, licensee’s customers and counterparties, owners of shares of a Fund, or any other person or entity
from the use of the EAFE Index or any data included therein in connection with the rights licensed hereunder or for any other use.
MSCI makes no express or implied warranties, and hereby expressly disclaims all warranties of merchantability or fitness for a
particular purpose with respect to the EAFE Index or any data included therein. Without limiting any of the foregoing, in no event
shall MSCI have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits)
even if notified of the possibility of such damages.
Initial Public Offering (“IPO”) Risk.
The volume of initial public offerings and the levels at which the newly issued stocks trade in the secondary market are
affected by the performance of the stock market overall. If initial public offerings are brought to the market, availability may
be limited and a 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. In addition, the prices of securities involved in initial public
offerings are often subject to greater and more unpredictable price changes than more established stocks. IPOs have the potential
to produce substantial gains. There is no assurance that any Fund will have access to profitable IPOs and therefore investors should
not rely on any past gains from IPOs as an indication of future performance. The investment performance of a Fund during periods
when it is unable to invest significantly or at all in IPOs may be lower than during periods when it is able to do so. In addition,
as a Fund increases in size, the impact of IPOs on its 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.
Investment Grade Debt Obligations.
Certain
Funds may invest in “investment grade securities,” which are securities rated in the four highest rating categories
of a nationally recognized statistical rating organization (“NRSRO”) or deemed to be of equivalent quality by a Fund’s
Manager. Certain Funds may invest in debt securities rated Aaa by Moody’s or AAA by S&P. It should be noted that debt
obligations rated in the lowest of the top four ratings (
i.e.
, “Baa” by Moody’s or “BBB” by
S&P) are considered to have some speculative characteristics and are more sensitive to economic change than higher rated securities.
If an investment grade security of a Fund is subsequently downgraded below investment grade, the Fund’s Manager will consider
such an event in determining whether the Fund should continue to hold the security. Subject to its investment strategies, there
is no limit on the amount of such downgraded securities a Fund may hold, although under normal market conditions the manager do
not expect to hold these securities to a material extent.
See Appendix A to this Statement of Additional Information
for a description of applicable securities ratings.
Investment in Emerging Markets.
Certain Funds
may invest in the securities of issuers domiciled in various countries with emerging capital markets. Specifically, a country with
an emerging capital market is any country that the World Bank, the International Finance Corporation, the United Nations or its
authorities has determined to have a low or middle income economy. Countries with emerging markets can be found in regions such
as Asia, Latin America, Eastern Europe and Africa.
Investments in the securities of issuers domiciled in countries
with emerging capital markets involve certain additional risks that do not generally apply to investments in securities of issuers
in more developed capital markets, such as (i) low or non-existent trading volume, resulting in a lack of liquidity and increased
volatility in prices for such securities, as compared to securities of comparable issuers in more developed capital markets; (ii) uncertain
national policies and social, political and economic instability, increasing the potential for expropriation of assets, confiscatory
taxation, high rates of inflation or unfavorable diplomatic developments; (iii) possible fluctuations in exchange rates, 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; (iv) national policies
that may limit a Fund’s investment opportunities
such as restrictions on investment in issuers or industries deemed sensitive to national interests; and (v) the lack or 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.
Political and economic structures in emerging market countries
may be undergoing significant evolution and rapid development, and these countries may lack the social, political and economic
stability characteristic of more developed countries. In such a dynamic environment, there can be no assurance that any or all
of these capital markets will continue to present viable investment opportunities for a Fund. 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 a Fund could lose
the entire value of its investments in the affected market. As a result the risks described above, including the risks of nationalization
or expropriation of assets, may be heightened. In addition, unanticipated political or social developments may affect the value
of investments in these countries and the availability to a Fund of additional investments. The small size and inexperience of
the securities markets in certain of these countries and the limited volume of trading in securities in these countries may make
investments in the countries illiquid and more volatile than investments in Japan or most Western European countries.
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. In certain countries with emerging capital markets, reporting standards vary widely. As a result, traditional investment
measurements used in the United States, such as price/earnings ratios, may not be applicable. Emerging market securities may be
substantially less liquid and more volatile than those of mature markets, and company shares may be held by a limited number of
persons. This may adversely affect the timing and pricing of the Fund’s acquisition or disposal of securities.
Practices in relation to settlement of securities transactions
in emerging markets involve higher risks than those in developed markets, in part because a 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. A Fund would absorb any loss resulting
from such registration problems and may have no successful claim for compensation.
Investment in non-dollar denominated securities including
securities from issuers located in emerging market countries may be on either a currency hedged or unhedged basis, and the Funds
may hold from time to time various foreign currencies pending investment or conversion into U.S. dollars. Some of these instruments
may have the characteristics of futures contracts. In addition, certain Funds may engage in foreign currency exchange transactions
to seek to protect against changes in the level of future exchange rates which would adversely affect the Fund’s performance.
These investments and transactions involving foreign securities, currencies, options (including options that relate to foreign
currencies), futures, hedging and cross-hedging are described below and under “Derivatives—Futures” and “Foreign
Exchange Transactions.”
Risks of Investing in Asia-Pacific Countries.
In
addition to the risks of foreign investing and the risks of investing in developing markets, the developing market Asia-Pacific
countries in which a Fund may invest are subject to certain additional or specific risks. Certain Funds may make substantial investments
in Asia-Pacific countries. In many of these markets, there is a high concentration of market capitalization and trading volume
in a small number of issuers representing a limited number of industries, as well as a high concentration of investors and financial
intermediaries. Many of these markets also may be affected by developments with respect to more established markets in the region
such as in Japan and Hong Kong. Brokers in developing market Asia-Pacific countries typically are fewer in number and less well
capitalized than brokers in the United States. These factors, combined with the U.S. regulatory requirements for open-end investment
companies and the restrictions on foreign investment discussed below, result in potentially fewer investment opportunities for
a Fund and may have an adverse impact on the investment performance of the Fund.
Many of the developing market Asia-Pacific countries may
be subject to a greater degree of economic, political and social instability than is the case in the United States and Western
European countries. Such instability may result from, among other things: (i) authoritarian governments or military involvement
in political and economic decision-making, including changes in government through extra-constitutional means; (ii) popular
unrest associated with demands for improved political, economic and social conditions; (iii) internal insurgencies; (iv) hostile
relations with neighboring countries; and (v) ethnic, religious and racial disaffection. In addition, the governments of many
of such countries, such as Indonesia, have a substantial role in regulating and supervising the economy. Another risk common to
most such countries is that the economy is heavily export oriented and, accordingly, is dependent
upon international trade. The existence of overburdened
infrastructure and obsolete financial systems also presents risks in certain countries, as do environmental problems. Certain economies
also depend to a significant degree upon exports of primary commodities and, therefore, are vulnerable to changes in commodity
prices that, in turn, may be affected by a variety of factors.
The legal systems in certain developing market Asia-Pacific
countries also may have an adverse impact on the Fund. For example, while the potential liability of a shareholder in a U.S. corporation
with respect to acts of the corporation is generally limited to the amount of the shareholder’s investment, the notion of
limited liability is less clear in certain emerging market Asia-Pacific countries. Similarly, the rights of investors in developing
market Asia-Pacific companies may be more limited than those of shareholders of U.S. corporations. It may be difficult or impossible
to obtain and/or enforce a judgment in a developing market Asia-Pacific country.
Governments of many developing market Asia-Pacific countries
have exercised and continue to exercise substantial influence over many aspects of the private sector. In certain cases, the government
owns or controls many companies, including the largest in the country. Accordingly, government actions in the future could have
a significant effect on economic conditions in developing market Asia-Pacific countries, which could affect private sector companies
and a Fund itself, as well as the value of securities in the Fund’s portfolio. In addition, economic statistics of developing
market Asia-Pacific countries may be less reliable than economic statistics of more developed nations.
In addition to the relative lack of publicly available
information about developing market Asia-Pacific issuers and the possibility that such issuers may not be subject to the same accounting,
auditing and financial reporting standards as U.S. companies, inflation accounting rules in some developing market Asia-Pacific
countries require companies that keep accounting records in the local currency, for both tax and accounting purposes, to restate
certain assets and liabilities on the company’s balance sheet in order to express items in terms of currency of constant
purchasing power. Inflation accounting may indirectly generate losses or profits for certain developing market Asia-Pacific companies.
Satisfactory custodial services for investment securities
may not be available in some developing Asia-Pacific countries, which may result in the Fund incurring additional costs and delays
in providing transportation and custody services for such securities outside such countries.
Certain developing Asia-Pacific countries, such as the
Philippines, India and Turkey, are especially large debtors to commercial banks and foreign governments.
On March 11, 2011, a powerful earthquake and resulting
tsunami struck northeastern Japan causing major damage along the coast, including damage to nuclear power plants in the region.
This disaster, and the resulting damage, could have a severe and negative impact on a Fund’s investment portfolio and, in
the longer term, could impair the ability of issuers in which the Fund invests to conduct their businesses in the manner normally
conducted.
Fund management may determine that, notwithstanding otherwise
favorable investment criteria, it may not be practicable or appropriate to invest in a particular developing Asia-Pacific country.
A Fund may invest in countries in which foreign investors, including management of the Fund, have had no or limited prior experience.
Restrictions on Foreign Investments in Asia-Pacific
Countries.
Some developing Asia-Pacific countries prohibit or impose substantial restrictions on investments in their capital
markets, particularly their equity markets, by foreign entities such as a Fund. As illustrations, certain countries may require
governmental approval prior to investments by foreign persons or limit the amount of investment by foreign persons in a particular
company or limit the investment by foreign persons to only a specific class of securities of a company which may have less advantageous
terms (including price and shareholder rights) than securities of the company available for purchase by nationals. There can be
no assurance that a Fund will be able to obtain required governmental approvals in a timely manner. In addition, changes to restrictions
on foreign ownership of securities subsequent to a Fund’s purchase of such securities may have an adverse effect on the value
of such shares. Certain countries may restrict investment opportunities in issuers or industries deemed important to national interests.
The manner in which foreign investors may invest in companies
in certain developing Asia-Pacific countries, as well as limitations on such investments, also may have an adverse impact on the
operations of a Fund. For example, a Fund may be required in certain of such countries to invest initially through a local broker
or other entity and then have the shares purchased re-registered in the name of the Fund. Re-registration may in some instances
not be able to occur on a timely basis, resulting in a delay during which a Fund may be denied certain of its rights as an investor,
including rights as to dividends or to be made aware of certain corporate actions. There also may be instances where a Fund places
a purchase order but is subsequently informed, at the time of re-registration, that the
permissible allocation of the investment to foreign investors
has been filled, depriving the Fund of the ability to make its desired investment at that time.
Substantial limitations may exist in certain countries
with respect to a Fund’s ability to repatriate investment income, capital or the proceeds of sales of securities by foreign
investors. A Fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation
of capital, as well as by the application to the Fund of any restrictions on investments. It is possible that certain countries
may impose currency controls or other restrictions relating to their currencies or to securities of issuers in those countries.
To the extent that such restrictions have the effect of making certain investments illiquid, securities may not be available for
sale to meet redemptions. Depending on a variety of financial factors, the percentage of a Fund’s portfolio subject to currency
controls may increase. In the event other countries impose similar controls, the portion of the Fund’s assets that may be
used to meet redemptions may be further decreased. Even where there is no outright restriction on repatriation of capital, the
mechanics of repatriation may affect certain aspects of the operations of a Fund (for example, if funds may be withdrawn only in
certain currencies and/or only at an exchange rate established by the government).
In certain countries, banks or other financial institutions
may be among the leading companies or have actively traded securities available for investment. The Investment Company Act restricts
a Fund’s investments in any equity securities of an issuer that, in its most recent fiscal year, derived more than 15% of
its revenues from “securities related activities,” as defined by the rules thereunder. These provisions may restrict
a Fund’s investments in certain foreign banks and other financial institutions.
Political and economic structures in emerging market countries
may be undergoing significant evolution and rapid development, and these countries may lack the social, political and economic
stability characteristic of more developed countries. Some of these countries may have in the past failed to recognize private
property rights and have at times nationalized or expropriated the assets of private companies. As a result the risks described
above, including the risks of nationalization or expropriation of assets, may be heightened. In addition, unanticipated political
or social developments may affect the value of investments in these countries and the availability to a Fund of additional investments
in emerging market countries. The small size and inexperience of the securities markets in certain of these countries and the limited
volume of trading in securities in these countries may make investments in the countries illiquid and more volatile than investments
in Japan or most Western European countries. There may be little financial or accounting information available with respect to
issuers located in certain emerging market countries, and it may be difficult to assess the value or prospects of an investment
in such issuers.
The expense ratios of the Funds investing significantly
in foreign securities can be expected to be higher than those of Funds investing primarily in domestic securities. The costs attributable
to investing abroad are usually higher for several reasons, such as the higher cost of custody of foreign securities, higher commissions
paid on comparable transactions on foreign markets and additional costs arising from delays in settlements of transactions involving
foreign securities.
Risks of Investments in Russia
. A Fund may invest
a portion of its assets in securities issued by companies located in Russia. Because of the recent formation of the Russian securities
markets as well as the underdeveloped state of Russia’s banking system, settlement, clearing and registration of securities
transactions are subject to significant risks. Ownership of shares is defined according to entries in the company’s share
register and normally evidenced by extracts from the register. These extracts are not negotiable instruments and are not effective
evidence of securities ownership. The registrars are not necessarily subject to effective state supervision nor are they licensed
with any governmental entity. Also, there is no central registration system for shareholders and it is possible for a Fund to lose
its registration through fraud, negligence or mere oversight. While a Fund will endeavor to ensure that its interest continues
to be appropriately recorded either itself or through a custodian or other agent inspecting the share register and by obtaining
extracts of share registers through regular confirmations, these extracts have no legal enforceability and it is possible that
subsequent illegal amendment or other fraudulent act may deprive the Fund of its ownership rights or improperly dilute its interest.
In addition, while applicable Russian regulations impose liability on registrars for losses resulting from their errors, it may
be difficult for a Fund to enforce any rights it may have against the registrar or issuer of the securities in the event of loss
of share registration. While a Fund intends to invest directly in Russian companies that use an independent registrar, there can
be no assurance that such investments will not result in a loss to the Fund.
Brady Bonds.
Certain Funds may invest
in Brady Bonds. A Fund’s emerging market debt securities may include emerging market governmental debt obligations commonly
referred to as Brady Bonds. Brady Bonds are securities created through the exchange of existing commercial bank loans to sovereign
entities for new obligations in connection with debt restructurings under a debt restructuring plan introduced by former U.S. Secretary
of the Treasury, Nicholas F. Brady (the “Brady Plan”). Brady Plan debt restructurings have been implemented in a number
of countries, including: Argentina, Bolivia, Brazil, Bulgaria, Costa Rica, the Dominican Republic, Ecuador, Jordan, Mexico, Niger,
Nigeria, Panama, Peru, the Philippines, Poland, Uruguay and Venezuela.
Brady Bonds may be collateralized or uncollateralized,
are issued in various currencies (primarily the U.S. dollar) and are actively traded in the over-the-counter secondary market.
Brady Bonds are not considered to be U.S. Government securities. U.S. dollar-denominated, collateralized Brady Bonds, which may
be fixed rate par bonds or floating rate discount bonds, are generally collateralized in full as to principal by U.S. Treasury
zero-coupon bonds having the same maturity as the Brady Bonds. Interest payments on these Brady Bonds generally are collateralized
on a one-year or longer rolling-forward basis by cash or securities in an amount that, in the case of fixed rate bonds, is equal
to at least one year of interest payments or, in the case of floating rate bonds, initially is equal to at least one year’s
interest payments based on the applicable interest rate at that time and is adjusted at regular intervals thereafter. Certain Brady
Bonds are entitled to “value recovery payments” in certain circumstances, which in effect constitute supplemental interest
payments but generally are not collateralized. For example, some Mexican and Venezuelan Brady Bonds include attached value recovery
options, which increase interest payments if oil revenues rise. Brady Bonds are often viewed as having three or four valuation
components: (i) the collateralized repayment of principal at final maturity; (ii) the collateralized interest payments; (iii) the
uncollateralized interest payments; and (iv) any uncollateralized repayment of principal at maturity (the uncollateralized
amounts constitute the “residual risk”).
Most Mexican Brady Bonds issued to date have principal
repayments at final maturity fully collateralized by U.S. Treasury zero-coupon bonds (or comparable collateral denominated in other
currencies) and interest coupon payments collateralized on an 18-month rolling-forward basis by funds held in escrow by an agent
for the bondholders. A significant portion of the Venezuelan Brady Bonds and the Argentine Brady Bonds issued to date have repayments
at final maturity collateralized by U.S. Treasury zero-coupon bonds (or comparable collateral denominated in other currencies)
and/or interest coupon payments collateralized on a 14-month (for Venezuela) or 12-month (for Argentina) rolling-forward basis
by securities held by the Federal Reserve Bank of New York as collateral agent.
Brady Bonds involve various risk factors described above
associated with investing in foreign securities, including the history of defaults with respect to commercial bank loans by public
and private entities of countries issuing Brady Bonds. In light of the residual risk of Brady Bonds and, among other factors, the
history of defaults, investments in Brady Bonds are considered speculative. There can be no assurance that Brady Bonds in which
the Funds may invest will not be subject to restructuring arrangements or to requests for new credit, which may cause the Funds
to suffer a loss of interest or principal on any of its holdings.
Investment in Other Investment
Companies
. Each Fund may, subject to applicable law, invest in other investment companies (including investment companies
managed by BlackRock and its affiliates), including money market funds and exchange traded funds (“ETFs”), which are
typically open-end funds or unit investment trusts listed on a stock exchange. In accordance with the Investment Company Act, a
Fund may invest up to 10% of its total assets in securities of other investment companies (measured at the time of such investment).
In addition, under the Investment Company Act a Fund may not acquire securities of an investment company if such acquisition would
cause the Fund to own more than 3% of the total outstanding voting stock of such investment company and a Fund may not invest in
another investment company if such investment would cause more than 5% of the value of the Fund’s total assets to be invested
in securities of such investment company. (These limits do not restrict a Feeder Fund from investing all of its assets in shares
of its Master Portfolio.) In addition to the restrictions on investing in other investment companies discussed above, a Fund may
not invest in a registered closed-end investment company if such investment would cause the Fund and other BlackRock-advised investment
companies to own more than 10% of the total outstanding voting stock of such closed-end investment company. Pursuant to the Investment
Company Act (or alternatively, pursuant to exemptive orders received from the Commission) these percentage limitations do not apply
to investments in affiliated money market funds, and under certain circumstances, do not apply to investments in affiliated investment
companies, including ETFs. In addition, many third-party ETFs have obtained exemptive relief from the Commission to permit unaffiliated
funds (such as the Funds) to invest in their shares beyond the statutory limits, subject to certain conditions and pursuant to
contractual arrangements between the ETFs and the investing funds. A Fund may rely on these exemptive orders in investing in ETFs.
Further, under certain circumstances a Fund may be able to rely on certain provisions of the Investment Company Act to invest in
shares of unaffiliated investment companies beyond the statutory limits noted above, but subject to certain other statutory restrictions.
As with other investments, investments
in other investment companies are subject to market and selection risk.
Shares of investment companies, such as closed-end fund investment
companies, that trade on an exchange may at times be acquired at market prices representing premiums to their net asset values.
In addition, investment companies held by a Fund that trade on an exchange could trade at a discount from net asset value, and
such discount could increase while the Fund holds the shares. If the market price of shares of an exchange-traded investment company
decreases below the price that the Fund paid for the shares and the Fund were to sell its shares of such investment company at
a time when the market price is lower than the price at which it purchased the shares, the Fund would experience a loss.
In addition, if a Fund acquires shares in investment companies, including affiliated investment companies, shareholders would bear
both their proportionate share of expenses in the Fund and, indirectly, the expenses of such investment companies. Such expenses,
both at the Fund level and acquired investment company level, would include management and advisory fees, unless such fees have
been waived by BlackRock. Please see the relevant Fund’s prospectus to determine whether any such management and advisory
fees have been waived by BlackRock. Investments by a Fund in wholly owned investment entities created under the laws of certain
countries will not be deemed an investment in other investment companies.
To the extent shares of a Fund are
held by an affiliated fund, the ability of the Fund itself to purchase other affiliated investment companies may be limited. In
addition, a fund-of-funds (e.g., an investment company that seeks to meet its investment objective by investing significantly in
other investment companies) may be limited in its ability to purchase affiliated underlying funds if such affiliated underlying
funds themselves own shares of affiliated funds.
A number of publicly traded closed-end investment companies
have been organized to facilitate indirect foreign investment in developing countries, and certain of such countries, such as Thailand,
South Korea, Chile and Brazil, have specifically authorized such funds. There also are investment opportunities in certain of such
countries in pooled vehicles that resemble open-end investment companies. The restrictions on investments in securities of investment
companies set forth above may limit opportunities for a Fund to invest indirectly in certain developing countries.
Junk Bonds.
Non-investment grade or “high
yield” fixed income or convertible securities commonly known to investors as “junk bonds” are debt securities
that are rated below investment grade by the major rating agencies or are unrated securities that Fund management believes are
of comparable quality. While generally providing greater income and opportunity for gain, non-investment grade debt securities
may be subject to greater risks than securities which have higher credit ratings, including a high risk of default, and their yields
will fluctuate over time. High yield securities will generally be in the lower rating categories of recognized rating agencies
(rated “Ba” or lower by Moody’s or “BB” or lower by S&P) or will be non-rated. The credit rating
of a high yield security does not necessarily address its market value risk, and ratings may from time to time change, positively
or negatively, to reflect developments regarding the issuer’s financial condition. High yield securities are considered to
be speculative with respect to the capacity of the issuer to timely repay principal and pay interest or dividends in accordance
with the terms of the obligation and may have more credit risk than higher rated securities.
The major risks in junk bond investments include the following:
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Junk bonds may be issued by less creditworthy companies. These securities are vulnerable to adverse changes in the issuer’s industry and to general economic conditions. 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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The issuers of junk bonds may have a larger amount of outstanding debt relative to their assets than issuers of investment grade bonds. If the issuer experiences financial stress, it may be unable to meet its debt obligations. The issuer’s ability to pay its debt obligations also may be lessened by specific issuer developments, or the unavailability of additional financing. Issuers of high yield securities are often in the growth stage of their development and/or involved in a reorganization or takeover.
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Junk bonds are frequently ranked junior to claims by other creditors. If the issuer cannot meet its obligations, the senior obligations are generally paid off before the junior obligations, which will potentially limit a Fund’s ability to fully recover principal or to receive interest payments when senior securities are in default. Thus, investors in high yield securities have a lower degree of protection with respect to principal and interest payments then do investors in higher rated securities.
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Junk bonds frequently have redemption features that permit an issuer to repurchase the security from a Fund before it matures. If an issuer redeems the junk bonds, a Fund may have to invest the proceeds in bonds with lower yields and may lose income.
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Prices of junk bonds are subject to extreme price fluctuations. Negative economic developments may have a greater impact on the prices of junk bonds than on those of other higher rated fixed income securities.
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Junk bonds may be less liquid than higher rated fixed income securities even under normal economic conditions. Under certain economic and/or market conditions, a Fund may have difficulty disposing of certain high yield securities due to the limited number of investors in that sector of the market. 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, and such quotations may not be the actual prices
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available for a purchase or sale. Because junk bonds are less liquid, judgment may play a greater role in valuing certain of a Fund’s portfolio securities than in the case of securities trading in a more liquid market.
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The secondary markets for high yield securities are not as liquid
as the secondary markets for higher rated securities. The secondary markets for high yield securities are concentrated in relatively
few market makers and participants in the markets are mostly institutional investors, including insurance companies, banks, other
financial institutions and mutual funds. In addition, the trading volume for high yield securities is generally lower than that
for higher rated securities and the secondary markets could contract under adverse market or economic conditions independent of
any specific adverse changes in the condition of a particular issuer. Under certain economic and/or market conditions, a Fund may
have difficulty disposing of certain high yield securities due to the limited number of investors in that sector of the market.
An illiquid secondary market may adversely affect the market price of the high yield security, which may result in increased difficulty
selling the particular issue and obtaining accurate market quotations on the issue when valuing a Fund’s assets. Market quotations
on high yield securities are available only from a limited number of dealers, and such quotations may not be the actual prices
available for a purchase or sale. When the secondary market for high yield securities becomes more illiquid, or in the absence
of readily available market quotations for such securities, the relative lack of reliable objective data makes it more difficult
to value a Fund’s securities, and judgment plays a more important role in determining such valuations.
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A 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 junk bond markets may react strongly to adverse news about an issuer or the economy, or to the perception or expectation of adverse news, whether or not it is based on fundamental analysis. Additionally, prices for high yield securities may be affected by legislative and regulatory developments. These developments could adversely affect a Fund’s net asset value and investment practices, the secondary market for high yield securities, the financial condition of issuers of these securities and the value and liquidity of outstanding high yield securities, especially in a thinly traded market. For example, federal legislation requiring the divestiture by federally insured savings and loan associations of their investments in high yield bonds and limiting the deductibility of interest by certain corporate issuers of high yield bonds adversely affected the market in the past.
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The rating assigned by a rating agency evaluates the issuing agency’s assessment of the safety of a non-investment grade security’s principal and interest payments, but does not address market value risk. Because such ratings of the ratings agencies may not always reflect current conditions and events, in addition to using recognized rating agencies and other sources, the sub-adviser performs its own analysis of the issuers whose non-investment grade securities a Fund holds. Because of this, the Fund’s performance may depend more on the sub-adviser’s own credit analysis than in the case of mutual funds investing in higher-rated securities.
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In selecting non-investment grade securities, the adviser
or sub-adviser considers factors such as those relating to the creditworthiness of issuers, the ratings and performance of the
securities, the protections afforded the securities and the diversity of the Fund. The sub-adviser continuously monitors the issuers
of non-investment grade securities held by the Fund for their ability to make required principal and interest payments, as well
as in an effort to control the liquidity of the Fund so that it can meet redemption requests. If a security’s rating is reduced
below the minimum credit rating that is permitted for a Fund, the Fund’s sub-adviser will consider whether the Fund should
continue to hold the security.
In the event that a Fund investing in high yield securities
experiences an unexpected level of net redemptions, the Fund could be forced to sell its holdings without regard to the investment
merits, thereby decreasing the assets upon which the Fund’s rate of return is based.
The costs attributable to investing in the junk bond markets
are usually higher for several reasons, such as higher investment research costs and higher commission costs.
Lease Obligations
.
A Fund may hold
participation certificates in a lease, an installment purchase contract, or a conditional sales contract (“lease obligations”).
The Manager will monitor the credit standing of each borrower
and each entity providing credit support and/or a put option relating to lease obligations. In determining whether a lease obligation
is liquid, the Manager will consider, among other factors, the following: (i) whether the lease can be cancelled; (ii) the
degree of assurance that assets represented by the lease could be sold; (iii) the strength of the lessee’s general credit
(
e.g.
, its debt, administrative, economic and financial characteristics); (iv) in the case of a municipal
lease, the likelihood that the municipality would discontinue
appropriating funding for the leased property because the property is no longer deemed essential to the operations of the municipality
(
e.g.
, the potential for an “event of nonappropriation”); (v) legal recourse in the event of failure to
appropriate; (vi) whether the security is backed by a credit enhancement such as insurance; and (vii) any limitations
which are imposed on the lease obligor’s ability to utilize substitute property or services other than those covered by the
lease obligation.
Municipal leases, like other municipal debt obligations,
are subject to the risk of non-payment. The ability of issuers of municipal leases to make timely lease payments may be adversely
impacted in general economic downturns and as relative governmental cost burdens are allocated and reallocated among Federal, state
and local governmental units. Such non-payment would result in a reduction of income to a Fund, and could result in a reduction
in the value of the municipal lease experiencing non-payment and a potential decrease in the net asset value of a Fund. Issuers
of municipal securities might seek protection under the bankruptcy laws. In the event of bankruptcy of such an issuer, a Fund could
experience delays and limitations with respect to the collection of principal and interest on such municipal leases and a Fund
may not, in all circumstances, be able to collect all principal and interest to which it is entitled. To enforce its rights in
the event of a default in lease payments, a Fund might take possession of and manage the assets securing the issuer’s obligations
on such securities, which may increase the Fund’s operating expenses and adversely affect the net asset value of the Fund.
When the lease contains a non-appropriation clause, however, the failure to pay would not be a default and a Fund would not have
the right to take possession of the assets. Any income derived from a Fund’s ownership or operation of such assets may not
be tax-exempt. In addition, a Fund’s intention to qualify as a “regulated investment company” under the Internal
Revenue Code of 1986, as amended (the “Code”), may limit the extent to which a Fund may exercise its rights by taking
possession of such assets, because as a regulated investment company a Fund is subject to certain limitations on its investments
and on the nature of its income.
Liquidity Management
.
As a temporary
defensive measure, if its Manager determines that market conditions warrant, certain Funds may invest without limitation in high
quality money market instruments. Certain Funds may also invest in high quality money market instruments pending investment or
to meet anticipated redemption requests. High quality money market instruments include U.S. government obligations, U.S. government
agency obligations, dollar denominated obligations of foreign issuers, bank obligations, including U.S. subsidiaries and branches
of foreign banks, corporate obligations, commercial paper, repurchase agreements and obligations of supranational organizations.
Generally, such obligations will mature within one year from the date of settlement, but may mature within two years from the date
of settlement.
Master Limited Partnerships
.
Certain
Funds may invest in publicly traded master limited partnerships (“MLPs”) which are limited partnerships or limited
liability companies taxable as partnerships. MLPs may derive income and gains from the exploration, development, mining or 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, a 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. The general
partner typically controls the operations and management of the MLP through an up to 2% equity interest in the MLP plus, in many
cases, ownership of common units and subordinated units. Limited partners own the remainder of the partnership, through ownership
of common units, and have a limited role in the partnership’s operations and management.
MLPs are typically structured such that common units and
general partner interests have first priority to receive quarterly cash distributions up to an established minimum amount (“minimum
quarterly distributions” or “MQD”). Common and general partner interests also accrue arrearages in distributions
to the extent the MQD is not paid. Once common and general partner interests have been paid, subordinated units receive distributions
of up to the MQD; however, subordinated units do not accrue arrearages. Distributable cash in excess of the MQD paid to both common
and subordinated units is distributed to both common and subordinated units generally on a pro rata basis. The general partner
is also eligible to receive incentive distributions if the general partner operates the business in a manner which results in distributions
paid per common unit surpassing specified target levels. As the general partner increases cash distributions to the limited partners,
the general partner receives an increasingly higher percentage of the incremental cash distributions. A common arrangement provides
that the general partner can reach a tier where it receives 50% of every incremental dollar paid to common and subordinated unit
holders. These incentive distributions encourage the general partner to streamline costs, increase capital expenditures and acquire
assets in order to increase the partnership’s cash flow and raise the quarterly cash distribution in order to reach higher
tiers. Such results benefit all security holders of the MLP.
MLP common units represent a limited partnership interest
in the MLP. Common units are listed and traded on U.S. securities exchanges, with their value fluctuating predominantly based on
prevailing market conditions and the success of the MLP. Certain Funds intend to purchase common units in market transactions.
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.
Merger Transaction Risk.
In replicating its
target index, a Fund may buy stock of the target company in an announced merger transaction prior to the consummation of such transaction.
In that circumstance, a Fund would expect to receive an amount (whether in cash, stock of the acquiring company or a combination
of both) in excess of the purchase price paid by the Fund for the target company’s stock. However, a Fund is subject to the
risk that the merger transaction may be canceled, delayed or restructured, in which case a Fund’s holding of the target company’s
stock may not result in any profit for the Fund and may lose significant value.
Mezzanine Investments.
Certain Funds, consistent
with restrictions on investing in securities of a specific credit quality, may invest in certain high yield securities known as
mezzanine investments, which are subordinated debt securities which are generally issued in private placements in connection with
an equity security (
e.g.
, with attached warrants). Such mezzanine investments may be issued with or without registration
rights. Similar to other high yield securities, maturities of mezzanine investments are typically seven to ten years, but the expected
average life is significantly shorter at three to five years. Mezzanine investments are usually unsecured and subordinate to other
obligations of the issuer.
Money Market Obligations of Domestic Banks, Foreign
Banks and Foreign Branches of U.S. Banks
.
Certain Funds may invest in a broad range of short-term, high quality,
U.S. dollar-denominated instruments, such as government, bank, commercial and other obligations that are available in the money
markets. Bank obligations include certificates of deposit (“CDs”), notes, bankers’ acceptances (“BAs”)
and time deposits, including instruments issued or supported by the credit of U.S. or foreign banks or savings institutions, domestic
branches of foreign banks, and also foreign branches of domestic banks having total assets at the time of purchase in excess of
$1 billion. These obligations may be general obligations of the parent bank or may be limited to the issuing branch or subsidiary
by the terms of a specific obligation or by government regulation. In particular, the Funds may invest in:
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(a)
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U.S. dollar-denominated obligations issued or supported by the credit of U.S. or foreign banks or savings institutions with total assets in excess of $1 billion (including assets of domestic and foreign branches of such banks);
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(b)
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high quality commercial paper and other obligations issued or guaranteed by U.S. and foreign corporations and other issuers rated (at the time of purchase) A-2 or higher by S&P, Prime-2 or higher by Moody’s or F-2 or higher by Fitch, as well as high quality corporate bonds rated (at the time of purchase) A or higher by those rating agencies;
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(c)
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unrated notes, paper and other instruments that are of comparable quality to the instruments described in (b) above as determined by the Fund’s Manager;
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(d)
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asset-backed securities (including interests in pools of assets such as mortgages, installment purchase obligations and credit card receivables);
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(e)
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securities issued or guaranteed as to principal and interest by the U.S. Government or by its agencies or authorities and related custodial receipts;
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(f)
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dollar-denominated securities issued or guaranteed by foreign governments or their political subdivisions, agencies or authorities;
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(g)
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funding agreements issued by highly-rated U.S. insurance companies;
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(h)
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securities issued or guaranteed by state or local governmental bodies;
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(i)
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repurchase agreements relating to the above instruments;
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(j)
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municipal bonds and notes whose principal and interest payments are guaranteed by the U.S. Government or one of its agencies or instrumentalities or which otherwise depend directly or indirectly on the credit of the United States;
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(k)
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fixed and variable rate notes and similar debt instruments rated MIG-2, VMIG-2 or Prime-2 or higher by Moody’s, SP-2 or A-2 or higher by S&P, or F-2 or higher by Fitch;
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(l)
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tax-exempt commercial paper and similar debt instruments rated Prime-2 or higher by Moody’s, A-2 or higher by S&P, or F-2 or higher by Fitch;
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(m)
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municipal bonds rated A or higher by Moody’s, S&P or Fitch;
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(n)
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unrated notes, paper or other instruments that are of comparable quality to the instruments described above, as determined by the Fund’s Manager under guidelines established by the Board; and
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(o)
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municipal bonds and notes which are guaranteed as to principal and interest by the U.S. Government or an agency or instrumentality thereof or which otherwise depend directly or indirectly on the credit of the United States.
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To the extent consistent with their investment objectives,
a Fund may invest in debt obligations of domestic or foreign corporations and banks, and may acquire commercial obligations issued
by Canadian corporations and Canadian counterparts of U.S. corporations, as well as Europaper, which is U.S. dollar-denominated
commercial paper of a foreign issuer.
Mortgage-Related Securities
Mortgage-Backed Securities.
Mortgage-backed securities
represent interests in pools of mortgages in which payments of both principal and interest on the securities are generally made
monthly, in effect “passing through” monthly payments made by borrowers on the residential or commercial mortgage loans
that underlie the securities (net of any fees paid to the issuer or guarantor of the securities). Mortgage-backed securities differ
from other forms of debt securities, which normally provide for periodic payment of interest in fixed amounts with principal payments
at maturity or specified call dates.
Mortgage-backed securities are subject to the general risks
associated with investing in real estate securities; that is, they may lose value if the value of the underlying real estate to
which a pool of mortgages relates declines. In addition, investments in mortgage-backed securities involve certain specific risks.
These risks include the failure of a party to meet its commitments under the related operative documents, adverse interest rate
changes and the effects of prepayments on mortgage cash flows. Mortgage-backed securities are “pass-through” securities,
meaning that principal and interest payments made by the borrower on the underlying mortgages are passed through to a Fund. The
value of mortgage-backed securities, like that of traditional fixed income securities, typically increases when interest rates
fall and decreases when interest rates rise. However, mortgage-backed securities differ from traditional fixed income securities
because of their potential for prepayment without penalty. The price paid by a Fund for its mortgage-backed securities, the yield
the Fund expects to receive from such securities and the weighted average life of the securities are based on a number of factors,
including the anticipated rate of prepayment of the underlying mortgages. In a period of declining interest rates, borrowers may
prepay the underlying mortgages more quickly than anticipated, thereby reducing the yield to maturity and the average life of the
mortgage-backed securities. Moreover, when a Fund reinvests the proceeds of a prepayment in these circumstances, it will likely
receive a rate of interest that is lower than the rate on the security that was prepaid.
