accounting services in the Statements of Operations. The reimbursements were as follows:
|
|
|
|
|
BlackRock U.S. Mortgage Portfolio
|
|
$
|
654
|
|
Global SmallCap Portfolio
|
|
$
|
554
|
|
Mid Cap Value Opportunities Portfolio
|
|
$
|
554
|
|
The Fund, on behalf of BlackRock U.S. Mortgage Portfolio, entered into a Distribution Agreement and Distribution and Service Plan
with BlackRock Investments, LLC (BRIL), an affiliate of the Manager. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, BlackRock U.S. Mortgage Portfolio pays BRIL ongoing service and
distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the shares of the Portfolio as follows:
|
|
|
|
|
|
|
|
|
|
|
Service
Fee
|
|
|
Distribution
Fee
|
|
Institutional
|
|
|
|
|
|
|
|
|
Investor A
|
|
|
0.25
|
%
|
|
|
|
|
Investor C
|
|
|
0.25
|
%
|
|
|
0.75
|
%
|
Pursuant to sub-agreements with BRIL, broker-dealers and BRIL provide shareholder servicing and distribution services to the
Portfolio. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to Investor A and Investor C shareholders.
For the six months ended October 31, 2012, affiliates earned underwriting discounts, direct commissions and dealer concessions on sales of BlackRock U.S.
Mortgage Portfolios Investor A Shares of $3,712.
For the six months ended October 31, 2012, affiliates of BlackRock U.S. Mortgage Portfolio
received CDSCs as follows:
The Fund received an exemptive order from the SEC permitting it, among other things, to pay an affiliated securities lending agent a
fee based on a share of the income derived from the securities lending activities and has retained BIM as the securities lending agent. BIM may, on behalf of the Portfolios, invest cash collateral received by the Portfolios for such loans, among
other things, in a private investment company managed by the Manager or in registered money market funds advised by the Manager or its affiliates. As securities lending agent, BIM is responsible for all transaction fees and all other operational
costs relating to securities lending activities, other than extraordinary expenses. BIM does not receive any fees for managing the cash collateral. The market value of securities on loan and the value of the related collateral, if applicable, are
shown in the Statements of Assets and Liabilities as securities loaned at value and collateral on securities loaned at value, respectively. The cash collateral invested by BIM is disclosed in the Schedules of Investments, if any. Securities lending
income is equal to the total of income earned from the reinvestment of cash collateral, net of rebates paid to, or fees paid by, borrowers of securities. The Portfolios retain 65% of securities lending income and pays a fee to BIM equal to 35% of
such income. The share of income earned by the Portfolios are shown as securities lending affiliated in the Statements of Operations. For the six months ended
October 31, 2012, BIM received securities lending agent fees related to securities lending activities as follows:
|
|
|
|
|
Global SmallCap Portfolio..
|
|
$
|
26,224
|
|
Mid Cap Value Opportunities Portfolio
|
|
$
|
2,227
|
|
Certain officers and/or Trustees of the Fund are officers and/or directors of BlackRock or its affiliates. The Portfolios reimburse
the Manager for a portion of the compensation paid to the Funds Chief Compliance Officer.
4. Investments:
Purchases and sales of investments including paydowns, mortgage dollar roll and TBA transactions and excluding short-term securities and US government securities
for the six months ended October 31, 2012, were as follows:
|
|
|
|
|
|
|
|
|
|
|
Purchases
|
|
|
Sales
|
|
BlackRock U.S. Mortgage Portfolio
|
|
$
|
4,380,002,040
|
|
|
$
|
4,306,485,449
|
|
Global SmallCap Portfolio
|
|
$
|
47,698,729
|
|
|
$
|
49,378,751
|
|
Mid Cap Value Opportunities Portfolio
|
|
$
|
32,806,364
|
|
|
$
|
31,401,248
|
|
Purchases and sales of US government securities for BlackRock U.S. Mortgage Portfolio for the six months ended October 31, 2012
were $20,021,109 and $29,965,190, respectively.
For the six months ended October 31, 2012, purchases and sales of mortgage dollar rolls for
BlackRock U.S. Mortgage Portfolio were $1,397,136,408 and $1,398,519,243, respectively.
