JANUARY 28, 2013
SUMMARY PROSPECTUS
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BlackRock
Funds
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BlackRock Managed Volatility Portfolio
Service:
PCBSX
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Before you invest, you may want to
review the Funds prospectus, which contains more information about the Fund and its risks. You can find the Funds prospectus (including
amendments and supplements) and other information about the Fund, including the Funds statement of additional information and shareholder report,
online at http://www.blackrock.com/prospectus. You can also get this information at no cost by calling (800) 441-7762 or by sending an e-mail request
to
prospectus.request@blackrock.com
, or from your financial professional. The Funds prospectus and statement of additional information,
both dated January 28, 2013, as amended and supplemented from time to time, are incorporated by reference into (legally made a part of) this Summary
Prospectus.
This Summary 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 Summary Prospectus. Any representation to the contrary
is a criminal offense.
Not FDIC Insured No Bank Guarantee May Lose Value
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Summary Prospectus
The investment objective of BlackRock Managed Volatility
Portfolio, formerly BlackRock Asset Allocation Portfolio (Managed Volatility Portfolio or the Fund), a series of BlackRock
Funds
SM
(the Trust), is to seek total return.
Fees and Expenses of the
Fund
This table describes the fees and expenses that you may pay if you
buy and hold shares of Managed Volatility Portfolio.
Annual Fund Operating Expenses
(expenses that you pay each year as a percentage of the value of your investment)
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Service Shares
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Management Fee
1
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0.55
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%
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Distribution and/or Service (12b-1) Fees
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0.25
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%
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Other Expenses
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0.47
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%
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Interest Expense
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0.01%
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Miscellaneous Other Expenses
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0.46%
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Acquired Fund Fees and Expenses
2
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0.05
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%
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Total Annual Fund Operating Expenses
2
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1.32
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%
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Fee Waivers and/or Expense Reimbursements
3
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(0.09
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)%
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Total Annual Fund Operating Expenses After Fee Waivers and/or Expense
Reimbursements
3
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1.23
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%
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1
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The Management Fee payable by the Fund is based on
assets estimated to be attributable to the Funds direct investments in fixed-income and equity securities and instruments, including
exchange-traded funds (ETFs) advised by BlackRock Advisors, LLC (BlackRock) or other investment advisers, other investments and
cash and cash equivalents (including money market funds). BlackRock has contractually agreed to waive the Management Fee on assets estimated to be
attributed to the Funds investments in other equity and fixed-income mutual funds managed by BlackRock or its affiliates (the mutual
funds).
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2
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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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3
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As described in the Management of the
Fund section of the Funds prospectus on pages 75-79, BlackRock has contractually agreed to waive and/or reimburse fees or expenses in order
to limit Total Annual Fund Operating Expenses After Fee Waivers and/or Expense Reimbursements (excluding Dividend Expense, Interest Expense, Acquired
Fund Fees and Expenses and certain other Fund expenses) to 1.17% of average daily net assets until February 1, 2014. The Fund may have to repay some of
these waivers and/or reimbursements to BlackRock in the following two years. The agreement may be terminated upon 90 days notice by a majority of
the non-interested trustees of the Trust or by a vote of a majority of the outstanding voting securities of the Fund.
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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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125
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$
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409
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$
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715
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$
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1,582
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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 324% of the average value of its
portfolio.
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Principal Investment
Strategies of the Fund
Managed Volatility Portfolio uses an asset allocation strategy,
investing varying percentages of its portfolio in three major categories: stocks, bonds and money market instruments. The Fund has wide flexibility in
the relative weightings given to each category.
The Fund may also invest a significant portion of its assets in
affiliated and unaffiliated ETFs and mutual funds. See Information About the ETFs and Mutual Funds.
With respect to its equity investments, the Fund may invest in
ETFs, mutual funds or individual equity securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in common stock,
preferred stock, securities convertible into common stock, non-convertible preferred stock and depositary receipts. The Fund, the ETFs and the mutual
funds may invest in securities of both U.S. and non-U.S. issuers without limit, which can be U.S. dollar-based or non-U.S. dollar-based and may be
currency hedged or unhedged. The Fund, the ETFs and the mutual funds may invest in securities of companies of any market
capitalization.
With respect to its fixed-income investments, the Fund may invest
in ETFs, mutual funds or individual fixed-income securities to an unlimited extent. The Fund, the ETFs and the mutual funds may invest in a portfolio
of fixed-income securities such as corporate bonds and notes, commercial and residential mortgage-backed securities (bonds that are backed by a
mortgage loan or pools of loans secured either by commercial property or residential mortgages, as applicable), collateralized mortgage obligations
(bonds that are backed by cash flows from pools of mortgages and may have multiple classes with different payment rights and protections),
collateralized debt obligations, asset-backed securities, convertible securities, debt obligations of governments and their sub-divisions (including
those of non-U.S. governments), other floating or variable rate obligations, municipal obligations and zero coupon debt securities. The Fund, the ETFs
and the mutual funds may also invest a significant portion of their assets in non-investment grade bonds (junk bonds or distressed securities),
non-investment grade bank loans, foreign bonds (both U.S. dollar- and non-U.S. dollar-denominated) and bonds of emerging market issuers. The Fund, the
ETFs and the mutual funds may invest in non-U.S. dollar-denominated bonds on a currency hedged or unhedged basis.