To the extent that a Fund purchases mortgage-backed securities
at a premium, mortgage foreclosures and principal prepayments may result in a loss to the extent of the premium paid. If a Fund
buys such securities at a discount, both scheduled payments of principal and unscheduled prepayments will increase current and
total returns and will accelerate the recognition of income, which, when distributed to shareholders, will be taxable as ordinary
income. In a period of rising interest rates, prepayments of the underlying mortgages may occur at a slower than expected rate,
creating maturity extension risk. This particular risk may effectively change a security that was considered short- or intermediate-term
at the time of purchase into a long-term security. Since the value of long-term securities generally fluctuates more widely in
response to changes in interest rates than that of shorter-term securities, maturity extension risk could increase the inherent
volatility of the Fund. Under certain interest rate and prepayment scenarios, a Fund may fail to recoup fully its investment in
mortgage-backed securities notwithstanding any direct or indirect governmental or agency guarantee.
There are currently three types of mortgage pass-through
securities: (1) those issued by the U.S. government or one of its agencies or instrumentalities, such as the Government National
Mortgage Association (“Ginnie Mae”), the Federal National Mortgage Association (“Fannie Mae”) and the Federal
Home Loan Mortgage Corporation (“Freddie Mac”); (2) those issued by private issuers that represent an interest
in or are collateralized by pass-through securities issued or guaranteed by the U.S. government or one of its agencies or instrumentalities;
and (3) those issued by private issuers that represent an interest in or are collateralized by whole mortgage loans or pass-through
securities without a government guarantee but that usually have some form of private credit enhancement.
Ginnie Mae is a wholly owned U.S. government corporation
within the Department of Housing and Urban Development. Ginnie Mae is authorized to guarantee, with the full faith and credit of
the U.S. government, the timely payment of principal and interest on securities issued by the institutions approved by Ginnie Mae
(such as savings and loan institutions, commercial banks and mortgage banks), and backed by pools of Federal Housing Administration
(“FHA”)-insured or Veterans’ Administration (“VA”)-guaranteed mortgages. Pass-through certificates
guaranteed by Ginnie Mae (such certificates are also known as “Ginnie Maes”) are guaranteed as
to the timely payment of principal and interest by Ginnie
Mae, whose guarantee is backed by the full faith and credit of the United States. Ginnie Mae is a wholly-owned U.S. Government
corporation within the Department of Housing and Urban Development. Ginnie Mae certificates also are supported by the authority
of Ginnie Mae to borrow funds from the U.S. Treasury Department to make payments under its guarantee. Mortgage-related securities
issued by Fannie Mae include Fannie Mae guaranteed Mortgage Pass-Through Certificates (also known as “Fannie Maes”),
which are guaranteed as to timely payment of principal and interest by Fannie Mae. They are not backed by or entitled to the full
faith and credit of the United States, but are supported by the right of Fannie Mae to borrow from the U.S. Treasury Department.
Fannie Mae was established as a federal agency in 1938 and in 1968 was chartered by Congress as a private shareholder-owned company.
Mortgage-related securities issued by the Freddie Mac include Freddie Mac Mortgage Participation Certificates (also known as “Freddie
Macs” or “PCs”). Freddie Mac is a stockholder-owned corporation chartered by Congress in 1970. Freddie Macs are
not guaranteed by the United States or by any Federal Home Loan Banks and do not constitute a debt or obligation of the United
States or of any Federal Home Loan Bank. Freddie Macs entitle the holder to timely payment of interest, which is guaranteed by
Freddie Mac. Freddie Mac guarantees either ultimate collection or timely payment of all principal payments on the underlying mortgage
loans. While Freddie Mac generally does not guarantee timely payment of principal, Freddie Mac may remit the amount due on account
of its guarantee of ultimate payment of principal at any time after default on an underlying mortgage, but in no event later than
one year after it becomes payable. On September 6, 2008, Director James Lockhart of the Federal Housing Finance Agency (“FHFA”)
appointed FHFA as conservator of both Fannie Mae and Freddie Mac. In addition the U.S. Treasury Department agreed to provide Fannie
Mae and Freddie Mac up to $100 billion of capital each on an as needed basis to insure that they continue to provide liquidity
to the housing and mortgage markets.
Private mortgage pass-through securities are structured
similarly to Ginnie Mae, Fannie Mae, and Freddie Mac mortgage pass-through securities and are issued by originators of and investors
in mortgage loans, including depository institutions, mortgage banks, investment banks and special purpose subsidiaries of the
foregoing.
Pools created by private mortgage pass-through issuers generally
offer a higher rate of interest than government and government-related pools because there are no direct or indirect government
or agency guarantees of payments in the private pools. However, timely payment of interest and principal of these pools may be
supported by various forms of insurance or guarantees, including individual loan, title, pool and hazard insurance and letters
of credit. The insurance and guarantees are issued by governmental entities, private insurers and the mortgage poolers. The insurance
and guarantees and the creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security
meets a Fund’s investment quality standards. There can be no assurance that the private insurers or guarantors can meet their
obligations under the insurance policies or guarantee arrangements. Private mortgage pass-through securities may be bought without
insurance or guarantees if, through an examination of the loan experience and practices of the originator/servicers and poolers,
the Manager determines that the securities meet a Fund’s quality standards. Any mortgage-related securities that are issued
by private issuers have some exposure to subprime loans as well as to the mortgage and credit markets generally.
In addition, mortgage-related
securities that are issued by private issuers are not subject to the underwriting requirements for the underlying mortgages that
are applicable to those mortgage-related securities that have a government or government-sponsored entity guarantee. As a result,
the mortgage loans underlying private mortgage-related securities may, and frequently do, have less favorable collateral, credit
risk or other underwriting characteristics than government or government-sponsored mortgage-related securities and have wider variances
in a number of terms including interest rate, term, size, purpose and borrower characteristics. Privately issued pools more frequently
include second mortgages, high loan-to-value mortgages and manufactured housing loans. The coupon rates and maturities of the underlying
mortgage loans in a private-label mortgage-related securities pool may vary to a greater extent than those included in a government
guaranteed pool, and the pool may include subprime mortgage loans. Subprime loans refer to loans made to borrowers with weakened
credit histories or with a lower capacity to make timely payments on their loans. For these reasons, the loans underlying these
securities have had in many cases higher default rates than those loans that meet government underwriting requirements.
The risk of non-payment is greater
for mortgage-related securities that are backed by mortgage pools that contain subprime loans, but a level of risk exists for all
loans. Market factors adversely affecting mortgage loan repayments may include a general economic turndown, high unemployment,
a general slowdown in the real estate market, a drop in the market prices of real estate, or an increase in interest rates resulting
in higher mortgage payments by holders of adjustable rate mortgages.
Privately issued mortgage-related
securities are not traded on an exchange and there may be a limited market for the securities, especially when there is a perceived
weakness in the mortgage and real estate market sectors. Without an active trading market, mortgage-related securities held in
a fund’s portfolio may be particularly difficult to value because of the complexities involved in assessing the value of
the underlying mortgage loans.
A Fund from time to time may purchase in the secondary
market (i) certain mortgage pass-through securities packaged and master serviced by PNC Mortgage Securities Corp. (“PNC
Mortgage”) or Midland Loan Services, Inc. (“Midland”), or (ii) mortgage-related securities containing loans or
mortgages originated by PNC Bank, National Association (“PNC Bank”) or its affiliates. It is possible that under some
circumstances, PNC Mortgage, Midland or other affiliates could have interests that are in conflict with the holders of these mortgage-backed
securities, and such holders could have rights against PNC Mortgage, Midland or their affiliates. For example, if PNC Mortgage,
Midland or their affiliates engaged in negligence or willful misconduct in carrying out its duties as a master servicer, then any
holder of the mortgage-backed security could seek recourse against PNC Mortgage, Midland or their affiliates, as applicable. Also,
as a master servicer, PNC Mortgage, Midland or their affiliates may make certain representations and warranties regarding the quality
of the mortgages and properties underlying a mortgage-backed security. If one or more of those representations or warranties is
false, then the holders of the mortgage-backed securities could trigger an obligation of PNC Mortgage, Midland or their affiliates,
as applicable, to repurchase the mortgages from the issuing trust. Finally, PNC Mortgage, Midland or their affiliates may own securities
that are subordinate to the senior mortgage-backed securities owned by a Fund.
Collateralized Mortgage Obligations
(“CMOs”).
CMOs are debt obligations collateralized by residential or commercial mortgage loans or residential or commercial mortgage pass-through
securities. Interest and prepaid principal are generally paid monthly. CMOs may be collateralized by whole mortgage loans or private
mortgage pass-through securities but are more typically collateralized by portfolios of mortgage pass-through securities guaranteed
by Ginnie Mae, Freddie Mac, or Fannie Mae. The issuer of a series of CMOs may elect to be treated as a Real Estate Mortgage Investment
Conduit (“REMIC”). All future references to CMOs also include REMICs.
CMOs are structured into multiple classes, often referred
to as a “tranche,” each issued at a specific adjustable or fixed interest rate, and bearing a different stated maturity
date and each must be fully retired no later than its final distribution date. Actual maturity and average life will depend upon
the prepayment experience of the collateral, which is ordinarily unrelated to the stated maturity date. CMOs often provide for
a modified form of call protection through a de facto breakdown of the underlying pool of mortgages according to how quickly the
loans are repaid. Monthly payment of principal received from the pool of underlying mortgages, including prepayments, is first
returned to investors holding the shortest maturity class. Investors holding the longer maturity classes usually receive principal
only after the first class has been retired. An investor may be partially protected against a sooner than desired return of principal
because of the sequential payments.
Certain issuers of CMOs are not considered investment companies
pursuant to a rule adopted by the Commission, and a Fund may invest in the securities of such issuers without the limitations imposed
by the Investment Company Act on investments by a Fund in other investment companies. In addition, in reliance on an earlier Commission
interpretation, a Fund’s investments in certain other qualifying CMOs, which cannot or do not rely on the rule, are also
not subject to the limitation of the Investment Company Act on acquiring interests in other investment companies. In order to be
able to rely on the Commission’s interpretation, these CMOs must be unmanaged, fixed asset issuers, that: (1) invest
primarily in mortgage-backed securities; (2) do not issue redeemable securities; (3) operate under general exemptive
orders exempting them from all provisions of the Investment Company Act; and (4) are not registered or regulated under the
Investment Company Act as investment companies. To the extent that a Fund selects CMOs that cannot rely on the rule or do not meet
the above requirements, the Fund may not invest more than 10% of its assets in all such entities and may not acquire more than
3% of the voting securities of any single such entity.
A Fund may also invest in, among other things, parallel
pay CMOs, Planned Amortization Class CMOs (“PAC bonds”), sequential pay CMOs, and floating rate CMOs. Parallel
pay CMOs are structured to provide payments of principal on each payment date to more than one class. PAC bonds generally require
payments of a specified amount of principal on each payment date. Sequential pay CMOs generally pay principal to only one class
at a time while paying interest to several classes. Floating rate CMOs are securities whose coupon rate fluctuates according to
some formula related to an existing market index or rate. Typical indices would include the eleventh district cost-of-funds index
(“COFI”), LIBOR, one-year Treasury yields, and ten-year Treasury yields.
Classes of CMOs also include planned amortization classes (“PACs”)
and targeted amortization classes (“TACs”). PAC bonds generally require payments of a specified amount of principal
on each payment date. The scheduled principal payments for PAC Certificates generally have the highest priority on each payment
date after interest due has been paid to all classes entitled to receive interest currently. Shortfalls, if any, are added to the
amount payable on the next payment date. The PAC Certificate payment schedule is taken into account in calculating the final distribution
date of each class of PAC. In order to create PAC tranches, one or more tranches generally must be created that absorb most of
the volatility in the underlying mortgage assets. These tranches (often called “supports” or “companion”
tranches) tend to have market prices and yields that are more volatile than the PAC classes.
TACs are similar to PACs in that they require that specified
amounts of principal be applied on each payment date to one or more classes of REMIC Certificates. A PAC’s payment schedule,
however, remains in effect as long as prepayment rates on the underlying mortgages do not exceed certain ranges. In contrast, a
TAC provides investors with protection, to a certain level, against either faster than expected or slower than expected prepayment
rates, but not both. TACs thus provide more cash flow stability than a regular sequential paying class, but less than a PAC. TACs
also tend to have market prices and yields that are more volatile than PACs.
Adjustable Rate Mortgage Securities.
Adjustable
rate mortgage securities (“ARMs”) are pass-through securities collateralized by mortgages with adjustable rather than
fixed rates. ARMs eligible for inclusion in a mortgage pool generally provide for a fixed initial mortgage interest rate for a
set number of scheduled monthly payments. After that schedule of payments has been completed, the interest rates are subject to
periodic adjustment based on changes to a designated benchmark index.
ARMs contain maximum and minimum rates beyond which the
mortgage interest rate may not vary over the lifetime of the security. In addition, certain ARMs provide for additional limitations
on the maximum amount by which the mortgage interest rate may adjust for any single adjustment period. In the event that market
rates of interest rise more rapidly to levels above that of the ARM’s maximum rate, the ARM’s coupon may represent
a below market rate of interest. In these circumstances, the market value of the ARM security will likely have fallen.
Certain ARMs contain limitations on changes in the required
monthly payment. In the event that a monthly payment is not sufficient to pay the interest accruing on an ARM, any such excess
interest is added to the principal balance of the mortgage loan, which is repaid through future monthly payments. If the monthly
payment for such an instrument exceeds the sum of the interest accrued at the applicable mortgage interest rate and the principal
payment required at such point to amortize the outstanding principal balance over the remaining term of the loan, the excess is
then used to reduce the outstanding principal balance of the ARM.
CMO Residuals.
CMO residuals are derivative mortgage
securities issued by agencies or instrumentalities of the U.S. government or by private originators of, or investors in, mortgage
loans, including savings and loan associations, homebuilders, mortgage banks, commercial banks, investment banks, and special purpose
entities of the foregoing. The cash flow generated by the mortgage assets underlying a series of CMOs is applied first to make
required payments of principal and interest on the CMOs and second to pay the related administrative expenses of the issuer. The
residual in a CMO structure generally represents the interest in any excess cash flow remaining after making the foregoing payments.
Each payment of such excess cash flow to a holder of the related CMO residual represents income and/or a return of capital. The
amount of residual cash flow resulting from a CMO will depend on, among other things, the characteristics of the mortgage assets,
the coupon rate of each class of CMO, prevailing interest rates, the amount of administrative expenses and the prepayment experience
on the mortgage assets. In part, the yield to maturity on the CMO residuals is extremely sensitive to prepayments on the related
underlying mortgage assets, in the same manner as an interest-only (“IO”) class of stripped mortgage-related securities.
In addition, if a series of a CMO includes a class that bears interest at an adjustable rate, the yield to maturity on the related
CMO residual will also be extremely sensitive to changes in the level of the index upon which interest rate adjustments are based.
In certain circumstances, a Fund may fail to recoup fully its initial investment in a CMO residual.
CMO residuals are generally purchased and sold by institutional
investors through one or more investment banking firms acting as brokers or dealers. The CMO residual market has developed relatively
recently and CMO residuals may not have the liquidity of other more established securities trading in other markets. Transactions
in CMO residuals are generally completed only after careful review of the characteristics of the securities in question. In addition,
CMO residuals may or, pursuant to an exemption therefrom, may not have been registered under the Securities Act. Residual interests
generally are junior to, and may be significantly more volatile than, “regular” CMO and REMIC interests.
Stripped Mortgage-Backed Securities.
A Fund may
invest in stripped mortgage-backed securities (“SMBSs”) issued by agencies or instrumentalities of the United States.
SMBSs are derivative multi-class mortgage-backed securities. SMBS arrangements commonly involve two classes of securities that
receive different proportions of the interest and principal distributions on a pool of mortgage assets. A common variety of SMBS
is where one class (the principal only or PO class) receives some of the interest and most of the principal from the underlying
assets, while the other class (the interest only or IO class) receives most of the interest and the remainder of the principal.
In the most extreme case, the IO class receives all of the interest, while the PO class receives all of the principal. While a
Fund may purchase securities of a PO class, a Fund is more likely to purchase the securities of an IO class. The yield to maturity
of an IO class is extremely sensitive to the rate of principal payments (including prepayments) on the related underlying assets,
and a rapid rate of principal payments in excess of that considered in pricing the securities will have a material adverse effect
on an IO security’s yield to maturity. If the underlying mortgage assets experience greater than anticipated payments of
principal, a Fund may fail to recoup fully its initial investment in IOs. In addition, there are certain types of IOs that represent
the interest portion of a particular class as opposed to the interest portion of the entire pool. The sensitivity of this type
of IO to interest rate fluctuations
may be increased because of the characteristics of the
principal portion to which they relate. As a result of the above factors, a Fund generally will purchase IOs only as a component
of so called “synthetic” securities. This means that purchases of IOs will be matched with certain purchases of other
securities, such as POs, inverse floating rate CMOs or fixed rate securities; as interest rates fall, presenting a greater risk
of unanticipated prepayments of principal, the negative effect on a Fund because of its holdings of IOs should be diminished somewhat
because of the increased yield on the inverse floating rate CMOs or the increased appreciation on the POs or fixed rate securities.
Tiered Index Bonds.
Tiered index bonds are relatively
new forms of mortgage-related securities. The interest rate on a tiered index bond is tied to a specified index or market rate.
So long as this index or market rate is below a predetermined “strike” rate, the interest rate on the tiered index
bond remains fixed. If, however, the specified index or market rate rises above the “strike” rate, the interest rate
of the tiered index bond will decrease. Thus, under these circumstances, the interest rate on a tiered index bond, like an inverse
floater, will move in the opposite direction of prevailing interest rates, with the result that the price of the tiered index bond
may be considerably more volatile than that of a fixed-rate bond.
Municipal Bonds.
Certain Funds may invest
in obligations issued by or on behalf of states, territories and possessions of the United States and the District of Columbia
and their political subdivisions, agencies and instrumentalities, the payments from which, in the opinion of bond counsel to the
issuer, are excludable from gross income for Federal income tax purposes (“Municipal Bonds”). Municipal Bonds include
debt obligations issued to obtain funds for various public purposes, including the construction of a wide range of public facilities,
refunding of outstanding obligations and obtaining funds for general operating expenses and loans to other public institutions
and facilities. In addition, certain types of bonds are issued by or on behalf of public authorities to finance various privately
owned or operated facilities, including certain facilities for the local furnishing of electric energy or gas, sewage facilities,
solid waste disposal facilities and other specialized facilities. Such obligations are included within the term Municipal Bonds
if the interest paid thereon is excluded from gross income for Federal income tax purposes and any applicable state and local taxes.
Other types of private activity bonds, the proceeds of which are used for the construction, equipment or improvement of privately
operated industrial or commercial facilities, may constitute Municipal Bonds, although the current Federal tax laws place substantial
limitations on the size of such issues. The interest on Municipal Bonds may bear a fixed rate or be payable at a variable or floating
rate. The two principal classifications of Municipal Bonds are “general obligation” and “revenue” or “special
obligation” bonds, which latter category includes private activity bonds (“PABs”) (or “industrial development
bonds” under pre-1986 law).
General Obligation Bonds.
General obligation bonds
are secured by the issuer’s pledge of its full faith, credit and taxing power for the payment of principal and interest.
The taxing power of any governmental entity may be limited, however, by provisions of its state constitution or laws, and an entity’s
creditworthiness will depend on many factors, including potential erosion of its tax base due to population declines, natural disasters,
declines in the state’s industrial base or inability to attract new industries, economic limits on the ability to tax without
eroding the tax base, state legislative proposals or voter initiatives to limit ad valorem real property taxes and the extent to
which the entity relies on Federal or state aid, access to capital markets or other factors beyond the state’s or entity’s
control. Accordingly, the capacity of the issuer of a general obligation bond as to the timely payment of interest and the repayment
of principal when due is affected by the issuer’s maintenance of its tax base.
Revenue Bonds.
Revenue bonds are payable only from
the revenues derived from a particular facility or class of facilities or, in some cases, from the proceeds of a special excise
tax or other specific revenue source such as payments from the user of the facility being financed; accordingly, the timely payment
of interest and the repayment of principal in accordance with the terms of the revenue or special obligation bond is a function
of the economic viability of such facility or such revenue source.
Revenue bonds issued by state or local agencies to finance
the development of low-income, multi-family housing involve special risks in addition to those associated with municipal bonds
generally, including that the underlying properties may not generate sufficient income to pay expenses and interest costs. Such
bonds are generally non-recourse against the property owner, may be junior to the rights of others with an interest in the properties,
may pay interest that changes based in part on the financial performance of the property, may be prepayable without penalty and
may be used to finance the construction of housing developments which, until completed and rented, do not generate income to pay
interest. Increases in interest rates payable on senior obligations may make it more difficult for issuers to meet payment obligations
on subordinated bonds.
PABs.
PABs are, in most cases, tax-exempt securities
issued by states, municipalities or public authorities to provide funds, usually through a loan or lease arrangement, to a private
entity for the purpose of financing construction or improvement of a facility to be used by the entity. Such bonds are secured
primarily by revenues derived from loan repayments or lease payments due from the entity, which may or may not be guaranteed by
a parent company or otherwise secured. PABs generally are not secured by a pledge of the taxing power of the issuer of such bonds.
Therefore, an investor should understand that repayment of such bonds generally depends on the revenues of a private entity and
be aware of the risks that such an investment may entail. The continued ability of an entity to
generate sufficient revenues for the payment of principal
and interest on such bonds will be affected by many factors including the size of the entity, its capital structure, demand for
its products or services, competition, general economic conditions, government regulation and the entity’s dependence on
revenues for the operation of the particular facility being financed.
Participation Notes.
A Fund may buy participation
notes from a bank or broker-dealer (“issuer”) that entitle the Fund to a return measured by the change in value of
an identified underlying security or basket of securities (collectively, the “underlying security”). Participation
notes are typically used when a direct investment in the underlying security is restricted due to country-specific regulations.
The Fund is subject to counterparty risk associated with each issuer.
Investment in a participation note is not the same as investment in the constituent shares of the company. A participation note
represents only an obligation of the issuer to provide the Fund the economic performance equivalent to holding shares of an underlying
security. A participation note does not provide any beneficial or equitable entitlement or interest in the relevant underlying
security. In other words, shares of the underlying security are not in any way owned by the Fund. However each participation note
synthetically replicates the economic benefit of holding shares in the underlying security. Because a participation note is an
obligation of the issuer, rather than a direct investment in shares of the underlying security, the Fund may suffer losses potentially
equal to the full value of the participation note if the issuer fails to perform its obligations. A Fund attempts to mitigate that
risk by purchasing only from issuers which BlackRock deems to be creditworthy.
The counterparty may, but is not required to, purchase the shares
of the underlying security to hedge its obligation. The fund may, but is not required to, purchase credit protection against the
default of the issuer. When the participation note expires or a Fund exercises the participation note and closes its position,
that Fund receives a payment that is based upon the then-current value of the underlying security converted into U.S. dollars (less
transaction costs). The price, performance and liquidity of the participation note are all linked directly to the underlying security.
A Fund’s ability to redeem or exercise a participation note generally is dependent on the liquidity in the local trading
market for the security underlying the participation note.
Pay-in-kind Bonds
.
Certain Funds may invest
in Pay-in-kind, or PIK, bonds. PIK bonds are bonds which pay interest through the issuance of additional debt or equity securities.
Similar to zero coupon obligations, pay-in-kind bonds also carry additional risk as holders of these types of securities realize
no cash until the cash payment date unless a portion of such securities is sold and, if the issuer defaults, a Fund may obtain
no return at all on its investment. The market price of pay-in-kind bonds is affected by interest rate changes to a greater extent,
and therefore tends to be more volatile, than that of securities which pay interest in cash. Additionally, current federal tax
law requires the holder of certain pay-in-kind bonds to accrue income with respect to these securities prior to the receipt of
cash payments. To maintain its qualification as a regulated investment company and avoid liability for federal income and excise
taxes, each Fund may be required to distribute income accrued with respect to these securities and may have to dispose of portfolio
securities under disadvantageous circumstances in order to generate cash to satisfy these distribution requirements.
Portfolio Turnover Rates
.
A Fund’s
annual portfolio turnover rate will not be a factor preventing a sale or purchase when the Manager believes investment considerations
warrant such sale or purchase. Although each of S&P 500 Index Fund, Small Cap Index Fund, International Index Fund and Index
Equity will use an approach to investing that is largely a passive, indexing approach, each Fund may engage in a substantial number
of portfolio transactions. With respect to these Funds, the rate of portfolio turnover will be a limiting factor when the Manager
considers whether to purchase or sell securities for a Fund only to the extent that the Manager will consider the impact of transaction
costs on a Fund’s tracking error. Portfolio turnover may vary greatly from year to year as well as within a particular year.
High portfolio turnover (
i.e.
, 100% or more) may result in increased transaction costs to a Fund, including brokerage commissions,
dealer mark-ups and other transaction costs on the sale of the securities and reinvestment in other securities. The sale of a Fund’s
securities may result in the recognition of capital gain or loss. Given the frequency of sales, such gain or loss will likely be
short-term capital gain or loss. These effects of higher than normal portfolio turnover may adversely affect a Fund’s performance.
Preferred Stock.
Certain of the Funds may
invest in preferred stocks. Preferred stock has a preference over common stock in liquidation (and generally dividends as well)
but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with
a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market
price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior
to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes
in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest
payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred
stock also may be subject to optional or mandatory redemption provisions.
Real Estate Related Securities
. Although
no Fund may invest directly in real estate, certain Funds may invest in equity securities of issuers that are principally engaged
in the real estate industry. Such investments are subject to certain risks associated with the ownership of real estate and with
the real estate industry in general. These risks include, among others: possible declines in the value of real estate; risks related
to general and local economic conditions; possible lack of availability of mortgage funds or other limitations on access to capital;
overbuilding; risks associated with leverage; market illiquidity; extended vacancies of properties; increase in competition, property
taxes, capital expenditures and operating expenses; changes in zoning laws or other governmental regulation; costs resulting from
the clean-up of, and liability to third parties for damages resulting from, environmental problems; tenant bankruptcies or other
credit problems; casualty or condemnation losses; uninsured damages from floods, earthquakes or other natural disasters; limitations
on and variations in rents, including decreases in market rates for rents; investment in developments that are not completed or
that are subject to delays in completion; and changes in interest rates. To the extent that assets underlying a Fund’s investments
are concentrated geographically, by property type or in certain other respects, the Fund may be subject to certain of the foregoing
risks to a greater extent. Investments by a Fund in securities of companies providing mortgage servicing will be subject to the
risks associated with refinancings and their impact on servicing rights.
In addition, if a Fund receives rental income or income
from the disposition of real property acquired as a result of a default on securities the Fund owns, the receipt of such income
may adversely affect the Fund’s ability to retain its tax status as a regulated investment company because of certain income
source requirements applicable to regulated investment companies under the Code.
Real Estate Investment Trusts (“REITs”).
In pursuing its investment strategy, a Fund may invest in shares of REITs. REITs possess certain risks which differ from
an investment in common stocks. REITs are financial vehicles that pool investor’s capital to purchase or finance real estate.
REITs may concentrate their investments in specific geographic areas or in specific property types,
i.e.
, hotels, shopping
malls, residential complexes and office buildings.
REITs are subject to management fees and other expenses,
and so a Fund that invests in REITs will bear its proportionate share of the costs of the REITs’ operations. There are three
general categories of REITs: Equity REITs, Mortgage REITs and Hybrid REITs. Equity REITs invest primarily in direct fee ownership
or leasehold ownership of real property; they derive most of their income from rents. Mortgage REITs invest mostly in mortgages
on real estate, which may secure construction, development or long-term loans; the main source of their income is mortgage interest
payments. Hybrid REITs hold both ownership and mortgage interests in real estate.
Investing in REITs involves certain unique risks in addition
to those risks associated with investing in the real estate industry in general. The market value of REIT shares and the ability
of the REITs to distribute income may be adversely affected by several factors, including rising interest rates, changes in the
national, state and local economic climate and real estate conditions, perceptions of prospective tenants of the safety, convenience
and attractiveness of the properties, the ability of the owners to provide adequate management, maintenance and insurance, the
cost of complying with the Americans with Disabilities Act, increased competition from new properties, the impact of present or
future environmental legislation and compliance with environmental laws, failing to maintain their exemptions from registration
under the Investment Company Act, changes in real estate taxes and other operating expenses, adverse changes in governmental rules
and fiscal policies, adverse changes in zoning laws and other factors beyond the control of the issuers of the REITs. In addition,
distributions received by a Fund from REITs may consist of dividends, capital gains and/or return of capital. As REITs generally
pay a higher rate of dividends (on a pre-tax basis) than operating companies, to the extent application of the Fund’s investment
strategy results in the Fund investing in REIT shares, the percentage of the Fund’s dividend income received from REIT shares
will likely exceed the percentage of the Fund’s portfolio which is comprised of REIT shares. Generally, dividends received
by a Fund from REIT shares and distributed to the Fund’s shareholders will not constitute “qualified dividend income”
eligible for the reduced tax rate applicable to qualified dividend income; therefore, the tax rate applicable to that portion of
the dividend income attributable to REIT shares held by the Fund that shareholders of the Fund receive will be taxed at a higher
rate than dividends eligible for the reduced tax rate applicable to qualified dividend income.
REITs (especially mortgage REITs) are also subject to interest
rate risk. Rising interest rates may cause REIT investors to demand a higher annual yield, which may, in turn, cause a decline
in the market price of the equity securities issued by a REIT. Rising interest rates also generally increase the costs of obtaining
financing, which could cause the value of a Fund’s REIT investments to decline. During periods when interest rates are declining,
mortgages are often refinanced. Refinancing may reduce the yield on investments in mortgage REITs. In addition, since REITs depend
on payment under their mortgage loans and leases to generate cash to make distributions to their shareholders, investments in REITs
may be adversely affected by defaults on such mortgage loans or leases.
Investing in certain REITs, which often have small market
capitalizations, may also involve the same risks as investing in other small capitalization companies. REITs may have limited financial
resources and their securities may trade less frequently and in limited volume and may be subject to more abrupt or erratic price
movements than larger company securities. Historically, small capitalization stocks, such as REITs, have been more volatile in
price than the larger capitalization stocks such as those included in the
S&P 500 Index. The management of a REIT may be subject
to conflicts of interest with respect to the operation of the business of the REIT and may be involved in real estate activities
competitive with the REIT. REITs may own properties through joint ventures or in other circumstances in which the REIT may not
have control over its investments. REITs may incur significant amounts of leverage.
Repurchase Agreements and Purchase and Sale Contracts.
Under repurchase agreements and purchase and sale contracts, the other party agrees, upon entering into the contract with
a Fund, to repurchase a security sold to the Fund at a mutually agreed-upon time and price in a specified currency, thereby determining
the yield during the term of the agreement.
A purchase and sale contract differs from a repurchase
agreement in that the contract arrangements stipulate that securities are owned by the Fund and the purchaser receives any interest
on the security paid during the period. In the case of repurchase agreements, the prices at which the trades are conducted do not
reflect accrued interest on the underlying obligation; whereas, in the case of purchase and sale contracts, the prices take into
account accrued interest. A Fund may enter into “tri-party” repurchase agreements. In “tri-party” repurchase
agreements, an unaffiliated third party custodian maintains accounts to hold collateral for the Fund and its counterparties and,
therefore, the Fund may be subject to the credit risk of those custodians.
Repurchase agreements and purchase and sale contracts result
in a fixed rate of return insulated from market fluctuations during the term of the agreement, although such return may be affected
by currency fluctuations. However, in the event of a default under a repurchase agreement or under a purchase and sale contract,
instead of the contractual fixed rate, the rate of return to the Fund would be dependent upon intervening fluctuations of the market
values of the securities underlying the contract and the accrued interest on those securities. In such event, the Fund would have
rights against the seller for breach of contract with respect to any losses arising from market fluctuations following the default.
Both types of agreement usually cover short periods, such
as less than one week, although they may have longer terms, and may be construed to be collateralized loans by the purchaser to
the seller secured by the securities transferred to the purchaser. In the case of a repurchase agreement, as a purchaser, a Fund’s
Manager or sub-adviser will monitor the creditworthiness of the seller, and a Fund will require the seller to provide additional
collateral if the market value of the securities falls below the repurchase price at any time during the term of the repurchase
agreement. The Fund does not have this right to seek additional collateral as a purchaser in the case of purchase and sale contracts.
The Fund’s adviser or sub-adviser will mark-to-market daily the value of the securities. Securities subject to repurchase
agreements and purchase and sale contracts will be held by the Fund’s custodian (or sub-custodian) in the Federal Reserve/Treasury
book-entry system or by another authorized securities depository.
In the event of default by the seller under a repurchase
agreement construed to be a collateralized loan, the underlying securities are not owned by the Fund but only constitute collateral
for the seller’s obligation to pay the repurchase price. Therefore, the Fund may suffer time delays and incur costs or possible
losses in connection with disposition of the collateral. If the seller becomes insolvent and subject to liquidation or reorganization
under applicable bankruptcy or other laws, a Fund’s ability to dispose of the underlying securities may be restricted. Finally,
it is possible that a Fund may not be able to substantiate its interest in the underlying securities. To minimize this risk, the
securities underlying the repurchase agreement will be held by the custodian at all times in an amount at least equal to the repurchase
price, including accrued interest. If the seller fails to repurchase the securities, a Fund may suffer a loss to the extent proceeds
from the sale of the underlying securities are less than the repurchase price.
A Fund may not invest in repurchase agreements or purchase
and sale contracts maturing in more than seven days if such investments, together with the Fund’s other illiquid investments,
would exceed 15% of the Fund’s net assets. Repurchase agreements and purchase and sale contracts may be entered into only
with financial institutions that have capital of at least $50 million or whose obligations are guaranteed by an entity that has
capital of at least $50 million.
Reverse Repurchase Agreements.
A Fund may
enter into reverse repurchase agreements with the same parties with whom it may enter into repurchase agreements. Under a reverse
repurchase agreement, a Fund sells securities to another party and agrees to repurchase them at a particular date and price. A
Fund may enter into a reverse repurchase agreement when it is anticipated that the interest income to be earned from the investment
of the proceeds of the transaction is greater than the interest expense of the transaction.
At the time a Fund enters into a reverse repurchase agreement,
it will segregate liquid assets with a value not less than the repurchase price (including accrued interest). The use of reverse
repurchase agreements may be regarded as leveraging and, therefore, speculative. Furthermore, reverse repurchase agreements involve
the risks that (i) the interest income earned in the investment of the proceeds will be less than the interest expense, (ii) the
market value of the securities retained in lieu of sale by a Fund may decline below the price of the securities the Fund has sold
but is obligated to repurchase, (iii) the market value of the securities sold will decline below the price at which the Fund
is required to repurchase them and (iv) the securities will not be returned to the Fund.
In addition, if the buyer of securities under a reverse
repurchase agreement files for bankruptcy or becomes insolvent, such buyer or its trustee or receiver may receive an extension
of time to determine whether to enforce a Fund’s obligations to repurchase the securities and the Fund’s use of the
proceeds of the reverse repurchase agreement may effectively be restricted pending such decision.
Rights Offerings and Warrants to Purchase.
Certain
Funds may participate in rights offerings and may purchase warrants, which are privileges issued by corporations enabling the owners
to subscribe to and purchase a specified number of shares of the corporation at a specified price during a specified period of
time. Subscription rights normally have a short life span to expiration. The purchase of rights or warrants involves the risk that
a Fund could lose the purchase value of a right or warrant if the right to subscribe to additional shares is not exercised prior
to the rights’ and warrants’ expiration. Also, the purchase of rights and/or warrants involves the risk that the effective
price paid for the right and/or warrant added to the subscription price of the related security may exceed the value of the subscribed
security’s market price such as when there is no movement in the level of the underlying security. Buying a warrant does
not make the Fund a shareholder of the underlying stock. The warrant holder has no voting or dividend rights with respect to the
underlying stock. A warrant does not carry any right to assets of the issuer, and for this reason investment in warrants may be
more speculative than other equity-based investments.
Securities Lending.
Each Fund may lend portfolio
securities with a value not exceeding 33 1/3% of its total assets or the limit prescribed by applicable law to banks, brokers and
other financial institutions. In return, the Fund receives collateral in cash or securities issued or guaranteed by the U.S. Government
or irrevocable letters of credit issued by a bank (other than a borrower of the Fund’s portfolio securities or any affiliate
of such borrower), which qualifies as a custodian bank for an investment company under the Investment Company Act, which collateral
will be maintained at all times in an amount equal to at least 100% of the current market value of the loaned securities. The Manager
may instruct the lending agent (as defined below) to terminate loans and recall securities so that the securities may be voted
by a Fund if required by the Manager’s proxy voting guidelines. See “Proxy Voting Policies and Procedures” below.
Such notice shall be provided in advance such that a period of time equal to no less than the normal settlement period for the
securities in question prior to the record date for the proxy vote or other corporate entitlement is provided.