Transactions in options written for BlackRock U.S. Mortgage
Portfolio for the six months ended October 31, 2012, were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Calls
|
|
|
|
Contracts
|
|
|
Notional
(000)
|
|
|
Premiums
Received
|
|
Outstanding options, beginning of period
|
|
|
|
|
|
$
|
3,200
|
|
|
$
|
170,760
|
|
Options written
|
|
|
|
|
|
|
29,300
|
|
|
|
226,302
|
|
Options closed
|
|
|
|
|
|
|
(14,650
|
)
|
|
|
(113,151
|
)
|
Options expired
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding options, end of period
|
|
|
|
|
|
$
|
17,850
|
|
|
$
|
283,911
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Puts
|
|
|
|
Contracts
|
|
|
Notional
(000)
|
|
|
Premiums
Received
|
|
Outstanding options, beginning of period
|
|
|
88
|
|
|
$
|
24,000
|
|
|
$
|
415,448
|
|
Options written
|
|
|
|
|
|
|
29,300
|
|
|
|
367,751
|
|
Options closed
|
|
|
|
|
|
|
(27,650
|
)
|
|
|
(231,975
|
)
|
Options expired
|
|
|
(88
|
)
|
|
|
|
|
|
|
(26,158
|
)
|
|
|
|
|
|
Outstanding options, end of period
|
|
|
|
|
|
$
|
25,650
|
|
|
$
|
525,066
|
|
|
|
|
|
|
5. Income Tax Information:
As of April 30, 2012, the Portfolios had capital loss carryforwards available to offset future realized capital gains through the indicated expiration dates as
follows:
|
|
|
|
|
|
|
|
|
Expires April 30,
|
|
Global
SmallCap
Portfolio
|
|
|
Mid Cap Value
Opportunities
Portfolio
|
|
2018
|
|
$
|
7,451,983
|
|
|
$
|
14,392,138
|
|
|
|
|
Notes to Financial Statements (continued)
|
|
|
As of October 31, 2012, gross unrealized appreciation and gross unrealized depreciation based on cost for
federal income tax purposes were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BlackRock
U.S. Mortgage
Portfolio
|
|
|
Global
SmallCap
Portfolio
|
|
|
Mid Cap Value
Opportunities
Portfolio
|
|
Tax cost
|
|
$
|
529,012,075
|
|
|
$
|
124,576,094
|
|
|
$
|
124,185,505
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross unrealized appreciation
|
|
$
|
5,108,024
|
|
|
$
|
27,343,306
|
|
|
$
|
24,537,105
|
|
Gross unrealized depreciation
|
|
|
(1,275,464
|
)
|
|
|
(12,351,458
|
)
|
|
|
(7,091,904
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net unrealized appreciation (depreciation)
|
|
$
|
3,832,560
|
|
|
$
|
14,991,848
|
|
|
$
|
17,445,201
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6. Borrowings:
The Fund, on
behalf of the Portfolios, 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 expires in November 2012 and was subsequently renewed until November
2013. The Portfolios may borrow under the credit agreement to fund shareholder redemptions. Effective
Effective November 2011 to November 2012, the
credit agreement has the following terms: a commitment fee of 0.065% per annum based on the Portfolios pro rata share of the unused portion of the credit agreement and interest at a rate equal to the higher of (a) the one-month LIBOR
plus 0.80% per annum or (b) the Fed Funds rate plus 0.80% per annum on amounts borrowed. In addition, the Portfolios paid administration and arrangement fees which were allocated to the Portfolios based on their net assets as of
October 31, 2011. The Portfolios did not borrow under the credit agreement during the six months ended October 31, 2012.
For the six months
ended October 31, 2012, the average amount of transactions considered as borrowings and the daily weighted average interest rates from reverse repurchase agreements transactions for BlackRock U.S. Mortgage Portfolio were $11,354,071 and 0.28%,
respectively.