With respect to its cash investments, the Fund may hold high
quality money market securities, including short term U.S. Government securities, U.S. Government agency securities, securities issued by U.S.
Government-sponsored enterprises and U.S. Government instrumentalities, bank obligations, commercial paper, including asset-backed commercial paper,
corporate notes and repurchase agreements. The Fund may invest a significant portion of its assets in money market funds, including those advised by
BlackRock or its affiliates.
The Fund may invest in derivatives, including, but not limited to,
interest rate, total return and credit default swaps, indexed and inverse floating rate securities, options, futures, options on futures and swaps and
foreign currency transactions (including swaps), for hedging purposes, as well as to increase the return on its portfolio investments. The Fund may
seek to obtain market exposure to the securities in which it primarily invests by entering into a series of purchase and sale contracts or by using
other investment techniques (such as reverse repurchase agreements or dollar rolls). The Fund may also use forward foreign currency exchange contracts
(obligations to buy or sell a currency at a set rate in the future) to hedge against movement in the value of non-U.S. currencies. The ETFs and the
mutual funds may, to varying degrees, also invest in derivatives.
The Fund may invest in U.S. and non-U.S. real estate investment
trusts (REITs), structured products (including, but not limited to, structured notes, credit linked notes and participation notes, or other
instruments evidencing interests in special purpose vehicles, trusts, or other entities that hold or represent interests in fixed-income securities)
and floating rate securities (such as bank loans).
The Fund incorporates a volatility control process that seeks to
reduce risk when portfolio volatility is expected to deviate from the Funds targeted total return volatility of 10% over a one-year period.
Volatility is a statistical measurement of the magnitude of up and down fluctuations in the value of a financial instrument or index over time.
Volatility may result in rapid and dramatic price swings. While BlackRock attempts to manage the Funds volatility exposure to stabilize
performance, there can be no guarantee that the Fund will reach its target volatility. The Fund will adjust its asset allocation in response to periods
of high or low expected volatility. The Fund may without limitation allocate assets into cash or short-term fixed-income securities, and away from
riskier assets such as equity and high yield fixed-income securities. When volatility decreases, the Fund may move assets out of cash and back into
riskier securities. At any given time, the Fund may be invested entirely in equities, fixed-income or cash. As part of its attempt to manage the
Funds volatility exposure, during certain periods the Fund may make significant investments in index futures or other derivative instruments
designed to reduce the Funds exposure to portfolio volatility. The Fund may engage in active and frequent trading of portfolio securities to
achieve its primary investment strategies.
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Risk is inherent in all investing. The value of your investment in
Managed Volatility Portfolio, as well as the amount of return you receive on your investment, may fluctuate significantly from day to day and over
time. You may lose part or all of your investment in the Fund or your investment may not perform as well as other similar investments. The principal
risks set forth below are the principal risks of investing in the Fund and/or the ETFs and the mutual funds (each, an Underlying
Fund).
Principal Risks of the Funds Fund of Funds
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Affiliated Fund Risk
In managing the Fund,
BlackRock will have authority to select and substitute ETFs or mutual funds. BlackRock may be subject to potential conflicts of interest in selecting
ETFs or mutual funds because the fees paid to BlackRock by some ETFs or mutual funds are higher than the fees paid by other ETFs or mutual funds.
However, BlackRock is a fiduciary to the Fund and is legally obligated to act in the Funds best interests when selecting ETFs and mutual
funds.
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Allocation Risk
The Funds ability to
achieve its investment objective depends upon BlackRocks skill in determining the Funds strategic asset class allocation and in selecting
the best mix of ETFs, mutual funds and direct investments. There is a risk that BlackRocks evaluations and assumptions regarding asset classes or
ETFs or mutual funds may be incorrect in view of actual market conditions.
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Investments in ETFs and Other Mutual Funds Risk
The Funds net asset value will change with changes in the value of the ETFs, mutual funds and other securities in which it invests. As
with other investments, investments in other investment companies, including ETFs, are subject to market risk and, for non-index strategies, selection
risk. In addition, if the Fund acquires shares of investment companies, including ETFs, shareholders bear both their proportionate share of expenses in
the Fund (including management and advisory fees) and, indirectly, the expenses of the investment companies. If the Fund acquires shares of affiliated
mutual funds, shareholders bear both their proportionate share of expenses in the Fund (excluding management and advisory fees) and, indirectly, the
expenses of the mutual funds. To the extent the Fund is held by an affiliated fund, the ability of the Fund itself to hold other investment companies
may be limited.