A Fund receives the equivalent of any income it would have
received on the loaned securities. Where a Fund receives securities as collateral, the Fund receives a fee for its loans from the
borrower and does not receive the income on the collateral. Where a Fund receives cash collateral, it may invest such collateral
and retain the amount earned, net of any amount rebated to the borrower. As a result, the Fund’s yield may increase. Loans
of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard
time period for settlement of securities transactions. The Fund is obligated to return the collateral to the borrower upon the
return of the loaned securities. A Fund could suffer a loss in the event the Fund must return the cash collateral and there are
losses on investments made with the cash collateral. In the event the borrower defaults on any of its obligations with respect
to a securities loan, a Fund could suffer a loss where the value of the collateral is below the market value of the borrowed securities
plus any other receivables from the borrower along with any transaction costs to repurchase the securities. A Fund could also experience
delays and costs in gaining access to the collateral. Each Fund may pay reasonable finder’s, lending agent, administrative
and custodial fees in connection with its loans.
Each Fund has received an exemptive order from the Commission
permitting it to lend portfolio securities to affiliates of the Fund and to retain an affiliate of the Fund as lending agent. Pursuant
to that order, each Fund has retained an affiliated entity of the Manager as the securities lending agent (the “lending agent”)
for a fee, including a fee based on a share of the returns on investment of cash collateral. In connection with securities lending
activities, the lending agent may, upon the advice of the Manager and on behalf of a Fund, invest cash collateral received by the
Fund for such loans, among other things, in a private investment company managed by the lending agent or in registered money market
funds advised by the Manager or its affiliates. Pursuant to the same order, each Fund may invest its uninvested cash in registered
money market funds advised by the Manager or its affiliates, or in a private investment company managed by the lending agent. If
a Fund acquires shares in either the private investment company or an affiliated money market fund, shareholders would bear both
their proportionate share of the Fund’s expenses and, indirectly, the expenses of such other entities. However, in accordance
with the exemptive order, the investment adviser to the private investment company will not charge any advisory fees with respect
to shares purchased by the Fund. Such shares also will not be subject to a sales load, redemption fee, distribution fee or service
fee, or in the case of the shares of an affiliated money market fund, the payment of any such sales load, redemption fee, distribution
fee or service fee will be offset by the Manager’s waiver of a portion of its advisory fee.
A Fund would continue to accrue the equivalent of the same
interest or other income on loaned securities that it would have received had the securities not been on loan, and would also earn
income on investments made with any cash collateral for such loans. Any cash collateral received by a Fund in connection with such
loans may be invested in a broad range of high quality, U.S. dollar-denominated money market instruments that meet Rule 2a-7 restrictions
for money market funds.
BlackRock Investment Management, LLC (“BIM”),
an affiliate of BlackRock, acts as securities lending agent for the Funds and will be paid a fee for the provision of these services,
including advisory services with respect to the collateral of the Funds’ securities lending program.
Securities of Smaller or Emerging Growth Companies.
Investment in smaller or emerging growth companies involves greater risk than is customarily associated with investments
in more established companies. The securities of smaller or emerging growth companies may be subject to more abrupt or erratic
market movements than larger, more established companies or the market average in general. These companies may have limited product
lines, markets or financial resources, or they may be dependent on a limited management group.
While smaller or emerging growth company issuers may offer
greater opportunities for capital appreciation than large cap issuers, investments in smaller or emerging growth companies may
involve greater risks and thus may be considered speculative. Fund management believes that properly selected companies of this
type have the potential to increase their earnings or market valuation at a rate substantially in excess of the general growth
of the economy. Full development of these companies and trends frequently takes time.
Small cap and emerging growth securities will often be
traded only in the OTC market or on a regional securities exchange and may not be traded every day or in the volume typical of
trading on a national securities exchange. As a result, the disposition by a Fund of portfolio securities to meet redemptions or
otherwise may require the Fund to make many small sales over a lengthy period of time, or to sell these securities at a discount
from market prices or during periods when, in Fund management’s judgment, such disposition is not desirable.
The process of selection and continuous supervision by
Fund management does not, of course, guarantee successful investment results; however, it does provide access to an asset class
not available to the average individual due to the time and cost involved. Careful initial selection is particularly important
in this area as many new enterprises have promise but lack certain of the fundamental factors necessary to prosper. Investing in
small cap and emerging growth companies requires specialized research and analysis. In addition, many investors cannot invest sufficient
assets in such companies to provide wide diversification.
Small companies are generally little known to most individual
investors although some may be dominant in their respective industries. Fund management believes that relatively small companies
will continue to have the opportunity to develop into significant business enterprises. A Fund may invest in securities of small
issuers in the relatively early stages of business development that have a new technology, a unique or proprietary product or service,
or a favorable market position. Such companies may not be counted upon to develop into major industrial companies, but Fund management
believes that eventual recognition of their special value characteristics by the investment community can provide above-average
long-term growth to the portfolio.
Equity securities of specific small cap issuers may present
different opportunities for long-term capital appreciation during varying portions of economic or securities market cycles, as
well as during varying stages of their business development. The market valuation of small cap issuers tends to fluctuate during
economic or market cycles, presenting attractive investment opportunities at various points during these cycles.
Smaller companies, due to the size and kinds of markets
that they serve, may be less susceptible than large companies to intervention from the Federal government by means of price controls,
regulations or litigation.
Short Sales.
Certain Funds may make
short sales of securities, either as a hedge against potential declines in value of a portfolio security or to realize appreciation
when a security that the Fund does not own declines in value. Certain Funds have a fundamental investment restriction prohibiting
short sales of securities other than short sales against-the-box. In a short sale against-the-box, at the time of the sale, the
Fund owns or has the immediate and unconditional right to acquire the identical security at no additional cost. When a Fund makes
a short sale, it borrows the security sold short and delivers it to the broker-dealer through which it made the short sale. A
Fund may have to pay a fee to borrow particular securities and is often obligated to turn over any payments received on such borrowed
securities to the lender of the securities.
A Fund secures its obligation to replace the borrowed
security by depositing collateral with the broker-dealer, usually in cash, U.S. Government securities or other liquid securities
similar to those borrowed. With respect to uncovered short positions, a Fund is required to deposit similar collateral with its
custodian, if necessary, to the extent that the value of both collateral deposits in the aggregate is at all times equal to at
least 100% of the current market value of the security sold short. Depending on arrangements made with the broker-dealer from which
the Fund borrowed the security, regarding payment received by the Fund on such security, a Fund may not receive any payments (including
interest) on its collateral deposited with such broker-dealer.
Because making short sales in securities that it does
not own exposes a Fund to the risks associated with those securities, such short sales involve speculative exposure risk. A Fund
will incur a loss as a result of a short sale if the price of the security increases between the date of the short sale and the
date on which the Fund replaces the borrowed security. As a result, if a Fund makes short sales in securities that increase in
value, it will likely underperform similar mutual funds that do not make short sales in securities. A Fund will realize a gain
on a short sale if the security declines in price between those dates. There can be no assurance that a Fund will be able to close
out a short sale position at any particular time or at an acceptable price. Although a Fund’s gain is limited to the price
at which it sold the security short, its potential loss is limited only by the maximum attainable price of the security, less the
price at which the security was sold and may, theoretically, be unlimited.
Sovereign Debt.
Investment in sovereign debt
can involve a high degree of risk. The governmental entity that controls the repayment of sovereign debt may not be able or willing
to repay the principal and/or interest when due in accordance with the terms of such debt. A governmental entity’s willingness
or ability to repay principal and interest due in a timely manner may be affected by, among other factors, its cash flow situation,
the extent of its foreign reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative
size of the debt service burden to the economy as a whole, the governmental entity’s policy towards the International Monetary
Fund and the political constraints to which a governmental entity may be subject. Governmental entities may also be dependent on
expected disbursements from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages
on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may be conditioned
on the implementation of economic reforms and/or economic performance and the timely service of such debtor’s obligations.
Failure to implement such reforms, achieve such levels of economic performance or repay principal or interest when due may result
in the cancellation of such third parties’ commitments to lend funds to the governmental entity, which may further impair
such debtor’s ability or willingness to timely service its debts. Consequently, governmental entities may default on their
sovereign debt.
Holders of sovereign debt may be requested to participate
in the rescheduling of such debt and to extend further loans to governmental entities. In the event of a default by a governmental
entity, there may be few or no effective legal remedies for collecting on such debt.
Standby Commitment Agreements.
Standby commitment
agreements commit a Fund, for a stated period of time, to purchase a stated amount of securities that may be issued and sold to
that Fund at the option of the issuer. The price of the security is fixed at the time of the commitment. At the time of entering
into the agreement, the Fund is paid a commitment fee, regardless of whether or not the security is ultimately issued. A Fund will
enter into such agreements for the purpose of investing in the security underlying the commitment at a price that is considered
advantageous to the Fund. A Fund will limit its investment in such commitments so that the aggregate purchase price of securities
subject to such commitments, together with the value of the Fund’s other illiquid investments, will not exceed 15% of its
net assets taken at the time of the commitment. A Fund segregates liquid assets in an aggregate amount equal to the purchase price
of the securities underlying the commitment.
There can be no assurance that the securities subject to
a standby commitment will be issued, and the value of the security, if issued, on the delivery date may be more or less than its
purchase price. Since the issuance of the security underlying the commitment is at the option of the issuer, the Fund may bear
the risk of a decline in the value of such security and may not benefit from an appreciation in the value of the security during
the commitment period.
The purchase of a security pursuant to a standby commitment
agreement and the related commitment fee will be recorded on the date on which the security can reasonably be expected to be issued,
and the value of the security thereafter will be reflected in the calculation of a Fund’s net asset value. The cost basis
of the security will be adjusted by the amount of the commitment fee. In the event the security is not issued, the commitment fee
will be recorded as income on the expiration date of the standby commitment.
Stand-by commitments will only be entered into with dealers,
banks and broker-dealers which, in the Manager’s or sub-adviser’s opinion, present minimal credit risks. A Fund will
acquire stand-by commitments solely to facilitate portfolio liquidity and not to exercise its rights thereunder for trading purposes.
Stand-by commitments will be valued at zero in determining net asset value. Accordingly, where a Fund pays directly or indirectly
for a stand-by commitment, its cost will be reflected as an unrealized loss for the period during which the commitment is held
by such Fund and will be reflected as a realized gain or loss when the commitment is exercised or expires.
Stripped Securities.
Stripped securities
are created when the issuer separates the interest and principal components of an instrument and sells them as separate securities.
In general, one security is entitled to receive the interest payments on the underlying assets (the interest only or “IO”
security) and the other to receive the principal payments (the principal only or “PO” security). Some stripped securities
may receive a combination of interest and principal payments. The yields to maturity on IOs and POs are sensitive to the expected
or anticipated rate of principal payments (including prepayments) on the related underlying assets, and principal payments
may have a material effect on yield to maturity. If the
underlying assets experience greater than anticipated prepayments of principal, a Fund may not fully recoup its initial investment
in IOs. Conversely, if the underlying assets experience less than anticipated prepayments of principal, the yield on POs could
be adversely affected. Stripped securities may be highly sensitive to changes in interest rates and rates of prepayment.
Structured Notes.
Structured notes and other
related instruments purchased by a 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”).
Issuers of structured notes include corporations and banks. 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 a 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 a 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. The secondary market for
structured notes could be illiquid making them difficult to sell when the Fund determines to sell them. The possible lack of a
liquid secondary market for structured notes and the resulting inability of the Fund to sell a structured note could expose the
Fund to losses and could make structured notes more difficult for the Fund to value accurately.
Supranational Entities
. A Fund may invest
in debt securities of supranational entities. Examples of such entities include the International Bank for Reconstruction and Development
(the World Bank), the European Steel and Coal Community, the Asian Development Bank and the Inter-American Development Bank. The
government members, or “stockholders,” usually make initial capital contributions to the supranational entity and in
many cases are committed to make additional capital contributions if the supranational entity is unable to repay its borrowings.
There is no guarantee that one or more stockholders of a supranational entity 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 a Fund may lose money on such investments.
Trust Preferred Securities.
Certain of the
Funds may invest in trust preferred securities. Trust preferred securities are typically issued by corporations, generally in the
form of interest bearing notes with preferred securities characteristics, or by an affiliated business trust of a corporation,
generally in the form of beneficial interests in subordinated debentures or similarly structured securities. The trust preferred
securities market consists of both fixed and adjustable coupon rate securities that are either perpetual in nature or have stated
maturity dates.
Trust preferred securities are typically junior and fully
subordinated liabilities of an issuer and benefit from a guarantee that is junior and fully subordinated to the other liabilities
of the guarantor. In addition, trust preferred securities typically permit an issuer to defer the payment of income for five years
or more without triggering an event of default. Because of their subordinated position in the capital structure of an issuer, the
ability to defer payments for extended periods of time without default consequences to the issuer, and certain other features (such
as restrictions on common dividend payments by the issuer or ultimate guarantor when full cumulative payments on the trust preferred
securities have not been made), these trust preferred securities are often treated as close substitutes for traditional preferred
securities, both by issuers and investors.
Trust preferred securities include but are not limited
to trust originated preferred securities (“TOPRS
®
”); monthly income preferred securities (“MIPS
®
”);
quarterly income bond securities (“QUIBS
®
” ); quarterly income debt securities (“QUIDS
®
”);
quarterly income preferred securities (“QUIPS
SM
”); corporate trust securities (“CORTS
®
”);
public income notes (“PINES
®
”); and other trust preferred securities.
Trust preferred securities are typically issued with a
final maturity date, although some are perpetual in nature. In certain instances, a final maturity date may be extended and/or
the final payment of principal may be deferred at the issuer’s option for a specified time without default. No redemption
can typically take place unless all cumulative payment obligations have been met, although issuers may be able to engage in open-market
repurchases without regard to whether all payments have been paid.
Many trust preferred securities are issued by trusts
or other special purpose entities established by operating companies and are not a direct obligation of an operating company. At
the time the trust or special purpose entity sells such preferred securities to investors, it purchases debt of the operating company
(with terms comparable to those of the trust or special purpose entity securities), which enables the operating company to deduct
for tax purposes the interest paid on the debt held by the trust or special purpose entity. The trust or special purpose entity
is generally required to be treated as transparent for Federal income tax purposes such that the holders of the trust preferred
securities are treated as owning beneficial interests in the underlying debt of the operating company. Accordingly, payments on
the trust preferred securities are treated as interest rather than dividends for Federal income tax purposes. The trust or special
purpose entity in turn would be a holder of the operating company’s debt and would have priority with respect to the operating
company’s earnings and profits over the operating company’s common shareholders, but would typically be subordinated
to other classes of the operating company’s debt. Typically a preferred share has a rating that is slightly below that of
its corresponding operating company’s senior debt securities.
U.S. Government Obligations.
A Fund may purchase
obligations issued or guaranteed by the U.S. Government and U.S. Government agencies and instrumentalities. Obligations of certain
agencies and instrumentalities of the U.S. Government are supported by the full faith and credit of the U.S. Treasury. Others are
supported by the right of the issuer to borrow from the U.S. Treasury; and still others are supported only by the credit of the
agency or instrumentality issuing the obligation. No assurance can be given that the U.S. Government will provide financial support
to U.S. Government-sponsored instrumentalities if it is not obligated to do so by law. Certain U.S. Treasury and agency securities
may be held by trusts that issue participation certificates (such as Treasury income growth receipts (“TIGRs”) and
certificates of accrual on Treasury certificates (“CATs”)). These certificates, as well as Treasury receipts and other
stripped securities, represent beneficial ownership interests in either future interest payments or the future principal payments
on U.S. Government obligations. These instruments are issued at a discount to their “face value” and may (particularly
in the case of stripped mortgage-backed securities) exhibit greater price volatility than ordinary debt securities because of the
manner in which their principal and interest are returned to investors.
Examples of the types of U.S. Government obligations that
may be held by the Funds include U.S. Treasury Bills, Treasury Notes and Treasury Bonds and the obligations of the Federal Housing
Administration, Farmers Home Administration, Export-Import Bank of the United States, Small Business Administration, Ginnie Mae,
Fannie Mae, Federal Financing Bank, General Services Administration, Student Loan Marketing Association, Central Bank for Cooperatives,
Federal Home Loan Banks, Freddie Mac, Federal Intermediate Credit Banks, Federal Land Banks, Farm Credit Banks System, Maritime
Administration, Tennessee Valley Authority and Washington D.C. Armory Board. The Funds may also invest in mortgage-related securities
issued or guaranteed by U.S. Government agencies and instrumentalities, including such instruments as obligations of the Ginnie
Mae, Fannie Mae and Freddie Mac. See “Mortgage-Backed Securities” above.
U.S. Treasury Obligations.
Treasury obligations
may differ in their interest rates, maturities, times of issuance and other characteristics. Obligations of U.S. Government agencies
and authorities are supported by varying degrees of credit but generally are not backed by the full faith and credit of the U.S.
Government. No assurance can be given that the U.S. Government will provide financial support to its agencies and authorities if
it is not obligated by law to do so.
Utility Industries
Risks that are intrinsic to the utility industries include
difficulty in obtaining an adequate return on invested capital, difficulty in financing large construction programs during an inflationary
period, restrictions on operations and increased cost and delays attributable to environmental considerations and regulation, difficulty
in raising capital in adequate amounts on reasonable terms in periods of high inflation and unsettled capital markets, technological
innovations that may render existing plants, equipment or products obsolete, the potential impact of natural or man-made disasters,
increased costs and reduced availability of certain types of fuel, occasional reduced availability and high costs of natural gas
for resale, the effects of energy conservation, the effects of a national energy policy and lengthy delays and greatly increased
costs and other problems associated with the design, construction, licensing, regulation and operation of nuclear facilities for
electric generation, including, among other considerations, the problems associated with the use of radioactive materials and the
disposal of radioactive wastes. There are substantial differences among the regulatory practices and policies of various jurisdictions,
and any given regulatory agency may make major shifts in policy from time to time. There is no assurance that regulatory authorities
will, in the future, grant rate increases or that such increases will be adequate to permit the payment of dividends on common
stocks issued by a utility company. Additionally, existing and possible future regulatory legislation may make it even more difficult
for utilities to obtain adequate relief. Certain of the issuers of securities held in the Fund’s portfolio may own or operate
nuclear generating facilities. Governmental authorities may from time to time review existing policies and impose additional requirements
governing the licensing, construction and operation of nuclear power plants. Prolonged changes in climatic conditions can also
have a significant impact on both the revenues of an electric and gas utility as well as the expenses of a utility, particularly
a hydro-based electric utility.
Utility companies in the United States and in foreign countries
are generally subject to regulation. In the United States, most utility companies are regulated by state and/or federal authorities.
Such regulation is intended to ensure appropriate standards of service and adequate capacity to meet public demand. Generally,
prices are also regulated in the United States and in foreign countries with the intention of protecting the public while ensuring
that the rate of return earned by utility companies is sufficient to allow them to attract capital in order to grow and continue
to provide appropriate services. There can be no assurance that such pricing policies or rates of return will continue in the future.
The nature of regulation of the utility industries continues
to evolve both in the United States and in foreign countries. In recent years, changes in regulation in the United States increasingly
have allowed utility companies to provide services and products outside their traditional geographic areas and lines of business,
creating new areas of competition within the industries. In some instances, utility companies are operating on an unregulated basis.
Because of trends toward deregulation and the evolution of independent power producers as well as new entrants to the field of
telecommunications, non-regulated providers of utility services have become a significant part of their respective industries.
The Manager believes that the emergence of competition and deregulation will result in certain utility companies being able to
earn more than their traditional regulated rates of return, while others may be forced to defend their core business from increased
competition and may be less profitable. Reduced profitability, as well as new uses of funds (such as for expansion, operations
or stock buybacks) could result in cuts in dividend payout rates. The Manager seeks to take advantage of favorable investment opportunities
that may arise from these structural changes. Of course, there can be no assurance that favorable developments will occur in the
future.
Foreign utility companies are also subject to regulation,
although such regulations may or may not be comparable to those in the United States. Foreign utility companies may be more heavily
regulated by their respective governments than utilities in the United States and, as in the United States, generally are required
to seek government approval for rate increases. In addition, many foreign utilities use fuels that may cause more pollution than
those used in the United States, which may require such utilities to invest in pollution control equipment to meet any proposed
pollution restrictions. Foreign regulatory systems vary from country to country and may evolve in ways different from regulation
in the United States.
A Fund’s investment policies are designed to enable
it to capitalize on evolving investment opportunities throughout the world. For example, the rapid growth of certain foreign economies
will necessitate expansion of capacity in the utility industries in those countries. Although many foreign utility companies currently
are government-owned, thereby limiting current investment opportunities for a Fund, the Manager believes that, in order to attract
significant capital for growth, foreign governments are likely to seek global investors through the privatization of their utility
industries. Privatization, which refers to the trend toward investor ownership of assets rather than government ownership, is expected
to occur in newer, faster-growing economies and in mature economies. Of course, there is no assurance that such favorable developments
will occur or that investment opportunities in foreign markets will increase.
The revenues of domestic and foreign utility companies
generally reflect the economic growth and development in the geographic areas in which they do business. The Manager will take
into account anticipated economic growth rates and other economic developments when selecting securities of utility companies.
Electric.
The electric utility industry consists
of companies that are engaged principally in the generation, transmission and sale of electric energy, although many also provide
other energy-related services. In the past, electric utility companies, in general, have been favorably affected by lower fuel
and financing costs and the full or near completion of major construction programs. In addition, many of these companies have generated
cash flows in excess of current operating expenses and construction expenditures, permitting some degree of diversification into
unregulated businesses. Some electric utilities have also taken advantage of the right to sell power outside of their traditional
geographic areas. Electric utility companies have historically been subject to the risks associated with increases in fuel and
other operating costs, high interest costs on borrowings needed for capital construction programs, costs associated with compliance
with environmental and safety regulations and changes in the regulatory climate. As interest rates declined, many utilities refinanced
high cost debt and in doing so improved their fixed charges coverage. Regulators, however, lowered allowed rates of return as interest
rates declined and thereby caused the benefits of the rate declines to be shared wholly or in part with customers. In a period
of rising interest rates, the allowed rates of return may not keep pace with the utilities’ increased costs. The construction
and operation of nuclear power facilities are subject to strict scrutiny by, and evolving regulations of, the Nuclear Regulatory
Commission and state agencies which have comparable jurisdiction. Strict scrutiny might result in higher operating costs and higher
capital expenditures, with the risk that the regulators may disallow inclusion of these costs in rate authorizations or the risk
that a company may not be permitted to operate or complete construction of a facility. In addition, operators of nuclear power
plants may be subject to significant costs for disposal of nuclear fuel and for decommissioning such plants.
The rating agencies look closely at the business profile
of utilities. Ratings for companies are expected to be impacted to a greater extent in the future by the division of their asset
base. Electric utility companies that focus more on the generation of electricity may be assigned less favorable ratings as this
business is expected to be competitive and the least regulated. On the other hand, companies that focus on transmission and distribution,
which is expected to be the least competitive and the more regulated part of the business, may see higher ratings given the greater
predictability of cash flow.
A number of states are considering or have enacted deregulation
proposals. The introduction of competition into the industry as a result of such deregulation has at times resulted in lower revenue,
lower credit ratings, increased default risk, and lower electric utility security prices. Such increased competition may also cause
long-term contracts, which electric utilities previously entered into to buy power, to become “stranded assets” which
have no economic value. Any loss associated with such contracts must be absorbed by ratepayers and investors. In addition, some
electric utilities have acquired electric utilities overseas to diversify, enhance earnings and gain experience in operating in
a deregulated environment. In some instances, such acquisitions have involved significant borrowings, which have burdened the acquirer’s
balance sheet. There is no assurance that current deregulation proposals will be adopted. However, deregulation in any form could
significantly impact the electric utilities industry.
Telecommunications.
The telecommunications industry
today includes both traditional telephone companies, with a history of broad market coverage and highly regulated businesses, and
cable companies, which began as small, lightly regulated businesses focused on limited markets. Today these two historically different
businesses are converging in an industry that is trending toward larger, competitive national and international markets with an
emphasis on deregulation. Companies that distribute telephone services and provide access to the telephone networks still comprise
the greatest portion of this segment, but non-regulated activities such as wireless telephone services, paging, data transmission
and processing, equipment retailing, computer software and hardware and internet services are becoming increasingly significant
components as well. In particular, wireless and internet telephone services continue to gain market share at the expense of traditional
telephone companies. The presence of unregulated companies in this industry and the entry of traditional telephone companies into
unregulated or less regulated businesses provide significant investment opportunities with companies that may increase their earnings
at faster rates than had been allowed in traditional regulated businesses. Still, increasing competition, technological innovations
and other structural changes could adversely affect the profitability of such utilities and the growth rate of their dividends.
Given mergers and proposed legislation and enforcement changes, it is likely that both traditional telephone companies and cable
companies will continue to provide an expanding range of utility services to both residential, corporate and governmental customers.
Gas
. Gas transmission companies and gas distribution
companies are undergoing significant changes. In the United States, interstate transmission companies are regulated by the Federal
Energy Regulatory Commission, which is reducing its regulation of the industry. Many companies have diversified into oil and gas
exploration and development, making returns more sensitive to energy prices. In the recent decade, gas utility companies have been
adversely affected by disruptions in the oil industry and have also been affected by increased concentration and competition. In
the opinion of the Manager, however, environmental considerations could improve the gas industry outlook in the future. For example,
natural gas is the cleanest of the hydrocarbon fuels, and this may result in incremental shifts in fuel consumption toward natural
gas and away from oil and coal, even for electricity generation. However, technological or regulatory changes within the industry
may delay or prevent this result.
Water.
Water supply utilities are companies that
collect, purify, distribute and sell water. In the United States and around the world the industry is highly fragmented because
most of the supplies are owned by local authorities. Companies in this industry are generally mature and are experiencing little
or no per capita volume growth. In the opinion of the Manager, there may be opportunities for certain companies to acquire other
water utility companies and for foreign acquisition of domestic companies. The Manager believes that favorable investment opportunities
may result from consolidation of this segment. As with other utilities, however, increased regulation, increased costs and potential
disruptions in supply may adversely affect investments in water supply utilities.
Utility Industries Generally.
There can be no assurance
that the positive developments noted above, including those relating to privatization and changing regulation, will occur or that
risk factors other than those noted above will not develop in the future.
When Issued Securities, Delayed Delivery Securities
and Forward Commitments.
A Fund may purchase or sell securities that it is entitled to receive on a when issued basis.
A Fund may also purchase or sell securities on a delayed delivery basis or through a forward commitment (including on a “TBA”
(to be announced) basis). These transactions involve the purchase or sale of securities by a 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. When a Fund purchases securities in these transactions, the Fund
segregates liquid securities in an amount equal to the amount of its purchase commitments.
There can be no assurance that a security purchased on
a when issued basis will be issued or that a security purchased or sold on a delayed delivery basis or through a forward commitment
will be delivered. Also, the value of securities in these transactions on the delivery date may be more or less than the price
paid by the Fund to purchase the securities. The Fund will lose money if the value of the security in such a transaction declines
below the purchase price and will not benefit if the value of the security appreciates above the sale price during the commitment
period.
If deemed advisable as a matter of investment strategy,
a Fund may dispose of or renegotiate a commitment after it has been entered into, and may sell securities it has committed to purchase
before those securities are delivered to the Fund on the settlement date. In these cases the Fund may realize a taxable capital
gain or loss.
When a Fund engages in when-issued, TBA or forward commitment
transactions, it relies on the other party to consummate the trade. Failure of such party to do so may result in the Fund’s
incurring a loss or missing an opportunity to obtain a price considered to be advantageous.
The market value of the securities underlying a commitment
to purchase securities, and any subsequent fluctuations in their market value, is taken into account when determining the market
value of a Fund starting on the day the Fund agrees to purchase the securities. The Fund does not earn interest on the securities
it has committed to purchase until they are paid for and delivered on the settlement date.
Yields and Ratings
.
The yields on
certain obligations are dependent on a variety of factors, including general market conditions, conditions in the particular market
for the obligation, the financial condition of the issuer, the size of the offering, the maturity of the obligation and the ratings
of the issue. The ratings of Moody’s, Fitch and S&P represent their respective opinions as to the quality of the obligations
they undertake to rate. Ratings, however, are general and are not absolute standards of quality. Consequently, obligations with
the same rating, maturity and interest rate may have different market prices. Subsequent to its purchase by a Fund, a rated security
may cease to be rated. A Fund’s Manager or sub-adviser will consider such an event in determining whether the Fund should
continue to hold the security.
Zero Coupon Securities.
Zero coupon securities
are securities that are sold at a discount to par value and do not pay interest during the life of the security. The discount approximates
the total amount of interest the security will accrue and compound over the period until maturity at a rate of interest reflecting
the market rate of the security at the time of issuance. Upon maturity, the holder of a zero coupon security is entitled to receive
the par value of the security.
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.
A Fund accrues income with respect to these securities
for Federal income tax and accounting purposes prior to the receipt of cash payments. Zero coupon securities may be subject to
greater fluctuation in value and less liquidity in the event of adverse market conditions than comparably rated securities that
pay cash interest at regular intervals.
Further, to maintain its qualification for pass-through
treatment under the Federal tax laws, a Fund is required to distribute income to its shareholders and, consequently, may have to
dispose of other, more liquid portfolio securities under disadvantageous circumstances or may have to leverage itself by borrowing
in order to generate the cash to satisfy these distributions. The required distributions may result in an increase in a Fund’s
exposure to zero coupon securities.
In addition to the above-described risks, there are certain
other risks related to investing in zero coupon securities. During a period of severe market conditions, the market for such securities
may become even less liquid. In addition, as these securities do not pay cash interest, a Fund’s investment exposure to these
securities and their risks, including credit risk, will increase during the time these securities are held in the Fund’s
portfolio.
Suitability (All Funds)
The economic benefit of an investment in any Fund depends
upon many factors beyond the control of the Fund, the Manager and its affiliates. Each Fund should be considered a vehicle for
diversification and not as a balanced investment program. The suitability for any particular investor of a purchase of shares in
a Fund will depend upon, among other things, such investor’s investment objectives and such investor’s ability to accept
the risks associated with investing in securities, including the risk of loss of principal.
Investment Restrictions (All Funds)
See “Investment Restrictions” in Part I of
each Fund’s Statement of Additional Information for the specific fundamental and non-fundamental investment restrictions
adopted by each Fund. In addition to those investment restrictions, each Fund is also subject to the restrictions discussed below.
The staff of the Commission has taken the position that
purchased OTC options and the assets used as cover for written OTC options are illiquid securities. Therefore, each Fund has adopted
an investment policy pursuant to which it will not purchase or sell OTC options (including OTC options on futures contracts) if,
as a result of any such transaction, the sum of the market value of OTC options currently outstanding that are held by the Fund,
the market value of the underlying securities covered by OTC call options currently outstanding that were sold by the Fund and
margin deposits on the Fund’s existing OTC options on financial futures contracts would exceed 15% of the net assets of the
Fund, taken at market value, together with all other assets of the Fund that are determined to be illiquid. However, if an OTC
option is sold by a Fund to a primary U.S. Government securities dealer recognized by the Federal Reserve Bank of New York and
if the Fund has the unconditional contractual right to repurchase such OTC option from the dealer at a predetermined price, then
the Fund will treat as illiquid only such amount of the underlying securities as is equal to the repurchase price less the amount
by which the option is “in-the-money” (
i.e.
, current market value of the underlying securities minus the option’s
strike price). The repurchase price with the primary dealers is typically a formula price that is generally based on a multiple
of the premium received for the option, plus the amount by which the option is “in-the-money.” This policy as to OTC
options is not a fundamental policy of any Fund and may be amended by the Board of Directors of the Fund without the approval of
the Fund’s shareholders.
Each Fund’s investments will be limited in order
to allow the Fund to qualify as a “regulated investment company” for purposes of the Code. See “Dividends and
Taxes — Taxes.” To qualify, among other requirements, each Fund will limit its investments so that, at the close of
each quarter of the taxable year, (i) at least 50% of the market value of each Fund’s assets is represented by cash,
securities of other regulated investment companies, U.S. government securities and other securities, with such other securities
limited, in respect of any one issuer, to an amount not greater than 5% of the Fund’s assets and not greater than 10% of
the outstanding voting securities of such issuer and (ii) not more than 25% of the value of its assets is invested in the
securities (other than U.S. government securities or securities of other regulated investment companies) of any one issuer, any
two or more issuers that the Fund controls and that are determined to be engaged in the same or similar trades or businesses or
related trades or businesses or in the securities of one or more qualified publicly traded partnerships (
i.e
., partnerships
that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90%
of their income from interest, dividends, capital gains, and other traditionally permitted mutual fund income).
Foreign government securities (unlike U.S. government securities)
are not exempt from the diversification requirements of the Code and the securities of each foreign government issuer are considered
to be obligations of a single issuer. These tax-related limitations may be changed by the Directors of a Fund to the extent necessary
to comply with changes to the Federal tax requirements. A Fund that is “diversified” under the Investment Company Act
must satisfy the foregoing 5% and 10% requirements with respect to 75% of its total assets.
Management
and Other Service Arrangements
Directors and Officers
See “Information on Directors and Officers,“—Biographical
Information,“—Share Ownership” and “— Compensation of Directors” in Part I of each Fund’s
Statement of Additional Information for biographical and certain other information relating to the Directors and officers of your
Fund, including Directors’ compensation.
Management Arrangements
Management Services.
The Manager provides each Fund
with investment advisory and management services. Subject to the oversight of the Board of Directors, the Manager is responsible
for the actual management of a Fund’s portfolio and reviews the Fund’s holdings in light of its own research analysis
and that from other relevant sources.
The responsibility for making decisions to buy, sell or
hold a particular security rests with the Manager. The Manager performs certain of the other administrative services and provides
all the office space, facilities, equipment and necessary personnel for management of each Fund.
Each Feeder Fund invests all or a portion of its assets
in shares of a Master Portfolio. To the extent a Feeder Fund invests all of its assets in a Master Portfolio, it does not invest
directly in portfolio securities and does not require management services. For such Feeder Funds, portfolio management occurs at
the Master Portfolio level.
Management Fee.
Each Fund has entered into a Management
Agreement with the Manager pursuant to which the Manager receives for its services to the Fund monthly compensation at an annual
rate based on the average daily net assets of the Fund. For information regarding specific fee rates for your Fund and the fees
paid by your Fund to the Manager for the Fund’s last three fiscal years or other applicable periods, see “Management
and Advisory Arrangements” in Part I of each Fund’s Statement of Additional Information.
For Funds that do not have an administrator, each Management
Agreement obligates the Manager to provide management services and to pay all compensation of and furnish office space for officers
and employees of a Fund in connection with investment and economic research, trading and investment management of the Fund, as
well as the fees of all Directors of the Fund who are interested persons of the Fund. Each Fund pays all other expenses incurred
in the operation of that Fund, including among other things: taxes; expenses for legal and auditing services; costs of preparing,
printing and mailing proxies, shareholder reports, prospectuses and statements of additional information, except to the extent
paid by BlackRock Investments, LLC (“BRIL” or the “Distributor”); charges of the custodian and sub-custodian,
and the transfer agent; expenses of redemption of shares; Commission fees; expenses of registering the shares under Federal, state
or foreign laws; fees and expenses of Directors who are not interested persons of a Fund as defined in the Investment Company Act;
accounting and pricing costs (including the daily calculations of net asset value); insurance; interest; brokerage costs; litigation
and other extraordinary or non-recurring expenses; and other expenses properly payable by the Fund. Certain accounting services
are provided to each Fund by State Street Bank and Trust Company (“State Street”) or BNY Mellon Investment Servicing
(US) Inc. (“BNY Mellon”) pursuant to an agreement between State Street or BNY Mellon and each Fund. Each Fund pays
a fee for these services. In addition, the Manager provides certain accounting services to each Fund and the Fund pays the Manager
a fee for such services. The Distributor pays certain promotional expenses of the Funds incurred in connection with the offering
of shares of the Funds. Certain expenses are financed by each Fund pursuant to distribution plans in compliance with Rule 12b-1
under the Investment Company Act. See “Purchase of Shares — Distribution Plans.”
Sub-Advisory Fee.
The Manager of certain Funds has
entered into one or more sub-advisory agreements (the “Sub-Advisory Agreements”) with the sub-adviser or sub-advisers
identified in each such Fund’s Prospectus (the “Sub-Adviser”) pursuant to which the Sub-Adviser provides sub-advisory
services to the Manager with respect to the Fund. For information relating to the fees, if any, paid by the Manager to the Sub-Adviser
pursuant to the Sub-Advisory Agreement for the Fund’s last three fiscal years or other applicable periods, see “Management
and Advisory Arrangements” in Part I of each Fund’s Statement of Additional Information.
Organization of the Manager.
BlackRock Advisors,
LLC is a Delaware limited liability company and BlackRock Fund Advisors is a California corporation. Each Manager is an indirect,
wholly owned subsidiary of BlackRock, Inc. BlackRock, Inc., through its subsidiaries and divisions, provides (i) investment management
services to individuals and institutional investors through separate account management, non-discretionary advisory programs and
commingled investment vehicles; (ii) risk management services, investment accounting and trade processing tools; (iii) transition
management services, and (iv) securities lending services.
Duration and Termination.
Unless earlier terminated
as described below, each Management Agreement and each Sub-Advisory Agreement will remain in effect for an initial two year period
and from year to year thereafter if approved annually (a) by the Board of Directors or by a vote of a majority of the outstanding
voting securities of a Fund and (b) by a majority of the Directors of the Fund who are not parties to such agreement or interested
persons (as defined in the Investment Company Act) of any such party. Each Agreement automatically terminates on assignment and
may be terminated without penalty on 60 days’ written notice at the option of either party thereto or by the vote of
the shareholders of the applicable Fund.