7. Concentration, Market and Credit Risk:
In the normal course of business, the Portfolios invest in securities and enter into transactions where risks exist due to fluctuations in the market (market risk) or failure of the issuer of a security to meet all
its obligations (issuer credit risk). The value of securities held by the Portfolios may decline in response to certain events, including those directly involving the issuers whose securities are owned by the Portfolios; conditions affecting the
general economy; overall market changes; local, regional or global political, social or economic instability; and currency and interest rate and price fluctuations. Similar to issuer credit risk, the Portfolios may be exposed to counterparty credit
risk, or the risk that an entity with which the Portfolios have unsettled or open transactions may fail to or be unable to perform on its commitments. The Portfolios manage counterparty credit risk by entering into transactions only with
counterparties that they believe have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Portfolios to market, issuer and counterparty
credit risks, consist principally of financial instruments and receivables due from
counterparties. The extent of the Portfolios exposure to market, issuer and counterparty credit risks with respect to these financial assets is generally approximated by their value
recorded in the Statements of Assets and Liabilities, less any collateral held by the Portfolios.
Global SmallCap Portfolio invests a significant
portion of its assets in securities of issuers located in Europe or with significant exposure to European issuers or countries. 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, including Greece, Ireland, Italy, Portugal and Spain. As of October 31, 2012, these events have adversely affected the exchange rate of the euro and may continue to
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 Global SmallCap Portfolios investments.
As of October 31, 2012, the Mid Cap Value Opportunities Portfolio invested a significant portion of its assets in securities in the financials sector. Changes in economic conditions affecting the financials
sector would have a greater impact on the Portfolio and could affect the value, income and/or liquidity of positions in such securities.
As of
October 31, 2012, the Global SmallCap Portfolio had the following industry classifications:
|
|
|
|
|
Industry
|
|
Percent of
Long-Term
Investments
|
|
Oil, Gas & Consumable Fuels
|
|
|
8
|
%
|
Machinery
|
|
|
6
|
%
|
Textiles, Apparel & Luxury Goods
|
|
|
5
|
%
|
Commercial Banks
|
|
|
5
|
%
|
Other
1
|
|
|
76
|
%
|
1
|
|
All other industries held were each
less than 5% of long-term investments.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
42
|
|
MANAGED ACCOUNT SERIES
|
|
OCTOBER 31, 2012
|
|
|
|
|
|
Notes to Financial Statements (concluded)
|
|
|
8. Capital Share Transactions:
Transactions in capital shares for each class were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended
October 31,
2012
|
|
|
|
|
Year Ended
April 30, 2012
|
|
BlackRock U.S. Mortgage Portfolio
|
|
Shares
|
|
|
Amount
|
|
|
|
|
Shares
|
|
|
Amount
|
|
Institutional
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
4,509,001
|
|
|
$
|
46,868,394
|
|
|
|
|
|
4,962,160
|
|
|
$
|
50,866,854
|
|
Shares issued in reinvestment of dividends and distributions
|
|
|
70,709
|
|
|
|
738,212
|
|
|
|
|
|
90,851
|
|
|
|
923,062
|
|
Shares redeemed
|
|
|
(718,648
|
)
|
|
|
(7,473,485
|
)
|
|
|
|
|
(4,259,787
|
)
|
|
|
(43,977,943
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
3,861,062
|
|
|
$
|
40,133,121
|
|
|
|
|
|
793,224
|
|
|
$
|
7,811,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor A
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
1,775,179
|
|
|
$
|
18,492,435
|
|
|
|
|
|
247,209
|
|
|
$
|
2,540,780
|
|
Shares issued in reinvestment of dividends and distributions
|
|
|
13,027
|
|
|
|
135,855
|
|
|
|
|
|
9,739
|
|
|
|
98,096
|
|
Shares redeemed
|
|
|
(247,606
|
)
|
|
|
(2,589,698
|
)
|
|
|
|
|
(12,477
|
)
|
|
|
(126,428
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
1,540,600
|
|
|
$
|
16,038,592
|
|
|
|
|
|
244,471
|
|
|
$
|
2,512,448
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor C
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
267,029
|
|
|
$
|
2,782,282
|
|
|
|
|
|
95,948
|
|
|
$
|
986,331
|
|
Shares issued in reinvestment of dividends and distributions