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One ETF or mutual fund may buy the same securities that another
ETF or mutual fund sells. In addition, the Fund may buy the same securities that an ETF or mutual fund sells, or vice-versa. If this happens, an
investor in the Fund would indirectly bear the costs of these transactions without accomplishing the intended investment purpose. Also, an investor in
the Fund may receive taxable gains from portfolio transactions by an ETF or mutual fund, as well as taxable gains from transactions in shares of the
ETF or mutual fund by the Fund. Certain of the ETFs or mutual funds may hold common portfolio securities, thereby reducing the diversification benefits
of the Fund.
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Principal ETF-Specific Risks
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Cash Transaction Risk
Certain ETFs intend to
effect creations and redemptions principally for cash, rather than primarily in-kind because of the nature of the ETFs investments. Investments
in such ETFs may be less tax efficient than investments in ETFs that effect creations and redemptions in-kind.
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Management Risk
If an ETF does not fully
replicate the underlying index, it is subject to the risk that the managers investment management strategy may not produce the intended
results.
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Passive Investment Risk
ETFs purchased by the
Fund are not actively managed and may be affected by a general decline in market segments relating to their respective indices. An ETF typically
invests in securities included in, or representative of, its index regardless of their investment merits and does not attempt to take defensive
positions in declining markets.
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Representative Sampling Risk
When an ETF
deviates from a full replication indexing strategy to utilize a representative sampling strategy, the ETF is subject to an increased risk of tracking
error, in that the securities selected in the aggregate for the ETF may not have an investment profile similar to those of its index.
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Shares of an ETF May Trade at Prices Other Than Net Asset
Value
The trading prices of an ETFs shares fluctuate continuously throughout trading hours based on market supply and demand
rather than net asset value. The trading prices of an ETFs shares may deviate significantly from net asset value during periods of market
volatility. Any of these factors may lead to an ETFs shares trading at a premium or discount to net asset value. However, because shares can be
created and redeemed in Creation Units, which are aggregated blocks of shares that authorized participants who have entered into agreements with the
ETFs distributor can purchase or redeem directly from the ETF, at net asset value, large discounts or premiums to the net asset value of an ETF
are not likely to be sustained over the long term. If a shareholder purchases at a time when the market price is at a premium to the net asset value or
sells at a time when the market price is at a discount to the net asset value, the shareholder may sustain losses.
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Tracking Error Risk
Imperfect correlation
between an ETFs portfolio securities and those in its index, rounding of prices, the timing of cash flows, the ETFs size, changes to the
index and regulatory requirements may cause tracking error, which is the divergence of an ETFs performance from that of its underlying index.
This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result because an
ETF incurs fees and expenses while its underlying index does not.
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Other Principal Risks of Investing in the Fund and/or an
Underlying Fund
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Collateralized Debt Obligations Risk
The pool
of high yield securities underlying collateralized debt obligations is typically separated into groupings called tranches representing different
degrees of credit quality. The higher quality tranches have greater degrees of protection and pay lower interest rates. The lower tranches, with
greater risk, pay higher interest rates.
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Concentration Risk
To the extent that the
Funds or an Underlying Funds portfolio reflects concentration in the securities of issuers in a particular region, market, industry, group
of industries, country, group of countries, sector or asset class, the Fund or the Underlying Fund may be adversely affected by the performance of
those securities, may be subject to increased price volatility and may be more susceptible to adverse economic, market, political or regulatory
occurrences affecting that region, market, industry, group of industries, country, group of countries, sector or asset class.
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Convertible Securities Risk
The market value
of a convertible security performs like that of a regular debt security; that is, if market interest rates rise, the value of a convertible security
usually falls. In addition, convertible securities are subject to the risk that the issuer will not be able to pay interest or dividends when due, and
their market value may change based on changes in the 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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Corporate Loans Risk
Commercial banks and
other financial institutions or institutional investors make corporate loans to companies that need capital to grow or restructure. Borrowers generally
pay interest on corporate loans at rates that change in response to changes in market interest rates such as the London Interbank Offered Rate
(LIBOR) or the prime rates of U.S. banks. As a result, the value of corporate loan investments is generally less exposed to the adverse
effects of shifts in market interest rates than investments that pay a fixed rate of interest. The market for corporate loans may be subject to
irregular trading activity, wide bid/ask spreads and extended trade settlement periods. The corporate loans in which the Fund or an Underlying Fund
invests are usually rated below investment grade.
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Counterparty Risk
The counterparty to an
over-the-counter derivatives contract or a borrower of the Funds or an Underlying Funds securities may be unable or unwilling to make
timely principal, interest or settlement payments, or otherwise to honor its obligations.
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Credit Risk
Credit risk refers to the
possibility that the issuer of a security will not be able to make payments of interest and principal when due. The degree of credit risk depends on
the issuers financial condition and on the terms of the securities.