Other Service Arrangements
Administrative Services and Administrative Fee.
Certain
Funds have entered into an administration agreement (the “Administration Agreement”) with an administrator identified
in the Fund’s Prospectus and Part I of the Fund’s Statement of Additional Information (each an “Administrator”).
For its services to a Fund, the Administrator receives monthly compensation at the annual rate set forth in each applicable Fund’s
Prospectus. For information regarding any administrative fees paid by your Fund to the Administrator for the periods indicated,
see “Management and Advisory Arrangements” in Part I of that Fund’s Statement of Additional Information.
For Funds that have an Administrator, the Administration
Agreement obligates the Administrator to provide certain administrative services to the Fund and to pay, or cause its affiliates
to pay, for maintaining its staff and personnel and to provide office space, facilities and necessary personnel for the Fund. Each
Administrator is also obligated to pay, or cause its affiliates to pay, the fees of those officers and Directors of the Fund who
are affiliated persons of the Administrator or any of its affiliates.
Duration and Termination of Administration Agreement.
Unless earlier terminated as described below, each Administration Agreement will continue for an initial two year period and
from year to year if approved annually (a) by the Board of Directors of each applicable Fund or by a vote of a majority of
the outstanding voting securities of such Fund and (b) by a majority of the Directors of the Fund who are not parties to such
contract or interested persons (as defined in the Investment Company Act) of any such party. Such contract is not assignable and
may be terminated without penalty on 60 days’ written notice at the option of either party thereto or by the vote of
the shareholders of the Fund.
Transfer Agency Services.
BNY Mellon Investment
Servicing (US) Inc. (in this capacity, the “Transfer Agent”), a subsidiary of The Bank of New York Mellon Corporation,
acts as each Fund’s Transfer Agent pursuant to a Transfer Agency, Dividend Disbursing Agency and Shareholder Servicing Agency
Agreement (the “Transfer Agency Agreement”) with the Funds. Pursuant to the Transfer Agency Agreement, the Transfer
Agent is responsible for the issuance, transfer and redemption of shares and the opening and maintenance of shareholder accounts.
Each Fund pays the Transfer Agent a fee for the services it receives based on the type of account and the level of services required.
Each Fund reimburses the Transfer Agent’s reasonable out-of-pocket expenses and pays a fee of 0.10% of account assets for
certain accounts that participate in certain fee-based programs sponsored by the Manager or its affiliates. For purposes of each
Transfer Agency Agreement, the term “account” includes a shareholder account maintained directly by the Transfer Agent
and any other account representing the beneficial interest of a person in the relevant share class on a recordkeeping system. Effective
July 1, 2010, the Transfer Agent ceased to be an affiliate of the Funds.
Independent Registered Public Accounting Firm.
The
Audit Committee of each Fund, which is comprised of all of the Fund’s non-interested Directors, has selected an independent
registered public accounting firm for that Fund that audits the Fund’s financial statements. Please see the inside back cover
page of your Fund’s Prospectus for information on your Fund’s independent registered public accounting firm.
Custodian Services.
The name and address of the
custodian (the “Custodian”) of each Fund are provided on the inside back cover page of the Fund’s Prospectus.
The Custodian is responsible for safeguarding and controlling the Fund’s cash and securities, handling the receipt and delivery
of securities and collecting interest and dividends on the Fund’s investments. The Custodian is authorized to establish separate
accounts in foreign currencies and to cause foreign securities owned by the Fund to be held in its offices outside the United States
and with certain foreign banks and securities depositories.
For certain Feeder Funds, the Custodian also acts as the
custodian of the Master Portfolio’s assets.
With respect to each Fund, under an arrangement effective January
1, 2010, on a monthly basis, the Custodian nets the Fund’s daily positive and negative cash balances and calculates a credit
(“custody credit”) or a charge based on that net amount. The custodian fees, including the amount of any overdraft
charges, may be reduced by the amount of such custody credits, and any unused credits at the end of a given month may be carried
forward to a subsequent month. Any such credits unused by the end of a Fund’s fiscal year will not expire. Net debits at
the end of a given month are added to the Fund’s custody bill and paid by the Fund.
Accounting Services.
Each Fund has entered into
an agreement with State Street or BNY Mellon, pursuant to which State Street or BNY Mellon provides certain accounting services
to the Fund. Each Fund pays a fee for these services. State Street or BNY Mellon provides similar accounting services to the Master
LLCs. The Manager or the Administrator also provides certain accounting services to each Fund and each Fund reimburses the Manager
or the Administrator for these services.
See “Management and Advisory Arrangements —
Accounting Services” in Part I of each Fund’s Statement of Additional Information for information on the amounts paid
by your Fund and, if applicable, Master LLC to State Street and the Manager or, if applicable, the Administrator for the periods
indicated.
Distribution Expenses.
Each Fund has entered into
a distribution agreement with the Distributor in connection with the continuous offering of each class of shares of the Fund (the
“Distribution Agreement”). The Distribution Agreement obligates the Distributor to pay certain expenses in connection
with the offering of each class of shares of the Funds. After the prospectuses, statements of additional information and periodic
reports have been prepared, set in type and mailed to shareholders, the Distributor pays for the printing and distribution of these
documents used in connection with the offering to dealers and investors. The Distributor also pays for other supplementary sales
literature and advertising costs. The Distribution Agreement is subject to the same renewal requirements and termination provisions
as the Management Agreement described above.
Code of Ethics
Each Fund, the Manager, each Sub-Adviser and the Distributor
has adopted a Code of Ethics pursuant to Rule 17j-1 under the Investment Company Act. The Codes of Ethics establish procedures
for personal investing and restrict certain transactions. Employees subject to the Code of Ethics may invest in securities for
their personal investment accounts, including securities that may be purchased or held by a Fund.
Selective
Disclosure of Portfolio Holdings
The Board of Directors of each Fund and the Board of
Directors of the Manager have each approved Portfolio Information Distribution Guidelines (the “Guidelines”) regarding
the disclosure of each Fund’s portfolio securities, as applicable, and other portfolio information. The purpose of the Guidelines
is to ensure that (i) shareholders and prospective shareholders of the Funds have equal access to portfolio holdings and characteristics
and (ii) third parties (such as consultants, intermediaries and third-party data providers) have access to such information no
more frequently than shareholders and prospective shareholders.
Pursuant to the Guidelines, each Fund and the Manager may, under
certain circumstances as set forth below, make selective disclosure with respect to a Fund’s portfolio holdings. Each Board
of Directors has approved the adoption by the Fund of the Guidelines, and employees of the Manager are responsible for adherence
to the Guidelines. The Board of Directors provides ongoing oversight of the Fund’s and Manager’s compliance with the
Guidelines. Examples of the types of information that may be disclosed pursuant to the Guidelines are provided below. This information
may be both material non-public information (“Confidential Information”) and proprietary information of BlackRock.
Information that is non-material or that may be obtained from public sources (
i.e.
, information that has been publicly disclosed
via a filing with the Commission (
e.g.
, fund annual report), through a press release or placement on a publicly-available
internet web site) shall not be deemed Confidential Information.
Except as otherwise provided in the Guidelines, Confidential Information
relating to a Fund may not be distributed to persons not employed by BlackRock unless the Fund has a legitimate business purpose
for doing so. Confidential Information may also be disclosed to the Fund’s Directors and their respective counsel, outside
counsel for the Fund and the Fund’s auditors, and may be disclosed to the Fund’s service providers and other appropriate
parties with the approval of the Fund’s Chief Compliance Officer, BlackRock’s General Counsel, BlackRock’s Chief
Compliance Officer or the designee of such persons, and in addition, in the case of disclosure to third parties, subject to a confidentiality
or non-disclosure agreement, as necessary, in accordance with the Guidelines. Information may also be disclosed as required by
applicable laws and regulation.
Examples of instances in which selective disclosure of a Fund’s
portfolio securities or other portfolio information may be appropriate include: (i) disclosure for due diligence purposes to an
investment adviser that is in merger or acquisition talks with BlackRock; (ii) disclosure to a newly-hired investment adviser or
sub-adviser prior to its commencing its duties; (iii) disclosure to a third-party feeder fund consistent with its agreement with
a master portfolio advised by BlackRock; (iv) disclosure to third-party service providers of legal, auditing, custody, proxy voting,
pricing and other services to the Fund or a third-party feeder fund or (v) disclosure to a rating or ranking organization.
Asset and Return Information.
Data on NAVs, asset levels
(by total fund and share class), accruals, yields, capital gains, dividends and fund returns (net of fees by share class) are generally
available to shareholders, prospective shareholders, consultants and third-party data providers upon request, as soon as such data
is available. Data on number of shareholders (total and by share class) and benchmark returns (including performance measures such
as standard deviation, information ratio, Sharpe ratio, alpha, and beta) are
generally available to shareholders, prospective shareholders, consultants
and third-party data providers as soon as such data is released after month-end.
Portfolio Characteristics.
Examples of portfolio characteristics
include sector allocation, credit quality breakdown, maturity distribution, duration and convexity measures, average credit quality,
average maturity, average coupon, top 10 holdings with percent of the fund held, average market capitalization, capitalization
range, ROE, P/E, P/B, P/CF, P/S and EPS.
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Month-end portfolio characteristics are available to shareholders, prospective shareholders, intermediaries and consultants on the fifth calendar day after month-end.
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2.
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Fund Fact Sheets, which contain certain portfolio characteristics, are available, in both hard copy and electronically, to shareholders, prospective shareholders, intermediaries and consultants on a monthly or quarterly basis no earlier than the fifth calendar day after the end of a month or quarter.
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Money Market Performance Reports, which contain money market fund performance for the recent month, rolling 12-month average yields and benchmark performance, are available on a monthly basis to shareholders, prospective shareholders, intermediaries and consultants by the tenth calendar day of the month. This information may also be obtained electronically upon request.
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Portfolio Holdings.
In addition to position description,
portfolio holdings may also include issuer name, CUSIP, ticker symbol, total shares and market value for equity portfolios and
issuer name, CUSIP, ticker symbol, coupon, maturity, current face value and market value for fixed income portfolios. Other information
that may be provided includes quantity, SEDOL, market price, yield, weighted average life, duration and convexity of each security
in a Fund as of a specific date.
The following shall not be deemed to be a disclosure of Confidential
Information:
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Generally, month-end portfolio holdings may be made available to fund shareholders, prospective shareholders, intermediaries,
consultants and third party data providers (
e.g.
, Lipper, Morningstar and Bloomberg) on the 20th calendar day after the
end of each month, except for BlackRock Global Allocation Fund, Inc., BlackRock Long-Horizon Equity Fund, Global Allocation Portfolio
of BlackRock Series Fund, Inc. and BlackRock Global Allocation V.I. Fund of BlackRock Variable Series Funds, Inc., whose holdings
may be made available on the 40
th
calendar day after the end of the quarter (based on each Fund’s fiscal year
end).
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The following information as it relates to money market funds, unless
made available to the public, shall be deemed a disclosure of Confidential Information and, subject to the Guidelines, requires
a confidentiality or non-disclosure arrangement:
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Weekly portfolio holdings made available to fund shareholders, prospective shareholders, intermediaries and consultants on
the next business day after the end of the weekly period.
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Weekly portfolio holdings and characteristics made available to third-party data providers (
e.g.
, Lipper, Morningstar,
Bloomberg, S&P, Fitch, Moody’s, Crane Data and iMoneyNet, Inc.) on the next business day after the end of the weekly
period.
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Other Information.
The Guidelines shall also apply to other
Confidential Information of a Fund such as attribution analyses or security-specific information (
e.g.
, information about
Fund holdings where an issuer has been downgraded, been acquired or declared bankruptcy).
Implementation.
All BlackRock employees must adhere to the
Guidelines when responding to inquiries from shareholders, prospective shareholders, consultants, and third-party databases. A
Fund’s Chief Compliance Officer is responsible for oversight of compliance with the Guidelines and will recommend to the
Board of Directors any changes to the Guidelines that he or she deems necessary or appropriate to ensure the Fund’s and BlackRock’s
compliance.
1
The precise number of days specified above may vary slightly from period to period depending on whether the specified calendar
day falls on a weekend or holiday.
Ongoing Arrangements.
The Manager has entered into ongoing
agreements to provide selective disclosure of Fund portfolio holdings to the following persons or entities:
1. Fund’s Board of Directors
and, if necessary, Independent Directors’ counsel and Fund counsel.
2. Fund’s Transfer Agent
3. Fund’s Custodian
4. Fund’s Administrator, if
applicable.
5. Fund’s independent registered
public accounting firm.
6. Fund’s accounting services
provider
7. Independent rating agencies —
Morningstar, Inc., Lipper Inc., S&P, Moody’s, Fitch
8. Information aggregators —
Markit on Demand, Thomson Financial and Bloomberg, eVestments Alliance, Informa/PSN Investment Solutions, Crane Data, and iMoneyNet.
9. Sponsors of 401(k) plans that include
BlackRock-advised funds — E.I. Dupont de Nemours and Company, Inc.
10. Consultants for pension plans
that invest in BlackRock-advised funds — Rocaton Investment Advisors, LLC, Mercer Investment Consulting, Callan Associates,
Brockhouse & Cooper, Cambridge Associates, Morningstar/Investorforce, Russell Investments (Mellon Analytical Solutions) and
Wilshire Associates.
11. Pricing Vendors — Reuters
Pricing Service, Bloomberg, FT Interactive Data (FT IDC), ITG, Telekurs Financial, FactSet Research Systems, Inc., JP Morgan Pricing
Direct (formerly Bear Stearns Pricing Service), Standard and Poor’s Security Evaluations Service, Lehman Index Pricing, Bank
of America High Yield Index, Loan Pricing Corporation (LPC), LoanX, Super Derivatives, IBOXX Index, Barclays Euro Gov’t Inflation-Linked
Bond Index, JPMorgan Emerging & Developed Market Index, Reuters/WM Company, Nomura BPI Index, Japan Securities Dealers Association.
12. Portfolio Compliance Consultants
— Oracle/i-Flex Solutions, Inc.
13. Third-party feeder funds —
Hewitt Money Market Fund, Hewitt Series Fund, Hewitt Financial Services LLC, Homestead, Inc., Transamerica, State Farm Mutual Fund
and Sterling Capital Funds and their respective boards, sponsors, administrators and other service providers.
14. Affiliated feeder funds —
BlackRock Cayman Prime Money Market Fund, Ltd. and BlackRock Cayman Treasury Money Market Fund Ltd., and their respective boards,
sponsors, administrators and other service providers.
15. Other — Investment Company
Institute.
With respect to each such arrangement, a Fund has a legitimate business
purpose for the release of information. The release of the information is subject to confidential treatment to prohibit the entity
from sharing with an unauthorized source or trading upon the information provided. The Funds, BlackRock and their affiliates do
not receive any compensation or other consideration in connection with such arrangements.
The Funds and the Manager monitor, to the extent possible, the use
of Confidential Information by the individuals or firms to which it has been disclosed. To do so, in addition to the requirements
of any applicable confidentiality agreement and/or the terms and conditions of the Fund’s and Manager’s Code of Ethics
and Code of Business Conduct and Ethics — all of which require persons or entities in possession of Confidential Information
to keep such information confidential and not to trade on such information for their
own benefit — the Manager’s compliance personnel under
the supervision of the Fund’s Chief Compliance Officer, monitor the Manager’s securities trading desks to determine
whether individuals or firms who have received Confidential Information have made any trades on the basis of that information.
In addition, the Manager maintains an internal restricted list to prevent trading by the personnel of the Manager or its affiliates
in securities — including securities held by a Fund — about which the Manager has Confidential Information. There can
be no assurance, however, that the Fund’s policies and procedures with respect to the selective disclosure of portfolio holdings
will prevent the misuse of such information by individuals or firms that receive such information.
Potential Conflicts of Interest
The PNC Financial Services Group, Inc. (“PNC”)
has a significant economic interest in BlackRock, Inc., the parent of BlackRock Advisors, LLC, the Funds’ investment adviser.
PNC is considered to be an affiliate of BlackRock, Inc., under the Investment Company Act. Certain activities of BlackRock Advisors,
LLC, BlackRock, Inc. and their affiliates (collectively, “BlackRock”) and PNC and its affiliates (collectively, “PNC”
and together with BlackRock, “Affiliates”), with respect to the Funds and/or other accounts managed by BlackRock or
PNC, may give rise to actual or perceived conflicts of interest such as those described below.
BlackRock is one of the world’s
largest asset management firms. PNC is a diversified financial services organization spanning the retail, business and corporate
markets. BlackRock, PNC and their respective affiliates (including, for these purposes, their directors, partners, trustees, managing
members, officers and employees), including the entities and personnel who may be involved in the investment activities and business
operations of a Fund, are engaged worldwide in businesses, including equity, fixed income, cash management and alternative investments,
and have interests other than that of managing the Funds. These are considerations of which investors in a Fund should be aware,
and which may cause conflicts of interest that could disadvantage the Fund and its shareholders. These activities and interests
include potential multiple advisory, transactional, financial and other interests in securities and other instruments, and companies
that may be purchased or sold by a Fund.
BlackRock and its Affiliates have proprietary
interests in, and may manage or advise with respect to, accounts or funds (including separate accounts and other funds and collective
investment vehicles) that have investment objectives similar to those of a Fund and/or that engage in transactions in the same
types of securities, currencies and instruments as the Fund. One or more Affiliates are also major participants in the global currency,
equities, swap and fixed income markets, in each case both on a proprietary basis and for the accounts of customers. As such, one
or more Affiliates are or may be actively engaged in transactions in the same securities, currencies, and instruments in which
a Fund invests. Such activities could affect the prices and availability of the securities, currencies, and instruments in which
a Fund invests, which could have an adverse impact on the Fund’s performance. Such transactions, particularly in respect
of most proprietary accounts or customer accounts, will be executed independently of a Fund’s transactions and thus at prices
or rates that may be more or less favorable than those obtained by the Fund.
When BlackRock and its Affiliates seek
to purchase or sell the same assets for their managed accounts, including a Fund, the assets actually purchased or sold may be
allocated among the accounts on a basis determined in their good faith discretion to be equitable. In some cases, this system may
adversely affect the size or price of the assets purchased or sold for a Fund. In addition, transactions in investments by one
or more other accounts managed by BlackRock or its Affiliates may have the effect of diluting or otherwise disadvantaging the values,
prices or investment strategies of a Fund, particularly, but not limited to, with respect to small capitalization, emerging market
or less liquid strategies. This may occur when investment decisions regarding a Fund are based on research or other information
that is also used to support decisions for other accounts. When BlackRock or its Affiliates implements a portfolio decision or
strategy on behalf of another account ahead of, or contemporaneously with, similar decisions or strategies for a Fund, market impact,
liquidity constraints, or other factors could result in the Fund receiving less favorable trading results and the costs of implementing
such decisions or strategies could be increased or the Fund could otherwise be disadvantaged. BlackRock or its Affiliates may,
in certain cases, elect to implement internal policies and procedures designed to limit such consequences, which may cause a Fund
to be unable to engage in certain activities, including purchasing or disposing of securities, when it might otherwise be desirable
for it to do so.
Conflicts may also arise because portfolio
decisions regarding a Fund may benefit other accounts managed by BlackRock or its Affiliates. For example, the sale of a long position
or establishment of a short position by a Fund may impair the price of the same security sold short by (and therefore benefit)
one or more Affiliates or their other accounts, and the purchase of a security or covering of a short position in a security by
a Fund may increase the price of the same security held by (and therefore benefit) one or more Affiliates or their other accounts.
BlackRock and its Affiliates and their
clients may pursue or enforce rights with respect to an issuer in which a Fund has invested, and those activities may have an adverse
effect on the Fund. As a result, prices, availability, liquidity and terms of the Fund’s investments
may be negatively impacted by the activities
of BlackRock or its Affiliates or their clients, and transactions for the Fund may be impaired or effected at prices or terms that
may be less favorable than would otherwise have been the case.
The results of a Fund’s investment
activities may differ significantly from the results achieved by BlackRock and its Affiliates for their proprietary accounts or
other accounts (including investment companies or collective investment vehicles) managed or advised by them. It is possible that
one or more Affiliate-managed accounts and such other accounts will achieve investment results that are substantially more or less
favorable than the results achieved by a Fund. Moreover, it is possible that a Fund will sustain losses during periods in which
one or more Affiliates or Affiliate-managed accounts achieve significant profits on their trading for proprietary or other accounts.
The opposite result is also possible. The investment activities of one or more Affiliates for their proprietary accounts and accounts
under their management may also limit the investment opportunities for a Fund in certain emerging and other markets in which limitations
are imposed upon the amount of investment, in the aggregate or in individual issuers, by affiliated foreign investors.
From time to time, a Fund’s activities
may also be restricted because of regulatory restrictions applicable to one or more Affiliates, and/or their internal policies
designed to comply with such restrictions. As a result, there may be periods, for example, when BlackRock, and/or one or more Affiliates,
will not initiate or recommend certain types of transactions in certain securities or instruments with respect to which BlackRock
and/or one or more Affiliates are performing services or when position limits have been reached.
In connection with its management of
a Fund, BlackRock may have access to certain fundamental analysis and proprietary technical models developed by one or more Affiliates.
BlackRock will not be under any obligation, however, to effect transactions on behalf of a Fund in accordance with such analysis
and models. In addition, neither BlackRock nor any of its Affiliates will have any obligation to make available any information
regarding their proprietary activities or strategies, or the activities or strategies used for other accounts managed by them,
for the benefit of the management of a Fund and it is not anticipated that BlackRock will have access to such information for the
purpose of managing the Fund. The proprietary activities or portfolio strategies of BlackRock and its Affiliates, or the activities
or strategies used for accounts managed by them or other customer accounts could conflict with the transactions and strategies
employed by BlackRock in managing a Fund.
In addition, certain principals and certain
employees of BlackRock are also principals or employees of BlackRock or another Affiliate. As a result, the performance by these
principals and employees of their obligations to such other entities may be a consideration of which investors in a Fund should
be aware.
BlackRock may enter into transactions
and invest in securities, instruments and currencies on behalf of a Fund in which customers of BlackRock or its Affiliates, or,
to the extent permitted by the Commission, BlackRock or another Affiliate, serves as the counterparty, principal or issuer. In
such cases, such party’s interests in the transaction will be adverse to the interests of the Fund, and such party may have
no incentive to assure that the Fund obtains the best possible prices or terms in connection with the transactions. In addition,
the purchase, holding and sale of such investments by a Fund may enhance the profitability of BlackRock or its Affiliates. One
or more Affiliates may also create, write or issue derivatives for their customers, the underlying securities, currencies or instruments
of which may be those in which a Fund invests or which may be based on the performance of the Fund. A Fund may, subject to applicable
law, purchase investments that are the subject of an underwriting or other distribution by one or more Affiliates and may also
enter into transactions with other clients of an Affiliate where such other clients have interests adverse to those of the Fund.
At times, these activities may cause
departments of BlackRock or its Affiliates to give advice to clients that may cause these clients to take actions adverse to the
interests of the Fund. To the extent affiliated transactions are permitted, a Fund will deal with BlackRock and its Affiliates
on an arms-length basis. BlackRock or its Affiliates may also have an ownership interest in certain trading or information systems
used by a Fund. A Fund’s use of such trading or information systems may enhance the profitability of BlackRock and its Affiliates.
One or more Affiliates may act as broker,
dealer, agent, lender or adviser or in other commercial capacities for a Fund. It is anticipated that the commissions, mark-ups,
mark-downs, financial advisory fees, underwriting and placement fees, sales fees, financing and commitment fees, brokerage fees,
other fees, compensation or profits, rates, terms and conditions charged by an Affiliate will be in its view commercially reasonable,
although each Affiliate, including its sales personnel, will have an interest in obtaining fees and other amounts that are favorable
to the Affiliate and such sales personnel.
Subject to applicable law, the Affiliates
(and their personnel and other distributors) will be entitled to retain fees and other amounts that they receive in connection
with their service to the Funds as broker, dealer, agent, lender, adviser or in other commercial capacities and no accounting to
the Funds or their shareholders will be required, and no fees or other compensation payable by the Funds or their shareholders
will be reduced by reason of receipt by an Affiliate of any such fees or other amounts.
When an Affiliate acts as broker, dealer,
agent, adviser or in other commercial capacities in relation to the Funds, the Affiliate may take commercial steps in its own interests,
which may have an adverse effect on the Funds. A Fund will be required to establish business relationships with its counterparties
based on the Fund’s own credit standing. Neither BlackRock nor any of the Affiliates will have any obligation to allow their
credit to be used in connection with a Fund’s establishment of its business relationships, nor is it expected that the Fund’s
counterparties will rely on the credit of BlackRock or any of the Affiliates in evaluating the Fund’s creditworthiness.
Purchases and sales of securities for
a Fund may be bunched or aggregated with orders for other BlackRock client accounts. BlackRock and its Affiliates, however, are
not required to bunch or aggregate orders if portfolio management decisions for different accounts are made separately, or if they
determine that bunching or aggregating is not practicable, required or with cases involving client direction.
Prevailing trading activity frequently
may make impossible the receipt of the same price or execution on the entire volume of securities purchased or sold. When this
occurs, the various prices may be averaged, and the Funds will be charged or credited with the average price. Thus, the effect
of the aggregation may operate on some occasions to the disadvantage of the Funds. In addition, under certain circumstances, the
Funds will not be charged the same commission or commission equivalent rates in connection with a bunched or aggregated order.
BlackRock may select brokers (including,
without limitation, Affiliates) that furnish BlackRock, the Funds, other BlackRock client accounts or other Affiliates or personnel,
directly or through correspondent relationships, with research or other appropriate services which provide, in BlackRock’s
view, appropriate assistance to BlackRock in the investment decision-making process (including with respect to futures, fixed-price
offerings and over-the-counter transactions). Such research or other services may include, to the extent permitted by law, research
reports on companies, industries and securities; economic and financial data; financial publications; proxy analysis; trade industry
seminars; computer data bases; research-oriented software and other services and products. Research or other services obtained
in this manner may be used in servicing any or all of the Funds and other BlackRock client accounts, including in connection with
BlackRock client accounts other than those that pay commissions to the broker relating to the research or other service arrangements.
Such products and services may disproportionately benefit other BlackRock client accounts relative to the Funds based on the amount
of brokerage commissions paid by the Funds and such other BlackRock client accounts. For example, research or other services that
are paid for through one client’s commissions may not be used in managing that client’s account. In addition, other
BlackRock client accounts may receive the benefit, including disproportionate benefits, of economies of scale or price discounts
in connection with products and services that may be provided to the Funds and to such other BlackRock client accounts. To the
extent that BlackRock uses soft dollars, it will not have to pay for those products and services itself.
BlackRock may receive research that is
bundled with the trade execution, clearing, and/or settlement services provided by a particular broker-dealer. To the extent that
BlackRock receives research on this basis, many of the same conflicts related to traditional soft dollars may exist. For example,
the research effectively will be paid by client commissions that also will be used to pay for the execution, clearing, and settlement
services provided by the broker-dealer and will not be paid by BlackRock.
BlackRock may endeavor to execute trades
through brokers who, pursuant to such arrangements, provide research or other services in order to ensure the continued receipt
of research or other services BlackRock believes are useful in its investment decision-making process. BlackRock may from time
to time choose not to engage in the above described arrangements to varying degrees. BlackRock may also enter into commission sharing
arrangements under which BlackRock may execute transactions through a broker-dealer, including, where permitted, an Affiliate,
and request that the broker-dealer allocate a portion of the commissions or commission credits to another firm that provides research
to BlackRock. To the extent that BlackRock engages in commission sharing arrangements, many of the same conflicts related to traditional
soft dollars may exist.
BlackRock may utilize certain electronic
crossing networks (“ECNs”) in executing client securities transactions for certain types of securities. These ECNs
may charge fees for their services, including access fees and transaction fees. The transaction fees, which are similar to commissions
or markups/markdowns, will generally be charged to clients and, like commissions and markups/markdowns, would generally be included
in the cost of the securities purchased. Access fees may be paid by BlackRock even though incurred in connection with executing
transactions on behalf of clients, including the Funds. In certain circumstances, ECNs may offer volume discounts that will reduce
the access fees typically paid by BlackRock. This would have the effect of reducing the access fees paid by BlackRock. BlackRock
will only utilize ECNs consistent with its obligation to seek to obtain best execution in client transactions.
BlackRock has adopted policies and procedures
designed to prevent conflicts of interest from influencing proxy voting decisions that it makes on behalf of advisory clients,
including the Funds, and to help ensure that such decisions are made in accordance with BlackRock’s fiduciary obligations
to its clients. Nevertheless, notwithstanding such proxy voting policies and procedures, actual proxy voting decisions of BlackRock
may have the effect of favoring the interests of other clients or businesses of other divisions or
units of BlackRock and/or its Affiliates,
provided that BlackRock believes such voting decisions to be in accordance with its fiduciary obligations. For a more detailed
discussion of these policies and procedures, see “Proxy Voting Policies and Procedures.”
It is also possible that, from time
to time, BlackRock or its Affiliates may, although they are not required to, purchase and hold shares of a Fund. Increasing a Fund’s
assets may enhance investment flexibility and diversification and may contribute to economies of scale that tend to reduce the
Fund’s expense ratio. BlackRock and its Affiliates reserve the right to redeem at any time some or all of the shares of a
Fund acquired for their own accounts. A large redemption of shares of a Fund by BlackRock or its Affiliates could significantly
reduce the asset size of the Fund, which might have an adverse effect on the Fund’s investment flexibility, portfolio diversification
and expense ratio. BlackRock will consider the effect of redemptions on a Fund and other shareholders in deciding whether to redeem
its shares.
It is possible that a Fund may invest
in securities of companies with which an Affiliate has or is trying to develop investment banking relationships as well as securities
of entities in which BlackRock or its Affiliates has significant debt or equity investments or in which an Affiliate makes a market.
A Fund also may invest in securities of companies to which an Affiliate provides or may some day provide research coverage. Such
investments could cause conflicts between the interests of a Fund and the interests of other clients of BlackRock or its Affiliates.
In making investment decisions for a Fund, BlackRock is not permitted to obtain or use material non-public information acquired
by any division, department or Affiliate of BlackRock in the course of these activities. In addition, from time to time, the activities
of an Affiliate may limit a Fund’s flexibility in purchases and sales of securities. When an Affiliate is engaged in an underwriting
or other distribution of securities of an entity, BlackRock may be prohibited from purchasing or recommending the purchase of certain
securities of that entity for a Fund.
BlackRock and its Affiliates, their
personnel and other financial service providers have interests in promoting sales of the Funds. With respect to BlackRock and its
Affiliates and their personnel, the remuneration and profitability relating to services to and sales of the Funds or other products
may be greater than remuneration and profitability relating to services to and sales of certain funds or other products that might
be provided or offered. BlackRock and its Affiliates and their sales personnel may directly or indirectly receive a portion of
the fees and commissions charged to the Funds or their shareholders. BlackRock and its advisory or other personnel may also benefit
from increased amounts of assets under management. Fees and commissions may also be higher than for other products or services,
and the remuneration and profitability to BlackRock or its Affiliates and such personnel resulting from transactions on behalf
of or management of the Funds may be greater than the remuneration and profitability resulting from other funds or products.
BlackRock and its Affiliates and their
personnel may receive greater compensation or greater profit in connection with an account for which BlackRock serves as an adviser
than with an account advised by an unaffiliated investment adviser. Differentials in compensation may be related to the fact that
BlackRock may pay a portion of its advisory fee to its Affiliate, or relate to compensation arrangements, including for portfolio
management, brokerage transactions or account servicing. Any differential in compensation may create a financial incentive on the
part of BlackRock or its Affiliates and their personnel to recommend BlackRock over unaffiliated investment advisers or to effect
transactions differently in one account over another.
BlackRock and its Affiliates may provide
valuation assistance to certain clients with respect to certain securities or other investments and the valuation recommendations
made for their clients’ accounts may differ from the valuations for the same securities or investments assigned by a Fund’s
pricing vendors, especially if such valuations are based on broker-dealer quotes or other data sources unavailable to the Fund’s
pricing vendors. While BlackRock will generally communicate its valuation information or determinations to a Fund’s pricing
vendors and/or fund accountants, there may be instances where the Fund’s pricing vendors or fund accountants assign a different
valuation to a security or other investment than the valuation for such security or investment determined or recommended by BlackRock.
As disclosed in more detail in “Pricing
of Shares – Determination of Net Asset Value” in this Statement of Additional Information, when market quotations are
not readily available or are believed by BlackRock to be unreliable, a Fund’s investments may be valued at fair value by
BlackRock, pursuant to procedures adopted by the Funds’ Board of Directors. When determining an asset’s “fair
value,” BlackRock seeks to determine the price that a Fund might reasonably expect to receive from the current sale of that
asset in an arm’s-length transaction. The price generally may not be determined based on what a Fund might reasonably expect
to receive for selling an asset at a later time or if it holds the asset to maturity. While fair value determinations will be based
upon all available factors that BlackRock deems relevant at the time of the determination, and may be based on analytical values
determined by BlackRock using proprietary or third party valuation models, fair value represents only 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 a Fund’s net asset value.
As a result, a Fund’s sale or redemption of its shares at net asset value, at a time when a holding or holdings are valued
by BlackRock (pursuant to Board-adopted procedures) at fair value, may have the effect of diluting or increasing the economic interest
of existing shareholders.
To the extent permitted by applicable law,
a Fund may invest all or some of its short term cash investments in any money market fund or similarly-managed private fund advised
or managed by BlackRock. In connection with any such investments, a Fund, to the extent permitted by the Investment Company Act,
may pay its share of expenses of a money market fund in which it invests, which may result in a Fund bearing some additional expenses.
BlackRock and its Affiliates and their
directors, officers and employees, may buy and sell securities or other investments for their own accounts, and may have conflicts
of interest with respect to investments made on behalf of a Fund. As a result of differing trading and investment strategies or
constraints, positions may be taken by directors, officers, employees and Affiliates of BlackRock that are the same, different
from or made at different times than positions taken for the Fund. To lessen the possibility that a Fund will be adversely affected
by this personal trading, the Fund, BRIL and BlackRock each have adopted a Code of Ethics in compliance with Section 17(j)
of the Investment Company Act that restricts securities trading in the personal accounts of investment professionals and others
who normally come into possession of information regarding the Fund’s portfolio transactions. Each Code of Ethics can be
reviewed and copied at the Commission’s Public Reference Room in Washington, D.C. Information about obtaining documents on
the Commission’s website may be obtained by calling the Commission at (800) SEC-0330. Each Code of Ethics is also available
on the EDGAR Database on the Commission’s Internet site at http://www.sec.gov, and copies may be obtained, after paying a
duplicating fee, by e-mail at publicinfo@sec.gov or by writing the Commission’s Public Reference Section, Washington, DC
20549-0102.
BlackRock and its Affiliates will not
purchase securities or other property from, or sell securities or other property to, a Fund, except that the Fund may in accordance
with rules adopted under the Investment Company Act engage in transactions with accounts that are affiliated with the Fund as a
result of common officers, directors, or investment advisers or pursuant to exemptive orders granted to the Funds and/or BlackRock
by the Commission. These transactions would be affected in circumstances in which BlackRock determined that it would be appropriate
for the Fund to purchase and another client of BlackRock to sell, or the Fund to sell and another client of BlackRock to purchase,
the same security or instrument on the same day. From time to time, the activities of a Fund may be restricted because of regulatory
requirements applicable to BlackRock or its Affiliates and/or BlackRock’s internal policies designed to comply with, limit
the applicability of, or otherwise relate to such requirements. A client not advised by BlackRock would not be subject to some
of those considerations. There may be periods when BlackRock may not initiate or recommend certain types of transactions, or may
otherwise restrict or limit their advice in certain securities or instruments issued by or related to companies for which an Affiliate
is performing investment banking, market making, advisory or other services or has proprietary positions. For example, when an
Affiliate is engaged in an underwriting or other distribution of securities of, or advisory services for, a company, the Funds
may be prohibited from or limited in purchasing or selling securities of that company. In addition, when BlackRock is engaged to
provide advisory or risk management services for a company, BlackRock may be prohibited from or limited in purchasing or selling
securities of that company on behalf of a Fund, particularly where such services result in BlackRock obtaining material non-public
information about the company. Similar situations could arise if personnel of BlackRock or its Affiliates serve as directors of
companies the securities of which the Funds wish to purchase or sell. However, if permitted by applicable law, and where consistent
with BlackRock’s policies and procedures (including the necessary implementation of appropriate information barriers), the
Funds may purchase securities or instruments that are issued by such companies, are the subject of an underwriting, distribution,
or advisory assignment by an Affiliate or are the subject of an advisory or risk management assignment by BlackRock, or where personnel
of BlackRock or its Affiliates are directors or officers of the issuer.