|
|
|
2,151
|
|
|
|
22,439
|
|
|
|
|
|
1,860
|
|
|
|
18,717
|
|
Shares redeemed
|
|
|
(1,595
|
)
|
|
|
(16,703
|
)
|
|
|
|
|
(777
|
)
|
|
|
(7,946
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
267,585
|
|
|
$
|
2,788,018
|
|
|
|
|
|
97,031
|
|
|
$
|
997,102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Net Increase
|
|
|
5,669,247
|
|
|
|
58,959,731
|
|
|
|
|
|
1,134,726
|
|
|
$
|
11,321,523
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Global SmallCap Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
850,319
|
|
|
$
|
10,301,310
|
|
|
|
|
|
2,343,299
|
|
|
$
|
28,119,577
|
|
Shares redeemed
|
|
|
(911,571
|
)
|
|
|
(11,105,380
|
)
|
|
|
|
|
(2,103,951
|
)
|
|
|
(25,416,699
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase
|
|
|
(61,252
|
)
|
|
$
|
(804,070
|
)
|
|
|
|
|
239,348
|
|
|
$
|
2,702,878
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mid Cap Value Opportunities Portfolio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares sold
|
|
|
965,413
|
|
|
$
|
11,121,827
|
|
|
|
|
|
2,212,112
|
|
|
$
|
24,763,827
|
|
Shares redeemed
|
|
|
(993,644
|
)
|
|
|
(11,680,302
|
)
|
|
|
|
|
(2,240,694
|
)
|
|
|
(25,513,507
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net decrease
|
|
|
(28,231
|
)
|
|
$
|
(558,475
|
)
|
|
|
|
|
(28,582
|
)
|
|
$
|
(749,680
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9. Subsequent Events:
Management has evaluated the impact of all subsequent events on the Portfolios through the date the financial statements were issued and has determined that there
were no subsequent events requiring adjustment or additional disclosure in the financial statements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MANAGED ACCOUNT SERIES
|
|
OCTOBER 31, 2012
|
|
43
|
|
|
|
|
|
Disclosure of Investment Advisory Agreement and Sub-Advisory
Agreements
|
The Board of Trustees (the Board, and the members of which are referred to as Board Members)
of BlackRock U.S. Mortgage Portfolio, Global SmallCap Portfolio and Mid Cap Value Opportunities Portfolio (each, a Fund, and collectively, the Funds), each a series of Managed Account Series (the Trust), met on
April 10, 2012 and May 8-9, 2012 to consider the approval of the Trusts investment advisory agreement (the Advisory Agreement), on behalf of each Fund, with BlackRock Advisors, LLC (the Manager), each
Funds investment advisor. The Board also considered the approval of the sub-advisory agreements (collectively, the Sub-Advisory Agreements) between the Manager and each of (a) BlackRock Investment Management, LLC; and
(b) BlackRock Financial Management, Inc. (collectively, the Sub-Advisors), with respect to each Fund, as applicable. The Manager and the Sub-Advisors are referred to herein as BlackRock. The Advisory Agreement and the
Sub-Advisory Agreements are referred to herein as the Agreements.
Activities and Composition of the Board
The Board consists of thirteen individuals, ten of whom are not interested persons of the Trust as defined in the Investment Company Act of 1940, as
amended (the 1940 Act) (the Independent Board Members). The Board Members are responsible for the oversight of the operations of the Funds and perform the various duties imposed on the directors of investment companies by the
1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Chairman of the Board is an Independent Board Member. The Board has established five standing committees: an Audit
Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee and an Executive Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the
Performance Oversight Committee and the Executive Committee, each of which also has one interested Board Member).
The Agreements
Pursuant to the 1940 Act, the Board is required to consider the continuation of the Agreements on an annual basis. The Board has four quarterly meetings per year,
each extending over two days, and a fifth meeting to consider specific information surrounding the consideration of renewing the Agreements. In connection with this process, the Board assessed, among other things, the nature, scope and quality of
the services provided to each Fund by BlackRock, its personnel and its affiliates, including investment management, administrative and shareholder services, oversight of fund accounting and custody, marketing services, risk oversight, compliance and
assistance in meeting applicable legal and regulatory requirements.