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Debt Securities Risk
Debt securities, such as
bonds, involve credit risk. Debt securities are also subject to interest rate risk.
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Derivatives Risk
The Funds or an
Underlying Funds use of derivatives may reduce the Funds or the Underlying 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 or an Underlying 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 or an Underlying Fund to
sell or otherwise close a derivatives position could expose the Fund or the Underlying Fund to losses and could make derivatives more difficult for the
Fund or the Underlying Fund to value accurately. Derivatives may give rise to a form of leverage and may expose the Fund or an Underlying Fund to
greater risk and increase its costs. Recent legislation calls for new regulation of the derivatives markets. The extent and impact of the regulation is
not yet known and may not be known for some time. New regulation may make derivatives more costly, may limit the availability of derivatives, or may
otherwise adversely affect the value or performance of derivatives.
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Distressed Securities Risk
Distressed
securities are speculative and involve substantial risks in addition to the risks of investing in junk bonds. The Fund and the Underlying Funds will
generally not receive interest payments on the distressed securities and may incur costs to protect its investment. In addition, distressed securities
involve the substantial risk that principal will not be repaid. These securities may present a substantial risk of default or may be in default at the
time of investment.
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Dollar Rolls Risk
Dollar rolls involve the
risk that the market value of the securities that the Fund or an Underlying Fund is committed to buy may decline below the price of the securities the
Fund or the Underlying Fund has sold. These transactions may involve leverage.
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Emerging Markets Risk
Emerging markets are
riskier than more developed markets because they tend to develop unevenly and may never fully develop. Investments in emerging markets may be
considered speculative. Emerging markets are more likely to experience hyperinflation and currency devaluations, which adversely affect returns to U.S.
investors. In addition, many emerging securities markets have far lower trading volumes and less liquidity than developed markets.
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Equity Securities Risk
Stock markets are
volatile. The price of equity securities fluctuates based on changes in a companys financial condition and overall market and economic
conditions.
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Extension Risk
When interest rates rise,
certain obligations will be paid off by the obligor more slowly than anticipated, causing the value of these securities to fall.
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Foreign Securities Risk
Foreign investments
often involve special risks not present in U.S. investments that can increase the chances that the Fund or an Underlying Fund will lose money. These
risks include:
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The Fund and the Underlying Funds generally hold their foreign
securities and cash in foreign banks and securities depositories, which may be recently organized or new to the foreign custody business and may be
subject to only limited or no regulatory oversight.
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Changes in foreign currency exchange rates can affect the value of
the Funds or an Underlying 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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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 or an Underlying Funds investments.
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High Portfolio Turnover Risk
High portfolio
turnover (more than 100%) may result in increased transaction costs to the Fund or an Underlying Fund and potentially higher capital gains or losses
for shareholders. The effects of higher than normal portfolio turnover may adversely affect Fund or Underlying Fund performance.
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Indexed and Inverse Securities Risk
Certain
indexed and inverse securities have greater sensitivity to changes in interest rates or index levels than other securities, and the Funds or an
Underlying Funds investment in such instruments may decline significantly in value if interest rates or index levels move in a way Fund or
Underlying Fund management does not anticipate.
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Inflation Indexed Bonds Risk
The principal
value of an investment is not protected or otherwise guaranteed by virtue of the Funds or an Underlying Funds investments in
inflation-indexed bonds.
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Inflation-indexed bonds are fixed-income securities whose
principal value is periodically adjusted according to the rate of inflation. If the index measuring inflation falls, the principal value of
inflation-indexed bonds will be adjusted downward, and consequently the interest payable on these securities (calculated with respect to a smaller
principal amount) will be reduced.
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Repayment of the original bond principal upon maturity (as
adjusted for inflation) is guaranteed in the case of U.S. Treasury inflation-indexed bonds. For bonds that do not provide a similar guarantee, the
adjusted principal value of the bond repaid at maturity may be less than the original principal value.
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The value of inflation-indexed bonds is expected to change in
response to changes in real interest rates. Real interest rates are tied to the relationship between nominal interest rates and the rate of inflation.
If nominal interest rates increase at a faster rate than inflation, real interest rates may rise, leading to a decrease in value of inflation-indexed
bonds. Short-term increases in inflation may lead to a decline in value. Any increase in the principal amount of an inflation-indexed bond will be
considered taxable ordinary income, even though investors do not receive their principal until maturity.
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Periodic adjustments for inflation to the principal amount of an
inflation-indexed bond may give rise to original issue discount, which will be includable in the Funds or an Underlying Funds gross income.
Due to original issue discount, the Fund or an Underlying Fund may be required to make annual distributions to shareholders that exceed the cash
received, which may cause the Fund or the Underlying Fund to liquidate certain investments when it is not advantageous to do so. Also, if the principal
value of an inflation-indexed bond is adjusted downward due to deflation, amounts previously distributed in the taxable year may be characterized in
some circumstances as a return of capital.