In certain circumstances where the Funds
invest in securities issued by companies that operate in certain regulated industries, in certain emerging or international markets,
or are subject to corporate or regulatory ownership definitions, there may be limits on the aggregate amount invested by Affiliates
(including BlackRock) for their proprietary accounts and for client accounts (including the Funds) that may not be exceeded without
the grant of a license or other regulatory or corporate consent, or, if exceeded, may cause BlackRock, the Funds or other client
accounts to suffer disadvantages or business restrictions. As a result, BlackRock on behalf of its clients (including the Funds)
may limit purchases, sell existing investments, or otherwise restrict or limit the exercise of rights (including voting rights)
when BlackRock, in its sole discretion, deems it appropriate in light of potential regulatory or other restrictions on ownership
or other consequences resulting from reaching investment thresholds.
In those circumstances where ownership
thresholds or limitations must be observed, BlackRock seeks to allocate limited investment opportunities equitably among clients
(including the Funds), taking into consideration benchmark weight and investment strategy. When ownership in certain securities
nears an applicable threshold, BlackRock may limit purchases in such securities to the issuer's weighting in the applicable benchmark
used by BlackRock to manage the Fund. If client (including Fund) holdings of an issuer exceed an applicable threshold and BlackRock
is unable to obtain relief to enable the continued holding of such investments, it may be necessary to sell down these positions
to meet the applicable limitations. In these cases, benchmark overweight positions will be sold prior to benchmark positions being
reduced to meet applicable limitations.
In addition to the foregoing, other ownership
thresholds may trigger reporting requirements to governmental and regulatory authorities, and such reports may entail the disclosure
of the identity of a client or BlackRock’s intended strategy with respect to such security or asset.
BlackRock and its Affiliates may maintain
securities indices as part of their product offerings. Index based funds seek to track the performance of securities indices and
may use the name of the index in the fund name. Index providers, including BlackRock and its Affiliates may be paid licensing fees
for use of their index or index name. BlackRock and its Affiliates will not be obligated to license their indices to BlackRock,
and BlackRock cannot be assured that the terms of any index licensing agreement with BlackRock and its Affiliates will be as favorable
as those terms offered to other index licensees.
BlackRock and its Affiliates may serve
as Authorized Participants in the creation and redemption of exchange traded funds, including funds advised by affiliates of BlackRock.
BlackRock and its Affiliates may therefore be deemed to be participants in a distribution of such exchange traded funds, which
could render them statutory underwriters.
The custody arrangement described in
“Management and Other Service Arrangements” may lead to potential conflicts of interest with BlackRock where BlackRock
has agreed to waive fees and/or reimburse ordinary operating expenses in order to cap expenses of the Funds. This is because the
custody arrangements with the Funds' custodian may have the effect of reducing custody fees when the Funds leave cash balances
uninvested. When a Fund’s actual operating expense ratio exceeds a stated cap, a reduction in custody fees reduces the amount
of waivers and/or reimbursements BlackRock would be required to make to the Fund. This could be viewed as having the potential
to provide BlackRock an incentive to keep high positive cash balances for Funds with expense caps in order to offset fund custody
fees that BlackRock might otherwise reimburse. However, BlackRock’s portfolio managers do not intentionally keep uninvested
balances high, but rather make investment decisions that they anticipate will be beneficial to fund performance.
Present and future activities of BlackRock
and its Affiliates, including BlackRock Advisors, LLC, in addition to those described in this section, may give rise to additional
conflicts of interest.
Purchase
of Shares
Most BlackRock-advised open-end fund offers multiple classes
of shares under a plan adopted under Rule 18f-3 under the Investment Company Act. Investor A Shares are sold to investors
choosing the initial sales charge alternative and Investor B and Investor C Shares are sold to investors choosing the deferred
sales charge alternative. Effective July 1, 2009, Investor B Shares of each Fund are no longer available for purchase except through
exchanges, dividend reinvestments, and for purchase by certain qualified employee benefit plans. Shareholders with investments
in Investor B Shares as of July 1, 2009 may continue to hold such shares until they automatically convert to Investor A Shares
under the existing conversion schedule. All other features of Investor B Shares, including the Rule 12b-1 distribution and service
fees, contingent deferred sales charge schedules and conversion features, remain unchanged and continue in effect. Institutional
Shares are sold to certain eligible investors without a sales charge. Certain Funds offer Class R Shares, which are available
only to certain retirement plans and are sold without a sales charge. In addition, certain Funds offer Service Shares, BlackRock
Shares and/or Class K Shares that are available only to certain eligible investors. Please see the appropriate Prospectus for your
Fund to determine which classes are offered by your Fund and under what circumstances. Each class has different exchange privileges.
See “Shareholder Services — Exchange Privilege.”
The applicable offering price for purchase orders is based
on the net asset value of a Fund next determined after receipt of the purchase order by a dealer or other financial intermediary
(“Selling Dealer”) that has been authorized by the Distributor by contract to accept such orders. As to purchase orders
received by Selling Dealers prior to the close of business on the New York Stock Exchange (“NYSE”) (generally, the
NYSE closes at 4:00 p.m. Eastern time), on the day the order is placed, including orders received after the close of business on
the previous day, the applicable offering price is based on the net asset value determined as of the close of business on the NYSE
on that day. If the purchase orders are not received by the Selling Dealer before the close of business on the NYSE, such orders
are deemed received on the next business day. It is the responsibility of brokers to transmit purchase orders and payment on a
timely basis. Generally, if payment is not received within the period described in the Prospectuses, the order will be canceled,
notice thereof will be given, and the broker and its customers will be responsible for any loss to the Fund or its shareholders.
Orders of less than $500 may be mailed by a broker to the Transfer Agent.
The minimum investment for the initial purchase of shares
is set forth in the Prospectus for each Fund. Each Fund has lower investment minimums for other categories of shareholders eligible
to purchase Institutional Shares, including selected fee-based programs. Each 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. Each Fund may, in its discretion, reject any purchase order, modify or waive the minimum initial or subsequent investment
requirements, reject any order for any class of shares
and suspend and resume the sale of any share class of any
Fund at any time. The minimum initial investment for employees of a Fund, a Fund’s Manager, Sub-Advisers or BRIL, or employees
of their affiliates, is $100, unless payment is made through a payroll deduction program, in which case the minimum investment
is $25.
Under certain circumstances, subject to approval by BlackRock,
each Fund may permit firms to convert shares of a Fund from one class of shares to another class of shares of the same Fund. Shareholders
should consult with their own tax advisers regarding any tax consequences relating to such conversions.
Each Fund or the Distributor may suspend the continuous
offering of the Fund’s shares of any class at any time in response to conditions in the securities markets or otherwise and
may resume offering the shares from time to time. Any order may be rejected by a Fund or the Distributor. Neither the Distributor,
the securities dealers nor other financial intermediaries are permitted to withhold placing orders to benefit themselves by a price
change.
The term “purchase,” as used in the Prospectus
and this Statement of Additional Information, refers to (i) a single purchase by an individual, (ii) concurrent purchases
by an individual, his or her spouse and their children under the age of 21 years purchasing shares for his, her or their own
account, and (iii) single purchases by a trustee or other fiduciary purchasing shares for a single trust estate or single
fiduciary account although more than one beneficiary may be involved. The term “purchase” also includes purchases by
any “company,” as that term is defined in the Investment Company Act, but does not include purchases by (i) any
company that has not been in existence for at least six months, (ii) a company that has no purpose other than the purchase
of shares of a Fund or shares of other registered investment companies at a discount, or (iii) any group of individuals whose
sole organizational nexus is that its participants are credit cardholders of a company, policyholders of an insurance company,
customers of either a bank or broker-dealer or clients of an investment adviser.
In-Kind Purchases.
Payment for shares of a Fund
may, at the discretion of BlackRock, be made in the form of securities that are permissible investments for the Fund and that meet
the investment objective, policies and limitations of the Fund as described herein. In connection with an in-kind securities payment,
the Fund may require, among other things, that the securities: (i) be valued on the day of purchase in accordance with the pricing
methods used by the Fund; (ii) be accompanied by satisfactory assurance that the Fund will have good and marketable title to such
securities; (iii) not be subject to any restrictions upon resale by the Fund; (iv) be in proper form for transfer to the Fund;
and (v) be accompanied by adequate information concerning the basis and other tax matters relating to the securities. All dividends,
interest, subscription or other rights pertaining to such securities shall become the property of the Fund engaged in the in-kind
purchase transaction and must be delivered to the Fund by the investor upon receipt from the issuer. Shares purchased in exchange
for securities generally cannot be redeemed until the transfer has settled.
Institutional Shares
Institutional Shares may be purchased at net asset value
without a sales charge. Only certain investors are eligible to purchase Institutional Shares. Investors who are eligible to purchase
Institutional Shares should purchase Institutional Shares because they are not subject to any sales charge and have lower ongoing
expenses than Investor A, Investor B, Investor C, Class R, or Service Shares.
Eligible Institutional Share Investors.
Institutional Shares of the Funds may be purchased by customers
of broker-dealers and agents that have established a servicing relationship with the Fund on behalf of their customers. These broker-dealers
and agents may impose additional or different conditions on the purchase or redemption of Fund shares by their customers and may
charge their customers transaction, account or other fees on the purchase and redemption of Fund shares. Each broker-dealer or
agent is responsible for transmitting to its customers a schedule of any such fees and information regarding any additional or
different conditions regarding purchases and redemptions. Shareholders who are customers of such broker-dealers or agents should
consult them for information regarding these fees and conditions.
Payment for Institutional Shares must normally be made
in Federal funds or other funds immediately available by 4 p.m. (Eastern time) on the first business day following receipt of the
order. If payment for a purchase order is not received by the prescribed time, an investor may be liable for any resulting losses
or expenses incurred by the Fund.
Investors who currently own Institutional Shares in a shareholder
account are entitled to purchase additional Institutional Shares of a Fund in that account. In addition, the following investors
may purchase Institutional Shares: employees, officers, directors/trustees of BlackRock, Inc., BlackRock Funds, The PNC Financial
Services Group Inc., Merrill Lynch & Co., Inc., Barclays PLC or their respective affiliates and any trust, pension, profit-sharing
or other benefit plan for such persons; institutional and individual retail investors with a minimum investment of $2 million
who purchase through certain broker-dealers or directly from the Fund; certain
qualified retirement plans; investors in selected fee
based programs; clients of registered investment advisers who have $250,000 invested in the Funds; clients of the Trust departments
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; unaffiliated banks, thrifts or trust companies that have agreements with the Distributor; certain state sponsored 529
college savings plans; and holders of certain Merrill Lynch sponsored unit investment trusts (UITs) who reinvest dividends received
from such UITs in shares of a Fund.
Purchase Privileges of Certain Persons
. Employees,
officers, directors/trustees of BlackRock, Inc., BlackRock Funds, Merrill Lynch & Co., Inc., The PNC Financial Services Group
Inc., or their respective affiliates; and any trust, pension, profit-sharing or other benefit plan for such persons may purchase
Institutional Shares at lower minimums as stated in each Fund’s prospectus. In addition, employees, officers, directors/trustees
previously associated with PNC Global Investment Servicing (U.S.) Inc. in its capacity as the Funds' former Transfer Agent and/or
accounting agent, and who, prior to July 1, 2010, acquired Investor A Shares in a Fund without paying a sales charge based on a
waiver for such persons previously in effect, may continue to buy Investor A Shares in such Fund without paying a sales charge.
A Fund realizes economies of scale and reduction of sales-related expenses by virtue of the familiarity of these persons with the
Fund. Employees, directors, and board members of other funds wishing to purchase shares of a Fund must satisfy the Fund’s
suitability standards.
Initial Sales Charge Alternative — Investor A
Shares
Investors who prefer an initial sales charge alternative
may elect to purchase Investor A Shares. Investor A1 Shares generally are not continuously offered but are offered (i) for purchase
by certain authorized employee benefit plans and (ii) to certain investors who currently hold Investor A1 Shares for dividend and
capital gain reinvestment only. For ease of reference, Investor A and Investor A1 Shares are sometimes referred to herein as “front-end
load shares.”
Investors qualifying for significantly reduced initial
sales charges may find the initial sales charge alternative particularly attractive because similar sales charge reductions are
not available with respect to the deferred sales charges imposed in connection with investments in Investor B, Investor B1, Investor
B2, Investor B3, Investor C, Investor C1, Investor C2 and Investor C3 Shares (sometimes referred to herein as “CDSC shares”).
Investors who do not qualify for reduced initial sales charges and who expect to maintain their investment for an extended period
of time also may elect to purchase Investor A Shares, because over time the accumulated ongoing service and distribution fees on
CDSC shares may exceed the front-end sales charge shares’ initial sales charge and service fee. Although some investors who
previously purchased Institutional Shares may no longer be eligible to purchase Institutional Shares of other Funds, those previously
purchased Institutional Shares, together with all BlackRock front-end load and CDSC share holdings, will count toward a right of
accumulation that may qualify the investor for a reduced initial sales charge on new initial sales charge purchases. In addition,
the ongoing CDSC shares service and distribution fees will cause CDSC shares to have higher expense ratios, pay lower dividends
and have lower total returns than the initial sales charge shares. The ongoing front-end load shares’ service fees will cause
Investor A, Investor A1 and Service Shares to have a higher expense ratio, pay lower dividends and have a lower total return than
Institutional Shares.
See “Information on Sales Charges and Distribution
Related Expenses — Investor A Sales Charge Information” in Part I of each Fund’s Statement of Additional Information
for information about amounts paid to the Distributor in connection with Investor A and Investor A1 Shares for the periods indicated.
The Distributor may reallow discounts to selected securities
dealers and other financial intermediaries and retain the balance over such discounts. At times a Distributor may reallow the entire
sales charge to such dealers. Since securities dealers and other financial intermediaries selling front-end load shares of a Fund
will receive a concession equal to most of the sales charge, they may be deemed to be underwriters under the Securities Act.
Reduced Initial Sales Charges
Certain investors may be eligible for a reduction in or
waiver of a sales load due to the nature of the investors and/or the reduced sales efforts necessary to obtain their investments.
Reinvested Dividends.
No sales charges are imposed
upon shares issued as a result of the automatic reinvestment of dividends.
Rights of Accumulation.
Investors have a “right
of accumulation” under which the current value of an investor’s existing Investor A, Investor A1, Investor B, Investor
B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2, Investor C3 and Institutional Shares in most BlackRock Funds
and the investment in the BlackRock College Advantage 529 Program by the investor or by or on
behalf of the investor’s spouse and minor 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.
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 B, Investor C or Institutional Shares 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.
Other.
The following persons may also
buy Investor A Shares without paying a sales charge: (a) authorized qualified employee benefit plans or savings plans; (b) 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; (c) persons investing through an authorized payroll deduction plan;
(d) persons investing through an authorized investment plan for organizations which operate under Section 501(c)(3) of the Code;
(e) registered investment advisers, trust companies and bank trust departments exercising discretionary investment authority with
respect to amounts to be invested in a Fund; (f) 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; (g) certain
state sponsored 529 college savings plans; (h) persons involuntarily liquidated from a Fund, who within 60 days of liquidation
buy new shares of another BlackRock Fund (but only up to the amount that was liquidated); and (i) insurance company separate accounts.
The following persons associated with the Funds, the Fund’s Manager, Sub-Advisers, Transfer Agent, Distributor, fund accounting
agents, Barclays PLC and their affiliates may buy Investor A Shares of each of the Funds without paying a sales charge 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
(“immediate family members” shall be defined as the investor, the investor’s spouse or domestic partner, children,
parents and siblings); and (e) any trust, pension, profit-sharing or other benefit plan for any of the persons set forth in (a)
through (d). Investors who qualify for any of these exemptions from the sales charge should purchase Investor A Shares.
If you invest $1,000,000 or more in Investor A or Investor
A1 Shares, you may not pay an initial sales charge. However, if you redeem your Investor A or Investor A1 Shares within eighteen
months after purchase, you may be charged a deferred sales charge. The deferred sales charge on Investor A Shares is not charged
in connection with: (a) redemptions of Investor A Shares purchased through authorized qualified employee benefit plans or
savings plans and rollovers of current investments in a Fund through such plans; (b) exchanges described in “Exchange
Privilege” below; (c) redemptions made in connection with minimum required distributions due to the shareholder reaching
age 70 1/2 from IRA and 403(b)(7) accounts; (d) certain post-retirement withdrawals from an IRA or other retirement plan if
you are over 59 1/2 years old and you purchased your shares prior to October 2, 2006; (e) redemptions made with respect to
certain retirement plans sponsored by a Fund, BlackRock or its affiliates; (f) redemptions (i) within one year of a shareholder’s
death or, if later, the receipt of a certified probate settlement (including in connection with the distribution of account assets
to a beneficiary of the decedent) or (ii) in connection with a shareholder’s disability (as defined in the Code) subsequent
to the purchase of Investor A Shares; (g) involuntary redemptions of Investor A Shares in accounts with low balances; (h) certain
redemptions made pursuant to the Systematic Withdrawal Plan (described below); (i) redemptions related to the payment of PFPC
Trust Company custodial IRA fees; and (j) redemptions when a shareholder can demonstrate hardship, in the absolute discretion
of a Fund.
If a dealer waives its right to receive a placement
fee, the Fund may, at its own discretion, waive the CDSC (as defined below) related to purchases of $1,000,000 or more of Investor
A Shares.
Investor A Shares are also available at net asset value
to investors that, for regulatory reasons, are required to transfer investment positions from a foreign registered investment company
advised by BlackRock or its affiliates to a U.S. registered BlackRock-advised fund.
Placement Fees.
BlackRock may pay placement fees to dealers, up to the
following amounts, on purchases of Investor A Shares of all Funds.
|
|
|
|
|
|
|
All Funds Except Balanced Capital,
Basic Value and
Managed Volatility
|
|
Balanced Capital, Basic Value
and Managed Volatility
|
Less than $3,000,000
|
1.00
|
%
|
|
0.75
|
%
|
$3 million but less than $15 million
|
0.50
|
%
|
|
0.50
|
%
|
$15 million and above
|
0.25
|
%
|
|
0.25
|
%
|
For the table above, the placement fees indicated will
apply up to the indicated breakpoint (so that, for example, a sale of $4 million worth of Investor A Shares will result in
a placement fee of up to 1.00% (0.75% for Balanced Capital, Basic Value and Managed Volatility) on the first $3 million and
0.50% on the final $1 million).
Acquisition of Certain Investment Companies
. Investor
A Shares may be offered at net asset value in connection with the acquisition of the assets of, or merger or consolidation with,
a personal holding company or a public or private investment company.
Purchases Through Certain Financial Intermediaries
.
Reduced sales charges may be applicable for purchases of Investor A Shares of a Fund through certain financial advisers, selected
securities dealers and other financial intermediaries that meet and adhere to standards established by the Manager from time to
time.
Deferred Sales Charge Alternative — Investor B
and Investor C Shares
Investor B, Investor B1, Investor B2 and Investor B3 Shares
generally are not continuously offered but are offered by exchange (Investor B Shares only) and also to certain investors who currently
hold Investor B, Investor B1, Investor B2 or Investor B3 Shares for dividend and capital gain reinvestment. In addition, certain
qualified employee benefit plans that currently hold Investor B, Investor B1, Investor B2 or Investor B3 Shares may purchase additional
Investor B, Investor B1, Investor B2 or Investor B3 Shares or effect exchanges between Funds in those classes.
Investors choosing the deferred sales charge alternative
should consider Investor C Shares if they are uncertain as to the length of time they intend to hold their assets in a Fund. If
you select Investor C Shares, you do not pay an initial sales charge at the time of purchase. A Fund will not accept a purchase
order of $500,000 or more for Investor C Shares.
If you select Investor C, Investor C1, Investor C2 or Investor
C3 Shares, you do not pay an initial sales charge at the time of purchase. Investor C1, Investor C2 and Investor C3 Shares generally
are not continuously offered but are offered (i) for purchase by certain qualified employee benefit plans and (ii) to certain investors
who currently hold Investor C1, Investor C2 or Investor C3 Shares for dividend and capital gain reinvestment.
The deferred sales charge alternatives may be particularly
appealing to investors who do not qualify for the reduction in initial sales charges. CDSC shares are subject to ongoing service
fees and distribution fees; however, these fees potentially may be offset to the extent any return is realized on the additional
funds initially invested in CDSC shares. In addition, Investor B, Investor B1, Investor B2 or Investor B3 Shares will be converted
into Investor A or Investor A1 Shares, as set forth in each Fund’s prospectus, of a Fund after a conversion period of approximately
eight years, and, thereafter, investors will be subject to lower ongoing fees.
BlackRock compensates financial advisers and other financial
intermediaries for selling CDSC shares at the time of purchase from its own funds. Proceeds from the CDSC (as defined below) and
the distribution fee are paid to the Distributor and are used by the Distributor to defray the expenses of securities dealers or
other financial intermediaries related to providing distribution-related services to each Fund in connection with the sale of the
CDSC shares. The combination of the CDSC and the ongoing distribution fee facilitates the ability of each Fund to sell the CDSC
shares without a sales charge being deducted at the time of purchase. See “Distribution Plans” below. Imposition of
the CDSC and the distribution fee on CDSC shares is limited by the NASD asset-based sales charge rule. See “Limitations on
the Payment of Deferred Sales Charges” below.
Dealers will generally receive commissions equal to 4.00%
of Investor B Shares sold by them plus ongoing fees under the Fund’s Distribution and Service Plan. Dealers may not receive
a commission in connection with sales of Investor B, Investor B1, Investor B2 or Investor B3 Shares to certain qualified employee
benefit plans sponsored by the Fund, BlackRock or its affiliates, but may receive fees under the Distribution and Service Plan.
These commissions and payments may be different than the reallowances, placement
fees and commissions paid to dealers in connection with
sales of Investor A, Investor A1, Investor C, Investor C1, Investor C2 and Investor C3 Shares.
Dealers will generally immediately receive commissions
equal to 1.00% of the Investor C Shares sold by them plus ongoing fees under the Fund’s Distribution and Service Plan. Dealers
may not receive a commission in connection with sales of Investor C, Investor C1, Investor C2 or Investor C3 Shares to certain
qualified employee benefit plans sponsored by the Fund, BlackRock or its affiliates, but may receive fees under the Amended and
Restated Distribution and Service Plan. These commissions and payments may be different than the reallowances, placement fees and
commissions paid to dealers in connection with sales of Investor A, Investor A1, Investor B, Investor B1, Investor B2 and Investor
B3 Shares.
Contingent Deferred Sales Charges — Investor B
and Investor B1 Shares
. If you redeem Investor B, Investor B1, Investor B2 or Investor B3 Shares within six years of purchase,
you may be charged a contingent deferred sales charge (“CDSC”) at the rates indicated in the Fund’s Prospectus
and below. The CDSC will be calculated in a manner that results in the lowest applicable rate being charged. The charge will be
assessed on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly,
no CDSC will be imposed on increases in net asset value above the initial purchase price. In addition, no CDSC will be assessed
on shares acquired through reinvestment of dividends. The order of redemption will be first of shares held for over six years in
the case of Investor B Shares, next of shares acquired pursuant to reinvestment of dividends, and finally of shares in the order
of those held longest. The same order of redemption will apply if you transfer shares from your account to another account. If
you exchange your Investor B, Investor B1, Investor B2 or Investor B3 Shares for Investor B Shares of another Fund, the CDSC schedule
that applies to the shares that you originally purchased will continue to apply to the shares you acquire in the exchange.
The following table sets forth the schedule that applies
to the Investor B CDSC:
|
|
|
|
|
|
|
|
|
|
|
CDSC as a Percentage
|
Years Since Purchase
|
|
|
|
of Dollar Amount
|
Payment Made
|
|
|
|
Subject to Charge*
|
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
|
|
|
|
None
|
|
*
|
|
The percentage charge will apply to the lesser of the original cost of the shares being redeemed or the proceeds of your redemption. Shares acquired through reinvestment of dividends are not subject to a deferred sales charge. Shares purchased prior to June 1, 2001 were subject to the four-year contingent deferred sales charge schedule then in effect which has now expired. Shares purchased prior to October 2, 2006 are subject to the 4.00% six-year CDSC schedule in effect at that time. Not all BlackRock funds have identical deferred sales charge schedules. If you exchange your shares for shares of another fund, the original charge will apply.
|
To provide an example, assume an investor purchased 100
shares at $10 per share (at a cost of $1,000) and in the third year after purchase, the net asset value per share is $12 and, during
such time, the investor has acquired 10 additional shares upon dividend reinvestment. If at such time the investor makes his or
her first redemption of 50 shares (proceeds of $600), 10 shares will not be subject to a CDSC because they were issued through
dividend reinvestment. With respect to the remaining 40 shares, the charge is applied only to the original cost of $10 per share
and not to the increase in net asset value of $2 per share. Therefore, $400 of the $600 redemption proceeds will be charged at
a rate of 3.50% (the applicable rate in the third year after purchase).
Conversion of Investor B, Investor B1, Investor B2
and Investor B3 Shares to Investor A and Investor A1 Shares.
Approximately eight years after purchase (the “Conversion
Period”), Investor B, Investor B1, Investor B2 and Investor B3 Shares of each Fund will convert automatically into Investor
A or Investor A1 Shares of that Fund (the “Conversion”). The Conversion will occur at least once each month (on the
“Conversion Date”) on the basis of the relative net asset value of the shares of the two classes on the Conversion
Date, without the imposition of any sales load, fee or other charge. The Conversion will not be deemed a purchase or sale of the
shares for Federal income tax purposes.
Shares acquired through reinvestment of dividends on Investor
B, Investor B1, Investor B2 or Investor B3 Shares will also convert automatically to Investor A or Investor A1 Shares, as set forth
in each Fund’s prospectus. The Conversion Date for dividend reinvestment shares will be calculated taking into account the
length of time the shares underlying the dividend reinvestment shares were outstanding.
In general, Investor B Shares of equity Funds will convert
approximately eight years after initial purchase and Investor B, Investor B1, Investor B2 and Investor B3 Shares of taxable and
tax-exempt fixed income Funds will convert approximately ten years after initial purchase. If you exchange Investor B, Investor
B1, Investor B2 or Investor B3 Shares with an eight-year Conversion Period for Investor B Shares with a ten-year Conversion Period,
or vice versa, the Conversion Period that applies to the shares you acquire in the exchange will apply and the holding period for
the shares exchanged will be tacked on to the holding period for the shares acquired. The Conversion Period also may be modified
for investors that participate in certain fee-based programs. See “Shareholder Services — Fee-Based Programs.”
If you own shares of a Fund that, in the past, issued stock
certificates and you continue to hold such stock certificates, you must deliver any certificates for Investor B Shares of the Fund
to be converted to the Transfer Agent at least one week prior to the Conversion Date applicable to those shares. If the Transfer
Agent does not receive the certificates at least one week prior to the Conversion Date, your Investor B, Investor B1, Investor
B2 or Investor B3 Shares will convert to Investor A or Investor A1 Shares, as set forth in each Fund’s prospectus, on the
next scheduled Conversion Date after the certificates are delivered.
Contingent Deferred Sales Charge — Investor C
Shares
Investor C, Investor C1, Investor C2 and Investor C3 Shares
that are redeemed within one year of purchase may be subject to a 1.00% CDSC charged as a percentage of the dollar amount subject
thereto. In determining whether an Investor C, Investor C1, Investor C2 or Investor C3 CDSC is applicable to a redemption, the
calculation will be determined in the manner that results in the lowest possible rate being charged. The charge will be assessed
on an amount equal to the lesser of the proceeds of redemption or the cost of the shares being redeemed. Accordingly, no CDSC will
be imposed on increases in net asset value above the initial purchase price of Investor C, Investor C1, Investor C2 and Investor
C3 Shares. In addition, no CDSC will be assessed on Investor C, Investor C1, Investor C2 and Investor C3 Shares acquired through
reinvestment of dividends. It will be assumed that the redemption is first of shares held for over one year or shares acquired
pursuant to reinvestment of dividends and then of shares held longest during the one-year period. A transfer of shares from a shareholder’s
account to another account will be assumed to be made in the same order as a redemption.
See “Information on Sales Charges and Distribution
Related Expenses — Investor B and Investor C Sales Charge Information” in Part I of each Fund’s Statement of
Additional Information for information about amounts paid to the Distributor in connection with CDSC shares for the periods indicated.
Investor B and Investor C Shares — Contingent
Deferred Sales Charge Waivers and Reductions
The CDSC on Investor B, Investor B1, Investor B2, Investor
B3, Investor C, Investor C1, Investor C2 and Investor C3 Shares is not charged in connection with: (1) redemptions of Investor
B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2 and Investor C3 Shares purchased through certain
authorized qualified employee benefit plans and rollovers of current investments in the Fund through such plans; (2) exchanges
described in “Exchange Privilege” below; (3) redemptions made in connection with minimum required distributions
due to the shareholder reaching age 70 1/2 from IRA and 403(b)(7) accounts; (4) certain post-retirement withdrawals from an
IRA or other retirement plan if you are over 59
1/2
years
old and you purchased your shares prior to October 2, 2006; (5) redemptions made with respect to certain retirement plans
sponsored by the Fund, BlackRock or its affiliates; (6) redemptions in connection with a shareholder’s 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) or disability (as defined in the Code)
subsequent to the purchase of Investor B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2 or Investor
C3 Shares; (7) 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; (8) involuntary redemptions of Investor B, Investor B1, Investor
B2, Investor B3, Investor C, Investor C1, Investor C2 or Investor C3 Shares in accounts with low balances as described in “Redemption
of Shares” below; (9) redemptions made pursuant to a systematic withdrawal plan, subject to the limitations set forth
under “Systematic Withdrawal Plan” below; (10) redemptions related to the payment of The Bank of New York Mellon
custodial IRA fees; and (11) redemptions when a shareholder can demonstrate hardship, in the absolute discretion of the Fund.
In addition, no CDSC is charged on Investor B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2 or Investor
C3 Shares acquired through the reinvestment of dividends or distributions.
Class R Shares
Certain of the Funds offer Class R Shares as described
in each such Fund’s Prospectus. Class R Shares are available only to certain retirement plans. Class R Shares are
not subject to an initial sales charge or a CDSC but are subject to an ongoing distribution fee of 0.25% per year and an ongoing
service fee of 0.25% per year. Distribution fees are used to support the Fund’s marketing and
distribution efforts, such as compensating financial advisers
and other financial intermediaries, advertising and promotion. Service fees are used to compensate securities dealers and other
financial intermediaries for service activities. If Class R Shares are held over time, these fees may exceed the maximum sales
charge that an investor would have paid as a shareholder of one of the other share classes.
Class K Shares
Certain of the Funds offer Class K Shares as described
in each such Fund’s Prospectus. Class K Shares are available only to (i) qualified recordkeepers with a distribution
and/or fund servicing agreement (establishing an omnibus trading relationship) maintained with the Fund’s distributor, or
(ii) defined benefit plans, defined contribution plans, endowments and foundations with greater than $10 million in a qualified
tax-exempt plan, or (iii) employers with greater than $10 million in the aggregate between qualified and non-qualified plans
that they sponsor.
Service Shares
Certain Funds offer Service Shares, which are available
only to certain investors, including: (i) certain financial institutions, such as banks and brokerage firms, acting on behalf of
their customers; (ii) 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 (iii) participants in the Capital Directions
SM
asset allocation program.
Service Shares are not subject to an initial sales charge or a CDSC but are subject to an ongoing service fee of 0.25% per year.
BlackRock Shares
Certain Funds offer BlackRock Shares, which are available
only to certain investors. BlackRock Shares are offered without a sales charge to institutional investors, registered investment
advisers and certain fee-based programs.
Distribution Plans
Each Fund has entered into a distribution agreement with
BRIL under which BRIL, as agent, offers shares of each Fund on a continuous basis. BRIL has agreed to use appropriate efforts to
effect sales of the shares, but it is not obligated to sell any particular amount of shares. BRIL’s principal business address
is 40 East 52nd Street, New York, NY 10022. BRIL is an affiliate of BlackRock.
Pursuant to the distribution plans of the Investor A, Investor
A1, Investor B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2, Investor C3 and Class R Shares
(each, a “Plan”), the Fund may pay BRIL and/or BlackRock or any other affiliate or significant shareholder of BlackRock
fees for distribution and sales support services. Currently, as described further below, only Investor B, Investor B1, Investor
B2, Investor B3, Investor C, Investor C1, Investor C2, Investor C3 and Class R Shares bear the expense of distribution fees
under a Plan. In addition, the Fund may pay to brokers, dealers, financial institutions and industry professionals (including BlackRock,
BRIL, PNC, Barclays and their affiliates) (collectively, “Service Organizations”) fees for the provision of personal
services to shareholders. In the past, BlackRock or BRIL has retained a portion of the shareholder servicing fees paid by the Fund.
Each Fund’s Plans are subject to the provisions of
Rule 12b-1 under the Investment Company Act. In their consideration of a Plan, the Directors must consider all factors they
deem relevant, including information as to the benefits of the Plan to the Fund and the related class of shareholders. In approving
a Plan in accordance with Rule 12b-1, the non-interested Directors concluded that there is reasonable likelihood that the
Plan will benefit the Fund and its related class of shareholders. The Plan provides, among other things, that: (i) the Board
of Directors shall receive quarterly reports regarding the amounts expended under the Plan and the purposes for which such expenditures
were made; (ii) the Plan will continue in effect for so long as its continuance is approved at least annually by the Board
of Directors in accordance with Rule 12b-1 under the Investment Company Act; (iii) any material amendment thereto must
be approved by the Board of Directors, including the directors who are not “interested persons” of the Fund (as defined
in the Investment Company Act) and who have no direct or indirect financial interest in the operation of the Plan or any agreement
entered into in connection with the Plan (the “12b-1 Directors”), acting in person at a meeting called for said purpose;
(iv) any amendment to increase materially the costs which any class of shares may bear for distribution services pursuant
to the Plan shall be effective only upon approval by a vote of a majority of the outstanding shares of such class and by a majority
of the 12b-1 Directors; and (v) while the Plan remains in effect, the selection and nomination of the Fund’s Directors
who are not “interested persons” of the Fund shall be committed to the discretion of the Fund’s non-interested
Directors. Rule 12b-1 further requires that each Fund preserve copies of each Plan and any report made pursuant to such plan
for a period of not less than six years from the date of the Plan or such report, the first two years in an easily accessible place.
Payments under the Plans are based on a percentage of average
daily net assets attributable to the shares regardless of the amount of expenses incurred. As a result, distribution-related revenues
from the Plans may be more or less than distribution-related expenses of the related class. Information with respect to the distribution-related
revenues and expenses is presented to the Directors for their consideration quarterly. Distribution-related revenues consist of
the service fees, the distribution fees and the CDSCs. Distribution-related expenses consist of financial adviser compensation,
branch office and regional operation center selling and transaction processing expenses, advertising, sales promotion and marketing
expenses and interest expense. Distribution-related revenues paid with respect to one class will not be used to finance the distribution
expenditures of another class. Sales personnel may receive different compensation for selling different classes of shares.
The Plan is terminable as to any class of shares without
penalty at any time by a vote of a majority of the 12b-1 Directors, or by vote of the holders of a majority of the shares of such
class.
See “Distribution Related Expenses” in Part
I of each Fund’s Statement of Additional Information for information relating to the fees paid by your Fund to the Distributor
under each Plan during the Fund’s most recent fiscal year.
Limitations on the Payment of Deferred Sales Charges
The maximum sales charge rule in the Conduct Rules of the
NASD imposes a limitation on certain asset-based sales charges such as the distribution fee borne by Class R Shares, and the
distribution fee and the CDSC borne by the Investor B and Investor C Shares. This limitation does not apply to the service fee.
The maximum sales charge rule is applied separately to each class and limits the aggregate of distribution fee payments and CDSCs
payable by a Fund to (1) 6.25% of eligible gross sales of Investor B, Investor C and Class R Shares, computed separately
(excluding shares issued pursuant to dividend reinvestments and exchanges), plus (2) interest on the unpaid balance for the
respective class, computed separately, at the prime rate plus 1% (the unpaid balance being the maximum amount payable minus amounts
received from the payment of the distribution fee and the CDSC). See Part I, Section V “Information on Sales Charges
and Distribution Related Expenses — Limitation on the Payment of Deferred Sales Charge” of each Fund’s Statement
of Additional Information for comparative information as of your Fund’s most recent fiscal year end with respect to the Investor
B, Investor C and, if applicable, Class R Shares of your Fund.
Other Compensation to Selling Dealers
BlackRock and certain of their affiliates may 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, BRIL, BlackRock or their affiliates may compensate affiliated and unaffiliated
brokers, dealers, financial institutions and industry professionals (including BlackRock, Merrill Lynch, Hilliard Lyons and their
affiliates) (collectively, “Service Organizations”) for the sale and distribution of shares of a Fund or for services
to a Fund and its shareholders. These non-distribution and service plan payments may take the form of, among other things, “due
diligence” payments for a dealer’s examination of the Funds and payments for providing extra employee training and
information relating to Funds; “listing” fees for the placement of the Funds on a dealer’s list of mutual funds
available for purchase by its customers; “finders” fees for directing investors to the Fund; “distribution and
marketing support” fees or “revenue sharing” for providing assistance in promoting the sale of the Funds’
shares; payments for the sale of shares and/or the maintenance of share balances; CUSIP fees; maintenance fees; and set-up fees
regarding the establishment of new accounts. The payments made by BRIL, BlackRock and their affiliates may be a fixed dollar amount
or may be based on a percentage of the value of shares sold to, or held by, customers of the Service Organization involved, and
may be different for different Service Organizations. The payments described above are made from BRIL’s, BlackRock’s
or their affiliates’ own assets pursuant to agreements with Service Organizations and do not change the price paid by investors
for the purchase of the Fund’s shares or the amount the Fund will receive as proceeds from such sales.