The Board, acting directly and through its committees, considers at each of its
meetings, and from time to time as appropriate, factors that are relevant to its annual consideration of the renewal of the Agreements, including the services and support provided by BlackRock to each Fund and its shareholders. Among the matters the
Board considered were: (a) investment performance for one-, three- and five-year periods, as applicable, against peer funds, and applicable benchmarks, if any, as well as senior managements and portfolio managers analysis of the
reasons for any over performance or underperformance against its peers
and/or benchmark, as applicable; (b) fees, including advisory, administration, if applicable, and other amounts paid to BlackRock and its affiliates by each Fund for services, such as
marketing and distribution, call center and fund accounting; (c) Fund operating expenses and how BlackRock allocates expenses to each Fund; (d) the resources devoted to, risk oversight of, and compliance reports relating to, implementation
of each Funds investment objective, policies and restrictions; (e) each Funds compliance with its Code of Ethics and other compliance policies and procedures; (f) the nature, cost and character of non-investment management
services provided by BlackRock and its affiliates; (g) BlackRocks and other service providers internal controls and risk and compliance oversight mechanisms; (h) BlackRocks implementation of the proxy voting policies
approved by the Board; (i) the use of brokerage commissions and execution quality of portfolio transactions; (j) BlackRocks implementation of each Funds valuation and liquidity procedures; (k) an analysis of management
fees for products with similar investment objectives across the open-end fund, exchange traded fund (ETF), closed-end fund and institutional account product channels, as applicable; (l) BlackRocks compensation methodology for
its investment professionals and the incentives it creates; and (m) periodic updates on BlackRocks business.
The Board has engaged in an
ongoing strategic review with BlackRock of opportunities to consolidate funds and of BlackRocks commitment to investment performance. In addition, the Board requested, to the extent reasonably possible, an analysis of the risk and return
relative to selected funds in peer groups. BlackRock provides information to the Board in response to specific questions. These questions covered issues such as profitability, investment performance and management fee levels. The Board considered
the importance of: (i) managing fixed income assets with a view toward preservation of capital; (ii) portfolio managers investments in the funds they manage; (iii) BlackRocks controls surrounding the coding of quantitative
investment models; and (iv) BlackRocks oversight of relationships with third party service providers.
Board Considerations in Approving
the Agreements
The Approval Process: Prior to the April 10, 2012 meeting, the Board requested and received materials specifically relating
to the Agreements. The Board is engaged in a process with its independent legal counsel and BlackRock to review periodically the nature and scope of the information provided to better assist its deliberations. The materials provided in connection
with the April meeting included (a) information independently compiled and prepared by Lipper, Inc. (Lipper) on Fund fees and expenses and the investment performance of each Fund as compared with a peer group of funds as determined
by Lipper (collectively, Peers); (b) information on the profitability of the Agreements (with respect to BlackRock U.S. Mortgage Portfolio) to BlackRock and a discussion of fall-out benefits to BlackRock and its affiliates;
(c) a general analysis provided by BlackRock concerning investment management fees (a combination of the advisory fee and the administration fee, if any) charged to other clients, such as institutional clients, ETFs and closed-end funds, under
similar investment mandates, as well as the performance of such other clients, as applicable; (d) the existence, impact and sharing of potential economies of scale; (e) a summary of aggregate amounts paid
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OCTOBER 31, 2012
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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements (continued)
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by each Fund to BlackRock; (f) sales and redemption data regarding the Fund shares of the U.S. Mortgage Portfolio; and (g) if applicable, a comparison of management fees to similar BlackRock
open-end funds, as classified by Lipper.
At an in-person meeting held on April 10, 2012, the Board reviewed materials relating to its consideration
of the Agreements. As a result of the discussions that occurred during the April 10, 2012 meeting, and as a culmination of the Boards year-long deliberative process, the Board presented BlackRock with questions and requests for additional
information. BlackRock responded to these requests with additional written information in advance of the May 8-9, 2012 Board meeting.