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Interest Rate Risk
Interest rate risk is the
risk that prices of bonds and other fixed-income securities will increase as interest rates fall, and decrease as interest rates rise. In general, the
market price of debt securities with longer maturities will go up or down more in response to changes in interest rates than the market price of
shorter term securities.
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Investment Style Risk
Under certain market
conditions, growth investments have performed better during the later stages of economic expansion and value investments have performed better during
periods of economic recovery. Therefore, these investment styles may over time go in and out of favor. At times when the investment style used by the
Fund or Underlying Fund is out of favor, the Fund or Underlying Fund may underperform other funds that use different investment styles.
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Junk Bonds Risk
Although junk bonds generally
pay higher rates of interest than investment grade bonds, junk bonds are high risk investments that may cause income and principal losses for the Fund
or Underlying Fund.
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Leverage Risk
Some transactions may give rise
to a form of economic leverage. These transactions may include, among others, derivatives, and may expose the Fund or an Underlying Fund to greater
risk and increase its costs. The use of leverage may cause the Fund or an Underlying Fund to liquidate portfolio positions when it may not be
advantageous to do so to satisfy its obligations or to meet any required asset segregation requirements. Increases and decreases in the value of the
Funds or an Underlying Funds portfolio will be magnified when the Fund or the Underlying Fund uses leverage.
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Liquidity Risk
Liquidity risk exists when
particular investments are difficult to purchase or sell. The Funds or an Underlying Funds investments in illiquid securities may reduce
the returns of the Fund or the Underlying Fund because it may be difficult to sell the illiquid securities at an advantageous time or price. To the
extent that the Funds or an Underlying Funds principal investment strategies involve derivatives or securities with substantial market
and/or credit risk, the Fund or the Underlying Fund will tend to have the greatest exposure to liquidity risk. Liquid investments may become illiquid
after purchase by the Fund or an Underlying Fund, particularly during periods of market turmoil. Illiquid investments may be harder to value,
especially in changing markets, and if the Fund or the Underlying Fund is forced to sell these investments to meet redemption requests or for other
cash needs, the Fund or the Underlying Fund may suffer a loss. In addition, when there is illiquidity in the market for certain securities, the Fund or
an Underlying Fund, due to limitations on illiquid investments, may be subject to purchase and sale restrictions.
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Market Risk and Selection Risk
Market risk is
the risk that one or more markets in which the Fund or an Underlying Fund invests will go down in value, including the possibility that the markets
will go down sharply and unpredictably. Selection risk is the risk that the securities selected by Fund or Underlying Fund management will underperform
the markets, the relevant indices or the securities selected by other funds with similar investment objectives and investment strategies. This means
you may lose money.
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Mid-Cap Securities Risk
The securities of
mid-cap companies generally trade in lower volumes and are generally subject to greater and less predictable price changes than the securities of
larger capitalization companies.
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Mortgage- and Asset-Backed Securities Risks
Mortgage- and asset-backed securities represent interests in pools of mortgages or other assets, including consumer loans or receivables
held in trust. Mortgage- and asset-backed securities are subject to credit, interest rate, prepayment and extension risks. These securities
also
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are subject to risk of default on the underlying mortgage or
asset, particularly during periods of economic downturn. Small movements in interest rates (both increases and decreases) may quickly and significantly
reduce the value of certain mortgage-backed securities.
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Municipal Securities Risks
Municipal
securities risks include the ability of the issuer to repay the obligation, the relative lack of information about certain issuers of municipal
securities, and the possibility of future legislative changes which could affect the market for and value of municipal securities. These risks
include:
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General Obligation Bonds Risks
Timely payments
depend on the issuers credit quality, ability to raise tax revenues and ability to maintain an adequate tax base.
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Revenue Bonds Risks
These payments depend on the
money earned by the particular facility or class of facilities, or the amount of revenues derived from another source.
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Private Activity Bonds Risks
Municipalities and
other public authorities issue private activity bonds to finance development of industrial facilities for use by a private enterprise. The private
enterprise pays the principal and interest on the bond, and the issuer does not pledge its faith, credit and taxing power for repayment.
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Moral Obligation Bonds Risks
Moral obligation bonds
are generally issued by special purpose public authorities of a state or municipality. If the issuer is unable to meet its obligations, repayment of
these bonds becomes a moral commitment, but not a legal obligation, of the state or municipality.
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Municipal Notes Risks
Municipal notes are shorter
term municipal debt obligations. If there is a shortfall in the anticipated proceeds, the notes may not be fully repaid and the Fund or an Underlying
Fund may lose money.
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Municipal Lease Obligations Risks
In a municipal
lease obligation, the issuer agrees to make payments when due on the lease obligation. Although the issuer does not pledge its unlimited taxing power
for payment of the lease obligation, the lease obligation is secured by the leased property.
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n
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Preferred Securities Risk
Preferred
securities may pay fixed or adjustable rates of return. Preferred securities are subject to issuer-specific and market risks applicable generally to
equity securities.