As of the date of this Statement of Additional Information, as
amended or supplemented from time to time, the following Service Organizations are receiving such payments: Ameriprise Financial
Services, AXA Advisors, Cetera Advisor Networks LLC, Cetera Advisors LLC, Cetera Financial Specialists LLC, Cetera Investment Services
LLC, Chase Investment Services Corp, CCO Investment Services, Commonwealth Equity Services (Commonwealth Financial Network), Donegal
Securities, FSC Securities Corporation, ING Financial Partners, Investacorp, Inc., LPL Financial Corporation, Merrill Lynch, MetLife
Securities, Morgan Stanley Smith Barney, New England Securities Corporation, Oppenheimer & Co., PFS Investments, Raymond James,
RBC Capital Markets, Royal Alliance Associates, SagePoint Financial, Securities America, State Farm VP Management Corp., Tower
Square Securities, Triad Advisors, Inc., UBS Financial Services, U.S. Bancorp Investments, Walnut Street Securities, Wells Fargo,
Woodbury Financial Services, Inc. and/or broker dealers and other financial services firms under common control with the above
organizations (or their successors or assignees). The level of payments made to these Service Organizations in any year will vary,
may be limited to specific Funds or share classes, and normally will not exceed the sum of (a) 0.25% of such year’s Fund
sales by that Service Organization, and (b) 0.21% of
the assets
attributable to that Service Organization invested in a Fund. In certain cases, the payments described in the preceding sentence
are subject to certain minimum payment levels. In addition, from time to time BRIL, BlackRock or certain of their affiliates may
make fixed dollar amount payments to certain Service Organizations listed above that are not based on the value of the shares sold
to, or held by, the Service Organization’s customers and may be different for different Service Organizations
.
Other Distribution Arrangements
Certain Funds and BlackRock have entered into distribution
agreements with UBS AG whereby UBS AG may, in certain circumstances, sell certain shares of the Funds in certain jurisdictions.
The level of payments made to UBS AG in any year for the sale and distribution of a Fund’s shares will vary and normally
will not exceed the sum of the service fee payable on the assets attributable to UBS AG plus an additional fee equal to a percentage
of such assets which shall range up to 0.25%.
In lieu of payments pursuant to the foregoing, BRIL, BlackRock,
PNC or their affiliates may make payments to the above named Service Organizations of an agreed-upon amount which, subject to certain
agreed-upon minimums, will generally not exceed the amount that would have been payable pursuant to the formula, and may also make
similar payments to other Service Organizations.
If investment advisers, distributors or affiliates of mutual
funds pay bonuses and incentives in differing amounts, financial firms and their financial consultants may have financial incentives
for recommending a particular mutual fund over other mutual funds. In addition, depending on the arrangements in place at any particular
time, a financial firm and its financial consultants may also have a financial incentive for recommending a particular share class
over other share classes.
You should consult your financial adviser and review carefully any disclosure by the financial firm
as to compensation received by your financial adviser for more information about the payments described above.
Furthermore, BRIL, BlackRock and their affiliates may contribute
to various non-cash and cash incentive arrangements to promote the sale of shares, and may sponsor various contests and promotions
subject to applicable FINRA regulations in which participants may receive prizes such as travel awards, merchandise and cash. Subject
to applicable FINRA regulations, BRIL, BlackRock and their affiliates may also: (i) pay for the travel expenses, meals, lodging
and entertainment of broker/dealers, financial institutions and their salespersons in connection with educational and sales promotional
programs, (ii) sponsor speakers, educational seminars and charitable events and (iii) provide other sales and marketing
conferences and other resources to broker-dealers, financial institutions and their salespersons.
BlackRock, Inc., the parent company of BlackRock, has agreed
to pay PNC Bank and certain of its affiliates fees for administration and servicing with respect to assets of the Fund attributable
to shares held by customers of such entities. These assets are predominantly in the Institutional Share class of a Fund, with respect
to which the Fund does not pay shareholder servicing fees under a Plan. The fees are paid according to the following schedule:
certain money market funds: 0.15% of net assets; certain fixed income funds: 0.20% of net assets; and certain equity funds: 0.25%
of net assets (except that with respect to Index Equity, the fee is 0.04% of net assets).
Service Organizations may charge their clients additional
fees for account-related services. Service Organizations may charge their customers a service fee in connection with the purchase
or redemption of Fund shares. The amount and applicability of such a fee is determined and disclosed to its customers by each individual
Service Organization. Service fees typically are fixed, nominal dollar amounts and are in addition to the sales and other charges
described in the Prospectuses and this Statement of Additional Information. Your Service Organization will provide you with specific
information about any service fees you will be charged.
Pursuant to the Plans, each Fund enters into service arrangements
with Service Organizations pursuant to which Service Organizations will render certain support services to their customers (“Customers”)
who are the beneficial owners of Hilliard Lyons, Service, Investor A, Investor A1, Investor B, Investor B1, Investor B2, Investor
C, Investor C1, Investor C2 and Class R Shares of all Funds. Such services will be provided to Customers who are the beneficial
owners of shares of such classes and are intended to supplement the services provided by the Fund’s Administrators and Transfer
Agent to the Fund’s shareholders of record. In consideration for payment of the applicable service fee Service Organizations
may provide general shareholder liaison services, including, but not limited to: (i) answering customer inquiries regarding account
status and history, the manner in which purchases, exchanges and redemptions of shares may be effected and certain other matters
pertaining to the Customers’ investments; and (ii) assisting Customers in designating and changing dividend options,
account designations and addresses.
To the extent a shareholder is not associated with a Service
Organization, the shareholder servicing fees will be paid to BlackRock, and BlackRock will provide services. In addition to, rather
than in lieu of, distribution and shareholder servicing fees that a Fund may pay to a Service Organization pursuant to the Plan
and fees the Fund pays to its Transfer Agent, the Fund may enter into non-Plan
agreements with Service Organizations pursuant to which
the Fund will pay a Service Organization 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 Service Organization or (2) a fixed dollar amount for each account serviced by a Service Organization. The aggregate
amount of these payments may be substantial. From time to time, BlackRock, BRIL or their affiliates also may pay a portion of the
fees for administrative, networking, omnibus, operational and recordkeeping, sub-transfer agency and shareholder services described
above at its or their own expense and out of its or their legitimate profits.
Redemption
of Shares
Shares normally will be redeemed for cash upon receipt
of a request in proper form, although each Fund retains the right to redeem some or all of its shares in-kind under unusual circumstances
(valued in the same way as they would be valued for purposes of computing a Fund’s NAV), in order to protect the interests
of remaining shareholders, or to accommodate a request by a particular shareholder that does not adversely affect the interest
of the remaining shareholders, by delivery of securities selected from the Fund’s assets at its discretion. In-kind payment
means payment will be made in portfolio securities rather than cash. If this occurs, the redeeming shareholder might incur brokerage
or other transaction costs to convert the securities to cash. Each Fund has elected, however, to be governed by Rule 18f-1
under the Investment Company Act so that the Fund is obligated to redeem its shares solely in cash up to the lesser of $250,000
or 1% of its net asset value during any 90-day period for any shareholder of the Fund. The redemption price is the net asset value
per share next determined after the initial receipt of proper notice of redemption. The value of shares of each Fund at the time
of redemption may be more or less than your cost at the time of purchase, depending in part on the market value of the securities
held by the Fund at such time. Except for any CDSC or redemption fee that may be applicable, there will be no redemption charge
if your redemption request is sent directly to the Transfer Agent. If you are liquidating your holdings you will receive all dividends
reinvested through the date of redemption.
The right to redeem shares may be suspended or payment
upon redemption may be delayed for more than seven days only (i) for any period during which trading on the NYSE is restricted
as determined by the Commission or during which the NYSE is closed (other than customary weekend and holiday closings), (ii) for
any period during which an emergency exists, as defined by the Commission, as a result of which disposal of portfolio securities
or determination of the net asset value of a Fund is not reasonably practicable, and (iii) for such other periods as the Commission
may by order permit for the protection of shareholders of the Fund. (A Fund may also suspend or postpone the recordation of the
transfer of its shares upon the occurrence of any of the foregoing conditions.)
Each Fund, with other investment companies advised by the
Manager, has entered into a joint committed line of credit with a syndicate of banks that is intended to provide the Fund with
a temporary source of cash to be used to meet redemption requests from shareholders in extraordinary or emergency circumstances.
The Fund may redeem shares involuntarily to reimburse a
Fund for any loss sustained by reason of the failure of a shareholder to make full-payment for shares purchased by the shareholder
or to collect any charge relating to a transaction effected for the benefit of a shareholder. The Fund reserves the express right
to redeem shares of each Fund involuntarily at any time if the Fund’s Board determines, in its sole discretion, that failure
to do so may have adverse consequences to the holders of shares in the Fund. Upon such redemption the holders of shares so redeemed
shall have no further right with respect thereto other than to receive payment of the redemption price.
Redemption
Investor, Institutional and Class R Shares
Redeem by Telephone:
You may sell Investor class
shares held at 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 the Automated Clearing House Network (“ACH”) or wire transfer.
Certain redemption requests, such as those in excess of these amounts, and those where (i) the Fund does not have verified
banking information on file; or (ii) the proceeds are not paid to the record owner at the record address, must be in writing
with a medallion signature guarantee provided by any “eligible guarantor institution” as defined in Rule 17Ad-15
under the Securities Exchange Act of 1934 (the “Exchange Act”), whose existence and validity may be verified by the
Transfer Agent through the use of industry publications. 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. The three recognized medallion programs are Securities Transfer Agent Medallion Program,
Stock Exchanges Medallion Program and New York Stock Exchange, Inc. Medallion Signature Program. Signature guarantees which are
not a part of these programs will not be accepted. A notary public seal will not be acceptable. Generally, a properly signed written
request
with any required signature guarantee is all that is required
for a redemption. In some cases, however, other documents may be necessary. Additional documentary evidence of authority is required
by the Transfer Agent in the event redemption is requested by a corporation, partnership, trust, fiduciary, executor or administrator.
If you make a redemption request before a Fund has collected
payment for the purchase of shares, the Fund may delay mailing your proceeds. This delay will usually not exceed ten days. A Fund,
its Administrators and the Distributor will employ reasonable procedures to confirm that instructions communicated by telephone
are genuine. Telephone redemption requests will not be honored if: (i) the accountholder is deceased, (ii) the proceeds
are to be sent to someone other than the shareholder of record, (iii) a Fund does not have verified information on file, (iv) the
request is by an individual other than the accountholder of record, (v) the account is held by joint tenants who are divorced,
(vi) the address on the account has changed within the last 30 days or share certificates have been issued on the account,
or (vii) to protect against fraud, if the caller is unable to provide the account number, the name and address registered
on the account and the social security number registered on the account. 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. Before telephone requests will be honored, signature approval from all shareholders of record on the account
must be obtained. 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 below alternative redemption
methods.
The Funds or the Transfer Agent may temporarily suspend
telephone transactions at any time.
Redeem by VRU:
Investor class shares may also be
redeemed by use of the Fund’s automated voice response unit service (“VRU”). Payment for Investor class shares
redeemed by VRU may be made for non-retirement accounts in amounts up to $25,000, either through check, ACH or wire.
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 class 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.
Redeem in Writing:
If you hold shares with the Transfer
Agent you may redeem such shares without charge by writing to the Fund’s Transfer Agent, BNY Mellon Investment Servicing
(US) Inc., P.O. Box 9819, Providence, Rhode Island 02940-8019. Redemption requests delivered other than by mail should be sent
to the Fund’s Transfer Agent, BNY Mellon Investment Servicing (US) Inc., 4400 Computer Drive, Westborough, Massachusetts
01588. If you hold share certificates issued by your Fund, the letter must be accompanied by certificates for the shares. All shareholders
on the account must sign the letter. A medallion signature guarantee may be required but may be waived in certain 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.
Redemptions of Service Shares, Class K Shares and BlackRock
Shares may be made in the manner and amounts described in the Prospectuses.
If you redeem shares directly with the Transfer Agent,
payments will generally be mailed within seven days of receipt of the proper notice of redemption. A Fund may delay the mailing
of a redemption check until good payment (that is, cash, Federal funds or certified check drawn on a U.S. bank) has been collected
for the purchase of Fund shares, which delay will usually not exceed 10 days. If your account is held directly with the Transfer
Agent and contains a fractional share balance following a redemption, the fractional share balance will be automatically redeemed
by the Fund.
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 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.
Repurchase
A Fund normally will accept orders to repurchase shares
from Selling Dealers for their customers. Shares will be priced at the net asset value of the Fund next determined after receipt
of the repurchase order by a Selling Dealer that has been authorized by the Distributor by contract to accept such orders. As to
repurchase orders received by Selling Dealers prior to the close of business on the NYSE (generally, the NYSE closes at 4:00 p.m.
Eastern time), on the day the order is placed, which includes orders received after the close of business on the previous day,
the repurchase price is the net asset value determined as of the close of business on the NYSE on that day. If the orders for repurchase
are not received by the Selling Dealer before the close of business on the NYSE, such orders are deemed received on the next business
day.
These repurchase arrangements are for your convenience
and do not involve a charge by the Fund (other than any applicable CDSC or redemption fee). However, Selling Dealers may charge
a processing fee in connection with such transactions. In addition, securities firms that do not have selected dealer agreements
with the Distributor may impose a transaction charge for transmitting the notice of repurchase to the Fund. Each Fund reserves
the right to reject any order for repurchase. A shareholder whose order for repurchase is rejected by a Fund, however, may redeem
shares as set forth above.
Reinstatement Privilege — Investor A Shares
Upon redemption of Investor A, Investor A1 or Institutional
Shares, as applicable, shareholders may reinvest all or a portion of their redemption proceeds (after paying any applicable CDSC)
in Investor A Shares of the same or another BlackRock fund without paying a front-end sales charge. 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 NAV calculated at
the close of trading on the day the request is received in good order. 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 the purchase. Investors should
consult a tax adviser concerning the tax consequences of exercising this reinstatement privilege.
Shareholder
Services
Each Fund offers one or more of the shareholder services
described below that are designed to facilitate investment in its shares. You can obtain more information about these services
from each Fund by calling the telephone number on the cover page, or from the Distributor, your financial adviser, your selected
securities dealer or other financial intermediary. Certain of these services are available only to U.S. investors.
Investment Account
If your account is maintained at the Transfer Agent (an
“Investment Account”) you will receive statements, at least quarterly, from the Transfer Agent. These statements will
serve as confirmations for automatic investment purchases and the reinvestment of dividends. The statements also will show any
other activity in your Investment Account since the last statement. You also will receive separate confirmations for each purchase
or sale transaction other than automatic investment purchases and the reinvestment of dividends. If your Investment Account is
held at the Transfer Agent you may make additions to it at any time by mailing a check directly to the Transfer Agent. You may
also maintain an account through a selected securities dealer or other financial intermediary. If you transfer shares out of an
account maintained with a selected securities dealer or other financial intermediary, an Investment Account in your name may be
opened automatically at the Transfer Agent.
You may transfer Fund shares from a selected securities
dealer or other financial intermediary to another securities dealer or other 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 new firm. If you wish to transfer your shares to a securities dealer or other financial intermediary
that has not entered into an agreement with the Distributor, you must either (i) redeem
your shares, paying any applicable CDSC or (ii) continue
to maintain an Investment Account at the Transfer Agent for those shares. You also may request that the new securities dealer or
other financial intermediary maintain the shares in an account at the Transfer Agent registered in the name of the securities dealer
or other financial intermediary for your benefit whether the securities dealer or other financial intermediary has entered into
a selected dealer agreement or not. In the interest of economy and convenience and because of the operating procedures of each
Fund, share certificates will not be issued physically. Shares are maintained by each Fund on its register maintained by the Transfer
Agent and the holders thereof will have the same rights and ownership with respect to such shares as if certificates had been issued.
If you are considering transferring a tax-deferred retirement
account, such as an individual retirement account, from one selected securities dealer to another securities dealer or other financial
intermediary, you should be aware that if the new firm will not take delivery of shares of the Fund, you must either redeem the
shares (paying any applicable CDSC) so that the cash proceeds can be transferred to the account at the new firm, or you must continue
to maintain a retirement account at the original selected securities dealer for those shares.
Exchange Privilege
U.S. shareholders of Investor A, Investor A1, Investor
B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2, Investor C3 and Institutional Shares of each Fund
have an exchange privilege with certain other Funds. The minimum amount for exchanges of Investor class shares is $1,000, although
you may exchange less than $1,000 if you already have an account in the Fund into which you are exchanging. You may only exchange
into a share class and a Fund that are open to new investors or in which you have a current account if the class or fund is closed
to new investors. If you held the shares used in the exchange for 30 days or less, you may be charged a redemption fee at the time
of the exchange. Before effecting an exchange, you should obtain a currently effective prospectus of the fund into which you wish
to make the exchange. Exercise of the exchange privilege is treated as a sale of the exchanged shares and a purchase of the acquired
shares for Federal income tax purposes.
Exchanges of Investor A, Investor A1 and Institutional
Shares.
Institutional Shares are exchangeable with shares of the same class of other Funds. Investor A and Investor A1 Shares
are exchangeable for Investor A Shares of other Funds.
Exchanges of Institutional Shares outstanding (“outstanding
Institutional Shares”) for Institutional Shares of a second Fund or for shares of a money market fund (“new Institutional
Shares”) are effected on the basis of relative net asset value per Institutional Share. Exchanges of Investor A or Investor
A1 Shares outstanding (“outstanding Investor A Shares”) for Investor A Shares of a second Fund, or for shares of a
money market fund (“new Investor A Shares”) are effected on the basis of relative net asset value per share.
Exchanges of Investor B, Investor B1, Investor B2, Investor
B3, Investor C, Investor C1, Investor C2 and Investor C3 Shares.
Shareholders of certain Funds with Investor B, Investor B1,
Investor B2, Investor B3, Investor C, Investor C1, Investor C2 and Investor C3 Shares outstanding (“outstanding Investor
B or Investor C Shares”) may exchange their shares for Investor B or Investor C Shares, respectively, of a second Fund or
for shares of a money market fund (“new Investor B or Investor C Shares”) on the basis of relative net asset value
per Investor B or Investor C Share, without the payment of any CDSC. Certain Funds impose different CDSC schedules. If you exchange
your Investor B Shares for shares of a fund with a different CDSC schedule, the CDSC schedule that applies to the shares exchanged
will continue to apply. For purposes of computing the CDSC upon redemption of new Investor B or Investor C Shares, the time you
held both the exchanged Investor B or Investor C Shares and the new Investor B Shares or Investor C Shares will count towards the
holding period of the new Investor B or Investor C Shares. For example, if you exchange Investor B Shares of a Fund with a six-year
CDSC for those of a second Fund after having held the first Fund’s Investor B Shares for two-and-a-half years, the 3.50%
CDSC that generally would apply to a redemption would not apply to the exchange. Four years later if you decide to redeem the Investor
B Shares of the second Fund and receive cash, there will be no CDSC due on this redemption since by adding the two-and-a-half year
holding period of the first Fund’s Investor B Shares to the four year holding period for the second Fund’s Investor
B Shares, you will be deemed to have held the second Fund’s Investor B Shares for more than six years.
Exchanges for Shares of a Money Market Fund.
You
may exchange any class of Investor class shares for shares of an affiliated money market fund. If you exchange into BlackRock Summit
Cash Reserves Fund (“Summit”), a series of BlackRock Financial Institutions Series Trust, you will receive one
of two classes of shares: exchanges of Investor A, Investor A1 and Institutional Shares of a Fund will receive Investor A Shares
of Summit and exchanges of Investor B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2 and Investor
C3 Shares of a Fund will receive Investor B Shares of Summit. You may exchange Investor A Shares of Summit back into Investor A
or Institutional Shares of a Fund. You may exchange Investor B Shares of Summit back into Investor B or Investor C Shares of a
Fund and, in the event of such an exchange, the period of time that you held Investor B Shares of Summit will count toward satisfaction
of the holding period requirement for purposes of reducing any CDSC and toward satisfaction of any Conversion Period with respect
to Investor B Shares. Investor B Shares of Summit are subject to a distribution fee at an annual rate of
0.75% of average daily net assets of such Investor B Shares.
Exchanges of Investor B or Investor C Shares of a money market fund other than Summit for Investor B or Investor C Shares of a
Fund will be exercised at net asset value. However, a CDSC may be charged in connection with any subsequent redemption of the Investor
B or Investor C Shares of the Fund received in the exchange. In determining the holding period for calculating the CDSC payable
on redemption of Investor B and Investor C Shares of the Fund received in exchange, the holding period of the money market fund
Investor B or Investor C Shares originally held will be added to the holding period of the Investor B or Investor C Shares acquired
through exchange.
Exchanges by Participants in Certain Programs.
The
exchange privilege may be modified with respect to certain participants in mutual fund advisory programs and other fee-based programs
sponsored by the Manager, an affiliate of the Manager, or selected securities dealers or other financial intermediaries that have
an agreement with the Distributor. See “Fee-Based Programs” below.
Exercise of the Exchange Privilege.
To exercise
the exchange privilege, you should contact your financial adviser or the Transfer Agent, who will advise each Fund of the exchange.
If you do not hold share certificates, you may exercise the exchange privilege by wire through your securities dealer or other
financial intermediary. Each Fund reserves the right to require a properly completed exchange application.
A shareholder who wishes to make an exchange may do so
by sending a written request to the Fund c/o the Transfer Agent at the following address: P.O. Box 9819, Providence, Rhode Island
02940-8019. Shareholders are automatically provided with telephone exchange privileges when opening an account, unless they indicate
on the Application that they do not wish to use this privilege. To add this feature to an existing account that previously did
not provide this option, a Telephone Exchange Authorization Form must be filed with the Transfer Agent. This form is available
from the Transfer Agent. Once this election has been made, the shareholder may simply contact the Fund by telephone at (800) 441-7762
to request the exchange. During periods of substantial economic or market change, telephone exchanges may be difficult to complete
and shareholders may have to submit exchange requests to the Transfer Agent in writing.
If the exchanging shareholder does not currently own shares
of the investment portfolio whose shares are being acquired, a new account will be established with the same registration, dividend
and capital gain options and broker of record as the account from which shares are exchanged, unless otherwise specified in writing
by the shareholder with all signatures guaranteed by an eligible guarantor institution as defined below. In order to participate
in the Automatic Investment Program or establish a Systematic Withdrawal Plan for the new account, however, an exchanging shareholder
must file a specific written request.
Any share exchange must satisfy the requirements relating
to the minimum initial investment requirement, and must be legally available for sale in the state of the investor’s residence.
For Federal income tax purposes, a share exchange is a taxable event and, accordingly, a capital gain or loss may be realized.
Before making an exchange request, shareholders should consult a tax or other financial adviser and should consider the investment
objective, policies and restrictions of the investment portfolio into which the shareholder is making an exchange. Brokers may
charge a fee for handling exchanges.
The Fund reserves the right to suspend, modify or terminate
the exchange privilege at any time. Notice will be given to shareholders of any material modification or termination except where
notice is not required. The Fund reserves the right to reject any telephone exchange request. Telephone exchanges may be subject
to limitations as to amount or frequency, and to other restrictions that may be established from time to time to ensure that exchanges
do not operate to the disadvantage of any portfolio or its shareholders.
The Fund, the administrators and BRIL will employ reasonable
procedures to confirm that instructions communicated by telephone are genuine. The Fund, the administrators and BRIL will not be
liable for any loss, liability, cost or expense for acting upon telephone instructions reasonably believed to be genuine in accordance
with such procedures. By use of the exchange privilege, the investor authorizes the Fund’s Transfer Agent to act on telephonic
or written exchange instructions from any person representing himself to be the investor and believed by the Fund’s Transfer
Agent to be genuine. The records of the Fund’s Transfer Agent pertaining to such instructions are binding. The exchange privilege
may be modified or terminated at any time upon 60 days’ notice to affected shareholders. The exchange privilege is only
available in states where the exchange may legally be made.
Each Fund reserves the right to limit the number of times
an investor may exercise the exchange privilege. Certain Funds may suspend the continuous offering of their shares to the general
public at any time and may resume such offering from time to time. The exchange privilege is available only to U.S. shareholders
in states where the exchange legally may be made. The exchange privilege may be applicable to other new mutual funds whose shares
may be distributed by the Distributor.
Fee-Based Programs
If you participate in certain fee-based programs offered
by BlackRock or an affiliate of BlackRock, or selected securities dealers or other 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 exchanges 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 or redemption fee.
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 a Fund, but may be subject to upfront sales charges with respect to Investor
A Shares. Additional purchases of Institutional Shares are available 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 professional, selected securities
dealer or other financial intermediary.
Retirement and Education Savings Plans
Individual retirement accounts and other retirement and
education savings plans are available from your financial intermediary. Under these plans, investments may be made in a Fund and
certain of the other mutual funds sponsored by the Manager or its affiliates as well as in other securities. There may be fees
associated with investing through these plans. Information with respect to these plans is available on request from your financial
intermediary.
Dividends received in each of the plans referred to above
are exempt from Federal taxation until distributed from the plans and, in the case of Roth IRAs and education savings plans, may
be exempt from taxation when distributed as well. Investors considering participation in any retirement or education savings plan
should review specific tax laws relating to the plan and should consult their attorneys or tax advisers with respect to the establishment
and maintenance of any such plan.
Automatic Investment Plans
Investor class shareholders and certain Service Share shareholders
who were shareholders of the Compass Capital Group of Funds at the time of its combination with The PNC
®
Fund in 1996 may arrange for periodic investments in that Fund through automatic deductions from a checking or savings account.
The minimum pre-authorized investment amount is $50. If you buy shares of a Fund through certain accounts, no minimum charge to
your bank account is required. Contact your financial adviser or other financial intermediary for more information. The automatic
investment plan for Investor B Shares terminated effective July 1, 2009. Shareholders who currently are enrolled in the plan may
redirect their automatic investments into Investor A Shares or Investor C Shares.
Automatic Dividend Reinvestment Plan
Each Fund will distribute substantially all of its net
investment income and net realized capital gains, if any, to shareholders. All distributions are reinvested at net asset value
in the form of additional full and fractional shares of the same class of shares of the relevant Fund unless a shareholder elects
otherwise. Such election, or any revocation thereof, must be made in writing to the Transfer Agent, and will become effective with
respect to dividends paid after its receipt by the Transfer Agent. Each Fund declares a dividend each day on “settled”
shares (
i.e.
, shares for which the particular Fund has received payment in Federal funds) on the first business day after
a purchase order is placed with the Fund. Payments by check are normally converted to Federal funds within two business days of
receipt. Over the course of a year, substantially all of the Fund’s net investment income will be declared as dividends.
The amount of the daily dividend for each Fund will be based on periodic projections of its net investment income. All dividends
are paid within ten days after the end of each month. Net realized capital gains (including net short-term capital gains), if any,
will be distributed by each Fund at least annually.
Systematic Withdrawal Plans
Shareholders may receive regular distributions from their
accounts via a Systematic Withdrawal Plan (“SWP”). Upon commencement of the SWP, the account must have a current value
of $10,000 or more in a Fund. Shareholders may elect to receive automatic cash payments of $50 or more at any interval. You may
choose any day for the withdrawal. If no day is specified, the withdrawals will be processed on the 25th day of the month or, if
such day is not a business day, on the prior business day and are paid promptly thereafter. An investor may utilize the SWP by
completing the Systematic Withdrawal Plan Application Form which may be obtained by visiting our website at www.blackrock.com/funds.
Shareholders should realize that if withdrawals exceed
income dividends their invested principal in the account will be depleted. To participate in the SWP, shareholders must have their
dividends automatically reinvested. Shareholders may change or cancel the SWP at any time, upon written notice to the Fund, or
by calling the Fund at (800) 441-7762. Purchases of additional Investor A Shares of the Fund concurrently with withdrawals
may be disadvantageous to investors because of the sales charges involved and, therefore, are discouraged. No CDSC will be assessed
on redemptions of Investor B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2 or Investor C3 Shares
made through the SWP that do not exceed 12% of the original investment on an annualized basis. For example, monthly, quarterly
and semi-annual SWP redemptions of Investor B, Investor B1, Investor B2, Investor B3, Investor C, Investor C1, Investor C2 or Investor
C3 Shares will not be subject to the CDSC if they do not exceed 1% (monthly), 3% (quarterly) and 6% (semi-annually), respectively,
of an account’s net asset value on the redemption date. SWP redemptions of Investor B, Investor B1, Investor B2, Investor
B3, Investor C, Investor C1, Investor C2 or Investor C3 Shares in excess of this limit are still subject to the applicable CDSC.
For this reason, a shareholder may not participate in the
Automatic Investment Plan described above (see “How to Buy, Sell, Transfer and Exchange Shares” in the Fund’s
Prospectus) and the SWP at the same time.
Dividend Allocation Plan
The Dividend Allocation Plan allows shareholders to elect
to have all their dividends and any other distributions from any Eligible Fund (which means funds so designated by the Distributor
from time to time) automatically invested at net asset value in one other such Eligible Fund designated by the shareholder, provided
the account into which the dividends and distributions are directed is initially funded with the requisite minimum amount.
Pricing
of Shares
Determination of Net Asset Value
Valuation of Shares.
The net asset value
for each class of shares of each Fund is generally calculated as of the close of regular trading hours on the NYSE (currently 4:00
p.m. Eastern Time) on each business day the NYSE is open.
Valuation of securities held by each Fund is as follows:
Equity Investments.
Equity securities traded
on a recognized securities exchange (
e.g.
, NYSE), separate trading boards of a securities exchange or through a market system
that provides contemporaneous transaction pricing information (an “Exchange”) are valued via independent pricing services
generally at the Exchange closing price or if an Exchange closing price is not available, the last traded price on that Exchange
prior to the time as of which the assets or liabilities are valued, however, under certain circumstances other means of determining
current market value may be used. If an equity security is traded on more than one Exchange, the current market value of the security
where it is primarily traded generally will be used. In the event that there are no sales involving an equity security held by
a Fund on a day on which the Fund values such security, the last bid (long positions) or ask (short positions) price, if available,
will be used as the value of such security. If a Fund holds both long and short positions in the same security, the last bid price
will be applied to securities held long and the last ask price will be applied to securities sold short. If no bid or ask price
is available on a day on which a Fund values such security, the prior day’s price will be used, unless BlackRock determines
that such prior day’s price no longer reflects the fair value of the security, in which case such asset would be treated
as a fair value asset.
Fixed Income Investments.
Fixed income securities
for which market quotations are readily available are generally valued using such securities’ most recent bid 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 Fund’s Board. The amortized
cost method of valuation may be used with respect to debt obligations with sixty days or less remaining to maturity unless the
Manager and/or Sub-Adviser determine such method does not represent fair value. Loan
participation notes are generally valued at the mean of
the last available bid prices from one or more brokers or dealers as obtained from independent third-party pricing services. Certain
fixed income investments including asset-backed and mortgage-related securities may be valued based on valuation models that consider
the estimated cash flows of each tranche of the entity, establish a benchmark yield and develop an estimated tranche specific spread
to the benchmark yield based on the unique attributes of the tranche. Fixed income securities for which market quotations are not
readily available may be valued by third-party pricing services that make a valuation determination by securing transaction data
(
e.g.
, recent representative bids), credit quality information, perceived market movements, news, and other relevant information
and by other methods, which may include consideration of: yields or prices of securities of comparable quality, coupon, maturity
and type; indications as to values from dealers; and general market conditions.
Options, Futures, Swaps and Other Derivatives.
Exchange-traded equity options for which market quotations are readily available are valued at the mean of the last bid and ask
prices as quoted on the Exchange or the board of trade on which such options are traded. In the event that there is no mean price
available for an exchange traded equity option held by a Fund on a day on which the Fund values such option, the last bid (long
positions) or ask (short positions) price, if available, will be used as the value of such option. If no bid or ask price is available
on a day on which a Fund values such option, the prior day’s price will be used, unless BlackRock determines that such prior
day’s price no longer reflects the fair value of the option in which case such option will be treated as a fair value asset.
OTC derivatives may be valued using a mathematical model which may incorporate a number of market data factors. Financial futures
contracts and options thereon, which are traded on exchanges, are valued at their last sale price or settle price as of the close
of such exchanges. Swap agreements and other derivatives are generally valued daily based upon quotations from market makers or
by a pricing service in accordance with the valuation procedures approved by the Board.
Underlying Funds.
Shares of underlying open-end
funds are valued at net asset value. Shares of underlying exchange-traded closed-end funds or other exchange-traded funds will
be valued at their most recent closing price.
General Valuation Information
In determining the market value of portfolio investments,
the Fund may employ independent third party pricing services, which may use, without limitation, a matrix or formula method that
takes into consideration market indexes, matrices, yield curves and other specific adjustments. This may result in the securities
being valued at a price different from the price that would have been determined had the matrix or formula method not been used.
All cash, receivables and current payables are carried on each Fund’s books at their face value.
Prices obtained from independent third party pricing services,
broker-dealers or market makers to value each Fund’s securities and other assets and liabilities are based on information
available at the time the Fund values its assets and liabilities. In the event that a pricing service quotation is revised or updated
subsequent to the day on which the Fund valued such security, the revised pricing service quotation generally will be applied prospectively.
Such determination shall be made considering pertinent facts and circumstances surrounding such revision.
In the event that application of the methods of valuation
discussed above result in a price for a security which is deemed not to be representative of the fair market value of such security,
the security will be valued by, under the direction of or in accordance with a method specified by the Fund’s Board as reflecting
fair value. All other assets and liabilities (including securities for which market quotations are not readily available) held
by a Fund (including restricted securities) are valued at fair value as determined in good faith by the Fund’s Board or by
BlackRock (its delegate). Any assets and liabilities which are denominated in a foreign currency are translated into U.S. dollars
at the prevailing rates of exchange.
Certain of the securities acquired by the Funds may be
traded on foreign exchanges or over-the-counter markets on days on which a Fund’s net asset value is not calculated. In such
cases, the net asset value of a Fund’s shares may be significantly affected on days when investors can neither purchase nor
redeem shares of the Fund.
Fair Value.
When market quotations are not
readily available or are believed by BlackRock to be unreliable, a Fund’s investments are valued at fair value (“Fair
Value Assets”). Fair Value Assets are valued by BlackRock in accordance with procedures approved by the Fund’s 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 complete lack of trading, if BlackRock believes a market quotation from a broker-dealer
or other source is unreliable (
e.g.
, where it varies significantly from a recent trade, or no longer reflects the fair value
of the security or other asset or liability subsequent to the most recent market quotation), where the security or other asset
or liability is only thinly traded or due to the occurrence of 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 a Fund’s
assets or liabilities, that it is likely that the event
will cause a material change to the last exchange closing price or closing market price of one or more assets or liabilities held
by the Fund. On any date the NYSE is open and the primary exchange on which a foreign asset or liability is traded is closed, such
asset or liability will be valued using the prior day’s price, provided that BlackRock is not aware of any significant event
or other information that would cause such price to no longer reflect the fair value of the asset or liability, in which case such
asset or liability would be treated as a Fair Value Asset. 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 a Fund’s pricing time.
BlackRock, with input from the BlackRock Portfolio Management
Group, will submit its recommendations regarding the valuation and/or valuation methodologies for Fair Value Assets to BlackRock’s
Valuation Committee. The Valuation Committee may accept, modify or reject any recommendations. In addition, the Funds’ accounting
agent periodically endeavors to confirm the prices it receives from all third party pricing services, index providers and broker-dealers,
and, with the assistance of BlackRock, to regularly evaluate the values assigned to the securities and other assets and liabilities
held by the Funds. The pricing of all Fair Value Assets is subsequently reported to and ratified by the Board or a Committee thereof.
When determining the price for a Fair Value Asset, the
BlackRock Valuation Committee (or the Pricing Group) shall seek to determine the price that a Fund might reasonably expect to receive
from the current sale of that asset or liability in an arm’s-length transaction. The price generally may not be determined
based on what a Fund might reasonably expect to receive for selling an asset or liability at a later time or if it holds the asset
or liability to maturity. Fair value determinations shall be based upon all available factors that the Valuation Committee (or
Pricing Group) deems relevant at the time of the determination, and may be based on analytical values determined by BlackRock using
proprietary or third party valuation models.
Fair value represents a good faith approximation of the
value of an asset or liability. The fair value of one or more assets or liabilities may not, in retrospect, be the price at which
those assets or liabilities could have been sold during the period in which the particular fair values were used in determining
a Fund’s net asset value. As a result, a Fund’s sale or redemption of its shares at net asset value, at a time when
a holding or holdings are valued at fair value, may have the effect of diluting or increasing the economic interest of existing
shareholders.
Each Fund’s annual audited financial statements,
which are prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”),
follow the requirements for valuation set forth in Financial Accounting Standards Board Accounting Standards Codification Topic
820, “Fair Value Measurements and Disclosures” (“ASC 820”), which defines and establishes a framework for
measuring fair value under US GAAP and expands financial statement disclosure requirements relating to fair value measurements.