At an
in-person meeting held on May 8-9, 2012, the Board, including all the Independent Board Members, approved the continuation of the Advisory Agreement between the Manager and the Trust, on behalf of each Fund, and the Sub-Advisory Agreements
between the Manager and the Sub-Advisors with respect to each Fund, as applicable, each for a one-year term ending June 30, 2013. In approving the continuation of the Agreements, the Board considered: (a) the nature, extent and quality of
the services provided by BlackRock; (b) the investment performance of each Fund and BlackRock; (c) the advisory fee and the cost of the services and profits to be realized by BlackRock and its affiliates from their relationship with each
Fund; (d) economies of scale; (e) fall-out benefits to BlackRock as a result of its relationship with each Fund; and (f) other factors deemed relevant by the Board Members.
The Board also considered other matters it deemed important to the approval process, such as payments made to BlackRock or its affiliates relating to the distribution of Fund shares and securities lending, services
related to the valuation and pricing of Fund portfolio holdings, direct and indirect benefits to BlackRock and its affiliates from their relationship with each Fund and advice from independent legal counsel with respect to the review process and
materials submitted for the Boards review. The Board noted the willingness of BlackRock personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as controlling, and each Board Member
may have attributed different weights to the various items considered.
A. Nature, Extent and Quality of the Services Provided by BlackRock: The Board,
including the Independent Board Members, reviewed the nature, extent and quality of services provided by BlackRock, including the investment advisory services and the resulting performance of each Fund. Throughout the year, the Board compared Fund
performance to the performance of a comparable group of mutual funds and/or the performance of a relevant benchmark, if any. The Board met with BlackRocks senior management personnel responsible for investment operations, including the senior
investment officers. The Board also reviewed the materials provided by each Funds portfolio management team discussing Fund performance and the Funds investment objective, strategies and outlook.
The Board considered, among other factors, the number, education and experience of BlackRocks investment personnel generally and each Funds portfolio
management team, investments by portfolio managers in the funds they manage, BlackRocks portfolio trading capabilities, BlackRocks use of technology, BlackRocks commitment to compliance,
BlackRocks credit analysis capabilities, BlackRocks risk analysis and oversight capabilities and BlackRocks approach to training and retaining portfolio managers and other
research, advisory and management personnel. The Board engaged in a review of BlackRocks compensation structure with respect to each Funds portfolio management team and BlackRocks ability to attract and retain high-quality talent
and create performance incentives.
In addition to advisory services, the Board considered the quality of the administrative and non-investment advisory
services provided to each Fund. BlackRock and its affiliates provide each Fund with certain administrative, shareholder and other services (in addition to any such services provided to a Fund by third parties) and officers and other personnel as are
necessary for the operations of the Fund. In particular, BlackRock and its affiliates provide each Fund with the following administrative services including, among others: (i) preparing disclosure documents, such as the prospectus, the
statement of additional information and periodic shareholder reports; (ii) assisting with daily accounting and pricing; (iii) overseeing and coordinating the activities of other service providers; (iv) organizing Board meetings and
preparing the materials for such Board meetings; (v) providing legal and compliance support; and (vi) performing other administrative functions necessary for the operation of the Fund, such as tax reporting, fulfilling regulatory filing
requirements and call center services. The Board reviewed the structure and duties of BlackRocks fund administration, accounting, legal and compliance departments and considered BlackRocks policies and procedures for assuring compliance
with applicable laws and regulations.
B. The Investment Performance of each Fund and BlackRock: The Board, including the Independent Board Members, also
reviewed and considered the performance history of each Fund. In preparation for the April 10, 2012 meeting, the Board worked with its independent legal counsel, BlackRock and Lipper to develop a template for, and was provided with, reports
independently prepared by Lipper, which included a comprehensive analysis of each Funds performance. The Board also reviewed a narrative and statistical analysis of the Lipper data that was prepared by BlackRock, which analyzed various factors
that affect Lippers rankings. In connection with its review, the Board received and reviewed information regarding the investment performance of each Fund as compared to funds in the Funds applicable Lipper category. The Board was
provided with a description of the methodology used by Lipper to select peer funds and periodically meets with Lipper representatives to review their methodology. The Board and the Boards Performance Oversight Committee regularly review, and
meet with Fund management to discuss, the performance of each Fund throughout the year.
The Board noted that the Global SmallCap Portfolio ranked in the
second, fourth and first quartiles against its Lipper Performance Universe, on a gross of fee basis, for the one-, three- and five-year periods reported, respectively.