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Prepayment Risk
When interest rates fall,
certain obligations will be paid off by the obligor more quickly than originally anticipated, and the Fund or an Underlying Fund may have to invest the
proceeds in securities with lower yields.
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Real Estate Related Securities Risks
The main
risk of real estate related securities is that the value of the underlying real estate may go down. Many factors may affect real estate values. These
factors include both the general and local economies, the amount of new construction in a particular area, the laws and regulations (including zoning
and tax laws) affecting real estate and the costs of owning, maintaining and improving real estate. The availability of mortgages and changes in
interest rates may also affect real estate values. If the Funds or an Underlying Funds real estate related investments are concentrated in
one geographic area or in one property type, the Fund or the Underlying Fund will be particularly subject to the risks associated with that area or
property type.
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REIT Investment Risk
Investments in REITs
involve unique risks. REITs may have limited financial resources, may trade less frequently and in limited volume and may be more volatile than other
securities.
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Repurchase Agreements and Purchase and Sale Contracts
Risks
If the other party to a repurchase agreement or purchase and sale contract defaults on its obligation under the agreement, the
Fund or an Underlying Fund may suffer delays and incur costs or lose money in exercising its rights under the agreement. If the seller fails to
repurchase the security in either situation and the market value of the security declines, the Fund or an Underlying Fund may lose money.
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Reverse Repurchase Agreements Risk
Reverse
repurchase agreements involve the risk that the other party to the reverse repurchase agreement may fail to return the securities in a timely manner or
at all. The Fund or an Underlying Fund could lose money if it is unable to recover the securities and the value of the collateral held by the Fund or
the Underlying Fund, including the value of the investments made with cash collateral, is less than the value of securities. These events could also
trigger adverse tax consequences to the Fund or an Underlying Fund.
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Risks of Loan Assignments and Participations
As the purchaser of an assignment, the Fund or an Underlying Fund typically succeeds to all the rights and obligations of the assigning institution and
becomes a lender under the credit agreement with respect to the debt obligation; however, the Fund or an Underlying Fund may not be able unilaterally
to enforce all rights and remedies under the loan and with regard to any associated collateral. Because assignments may be arranged through private
negotiations between potential assignees and potential assignors, the rights and obligations acquired by the Fund or an Underlying Fund as the
purchaser of an assignment may differ from, and be more limited than, those held by the assigning lender. In addition, if the loan is foreclosed, the
Fund or an Underlying Fund could become part owner of any collateral and could bear the costs and liabilities of owning and
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disposing of the collateral. The Fund or an Underlying Fund may be
required to pass along to a purchaser that buys a loan from the Fund or the Underlying Fund by way of assignment a portion of any fees to which the
Fund or the Underlying Fund is entitled under the loan. In connection with purchasing participations, the Fund or an Underlying Fund generally will
have no right to enforce compliance by the borrower with the terms of the loan agreement relating to the loan, nor any rights of set-off against the
borrower, and the Fund or an Underlying Fund may not directly benefit from any collateral supporting the loan in which it has purchased the
participation. As a result, the Fund or an Underlying Fund will be subject to the credit risk of both the borrower and the lender that is selling the
participation. In the event of the insolvency of the lender selling a participation, the Fund or an Underlying Fund may be treated as a general
creditor of the lender and may not benefit from any set-off between the lender and the borrower.
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Second Lien Loans Risk
Second lien loans
generally are subject to similar risks as those associated with investments in senior loans. Because second lien loans are subordinated or unsecured
and thus lower in priority of payment to senior loans, they are subject to the additional risk that the cash flow of the borrower and property securing
the loan or debt, if any, may be insufficient to meet scheduled payments after giving effect to the senior secured obligations of the
borrower.
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Senior Loans Risk
There is less readily
available, reliable information about most senior loans than is the case for many other types of securities. An economic downturn generally leads to a
higher non-payment rate, and a senior loan may lose significant value before a default occurs. Moreover, any specific collateral used to secure a
senior loan may decline in value or become illiquid, which would adversely affect the senior loans value. No active trading market may exist for
certain senior loans, which may impair the ability of the Fund or an Underlying Fund to realize full value in the event of the need to sell a senior
loan and which may make it difficult to value senior loans. Although senior loans in which the Fund or an Underlying Fund will invest generally will be
secured by specific collateral, there can be no assurance that liquidation of such collateral would satisfy the borrowers obligation in the event
of non-payment of scheduled interest or principal or that such collateral could be readily liquidated. To the extent that a senior loan is
collateralized by stock in the borrower or its subsidiaries, such stock may lose all of its value in the event of the bankruptcy of the borrower.
Uncollateralized senior loans involve a greater risk of loss. The senior loans in which the Fund or an Underlying Fund invests are usually rated below
investment grade.