Generally, ASC 820 and other accounting rules applicable
to mutual funds and various assets in which they invest are evolving. Such changes may adversely affect a Fund. For
example, the evolution of rules governing the determination of the fair market value of assets or liabilities to the extent such
rules become more stringent would tend to increase the cost and/or reduce the availability of third-party determinations of fair
market value. This may in turn increase the costs associated with selling assets or affect their liquidity due to the Fund’s
inability to obtain a third-party determination of fair market value.
Computation of Offering Price Per Share
See Part I, Section VI “Computation of
Offering Price” of each Fund’s Statement of Additional Information for an illustration of the computation of the offering
price for shares of your Fund.
Portfolio
Transactions and Brokerage
Transactions in Portfolio Securities
Subject to policies established by the Board of Directors,
BlackRock is primarily responsible for the execution of a Fund’s portfolio transactions and the allocation of brokerage.
BlackRock does not execute transactions through any particular broker or dealer, but seeks to obtain the best net results for the
Fund, taking into account such factors as price (including the applicable brokerage commission or dealer spread), size of order,
difficulty of execution, operational facilities of the firm and the firm’s risk and skill in positioning blocks of securities.
While BlackRock generally seeks reasonable trade execution
costs, a Fund does not necessarily pay the lowest spread or commission available, and payment of the lowest commission or spread
is not necessarily consistent with obtaining the best price and execution in particular transactions. Subject to applicable legal
requirements, BlackRock may select a broker based partly upon brokerage or research services provided to BlackRock and its clients,
including a Fund. In return for such services, BlackRock may cause a Fund to pay a higher commission than other brokers would charge
if BlackRock determines in good faith that the commission is reasonable in relation to the services provided.
In the case of Feeder Funds, because each Feeder Fund
generally invests exclusively in beneficial interests of a Master Portfolio, it is expected that all transactions in portfolio
securities will be entered into by the Master Portfolio.
In selecting brokers or dealers to execute portfolio transactions,
the Manager and Sub-Adviser seek to obtain the best price and most favorable execution for a Fund, taking into account a variety
of factors including: (i) the size, nature and character of the security or instrument being traded and the markets in which
it is purchased or sold; (ii) the desired timing of the transaction; (iii) BlackRock’s knowledge of the expected commission
rates and spreads currently available; (iv) the activity existing and expected in the market for the particular security or
instrument, including any anticipated execution difficulties; (v) the full range of brokerage services provided; (vi) the
broker’s or dealer’s capital (vii) the quality of research and research services provided; (viii) the reasonableness
of the commission, dealer spread or its equivalent for the specific transaction; and (ix) BlackRock’s knowledge of any
actual or apparent operational problems of a broker or dealer.
Section 28(e) of the Exchange Act (“Section 28(e)”)
permits an investment adviser, under certain circumstances, to cause an account to pay a broker or dealer a commission for effecting
a transaction that exceeds the amount another broker or dealer would have charged for effecting the same transaction in recognition
of the value of brokerage and research services provided by that broker or dealer. This includes commissions paid on riskless principal
transactions under certain conditions. Brokerage and research services include: (1) furnishing advice as to the value of securities,
including pricing and appraisal advice, credit analysis, risk measurement analysis, performance and other analysis, as well as
the advisability of investing in, purchasing or selling securities, and the availability of securities or purchasers or sellers
of securities; (2) furnishing analyses and reports concerning issuers, industries, securities, economic factors and trends, portfolio
strategy, and the performance of accounts; and (3) effecting securities transactions and performing functions incidental to
securities transactions (such as clearance, settlement, and custody). BlackRock believes that access to independent investment
research is beneficial to its investment decision-making processes and, therefore, to the Funds.
BlackRock may participate in client commission arrangements
under which BlackRock may execute transactions through a broker-dealer and request that the broker-dealer allocate a portion of
the commissions or commission credits to another firm that provides research to BlackRock. BlackRock believes that research services
obtained through soft dollar or commission sharing arrangements enhance its investment decision-making capabilities, thereby increasing
the prospects for higher investment returns. BlackRock will engage only in soft dollar or commission sharing transactions that
comply with the requirements of Section 28(e). BlackRock regularly evaluates the soft dollar products and services utilized,
as well as the overall soft dollar and commission sharing arrangements to ensure that trades are executed by firms that are regarded
as best able to execute trades for client accounts, while at the same time providing access to the research and other services
BlackRock views as impactful to its trading results.
BlackRock may utilize soft dollars and related services,
including research (whether prepared by the broker-dealer or prepared by a third-party and provided to BlackRock by the broker-dealer)
and execution or brokerage services within applicable rules and BlackRock’s policies to the extent that such permitted services
do not compromise BlackRock’s ability to seek to obtain best execution. In this regard, the portfolio management investment
and/or trading teams may consider a variety of factors, including the degree to which the broker-dealer: (a) provides access
to company management; (b) provides access to their analysts; (c) provides meaningful/insightful research notes on companies
or other potential investments; (d) facilitates calls on which meaningful or insightful ideas about companies or potential
investments are discussed; (e) facilitates conferences at which meaningful or insightful ideas about companies or potential
investments are discussed; or (f) provides research tools such as market data, financial analysis, and other third party related
research and brokerage tools that aid in the investment process.
Research-oriented services for which BlackRock might pay
with Fund commissions may be in written form or through direct contact with individuals and may include information as to particular
companies or industries and securities or groups of securities, as well as market, economic, or institutional advice and statistical
information, political developments and technical market information that assists in the valuation of investments. Except as noted
immediately below, research services furnished by brokers may be used in servicing some or all client accounts and not all services
may be used in connection with the Fund or account that paid commissions to the broker providing such services. In some cases,
research information received from brokers by mutual fund management personnel, or personnel principally responsible for BlackRock’s
individually managed portfolios, is not necessarily shared by and between such
personnel. Any investment advisory or other fees paid
by a Fund to BlackRock are not reduced as a result of BlackRock’s receipt of research services. In some cases, BlackRock
may receive a service from a broker that has both a “research” and a “non-research” use. When this occurs
BlackRock makes a good faith allocation, under all the circumstances, between the research and non-research uses of the service.
The percentage of the service that is used for research purposes may be paid for with client commissions, while BlackRock will
use its own funds to pay for the percentage of the service that is used for non-research purposes. In making this good faith allocation,
BlackRock faces a potential conflict of interest, but BlackRock believes that its allocation procedures are reasonably designed
to ensure that it appropriately allocates the anticipated use of such services to their research and non-research uses.
Payments of commissions to brokers who are affiliated
persons of the Fund, or the Master Portfolio with respect to the Feeder Fund (or affiliated persons of such persons), will be made
in accordance with Rule 17e-1 under the Investment Company Act. Subject to policies established by the Board of Directors
of the Master Portfolio, BlackRock is primarily responsible for the execution of the Master Portfolio’s portfolio transactions
and the allocation of brokerage.
From time to time, a Fund may purchase new issues of securities
in a fixed price offering. In these situations, the broker may be a member of the selling group that will, in addition to selling
securities, provide BlackRock with research services. FINRA has adopted rules expressly permitting these types of arrangements
under certain circumstances. Generally, the broker will provide research “credits” in these situations at a rate that
is higher than that available for typical secondary market transactions. These arrangements may not fall within the safe harbor
of Section 28(e).
BlackRock does not consider sales of shares of the mutual
funds it advises as a factor in the selection of brokers or dealers to execute portfolio transactions for a Fund; however, whether
or not a particular broker or dealer sells shares of the mutual funds advised by BlackRock neither qualifies nor disqualifies such
broker or dealer to execute transactions for those mutual funds.
Each Fund anticipates that its brokerage transactions
involving foreign securities generally will be conducted primarily on the principal stock exchanges of the applicable country.
Foreign equity securities may be held by a Fund in the form of depositary receipts, or other securities convertible into foreign
equity securities. Depositary receipts may be listed on stock exchanges, or traded in over-the-counter markets in the United States
or Europe, as the case may be. American Depositary Receipts, like other securities traded in the United States, will be subject
to negotiated commission rates. Because the shares of each Fund are redeemable on a daily basis in U.S. dollars, each Fund intends
to manage its portfolio so as to give reasonable assurance that it will be able to obtain U.S. dollars to the extent necessary
to meet anticipated redemptions. Under present conditions, it is not believed that these considerations will have a significant
effect on a Fund’s portfolio strategies.
See “Portfolio Transactions and Brokerage”
in the Statement of Additional Information for information about the brokerage commissions paid by your Fund, including commissions
paid to affiliates, if any, for the periods indicated.
Each Fund may invest in certain securities traded in the
OTC market and intends to deal directly with the dealers who make a market in the particular securities, except in those circumstances
in which better prices and execution are available elsewhere. Under the Investment Company Act, persons affiliated with a Fund
and persons who are affiliated with such affiliated persons are prohibited from dealing with the Fund as principal in the purchase
and sale of securities unless a permissive order allowing such transactions is obtained from the Commission. Since transactions
in the OTC market usually involve transactions with the dealers acting as principal for their own accounts, the Funds will not
deal with affiliated persons, including PNC and its affiliates, in connection with such transactions. However, an affiliated person
of a Fund may serve as its broker in OTC transactions conducted on an agency basis provided that, among other things, the fee or
commission received by such affiliated broker is reasonable and fair compared to the fee or commission received by non-affiliated
brokers in connection with comparable transactions. In addition, a Fund may not purchase securities during the existence of any
underwriting syndicate for such securities of which PNC is a member or in a private placement in which PNC serves as placement
agent except pursuant to procedures approved by the Board of Directors that either comply with rules adopted by the Commission
or with interpretations of the Commission staff.
Over-the-counter issues, including most fixed income securities
such as corporate debt and U.S. Government securities, are normally traded on a “net” basis without a stated commission,
through dealers acting for their own account and not as brokers. The Funds will primarily engage in transactions with these dealers
or deal directly with the issuer unless a better price or execution could be obtained by using a broker. Prices paid to a dealer
with respect to both foreign and domestic securities will generally include a “spread,” which is the difference between
the prices at which the dealer is willing to purchase and sell the specific security at the time, and includes the dealer’s
normal profit.
Purchases of money market instruments by a Fund are made
from dealers, underwriters and issuers. The Funds do not currently expect to incur any brokerage commission expense on such transactions
because money market instruments are generally traded on a “net” basis with dealers acting as principal for their own
accounts without a stated commission. The price of the security, however, usually includes a profit to the dealer. Each money market
fund intends to purchase only securities with remaining maturities of 13 months or less as determined in accordance with the
rules of the SEC. As a result, the portfolio turnover rates of a money market fund will be relatively high. However, because brokerage
commissions will not normally be paid with respect to investments made by a money market fund, the turnover rates should not adversely
affect the Fund’s net asset values or net income.
Securities purchased in underwritten offerings include
a fixed amount of compensation to the underwriter, generally referred to as the underwriter’s concession or discount. When
securities are purchased or sold directly from or to an issuer, no commissions or discounts are paid.
The Manager or Sub-Advisers may seek to obtain an undertaking
from issuers of commercial paper or dealers selling commercial paper to consider the repurchase of such securities from a Fund
prior to maturity at their original cost plus interest (sometimes adjusted to reflect the actual maturity of the securities), if
it believes that a Fund’s anticipated need for liquidity makes such action desirable. Any such repurchase prior to maturity
reduces the possibility that a Fund would incur a capital loss in liquidating commercial paper, especially if interest rates have
risen since acquisition of such commercial paper.
Investment decisions for each Fund and for other investment
accounts managed by the Manager or Sub-Advisers are made independently of each other in light of differing conditions. BlackRock
allocates investments among client accounts in a fair and equitable manner. A variety of factors will be considered in making such
allocations. These factors include: (i) investment objectives or strategies for particular accounts, including sector, industry,
country or region and capitalization weightings, (ii) tax considerations of an account, (iii) risk or investment concentration
parameters for an account, (iv) supply or demand for a security at a given price level, (v) size of available investment,
(vi) cash availability and liquidity requirements for accounts, (vii) regulatory restrictions, (viii) minimum investment
size of an account, (ix) relative size of account, and (x) such other factors as may be approved by BlackRock’s general
counsel. Moreover, investments may not be allocated to one client account over another based on any of the following considerations:
(i) to favor one client account at the expense of another, (ii) to generate higher fees paid by one client account over
another or to produce greater performance compensation to BlackRock, (iii) to develop or enhance a relationship with a client
or prospective client, (iv) to compensate a client for past services or benefits rendered to BlackRock or to induce future
services or benefits to be rendered to BlackRock, or (v) to manage or equalize investment performance among different client
accounts.
Equity securities will generally be allocated among client
accounts within the same investment mandate on a pro rata basis. This pro rata allocation may result in a Fund receiving less of
a particular security than if pro-ration had not occurred. All allocations of equity securities will be subject, where relevant,
to share minimums established for accounts and compliance constraints.
Initial public offerings of securities may be over-subscribed
and subsequently trade at a premium in the secondary market. When BlackRock is given an opportunity to invest in such an initial
offering or “new” or “hot” issue, the supply of securities available for client accounts is often less
than the amount of securities the accounts would otherwise take. In order to allocate these investments fairly and equitably among
client accounts over time, each portfolio manager or a member of his or her respective investment team will indicate to BlackRock’s
trading desk their level of interest in a particular offering with respect to eligible clients accounts for which that team is
responsible. Initial public offerings of U.S. equity securities will be identified as eligible for particular client accounts that
are managed by portfolio teams who have indicated interest in the offering based on market capitalization of the issuer of the
security and the investment mandate of the client account and in the case of international equity securities, the country where
the offering is taking place and the investment mandate of the client account. Generally, shares received during the initial public
offering will be allocated among participating client accounts within each investment mandate on a pro rata basis. In situations
where supply is too limited to be allocated among all accounts for which the investment is eligible, portfolio managers may rotate
such investment opportunities among one or more accounts so long as the rotation system provides for fair access for all client
accounts over time. Other allocation methodologies that are considered by BlackRock to be fair and equitable to clients may be
used as well.
Because different accounts may have differing investment
objectives and policies, BlackRock may buy and sell the same securities at the same time for different clients based on the particular
investment objective, guidelines and strategies of those accounts. For example, BlackRock may decide that it may be entirely appropriate
for a growth fund to sell a security at the same time a value fund is buying that security. To the extent that transactions on
behalf of more than one client of BlackRock or its affiliates during the same period may increase the demand for securities being
purchased or the supply of securities being sold, there may be an adverse effect on price. For example, sales of a security by
BlackRock on behalf of one or more of its clients may decrease the market price of such security, adversely impacting other BlackRock
clients that still hold the security. If purchases or sales of securities arise for
consideration at or about the same time that would involve
a Fund or other clients or funds for which BlackRock or an affiliate act as investment manager, transactions in such securities
will be made, insofar as feasible, for the respective funds and clients in a manner deemed equitable to all.
In certain instances, BlackRock may find it efficient
for purposes of seeking to obtain best execution, to aggregate or “bunch” certain contemporaneous purchases or sale
orders of its advisory accounts. In general, all contemporaneous trades for client accounts under management by the same portfolio
manager or investment team will be bunched in a single order if the trader believes the bunched trade would provide each client
with an opportunity to achieve a more favorable execution at a potentially lower execution cost. The costs associated with a bunched
order will be shared pro rata among the clients in the bunched order. Generally, if an order for a particular portfolio manager
or management team is filled at several different prices through multiple trades, all accounts participating in the order will
receive the average price except in the case of certain international markets where average pricing is not permitted. While in
some cases this practice could have a detrimental effect upon the price or value of the security as far as a Fund is concerned,
in other cases it could be beneficial to the Fund. Transactions effected by BlackRock on behalf of more than one of its clients
during the same period may increase the demand for securities being purchased or the supply of securities being sold, causing an
adverse effect on price. The trader will give the bunched order to the broker dealer that the trader has identified as being able
to provide the best execution of the order. Orders for purchase or sale of securities will be placed within a reasonable amount
of time of the order receipt and bunched orders will be kept bunched only long enough to execute the order.
A Fund will not purchase securities during the existence
of any underwriting or selling group relating to such securities of which BlackRock, PNC, BRIL or any affiliated person (as defined
in the Investment Company Act) thereof is a member except pursuant to procedures adopted by the Board of Directors in accordance
with Rule 10f-3 under the Investment Company Act. In no instance will portfolio securities be purchased from or sold to BlackRock,
PNC, BRIL or any affiliated person of the foregoing entities except as permitted by Commission exemptive order or by applicable
law.
Portfolio Turnover
While a Fund generally does not expect to engage in trading
for short-term gains, it will effect portfolio transactions without regard to any holding period if, in Fund management’s
judgment, such transactions are advisable in light of a change in circumstances of a particular company or within a particular
industry or in general market, economic or financial conditions. The portfolio turnover rate is calculated by dividing the lesser
of a Fund’s annual sales or purchases of portfolio securities (exclusive of purchases or sales of U.S. government securities
and all other securities whose maturities at the time of acquisition were one year or less) by the monthly average value of the
securities in the portfolio during the year. A high rate of portfolio turnover results in certain tax consequences, such as increased
capital gain dividends and/or ordinary income dividends, and in correspondingly greater transaction costs in the form of dealer
spreads and brokerage commissions, which are borne directly by a Fund.
Dividends
and Taxes
Dividends
Each Fund intends to distribute substantially all of its
net investment income, if any. Dividends from such net investment income are paid as set forth in each Fund’s Prospectus.
Each Fund, except the Exchange Portfolio, will also distribute all net realized capital gains, if any, as set forth in such Fund’s
Prospectus. From time to time, a Fund may declare a special distribution at or about the end of the calendar year in order to comply
with Federal tax requirements that certain percentages of its ordinary income and capital gains be distributed during the year.
If in any fiscal year a Fund has net income from certain foreign currency transactions, such income will be distributed at least
annually.
For information concerning the manner in which dividends
may be reinvested automatically in shares of each Fund, see “Shareholder Services — Automatic Dividend Reinvestment
Plan.” Shareholders may also elect in writing to receive any such dividends in cash. Dividends are taxable to shareholders,
as discussed below, whether they are reinvested in shares of the Fund or received in cash. The per share dividends on front-end
load shares, CDSC shares and Service Shares will be lower than the per share dividends on Institutional Shares as a result of the
service, distribution and higher transfer agency fees applicable to CDSC shares, the service fees applicable to front-end load
shares and Service Shares, and the service and distribution fees applicable to Class R Shares. Similarly, the per share dividends
on CDSC shares and Class R Shares will be lower than the per share dividends on front-end load shares and Service Shares as
a result of the distribution fees and higher transfer agency fees applicable to CDSC shares and the distribution fees applicable
to Class R Shares, and the per share dividends on CDSC shares will be lower than the per share dividends on Class R Shares
as a result of the higher distribution fees and higher transfer agency fees applicable to CDSC shares.
Taxes
Each Fund intends to continue to qualify for the special
tax treatment afforded to regulated investment companies (“RICs”) under the Code. As long as a Fund so qualifies, the
Fund (but not its shareholders) will not be subject to Federal income tax on the part of its investment company taxable income
and net realized capital gains that it distributes to its shareholders in years in which it distributes at least 90% of its investment
company taxable income and 90% of its net tax-exempt interest income, if any, for the year. To qualify as a RIC, a Fund must meet
certain requirements regarding the source of its income and the composition and diversification of its assets. See Part II,
“Investment Risks and Considerations—Investment Restrictions (All Funds)” for a discussion of the asset diversification
requirements. In the case of a Feeder Fund, such Fund may look to the underlying assets of the Master Portfolio in which it has
invested for purposes of satisfying the asset diversification requirement and various other requirements of the Code applicable
to RICs.
Each Fund intends to distribute substantially all of
such income and gains. If, in any taxable year, a Fund fails to qualify as a RIC under the Code, notwithstanding the availability
of certain relief provisions, such Fund would be taxed in the same manner as an ordinary corporation and all distributions from
earnings and profits (as determined under Federal income tax principles) to its shareholders would be taxable as ordinary dividend
income eligible for taxation at a reduced tax rate for non-corporate shareholders and the dividends-received deduction for corporate
shareholders. Each Fund that is a series of a RIC that consists of multiple series is treated as a separate corporation for Federal
income tax purposes, and therefore is considered to be a separate entity in determining its treatment under the rules for RICs.
Losses in one series of a RIC do not offset gains in another, and the requirements (other than certain organizational requirements)
for qualifying for RIC status will be determined at the level of the individual series. In the following discussion, the term “Fund”
means each individual series, if applicable.
The Code requires a RIC to pay a nondeductible 4% excise
tax to the extent the RIC does not distribute, during each calendar year, 98% of its ordinary income, determined on a calendar
year basis, and 98.2% of its capital gain net income, determined, in general, as if the RIC’s taxable year ended on October 31,
plus certain undistributed amounts from the previous years. While each Fund intends to distribute its income and capital gains
in the manner necessary to avoid imposition of the 4% excise tax, there can be no assurance that a sufficient amount of the Fund’s
taxable income and capital gains will be distributed to avoid entirely the imposition of the tax. In such event, a Fund will be
liable for the tax only on the amount by which it does not meet the foregoing distribution requirements.
Dividends paid by a Fund from its ordinary income or
from an excess of net short-term capital gain over net long-term capital loss (together referred to as “ordinary income dividends”)
are taxable to shareholders as ordinary income. Distributions made from an excess of net long-term capital gain over net short-term
capital loss (including gains or losses from certain transactions in futures and options) (“capital gain dividends”)
are taxable to shareholders as long-term capital gains, regardless of the length of time the shareholder has owned Fund shares.
Distributions paid by a Fund that are reported as exempt-interest dividends will not be subject to regular federal income tax.
Certain dividend income and long-term capital gains are eligible for taxation at a reduced rate that applies to non-corporate shareholders.
Under these rules, the portion of ordinary income dividends constituting “qualified dividend income” when paid by a
RIC to non-corporate shareholders may be taxable to such shareholders at long-term capital gain rates. However, to the extent a
Fund’s distributions are derived from income on debt securities, certain types of preferred stock treated as debt for Federal
income tax purposes and short-term capital gains, such distributions will not constitute “qualified dividend income.”
Recently enacted legislation will impose a 3.8% tax on the net investment
income (which includes taxable dividends and redemption proceeds) of certain individuals, trusts and estates, for taxable years
beginning after December 31, 2012.
A Fund’s net capital gain (the excess of net long-term
capital gains over net short-term capital losses) is not subject to the 90% distribution requirement for taxation as a RIC, described
above. If a Fund retains net capital gain, it is subject to tax on that gain, and may designate the retained amount as undistributed
capital gain in a written statement furnished to its shareholders, who will be required to include in income, as long-term capital
gain, their proportionate shares of such undistributed net capital gain, will be deemed to have paid and may claim as a credit
against their Federal income tax liability (and as a refund to the extent it exceeds that liability) their proportionate shares
of the tax paid by the Fund on that gain, and may increase the basis of their shares in the Fund by the excess of the amount included
in income over the amount allowed as a credit against their taxes.
Distributions in excess of a Fund’s earnings and
profits, in the case of a Fund with a calendar taxable year, will first reduce the adjusted tax basis of a holder’s shares
and after such adjusted tax basis is reduced to zero, will constitute capital gains to such holder (assuming the shares are held
as a capital asset). In the case of a Fund with a non-calendar taxable year, a Fund’s earnings and profits are allocated
first to distributions made on or before December 31 of the taxable year, and then to distributions made after December 31 of the
taxable year. Any loss upon the sale or exchange of Fund shares held for six months or less will be treated as long-term capital
loss to the extent of any capital gain dividends received by the shareholder.
Ordinary income and capital gain dividends are taxable
to shareholders even if they are reinvested in additional shares of a Fund. Distributions by a Fund, whether from ordinary income
or capital gains, generally will not be eligible for the dividends received deduction allowed to corporations under the Code. If
a Fund pays a dividend in January that was declared in the previous October, November or December to shareholders of record on
a specified date in one of such months, then such dividend will be treated for tax purposes as being paid by the Fund and received
by its shareholders on December 31 of the year in which the dividend was declared. In the case of a Fund with a non-calendar
taxable year, if the Fund reports more capital gain dividends than it earns in such taxable year, then the Fund will reduce the
amounts reported as capital gains. Where possible, such reduction will first be allocated to dividends made after December 31 of
such taxable year. In the case of taxable years of a Fund beginning after December 22, 2010, a Fund may elect to defer recognizing,
until the following taxable year, certain net capital losses arising after October 31 of the current taxable year, and certain
net ordinary losses arising after October 31 and/or December 31 of the current taxable year. This may have the effect of increasing
the amount of dividends otherwise includible in the shareholder’s income with respect to the current taxable year.
No gain or loss will be recognized by Investor B or Investor
B1 shareholders on the conversion of their Investor B Shares into Investor A Shares or Investor B1 Shares into Investor A1 Shares.
A shareholder’s tax basis in the Investor A or Investor A1 Shares acquired upon conversion will be the same as the shareholder’s
tax basis in the converted Investor B or Investor B1 Shares, and the holding period of the acquired Investor A or Investor A1 Shares
will include the holding period for the converted Investor B or Investor B1 Shares.
If a shareholder of a Fund exercises an exchange privilege
within 90 days of acquiring the shares of a Fund, then the loss that the shareholder recognizes on the exchange will be reduced
(or the gain increased) to the extent any sales charge paid on the exchanged shares reduces any sales charge the shareholder would
have owed upon the purchase of the new shares in the absence of the exchange privilege. Instead, such sales charge will be treated
as an amount paid for the new shares.
A loss realized on a sale or exchange of shares of a Fund
will be disallowed if other substantially identical shares are acquired (whether through the automatic reinvestment of dividends
or otherwise) within a 61-day period beginning 30 days before and ending 30 days after the date on which the shares are
sold or exchanged. In such case, the basis of the shares acquired will be adjusted to reflect the disallowed loss.
A Fund is also generally required by law to report to
each shareholder and to the IRS cost basis information for shares of the Fund acquired on or after January 1, 2012, and sold or
redeemed after that date. This information includes the adjusted cost basis of the shares, the gross proceeds from disposition,
and whether the gain or loss is long-term or short-term. The adjusted cost basis of shares will be based on the default cost basis
reporting method selected by the Fund, unless a shareholder, before the sale or redemption, informs the Fund that it has selected
a different IRS-accepted method offered by the Fund. These requirements, however, will not apply for investments through an IRA
or other tax-advantaged account. Shareholders should consult their tax advisors to determine the best cost basis method for their
tax situation, and to obtain more information about how these new cost basis reporting requirements apply to them. For shares of
a Fund acquired before January 1, 2012, these new requirements will not apply, but the Fund will continue to report to the IRS
the gross proceeds received by a shareholder from the sale or redemption of such shares.
Certain Funds may invest in derivative contracts such as
swap agreements. The federal income tax treatment of a derivative contract may not be as favorable as a direct investment in the
underlying security and may adversely affect the timing, character and amount of income the Fund realizes from its investments.
As a result, a larger portion of the Fund's distributions may be treated as ordinary income rather than capital gains. In addition,
the tax treatment of derivative contracts, such as swap agreements, is unsettled and may be subject to future legislation, regulation
or administrative pronouncements issued by the Internal Revenue Service (the “IRS”). If such future guidance limits
the Fund’s ability to use derivatives, the Fund may have to find other ways of achieving its investment objectives.
A provision added to the Code by the Dodd-Frank Wall Street Reform and
Consumer Protection Act clarifies that certain swap agreements, including exchange-traded swap agreements, are treated as notional
principal contracts rather than as “section 1256 contracts.” This can affect the type of income earned by such swap
agreements. Although all of the income on a notional principal contract is ordinary income, only some of the income on a section
1256 contract is ordinary. The rest is long-term capital gain, which may be taxable at more favorable rates than ordinary income.
Recently proposed regulations interpret what types of swap agreements are to be treated as notional principal contracts rather
than as section 1256 contracts. When finalized, these regulations could result in the Fund having to treat more of its income on
swap agreements and more of the distributions made to shareholders as ordinary income and less as long-term capital gains.
Certain Funds may invest in zero coupon U.S. Treasury bonds
and other debt securities that are issued at a discount or provide for deferred interest. Even though a Fund receives no actual
interest payments on these securities, it will be deemed to receive income equal, generally, to a portion of the excess of the
face value of the securities over their issue price (“original issue discount”) each year that the securities are held.
Since the original issue discount income earned by a Fund in a taxable year may not be represented by cash income, the Fund may
have to dispose of securities, which it might otherwise have continued to hold, or borrow to generate cash in order to satisfy
its distribution requirements. In addition, a Fund’s investment in foreign currencies or foreign currency denominated or
referenced debt securities, certain asset-backed securities and contingent payment and inflation-indexed debt instruments also
may increase or accelerate the Fund’s recognition of income, including the recognition of taxable income in excess of cash
generated by such investments.
Ordinary income dividends paid to shareholders who are
nonresident aliens or foreign entities generally will be subject to a 30% U.S. withholding tax under existing provisions of the
Code applicable to foreign individuals and entities unless a reduced rate of withholding or a withholding exemption is provided
under applicable treaty law. Dividends derived by a RIC from short-term capital gains and qualifying net interest income (including
income from original issue discount and market discount) and paid to shareholders who are nonresident aliens or foreign entities,
with respect to taxable years of the RIC which begin before January 1, 2014, if and to the extent properly reported as “interest-related
dividends” or “short-term capital gain dividends,” generally will not be subject to U.S. withholding tax. Where
possible, the Funds intend to report such dividends as interest-related dividends or short-term capital gain dividends. However,
depending on its circumstances, a Fund may report all, some or none of its potentially eligible dividends as interest-related or
as short-term capital gain dividends, and/or treat such dividends, in whole or in part, as ineligible for this exemption from withholding.
In order to qualify for this exemption from withholding, a foreign shareholder must comply with applicable certification requirements
relating to its foreign status (including, in general, furnishing an IRS Form W-8BEN or substitute Form). In the case of shares
held through an intermediary, the intermediary may withhold even if the Fund reports the payment as an interest-related or short-term
capital gain dividend. Foreign shareholders should contact their intermediaries with respect to the application of these rules
to their accounts. It is not possible to predict what portion, if any, of a Fund’s distributions will be reported as interest-related
dividends or short-term capital gain dividends under these rules.
Recently enacted legislation will impose a 30% withholding tax
on dividends paid after December 31, 2013 and redemption proceeds paid after December 31, 2016, to (i) foreign financial institutions
(as defined in Section 1471(d)(4) of the Code) unless they agree to collect and disclose to the IRS information regarding their
direct and indirect United States account holders and (ii) certain other foreign entities unless they certify certain information
regarding their direct and indirect United States owners. Under some circumstances, a foreign shareholder may be eligible for refunds
or credits of such taxes.
Distributions to certain foreign shareholders by a Fund
at least 50% of whose assets are “U.S. real property interests,” as defined in the Code and Treasury regulations, to
the extent the distributions are attributable to gains from sales or exchanges of U.S. real property interests (including certain
REIT capital gain dividends and gains on the sale or exchange of shares in certain “U.S. real property holding corporations,”
which may include certain REITS, among other entities), generally must be treated by such foreign shareholders as income effectively
connected to a trade or business within the United States, generally subject to tax at the graduated rates applicable to U.S. shareholders.
Such distributions may be subject to U.S. withholding tax and may require the foreign shareholder to file a U.S. federal income
tax return. Unless extended by Congress, this rule will not apply to distributions after December 31, 2013, except to the
extent the distribution is attributable to a distribution to the Fund by a REIT. In addition, sales or redemptions of shares held
by certain foreign shareholders in such a Fund may be subject to U.S. withholding tax and may require the foreign shareholder to
file a U.S. federal income tax return.
Shareholders that are nonresident aliens or foreign entities
are urged to consult their own tax advisers concerning the particular tax consequences to them of an investment in a Fund.
Under certain provisions of the Code, some shareholders
may be subject to a withholding tax on ordinary income dividends, capital gain dividends and redemption payments (“backup
withholding”). Generally, shareholders subject to backup withholding will be non-corporate shareholders for whom no certified
taxpayer identification number is on file with the Fund or who, to the Fund’s knowledge, have furnished an incorrect number.
When establishing an account, an investor must certify under penalty of perjury that such number is correct and that such investor
is not otherwise subject to backup withholding. Backup withholding is not an additional tax. Any amount withheld generally may
be allowed as a refund or a credit against a shareholder’s Federal income tax liability, provided that the required information
is timely forwarded to the IRS.
If a shareholder recognizes a loss with respect to a Fund’s
shares of $2 million or more for an individual shareholder or $10 million or more for a corporate shareholder in any
single taxable year (or a greater amount in any combination of taxable years), the shareholder must file a disclosure statement
on Form 8886 with the IRS. Direct shareholders of portfolio securities are in many cases exempted.
That a loss is reportable under these regulations does
not affect the legal determination of whether the taxpayer’s treatment of the loss is proper. Shareholders should consult
their tax advisers to determine the applicability of these regulations in light of their individual circumstances.
Dividends and interest received by a Fund may give rise
to withholding and other taxes imposed by foreign countries. Tax conventions between certain foreign countries and the United States
may reduce or eliminate such taxes. Shareholders of a Fund more than 50% by value of the assets of which at the close of a taxable
year are foreign securities may be able to claim U.S. foreign tax credits with respect to such foreign taxes paid by the Fund,
subject to certain requirements and limitations contained in the Code. For example, certain retirement accounts and certain tax-exempt
organizations cannot claim foreign tax credits on investments in foreign securities held in a Fund. In addition, a foreign tax
credit may be claimed with respect to withholding tax on payments with respect to a security only if the holder of the security
meets certain holding period requirements. Both the shareholder and the Fund must meet these holding period requirements, and if
a Fund fails to do so, it will not be able to “pass through” to shareholders the ability to claim a credit or a deduction
for the related foreign taxes paid by the Fund. Further, to the extent that a Fund engages in securities lending with respect to
a security paying income subject to foreign taxes, it may not be able to pass through to its shareholders the ability to take a
foreign tax credit for those taxes. If a Fund satisfies the applicable requirements, such Fund will be eligible to file an election
with the IRS pursuant to which shareholders of the Fund will be required to include their proportionate shares of such foreign
taxes in their U.S. income tax returns as gross income, treat such proportionate shares as taxes paid by them, and deduct such
proportionate shares in computing their taxable incomes or, alternatively, use them as foreign tax credits against their U.S. income
taxes. No deductions for foreign taxes, however, may be claimed by noncorporate shareholders who do not itemize deductions. A shareholder
that is a nonresident alien individual or a foreign corporation may be subject to U.S. withholding tax on the income resulting
from a Fund’s election described in this paragraph but may not be able to claim a credit or deduction against such U.S. tax
for the foreign taxes treated as having been paid by such shareholder. A Fund will report annually to its shareholders the amount
per share of such foreign taxes and other information needed to claim the foreign tax credit.
Certain transactions entered into by the Funds are subject
to special tax rules of the Code that may, among other things, (a) affect the character of gains and losses realized, (b) disallow,
suspend or otherwise limit the allowance of certain losses or deductions, and (c) accelerate the recognition of income without
a corresponding receipt of cash (with which to make the necessary distributions to satisfy distribution requirements applicable
to RICs). Operation of these rules could, therefore, affect the character, amount and timing of distributions to shareholders.
Special tax rules also may require a Fund to mark to market certain types of positions in its portfolio (
i.e.
, treat them
as sold on the last day of the taxable year), and may result in the recognition of income without a corresponding receipt of cash.
Funds engaging in transactions affected by these provisions intend to monitor their transactions, make appropriate tax elections
and make appropriate entries in their books and records to lessen the effect of these tax rules and avoid any possible disqualification
from the special treatment afforded RICs under the Code.
A Fund that invests in commodities-linked instruments
may take certain positions through a wholly-owned (or majority-owned), foreign subsidiary (the “Subsidiary”). Based
on the anticipated structure and activities of the Subsidiary, it is expected that the Subsidiary will be a “controlled foreign
corporation” and that all of its net income will be “subpart F income” for U.S. federal income tax purposes.
If that is the case, the Fund will be required to report all of the Subsidiary’s net income as ordinary income regardless
of whether that income would be treated differently (for example, as capital gain) at the Subsidiary level and regardless of whether
that income is distributed to the Fund. (Previously taxed income will not, however, be taxable again when distributed). If a net
loss is realized by the Subsidiary in any taxable year, the loss will generally not be available to offset the Fund’s other
income for that year. It is not expected that the Subsidiary will be subject to an entity level tax.
If a Fund purchases shares of an investment company (or
similar investment entity) organized under foreign law, the Fund will generally be treated as owning shares in a passive foreign
investment company (“PFIC”) for Federal income tax purposes. A Fund may be subject to Federal income tax, and interest
charges (at the rate applicable to tax underpayments) on tax liability treated as having been deferred with respect to certain
distributions from such a company and on gain from the disposition of the shares of such a company (collectively referred to as
“excess distributions”), even if such excess distributions are paid by the Fund as a dividend to its shareholders.
However, a Fund may elect to “mark to market” at the end of each taxable year shares that it holds in PFICs. The election
is made separately for each PFIC held and, once made, would be effective for all subsequent taxable years, unless revoked with
consent from the IRS. Under this election, a Fund would recognize as ordinary income any increase in the value of its shares as
of the close of the taxable year over their adjusted tax basis and as ordinary loss any decrease in such value, but only to the
extent of previously recognized “mark-to-market” gains. By making the mark-to-market election, a Fund could avoid imposition
of the interest charge with respect to excess distributions from PFICs, but in any particular year might be required to recognize
income in excess of the distributions it received from PFICs.
If the Fund were to invest in a PFIC and elect to treat
the PFIC as a “qualified electing fund” under the Code, in lieu of the foregoing requirements, the Fund would be required
to include in income each year a portion of the ordinary earnings and net capital gains of the qualified electing fund, even if
not distributed to the Fund, and such amounts would be subject to the 90% and excise tax distribution requirements described above.
In order to make this election, the Fund would be required to obtain certain annual information from the PFICs in which it invests,
which may be difficult or impossible to obtain.
The foregoing general discussion of Federal income tax
consequences is based on the Code and the regulations issued thereunder as in effect on the date of this Statement of Additional
Information. Future legislative or administrative changes or court decisions may significantly change the conclusions expressed
in this discussion, and any such changes or decisions may have a retroactive effect.
An investment in a Fund may have consequences under state,
local or foreign tax law, about which investors should consult their tax advisers.
Performance
Data
From time to time a Fund may include its average annual
total return and other total return data, and, if applicable, yield and tax-equivalent yield in advertisements or information furnished
to present or prospective shareholders. Total return, yield and tax-equivalent yield each is based on a Fund’s historical
performance and is not intended to indicate future performance. Average annual total return is determined separately for each class
of shares in accordance with a formula specified by the Commission.
Quotations of average annual total return, before tax,
for the specified periods are computed by finding the average annual compounded rates of return (based on net investment income
and any realized and unrealized capital gains or losses on portfolio investments over such periods) that would equate the initial
amount invested to the redeemable value of such investment at the end of each period. Average annual total return before taxes
is computed assuming all dividends are reinvested and taking into account all applicable recurring and nonrecurring expenses, including
the maximum sales charge, in the case of front-end load shares, and the CDSC that would be applicable to a complete redemption
of the investment at the end of the specified period in the case of Investor B and Investor C Shares, but does not take into account
taxes payable on dividends or on redemption.
Quotations of average annual total return after taxes on
distributions for the specified periods are computed by finding the average annual compounded rates of return that would equate
the initial amount invested to the ending value of such investment at the end of each period assuming payment of taxes on distributions
received during such period. Average annual total return after taxes on distributions is computed assuming all distributions, less
the taxes due on such distributions, are reinvested and taking into account all applicable recurring and nonrecurring expenses,
including the maximum sales charge, in the case of Investor A Shares and the CDSC that would be applicable to a complete redemption
of the investment at the end of the specified period in the case of Investor B and Investor C Shares. The taxes due on distributions
are calculated by applying to each distribution the highest applicable marginal Federal individual income tax rates in effect on
the reinvestment date for that distribution. The rates used correspond to the tax character (including eligibility for the maximum
15% tax rate applicable to qualified dividend income) of each distribution. The taxable amount and tax character of each distribution
are specified by each Fund on the distribution declaration date, but may be adjusted to reflect subsequent recharacterizations
of distributions. The applicable tax rates may vary over the measurement period. The effects of state and local taxes are not reflected.
Applicable tax credits, such as foreign credits, are taken into account according to Federal law. The ending value is determined
assuming complete redemption at the end of the applicable periods with no tax consequences associated with such redemption.
Quotations of average annual total return after taxes on
distributions and sale of Fund shares for the specified periods are computed by finding the average annual compounded rates of
return that would equate the initial amount invested to the ending value of such investment at the end of each period assuming
payment of taxes on distributions received during such period as well as on complete redemption. Average annual total return after
taxes on distributions and sale of Fund shares is computed assuming all distributions, less the taxes due on such distributions,
are reinvested and taking into account all applicable recurring and nonrecurring expenses, including the maximum sales charge in
the case of Investor A Shares and the CDSC that would be applicable to a complete redemption of the investment at the end of the
specified period in the case of Investor B and Investor C Shares and assuming, for all classes of shares, complete redemption and
payment of taxes due on such redemption. The ending value is determined assuming complete redemption at the end of the applicable
periods, subtracting capital gains taxes resulting from the redemption and adding the presumed tax benefit from capital losses
resulting from redemption. The taxes due on distributions and on the deemed redemption are calculated by applying the highest applicable
marginal Federal individual income tax rates in effect on the reinvestment and/or the redemption date. The rates used correspond
to the tax character (including eligibility for the maximum 15% tax rate applicable to qualified dividend income) of each component
of each dividend and/or the redemption payment. The applicable tax rates may vary
over the measurement period. The effects of state and local
taxes are not reflected. Applicable tax credits, such as foreign tax credits, are taken into account according to federal law.
A Fund also may quote annual, average annual and annualized
total return and aggregate total return performance data, both as a percentage and as a dollar amount based on a hypothetical investment
of $1,000 or some other amount, for various periods other than those noted in Part I, Section VII “Fund Performance”
of each Fund’s SAI. Such data will be computed as described above, except that (1) as required by the periods of the
quotations, actual annual, annualized or aggregate data, rather than average annual data, may be quoted and (2) the maximum
applicable sales charges will not be included with respect to annual or annualized rates of return calculations. Aside from the
impact on the performance data calculations of including or excluding the maximum applicable sales charges, actual annual or annualized
total return data generally will be lower than average annual total return data since the average rates of return reflect compounding
of return; aggregate total return data generally will be higher than average annual total return data since the aggregate rates
of return reflect compounding over a longer period of time.
Yield quotations will be computed based on a 30-day period
by dividing (a) the net income based on the yield of each security earned during the period by (b) the average daily
number of shares outstanding during the period that were entitled to receive dividends multiplied by the maximum offering price
per share on the last day of the period. Tax equivalent yield quotations will be computed by dividing (a) the part of a Fund’s
yield that is tax-exempt by (b) one minus a stated tax rate and adding the result to that part, if any, of the Fund’s
yield that is not tax-exempt.
A Fund’s total return will vary depending on market
conditions, the securities comprising a Fund’s portfolio, a Fund’s operating expenses and the amount of realized and
unrealized net capital gains or losses during the period. The value of an investment in a Fund will fluctuate and an investor’s
shares, when redeemed, may be worth more or less than their original cost.
In order to reflect the reduced sales charges in the case
of front-end load shares or the waiver of the CDSC in the case of CDSC shares applicable to certain investors, as described under
“Purchase of Shares” and “Redemption of Shares,” respectively, the total return data quoted by a Fund in
advertisements directed to such investors may take into account the reduced, and not the maximum, sales charge or may take into
account the CDSC waiver and, therefore, may reflect greater total return since, due to the reduced sales charges or the waiver
of sales charges, a lower amount of expenses is deducted.
On occasion, a Fund may compare its performance to, among
other things, the Fund’s benchmark index indicated in the Prospectus, the Value Line Composite Index, the Dow Jones Industrial
Average, or to other published indices, or to performance data published by Lipper Inc., Morningstar, Inc. (“Morningstar”),
Money Magazine, U.S. News & World Report, BusinessWeek, Forbes Magazine, Fortune Magazine
or other industry publications.
When comparing its performance to a market index, a Fund may refer to various statistical measures derived from the historical
performance of a Fund and the index, such as standard deviation and beta. As with other performance data, performance comparisons
should not be considered indicative of a Fund’s relative performance for any future period. In addition, from time to time
a Fund may include the Fund’s Morningstar risk-adjusted performance ratings assigned by Morningstar in advertising or supplemental
sales literature. From time to time a Fund may quote in advertisements or other materials other applicable measures of Fund performance
and may also make reference to awards that may be given to the Manager. Certain Funds may also compare their performance to composite
indices developed by Fund management. A Fund may provide information designed to help investors understand how the Fund is seeking
to achieve its investment objectives. This may include information about past, current or possible economic, market, political
or other conditions, descriptive information or general principles of investing such as asset allocation, diversification and risk
tolerance, discussion of a Fund’s portfolio composition, investment philosophy, strategy or investment techniques, comparisons
of the Fund’s performance or portfolio composition to that of other funds or types of investments, indices relevant to the
comparison being made, or to a hypothetical or model portfolio. A Fund may also quote various measures of volatility and benchmark
correlation in advertising and other materials, and may compare these measures to those of other funds or types of investments.
Proxy
Voting Policies and Procedures
The Board of Directors of the Funds has delegated the voting
of proxies for the Funds’ securities to the Manager pursuant to the Manager’s proxy voting guidelines. Under these
guidelines, the Manager will vote proxies related to Fund securities in the best interests of the Fund and its stockholders. From
time to time, a vote may present a conflict between the interests of the Fund’s stockholders, on the one hand, and those
of the Manager, or any affiliated person of the Fund or the Manager, on the other. In such event, provided that the Manager’s
Equity Investment Policy Oversight Committee, or a sub-committee thereof (the “Committee”) is aware of the real or
potential conflict or material non-routine matter and if the Committee does not reasonably believe it is able to follow its general
voting guidelines (or if the particular proxy matter is not addressed in the guidelines) and vote impartially, the Committee may
retain an independent fiduciary to advise the Committee on how to vote or to cast votes on behalf of the Manager’s
clients. If the Manager determines not to retain an
independent fiduciary, or does not desire to follow the advice of such independent fiduciary, the Committee shall determine how
to vote the proxy after consulting with the Manager’s Portfolio Management Group and/or the Manager’s Legal and Compliance
Department and concluding that the vote cast is in its client’s best interest notwithstanding the conflict. A copy of the
Funds’ Proxy Voting Policy is attached as Appendix B.
Information on how each Fund voted proxies relating to
portfolio securities during the most recent 12-month period ended June 30 is available without charge, (i) at www.blackrock.com
and (ii) on the Commission’s website at http://www.sec.gov.
General
Information
Description of Shares
Shareholders of a Fund are entitled to one vote for each
full share held and fractional votes for fractional shares held in the election of Directors and generally on other matters submitted
to the vote of shareholders of the Fund. Shareholders of a class that bears distribution and/or shareholder servicing expenses
have exclusive voting rights with respect to matters relating to such distribution and shareholder servicing expenditures (except
that Investor B and Investor B1 shareholders may vote upon any material changes to such expenses charged under the Investor A Distribution
Plan). Voting rights are not cumulative, so that the holders of more than 50% of the shares voting in the election of Directors
can, if they choose to do so, elect all the Directors of a Fund, in which event the holders of the remaining shares would be unable
to elect any person as a Director.
No Fund intends to hold annual meetings of shareholders
in any year in which the Investment Company Act does not require shareholders to act upon any of the following matters: (i) election
of Directors; (ii) approval of a management agreement; (iii) approval of a distribution agreement; and (iv) ratification
of selection of independent accountants. Shares issued are fully paid and non-assessable and have no preemptive rights. Redemption
and conversion rights are discussed elsewhere herein and in each Fund’s Prospectus. Each share of each class of Common Stock
is entitled to participate equally in dividends and distributions declared by a Fund and in the net assets of the Fund upon liquidation
or dissolution after satisfaction of outstanding liabilities.
For Funds organized as Maryland corporations, the by-laws
of the Fund require that a special meeting of shareholders be held upon the written request of a minimum percentage of the outstanding
shares of the Fund entitled to vote at such meeting, if they comply with applicable Maryland law.
Certain of the Funds are organized as “Massachusetts
business trusts.” Under Massachusetts law, shareholders of such a trust may, under certain circumstances, be held personally
liable as partners for its obligations. However, the Declaration of Trust establishing a trust, a copy of which for each applicable
Fund, together with all amendments thereto (the “Declaration of Trust”), is on file in the office of the Secretary
of the Commonwealth of Massachusetts, contains an express disclaimer of shareholder liability for acts or obligations of the trust
and provides for indemnification and reimbursement of expenses out of the trust property for any shareholder held personally liable
for the obligations of the trust. The Declaration of Trust also provides that a trust may maintain appropriate insurance (for example,
fidelity bond and errors and omissions insurance) for the protection of the trust, its shareholders, Trustees, officers, employees
and agents covering possible tort and other liabilities. Thus, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which both inadequate insurance existed and the trust itself was unable to
meet its obligations.
Certain Funds are organized as Delaware statutory trusts.
See “Additional Information — Description of
Shares” in Part I of each Fund’s Statement of Additional Information for additional capital stock information for your
Fund.
Additional Information
Under a separate agreement, BlackRock has granted certain
Funds the right to use the “BlackRock” name and has reserved the right to (i) withdraw its consent to the use
of such name by a Fund if the Fund ceases to retain BlackRock Advisors, LLC as investment adviser and (ii) to grant the use
of such name to any other company.
See Part I, Section VIII “Additional Information
— Principal Shareholders” section of each Fund’s Statement of Additional Information for information on the holders
of 5% or more of any class of shares of your Fund.
APPENDIX A
Description of Bond Ratings
A Description of Moody’s Investors Service,
Inc.’s (“Moody’s”) Global Rating Scales
Ratings assigned on
Moody’s global long-term and short-term rating scales are forward-looking opinions of the relative credit risks of financial
obligations issued by non-financial corporates, financial institutions, structured finance vehicles, project finance vehicles,
and public sector entities. Long-term ratings are assigned to issuers or obligations with an original maturity of one year or more
and reflect both on the likelihood of a default on contractually promised payments and the expected financial loss suffered in
the event of default.
Short-term ratings are assigned to obligations
with an original maturity of thirteen months or less and reflect the likelihood of a default on contractually promised payments.
Description of Moody’s Long-Term Obligation
Ratings
Aaa
|
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest level of credit risk.
|
Aa
|
Obligations rated Aa are judged to be of high quality and are subject to very low credit risk.
|
A
|
Obligations rated A are considered upper-medium grade and are subject to low credit risk.
|
Baa
|
Obligations rated Baa are judged to be medium-grade and subject to moderate credit risk and as such may possess certain speculative characteristics.
|
Ba
|
Obligations rated Ba are judged to be speculative and are subject to substantial credit risk.
|
B
|
Obligations rated B are considered speculative and are subject to high credit risk.
|
Caa
|
Obligations rated Caa are judged to be speculative of poor standing and are subject to very high credit risk.
|
Ca
|
Obligations rated Ca are highly speculative and are likely in, or very near, default, with some prospect of recovery of principal and interest.
|
C
|
Obligations rated C are the lowest rated class and are typically in default, with little prospect for recovery of principal or interest.
|
Note
: Moody’s appends numerical
modifiers 1, 2, and 3 to each generic rating classification from Aaa through Caa. The modifier 1 indicates that the obligation
ranks in the higher end of its generic rating category; the modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
a ranking in the lower end of that generic rating category.
Hybrid Indicator (hyb)
The hybrid indicator (hyb) is appended to all ratings
of hybrid securities issued by banks, insurers, finance companies, and securities firms. By their terms, hybrid securities allow
for the omission of scheduled dividends, interest, or principal payments, which can potentially result in impairment if such an
omission occurs. Hybrid securities may also be subject to contractually allowable write-downs of principal that could result in
impairment. Together with the hybrid indicator, the long-term obligation rating assigned to a hybrid security is an expression
of the relative credit risk associated with that security.
Description of Short-Term Obligation Ratings
Moody’s employs the following designations to
indicate the relative repayment ability of rated issuers:
P-1
|
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay short-term debt obligations.
|
P-2
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Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay short-term debt obligations.
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P-3
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Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to repay short-term obligations.
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NP
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Issuers (or supporting institutions) rated Not Prime do not fall
within any of the Prime rating categories.
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Description of Moody’s US Municipal Short-Term
Obligation Ratings
The Municipal Investment
Grade (“MIG”) scale is used to rate US municipal bond anticipation notes of up to three years maturity. Municipal notes
rated on the MIG scale may be secured by either pledged revenues or proceeds of a take-out financing received prior to note maturity.
MIG ratings expire at the maturity of the obligation, and the issuer’s long-term rating is only one consideration in assigning
the MIG rating. MIG ratings are divided into three levels—MIG 1 through MIG 3—while speculative grade short-term obligations
are designated SG.
MIG 1
|
This designation denotes superior credit quality. Excellent protection is afforded by established cash flows, highly reliable liquidity support, or demonstrated broad-based access to the market for refinancing.
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MIG 2
|
This designation denotes strong credit quality. Margins of protection are ample, although not as large as in the preceding group.
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MIG 3
|
This designation denotes acceptable credit quality. Liquidity and cash-flow protection may be narrow, and market access for refinancing is likely to be less well-established.
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SG
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This designation denotes speculative-grade credit quality. Debt
instruments in this category may lack sufficient margins of protection.
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Description of Moody’s Demand Obligation Ratings
In the case of variable
rate demand obligations (“VRDOs”), a two-component rating is assigned: a long or short-term debt rating and a demand
obligation rating. The first element represents Moody’s evaluation of risk associated with scheduled principal and interest
payments. The second element represents Moody’s evaluation of risk associated with the ability to receive purchase price
upon demand (“demand feature”). The second element uses a rating from a variation of the MIG scale called the Variable
Municipal Investment Grade (“VMIG”) scale.
VMIG 1
|
This designation denotes superior credit quality. Excellent protection is afforded by the superior short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
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VMIG 2
|
This designation denotes strong credit quality. Good protection is afforded by the strong short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
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VMIG 3
|
This designation denotes acceptable credit quality. Adequate protection is afforded by the satisfactory short-term credit strength of the liquidity provider and structural and legal protections that ensure the timely payment of purchase price upon demand.
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SG
|
This designation denotes speculative-grade credit quality. Demand
features rated in this category may be supported by a liquidity provider that does not have an investment grade short-term rating
or may lack the structural and/or legal protections necessary to ensure the timely payment of purchase price upon demand.
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Description of Standard & Poor’s, a Division
of The McGraw-Hill Companies, Inc. (“Standard & Poor’s”), Issue Credit Ratings
A Standard & Poor's issue credit
rating is a forward-looking opinion about the creditworthiness of an obligor with respect to a specific financial obligation, a
specific class of financial obligations, or a specific financial program (including ratings on medium-term note programs and commercial
paper programs). It takes into consideration the creditworthiness of guarantors, insurers, or other forms of credit enhancement
on the obligation and takes into account the currency in which the obligation is denominated. The opinion reflects Standard &
Poor's view of the obligor's capacity and willingness to meet its financial commitments as they come due, and may assess terms,
such as collateral security and subordination, which could affect ultimate payment in the event of default.
Issue credit ratings can be either long-term or short-term.
Short-term ratings are generally assigned to those obligations considered short-term in the relevant market. In the U.S., for example,
that means obligations with an original maturity of no more than 365 days—including commercial paper. Short-term ratings
are also used to indicate the creditworthiness of an obligor with respect to put features on long-term obligations. The result
is a dual rating, in which the short-term rating addresses the put feature, in addition to the usual long-term rating. Medium-term
notes are assigned long-term ratings.
Issue credit ratings
are based, in varying degrees, on Standard & Poor’s analysis of the following considerations:
|
·
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Likelihood of payment—capacity and willingness of the obligor to
meet its financial commitment on an obligation in accordance with the terms of the obligation;
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|
·
|
Nature of and provisions of the obligation;
|
|
·
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Protection afforded by, and relative position of, the obligation in the
event of bankruptcy, reorganization, or other arrangement under the laws of bankruptcy and other laws affecting creditors’
rights.
|
Long-Term Issue Credit Ratings*
AAA
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An obligation rated ‘AAA’ has the highest rating assigned by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is extremely strong.
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AA
|
An obligation rated ‘AA’ differs from the highest-rated obligations only to a small degree. The obligor’s capacity to meet its financial commitment on the obligation is very strong.
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A
|
An obligation rated ‘A’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher-rated categories. However, the obligor’s capacity to meet its financial commitment on the obligation is still strong.
|
BBB
|
An obligation rated ‘BBB’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
|
BB
B
CCC
CC
C
|
Obligations rated ‘BB’, ‘B’, ‘CCC’, ‘CC’, and ‘C’ are regarded as having significant speculative characteristics. ‘BB’ indicates the least degree of speculation and ‘C’ the highest. While such obligations will likely have some quality and protective characteristics, these may be outweighed by large uncertainties or major exposures to adverse conditions.
|
BB
|
An obligation rated ‘BB’ is less vulnerable to nonpayment than other speculative issues. However, it faces major ongoing uncertainties or exposure to adverse business, financial, or economic conditions, which could lead to the obligor’s inadequate capacity to meet its financial commitment on the obligation.
|
B
|
An obligation rated ‘B’ is more vulnerable to nonpayment than obligations rated ‘BB’, but the obligor currently has the capacity to meet its financial commitment on the obligation. Adverse business, financial, or economic conditions will likely impair the obligor’s capacity or willingness to meet its financial commitment on the obligation.
|
CCC
|
An obligation rated ‘CCC’ is currently vulnerable to nonpayment, and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation. In the event of adverse business, financial, or economic conditions, the obligor is not likely to have the capacity to meet its financial commitment on the obligation.
|
CC
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An obligation rated ‘CC’ is currently highly vulnerable to nonpayment.
|
C
|
A ‘C’ rating is assigned to obligations that are currently highly vulnerable to nonpayment, obligations that have payment arrearages allowed by the terms of the documents, or obligations of an issuer that is the subject of a bankruptcy petition or similar action which have not experienced a payment default. Among others, the ‘C’ rating may be assigned to subordinated debt, preferred stock or other obligations on which cash payments have been suspended in accordance with the instrument’s terms or when preferred stock is the subject of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
|
D
|
An obligation rated ‘D’ is in payment default. The ‘D’ rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor’s believes that such payments will be made within five business days, irrespective of any grace period. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of similar action if payments on an
|
|
obligation are jeopardized. An obligation’s rating is lowered to ‘D’ upon completion of a distressed exchange offer, whereby some or all of the issue is either repurchased for an amount of cash or replaced by other instruments having a total value that is less than par.
|
NR
|
This indicates that no rating has been requested, that there is insufficient information on which to base a rating, or that Standard & Poor’s does not rate a particular obligation as a matter of policy.
|
*The ratings from ‘AA’
to ‘CCC’ may be modified by the addition of a plus (+) or minus (-) sign to show relative standing within the major
rating categories.
Short-Term Issue Credit Ratings
A-1
|
A short-term obligation rated ‘A-1’ is rated in the highest category by Standard & Poor’s. The obligor’s capacity to meet its financial commitment on the obligation is strong. Within this category, certain obligations are designated with a plus sign (+). This indicates that the obligor’s capacity to meet its financial commitment on these obligations is extremely strong.
|
A-2
|
A short-term obligation rated ‘A-2’ is somewhat more susceptible to the adverse effects of changes in circumstances and economic conditions than obligations in higher rating categories. However, the obligor’s capacity to meet its financial commitment on the obligation is satisfactory.
|
A-3
|
A short-term obligation rated ‘A-3’ exhibits adequate protection parameters. However, adverse economic conditions or changing circumstances are more likely to lead to a weakened capacity of the obligor to meet its financial commitment on the obligation.
|
B
|
A short-term obligation rated ‘B’ is regarded as vulnerable and has significant speculative characteristics. The obligor currently has the capacity to meet its financial commitments; however, it faces major ongoing uncertainties which could lead to the obligor’s inadequate capacity to meet its financial commitments.
|
C
|
A short-term obligation rated ‘C’ is currently vulnerable to nonpayment and is dependent upon favorable business, financial, and economic conditions for the obligor to meet its financial commitment on the obligation.
|
D
|
A short-term obligation rated ‘D’ is in payment default. The ‘D’ rating category is used when payments on an obligation are not made on the date due, unless Standard & Poor’s believes that such payments will be made within any stated grace period. However, any stated grace period longer than five business days will be treated as five business days. The ‘D’ rating also will be used upon the filing of a bankruptcy petition or the taking of a similar action if payments on an obligation are jeopardized.
|
|
|
|
|
Description of Standard & Poor’s Municipal
Short-Term Note Ratings
A Standard & Poor’s U.S. municipal note
rating reflects Standard & Poor’s opinion about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes with an original maturity of more than three years
will most likely receive a long-term debt rating. In determining which type of rating, if any, to assign, Standard &
Poor’s analysis will review the following considerations:
|
·
|
Amortization schedule—the larger the final maturity relative to other maturities, the more likely it will be treated
as a note; and
|
|
·
|
Source of payment—the more dependent the issue is on the market for its refinancing, the more likely it will be treated
as a note.
|
Standard & Poor’s municipal short-term note
rating symbols are as follows:
SP-1
|
Strong capacity to pay principal and interest. An issue determined to possess a very strong capacity to pay debt service is given a plus (+) designation.
|
SP-2
|
Satisfactory capacity to pay principal and interest, with some vulnerability to adverse financial and economic changes over the term of the notes.
|
SP-3
|
Speculative capacity to pay principal and interest.
|
Description of Fitch Ratings’ (“Fitch’s”)
Credit Ratings Scales
Fitch’s credit ratings
provide an opinion on the relative ability of an entity to meet financial commitments, such as interest,
preferred dividends, repayment of principal, insurance claims or counterparty obligations. Credit ratings are
used by investors as indications of the likelihood of receiving the money owed to them in accordance with the terms on which they
invested.
The terms “investment grade” and “speculative
grade” have established themselves over time as shorthand to describe the categories ‘AAA’ to ‘BBB’
(investment grade) and ‘BB’ to ‘D’ (speculative grade). The terms “investment grade” and “speculative
grade” are market conventions, and do not imply any recommendation or endorsement of a specific security for investment purposes.
“Investment grade” categories indicate relatively low to moderate credit risk, while ratings in the “speculative”
categories either signal a higher level of credit risk or that a default has already occurred.
Fitch’s credit ratings do not directly address
any risk other than credit risk. In particular, ratings do not deal with the risk of a market value loss on a rated security due
to changes in interest rates, liquidity and other market considerations. However, in terms of payment obligation on the rated liability,
market risk may be considered to the extent that it influences the
ability
of an issuer to pay upon a commitment. Ratings
nonetheless do not reflect market risk to the extent that they influence the size or other conditionality of the
obligation
to pay upon a commitment (for example, in the case of index-linked bonds).
In the default components of ratings assigned to individual
obligations or instruments, the agency typically rates to the likelihood of non-payment or default in accordance with the terms
of that instrument’s documentation. In limited cases, Fitch may include additional considerations (
i.e.
, rate to a
higher or lower standard than that implied in the obligation’s documentation). In such cases, the agency will make clear
the assumptions underlying the agency’s opinion in the accompanying rating commentary.
Description of Fitch’s Long-Term Corporate
Finance Obligations Rating Scales
Fitch long-term obligations rating scales are as follows:
AAA
|
Highest credit quality. ‘AAA’ ratings denote the lowest expectation of credit risk. They are assigned only in cases of exceptionally strong capacity for payment
|
|
of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.
|
AA
|
Very high credit quality. ‘AA’ ratings denote expectations of very low credit risk. They indicate very strong capacity for payment of financial commitments. This capacity is not significantly vulnerable to foreseeable events.
|
A
|
High credit quality. ‘A’ ratings denote expectations of low credit risk. The capacity for payment of financial commitments is considered strong. This capacity may, nevertheless, be more vulnerable to adverse business or economic conditions than is the case for higher ratings.
|
BBB
|
Good credit quality. ‘BBB’ ratings indicate that expectations of credit risk are currently low. The capacity for payment of financial commitments is considered adequate but adverse business or economic conditions are more likely to impair this capacity.
|
BB
|
Speculative. ‘BB’ ratings indicate an elevated vulnerability to credit risk, particularly in the event of adverse changes in business or economic conditions over time; however, business or financial alternatives may be available to allow financial commitments to be met.
|
B
|
Highly speculative. ‘B’ ratings indicate that material credit risk is present.
|
CCC
|
‘CCC’ ratings indicate that substantial credit risk is present.
|
CC
|
‘CC’ ratings indicate very high levels of credit risk.
|
C
|
‘C’ ratings indicate exceptionally high levels of credit risk.
|
NR
|
This designation is used to denote securities not rated by Fitch where Fitch has rated some, but not all, securities comprising an issuance capital structure.
|
WD
|
This designation indicates that the rating has been withdrawn and the issue or issuer is no longer rated by Fitch.
|
Note:
The modifiers “+” or
“-” may be appended to a rating to denote relative status within major rating categories. Such suffixes are not added
to the ‘AAA’ obligation rating category, or to corporate finance obligation ratings in the categories below ‘B’.
Description of Fitch’s Short-Term Ratings
A short-term issuer or obligation rating is based in
all cases on the short-term vulnerability to default of the rated entity or security stream and relates to the capacity to meet
financial obligations in accordance with the documentation governing the relevant obligation. Short-Term Ratings are assigned to
obligations whose initial maturity is viewed as “short term” based on market convention. Typically, this means up to
13 months for corporate, sovereign, and structured obligations and up to 36 months for obligations in U.S. public finance markets.
Fitch short-term ratings are as follows:
F1
|
Highest short-term credit quality. Indicates the strongest intrinsic capacity for timely payment of financial commitments; may have an added “+” to denote any exceptionally strong credit feature.
|
F2
|
Good short-term credit quality.
Good intrinsic capacity for timely payment of financial commitments.
|
F3
|
Fair short-term credit quality.
The intrinsic capacity for timely payment of financial commitments is adequate.
|
B
|
Speculative short-term credit quality. Minimal capacity for timely payment of financial commitments, plus heightened vulnerability to near term adverse changes in financial and economic conditions.
|
C
|
High short-term default risk.
Default is a real possibility.
|
RD
|
Restricted default. Indicates an entity that has defaulted on one or more of its financial commitments, although it continues to meet other financial obligations. Applicable to entity ratings only.
|
D
|
Default. Indicates a broad-based default event for an entity, or the default of a short-term obligation.
|
NR
|
This designation is used to denote securities not rated by Fitch where Fitch has rated some, but not all, securities comprising an issuance capital structure.
|
WD
|
This designation indicates that the rating has been withdrawn
and the issue or issuer is no longer rated by Fitch.
|
|
|
|
|
APPENDIX B
BlackRock
U.S. Registered Funds
Proxy Voting Policy
Procedures Governing Delegation of Proxy
Voting to Fund Adviser
July 1, 2011
The Trustees/Directors (“Directors”) of the BlackRock-Advised
Funds (the “Funds”) have the responsibility for voting proxies relating to portfolio securities of the Funds, and have
determined that it is in the best interests of the Funds and their shareholders to delegate that responsibility to BlackRock Advisors,
LLC and its affiliated U.S. registered investment advisers (“BlackRock”), the investment adviser to the Funds, as part
of BlackRock’s authority to manage, acquire and dispose of account assets. The Directors hereby direct BlackRock to vote
such proxies in accordance with this Policy, and any proxy voting guidelines that the Adviser determines are appropriate and in
the best interests of the Funds’ shareholders and which are consistent with the principles outlined in this Policy. The Directors
have authorized BlackRock to utilize an unaffiliated third-party as its agent to vote portfolio proxies in accordance with this
Policy and to maintain records of such portfolio proxy voting.
Rule 206(4)-6 under the Investment Advisers Act of 1940 requires,
among other things, that an investment adviser that exercises voting authority over clients’ proxy voting adopt policies
and procedures reasonably designed to ensure that the adviser votes proxies in the best interests of clients, discloses to its
clients information about those policies and procedures and also discloses to clients how they may obtain information on how the
adviser has voted their proxies.
BlackRock has adopted separate but substantially similar guidelines
and procedures that are consistent with the principles of this Policy. BlackRock’s Corporate Governance Committee (the “Committee”),
addresses proxy voting issues on behalf of BlackRock and its clients, including the Funds. The Committee is comprised of senior
members of BlackRock’s Portfolio Management and Administration Groups and is advised by BlackRock’s Legal and Compliance
Department.
BlackRock votes (or refrains from voting) proxies for each Fund
in a manner that BlackRock, in the exercise of its independent business judgment, concludes are in the best economic interests
of such Fund. In some cases, BlackRock may determine that it is in the best economic interests of a Fund to refrain from exercising
the Fund’s proxy voting rights (such as, for example, proxies on certain non-U.S. securities that might impose costly or
time-consuming in-person voting requirements). With regard to the relationship between securities lending and proxy voting, BlackRock’s
approach is also driven by our clients’ economic interests. The evaluation of the economic desirability of recalling loans
involves balancing the revenue producing value of loans against the likely economic value of casting votes. Based on our evaluation
of this relationship, BlackRock believes that the likely economic value of casting a vote generally is less than the securities
lending income, either because the votes will not have significant economic consequences or because the outcome of the vote would
not be affected by BlackRock recalling loaned securities in order to ensure they are voted. Periodically, BlackRock analyzes the
process and benefits of voting proxies for securities on loan, and will consider whether any modification of its proxy voting policies
or procedures are necessary in light of any regulatory changes.
BlackRock will normally vote on specific proxy issues in accordance
with BlackRock’s proxy voting guidelines. BlackRock’s proxy voting guidelines provide detailed guidance as to how to
vote proxies on certain important or commonly raised issues. BlackRock may, in the exercise of its business judgment, conclude
that the proxy voting guidelines do not cover the specific matter upon which a proxy vote is requested, or that an exception to
the proxy voting guidelines would be in the best economic interests of a Fund. BlackRock votes (or refrains from voting) proxies
without regard to the relationship of the issuer of the proxy (or any shareholder of such issuer) to the Fund, the Fund’s
affiliates (if any), BlackRock or BlackRock’s affiliates. When voting proxies, BlackRock attempts to encourage companies
to follow practices that enhance shareholder value and increase transparency and allow the market to place a proper value on their
assets.
|
II.
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Proxy Voting Policies
|
A.
Boards of Directors
The Funds generally support the board’s nominees in the election
of directors and generally supports proposals that strengthen the independence of boards of directors. As a general matter, the
Funds believe that a company’s board of directors (rather than shareholders) is most likely to have access to important,
nonpublic information regarding a company’s business and prospects, and is therefore best-positioned to set corporate policy
and oversee management. The Funds therefore believe that the foundation of good corporate governance is the election of responsible,
qualified, independent corporate directors who are likely to diligently represent the interests of shareholders and oversee management
of the corporation in a manner that will seek to maximize shareholder value over time. In individual cases, consideration may be
given to a director nominee’s history of representing shareholder interests as a director of the company issuing the proxy
or other companies, or other factors to the extent deemed relevant by the Committee.
B.
Auditors
These proposals concern those issues submitted to shareholders related
to the selection of auditors. As a general matter, the Funds believe that corporate auditors have a responsibility to represent
the interests of shareholders and provide an independent view on the propriety of financial reporting decisions of corporate management.
While the Funds anticipate that BlackRock will generally defer to a corporation’s choice of auditor, in individual cases,
consideration may be given to an auditors’ history of representing shareholder interests as auditor of the company issuing
the proxy or other companies, to the extent deemed relevant.
C.
Compensation and Benefits
These proposals concern those issues submitted to shareholders related
to management compensation and employee benefits. As a general matter, the Funds favor disclosure of a company’s compensation
and benefit policies and oppose excessive compensation, but believe that compensation matters are normally best determined by a
corporation’s board of directors, rather than shareholders. Proposals to “micro-manage” a company’s compensation
practices or to set arbitrary restrictions on compensation or benefits should therefore generally not be supported.
D.
Capital Structure
These proposals relate to various requests, principally from management,
for approval of amendments that would alter the capital structure of a company, such as an increase in authorized shares. As a
general matter, the Funds expect that BlackRock will support requests that it believes enhance the rights of common shareholders
and oppose requests that appear to be unreasonably dilutive.
E.
Corporate Charter and By-Laws
These proposals relate to various requests for approval of amendments
to a corporation’s charter or by-laws. As a general matter, the Funds generally vote against anti-takeover proposals and
proposals that would create additional barriers or costs to corporate transactions that are likely to deliver a premium to shareholders.
F.
Environmental and Social Issues
These are shareholder proposals addressing either corporate social
and environmental policies or requesting specific reporting on these issues. The Funds generally do not support proposals on social
issues that lack a demonstrable economic benefit to the issuer and the Fund investing in such issuer. BlackRock seeks to make proxy
voting decisions in the manner most likely to protect and promote the long-term economic value of the securities held in client
accounts. We intend to support economically advantageous corporate practices while leaving direct oversight of company management
and strategy to boards of directors. We seek to avoid micromanagement of companies, as we believe that a company’s board
of directors is best
positioned to represent shareholders and oversee management on shareholders
behalf. Issues of corporate social and environmental responsibility are evaluated on a case-by-case basis within this framework.
|
III.
|
Conflicts Management
|
BlackRock maintains policies and procedures that are designed to
prevent any relationship between the issuer of the proxy (or any shareholder of the issuer) and a Fund, a Fund’s affiliates
(if any), BlackRock or BlackRock’s affiliates, from having undue influence on BlackRock’s proxy voting activity. In
certain instances, BlackRock may determine to engage an independent fiduciary to vote proxies as a further safeguard against potential
conflicts of interest or as otherwise required by applicable law. The independent fiduciary may either vote such proxies or provide
BlackRock with instructions as to how to vote such proxies. In the latter case, BlackRock votes the proxy in accordance with the
independent fiduciary’s determination.
BlackRock will report to the Directors on proxy
votes it has made on behalf of the Funds at least annually.