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Small Cap and Emerging Growth Securities Risks
Small cap or emerging growth companies may have limited product lines or markets. They may be less financially secure than larger, more
established companies. They may depend on a more limited management group than larger capitalized companies.
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Sovereign Debt Risk
Sovereign debt
instruments are subject to the risk that a governmental entity may delay or refuse to pay interest or repay principal on its sovereign debt, due, for
example, to cash flow problems, insufficient foreign currency reserves, political considerations, the relative size of the governmental entitys
debt position in relation to the economy or the failure to put in place economic reforms required by the International Monetary Fund or other
multilateral agencies.
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Structured Notes Risk
Structured notes and
other related instruments purchased by the Fund or an Underlying Fund are generally privately negotiated debt obligations where the principal and/or
interest is determined by reference to the performance of a specific asset, benchmark asset, market or interest rate (reference measure).
The purchase of structured notes exposes the Fund or an Underlying Fund to the credit risk of the issuer of the structured product. Structured notes
may be leveraged, increasing the volatility of each structured notes value relative to the change in the reference measure. Structured notes may
also be less liquid and more difficult to price accurately than less complex securities and instruments or more traditional debt
securities.
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Structured Products Risk
Holders of
structured products bear risks of the underlying investments, index or reference obligation and are subject to counterparty risk. The Fund or an
Underlying Fund may have the right to receive payments only from the structured product, and generally does not have direct rights against the issuer
or the entity that sold the assets to be securitized. Certain structured products may be thinly traded or have a limited trading market. In addition to
the general risks associated with debt securities discussed herein, structured products carry additional risks, including, but not limited to: the
possibility that distributions from collateral securities will not be adequate to make interest or other payments; the quality of the collateral may
decline in value or default; and the possibility that the structured products are subordinate to other classes.
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Supranational Entities Risk
The Fund or an
Underlying Fund may invest in obligations issued or guaranteed by the International Bank for Reconstruction and Development (the World Bank). If one or
more stockholders of the World Bank fail to make necessary additional capital contributions, the entity may be unable to pay interest or repay
principal on its debt securities, and the Fund or an Underlying Fund may lose money on such investments.
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9
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Tender Option Bonds and Related Securities Risk
Investments in tender option bonds, residual interest tender option bonds and inverse floaters expose the Fund or an Underlying Fund to the same
risks as investments in derivatives, as well as risks associated with leverage, described above, especially the risk of increased volatility. An
investment in these securities may be subject to the risk of loss of principal. Residual interest tender option bonds and inverse floaters generally
will underperform the market for fixed rate municipal securities in a rising interest rate environment.
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U.S. Government Mortgage-Related Securities Risk
There are a number of important differences among the agencies and instrumentalities of the U.S. Government that issue mortgage-related
securities and among the securities that they issue. Mortgage-related securities guaranteed by the Government National Mortgage Association
(Ginnie Mae) are guaranteed as to the timely payment of principal and interest by Ginnie Mae and such guarantee is backed by the full faith
and credit of the United States. Ginnie Mae securities also are supported by the right of Ginnie Mae to borrow funds from the U.S. Treasury to make
payments under its guarantee. Mortgage-related securities issued by The Federal National Mortgage Association (Fannie Mae) or The Federal
Home Loan Mortgage Corporation (Freddie Mac) are solely the obligations of Fannie Mae or Freddie Mac, as the case may be, and are not
backed by or entitled to the full faith and credit of the United States but are supported by the right of the issuer to borrow from the U.S.
Treasury.
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U.S. Government Obligations Risk
Certain
securities in which the Fund or an Underlying Fund may invest, including securities issued by certain U.S. Government agencies and U.S. Government
sponsored enterprises, are not guaranteed by the U.S. Government or supported by the full faith and credit of the United States.
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Variable and Floating Rate Instrument Risk
The absence of an active market for these securities could make it difficult for the Fund or an Underlying Fund to dispose of them if the issuer
defaults.
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Warrants Risk
If the price of the underlying
stock does not rise above the exercise price before the warrant expires, the warrant generally expires without any value and the Fund or an Underlying
Fund loses any amount it paid for the warrant. Thus, investments in warrants may involve substantially more risk than investments in common
stock.
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Zero Coupon Securities Risk
While interest
payments are not made on such securities, holders of such securities are deemed to have received income (phantom income) annually,
notwithstanding that cash may not be received currently. Some of these securities may be subject to substantially greater price fluctuations during
periods of changing market interest rates than are comparable securities that pay interest currently. Longer term zero coupon bonds are more exposed to
interest rate risk than shorter term zero coupon bonds.
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Effective May 15, 2012, Managed Volatility Portfolio changed its
investment strategy to invest a significant portion of its assets in ETFs and, to a lesser extent, in mutual funds and directly in securities.
Performance for the periods prior to May 15, 2012 shown below is based on the investment strategy utilized by the Fund, which focused on investing
directly in securities.
On January 31, 2005, the Fund reorganized with the State Street
Research Asset Allocation Fund (the SSR Fund), which had investment objectives and strategies similar to the Fund. For periods prior to
January 31, 2005, the chart and table show performance information for the SSR Fund. The information shows you how the 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
MSCI All Country World Index (the MSCI ACWI Index), the Citigroup World Government Bond Index (hedged into USD) (the Citigroup WGBI
(hedged into USD)), the Barclays U.S. Aggregate Bond Index and two customized weighted indices comprised of the returns of the MSCI ACWI Index,
the Citigroup WGBI (hedged into USD) and the Barclays U.S. Aggregate Bond Index in the percentages and combinations set forth in the table. Effective
May 15, 2012, the Fund changed one of the components making up the customized weighted index from the Barclays U.S. Aggregate Bond Index to the
Citigroup WGBI (hedged into USD). Fund management believes that the Citigroup WGBI (hedged into USD) better reflects the Funds increasing global
exposure. As with all such investments, past performance (before and after taxes) is not an indication of future results. Sales charges are not
reflected in the bar chart. If they were, returns would be less than those shown. However, the table includes all applicable fees and sales charges. If
BlackRock and its affiliates had not waived or reimbursed certain Fund expenses during these periods, the 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.
10
Service Shares
ANNUAL TOTAL RETURNS
1
BlackRock Managed Volatility Portfolio
As of 12/31
During the ten-year period shown in the bar chart, the highest return for a quarter was 13.78% (quarter ended September 30, 2009) and the
lowest return for a quarter was 13.12% (quarter ended December 31, 2008).
As of 12/31/12
Average Annual
Total Returns
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|
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1 Year
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5 Years
1
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10 Years
1
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BlackRock Managed Volatility Portfolio Service Shares
|
Return Before Taxes
|
|
|
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11.98
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%
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2.64
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%
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7.35
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%
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Return After Taxes on Distributions
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10.58
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%
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1.99
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%
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6.39
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%
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Return After Taxes on Distributions and Sale of Shares
|
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8.50
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%
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2.04
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%
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6.13
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%
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MSCI ACWI Index
(Reflects no deduction for fees, expenses or taxes)
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16.13
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%
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(1.16
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)%
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8.11
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%
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Citigroup WGBI (hedged into USD)
(Reflects no deduction for fees, expenses or taxes)
|
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4.50
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%
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4.68
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%
|
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4.41
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%
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60% MSCI ACWI Index/40% Citigroup WGBI (hedged into USD)
(Reflects no deduction for fees, expenses or
taxes)
|
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11.61
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%
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1.79
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%
|
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|
7.03
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%
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Barclays U.S. Aggregate Bond Index
(Reflects no deduction for fees, expenses or taxes)
|
|
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|
4.21
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%
|
|
|
5.95
|
%
|
|
|
5.18
|
%
|
60% MSCI ACWI Index/40% Barclays U.S. Aggregate Bond Index
(Reflects no deduction for fees, expenses or
taxes)
|
|
|
|
|
11.48
|
%
|
|
|
2.20
|
%
|
|
|
7.30
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%
|
1
|
|
A portion of the Funds total return
was attributable to proceeds received in the fiscal year ended September 30, 2009 in settlement of litigation.
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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.
Managed Volatility Portfolios investment manager is
BlackRock Advisors, LLC (previously defined as BlackRock). The Funds sub-advisers are BlackRock Financial Management, Inc., BlackRock
International Limited, BlackRock (Hong Kong) Limited and BlackRock (Singapore) Limited. Where applicable, BlackRock refers also to the
Funds sub-advisers.
Name
|
Portfolio Manager
of the Fund
Since
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Title
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Philip Green
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2006
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Managing Director of BlackRock, Inc.
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11
Purchase and Sale of Fund
Shares
You may purchase or redeem shares of Managed Volatility Portfolio
each day the New York Stock Exchange is open. To purchase or sell shares you should contact your financial intermediary or financial professional, or,
if you hold your shares through the Fund, you should contact the Fund by phone at (800) 537-4942, by mail (c/o BlackRock Funds, P.O. Box 9819,
Providence, Rhode Island 02940-8019), or by the Internet at www.blackrock.com/funds. The 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:
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Service Shares
|
Minimum Initial Investment
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$5,000
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Minimum Additional Investment
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No subsequent minimum.
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Managed Volatility Portfolios dividends and distributions
may be subject to Federal income taxes and may be taxed as ordinary income or capital gains, unless you are a tax-exempt investor or are investing
through a retirement plan, in which case you may be subject to Federal income tax upon withdrawal from such tax-deferred arrangements.
Payments to Broker/Dealers
and Other Financial Intermediaries
If you purchase shares of Managed Volatility Portfolio through a
broker-dealer or other financial intermediary, the Fund and BlackRock Investments, LLC, the 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.
12
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INVESTMENT COMPANY ACT FILE #811-05742
© BlackRock Advisors, LLC
SPRO-MV-SVC-0113
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