The Board noted that the Mid Cap Value Opportunities Portfolio ranked in the first quartile against its Lipper Performance Universe, on a gross of fee basis, for each of the one-, three- and five-year periods
reported.
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MANAGED ACCOUNT SERIES
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OCTOBER 31, 2012
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45
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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements (continued)
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The Board noted that the BlackRock U.S. Mortgage Portfolio ranked in the fourth, first and first quartiles against
its Lipper Performance Universe, on a gross of fee basis, for the one-, three- and five-year periods reported, respectively. The Board and BlackRock reviewed and discussed the reasons for the BlackRock U.S. Mortgage Portfolios underperformance
during the one-year period and will monitor closely the BlackRock U.S. Mortgage Portfolios performance in the coming year.
C.
Consideration of the Advisory/Management Fees and the Cost of the Services and Profits to be Realized by BlackRock and its Affiliates from their Relationship with each Fund: The Board, including the Independent Board Members, reviewed each
Funds contractual management fee rate compared with the other funds in its Lipper category. It also compared each Funds total expense ratio, as well as actual management fee rate, to those of other funds in its Lipper category. The Board
considered the services provided and the fees charged by BlackRock to other types of clients with similar investment mandates, including separately managed institutional accounts.
The Board received and reviewed statements relating to BlackRocks financial condition and profitability with respect to the services it provided the BlackRock U.S. Mortgage Portfolio. The Board was also
provided with a profitability analysis that detailed the revenues earned and the expenses incurred by BlackRock for services provided to the BlackRock U.S. Mortgage Portfolio. The Board reviewed BlackRocks profitability with respect to the
BlackRock U.S. Mortgage Portfolio and other funds the Board currently oversees for the year ended December 31, 2011 compared to available aggregate profitability data provided for the years ended December 31, 2010 and December 31,
2009. The Board reviewed BlackRocks profitability with respect to other fund complexes managed by the Manager and/or its affiliates. The Board reviewed BlackRocks assumptions and methodology of allocating expenses in the profitability
analysis, noting the inherent limitations in allocating costs among various advisory products. The Board recognized that profitability may be affected by numerous factors including, among other things, fee waivers and expense reimbursements by the
Manager, the types of funds managed, expense allocations and business mix, and the difficulty of comparing profitability as a result of those factors.
The Board noted that, in general, individual fund or product line profitability of other advisors is not publicly available. The Board considered BlackRocks
operating margin, in general, compared to the operating margin for leading investment management firms whose operations include advising open-end funds, among other product types. In addition, the Board considered, among other things, certain third
party data comparing BlackRocks operating margin with that of other publicly-traded asset management firms. The Board considered the differences between BlackRock and these other firms, including the contribution of technology at BlackRock,
BlackRocks expense management, and the relative product mix.
In addition, the Board considered the cost of the services provided to each Fund by
BlackRock, and BlackRocks and its affiliates profits relating to the management and distribution of each Fund and the other funds advised by BlackRock and its affiliates. As part of its analysis, the Board reviewed BlackRocks
methodology in allocating its costs to the
management of each Fund. The Board also considered whether BlackRock has the financial resources necessary to attract and retain high quality investment management personnel to perform its
obligations under the Agreements and to continue to provide the high quality of services that is expected by the Board.
The Manager has contractually
agreed to waive all fees and pay or reimburse all operating expenses of Global SmallCap Portfolio and Mid Cap Value Opportunities Portfolio, except extraordinary expenses, interest expense, dividend expense and acquired fund fees and expenses. In
light of the fee waiver agreement, the Board did not consider each of these Funds advisory fee ratio as compared to its Peers, but instead emphasized that shares of the Global SmallCap Portfolio and Mid Cap Value Opportunities Portfolio may be
purchased and held only by or on behalf of separately managed account clients who have retained BlackRock to manage their accounts pursuant to an investment management agreement with BlackRock and/or a managed account program sponsor.
The Board noted that the BlackRock U.S. Mortgage Portfolios contractual management fee ratio (a combination of the advisory fee and the administration fee, if
any) was lower than or equal to the median contractual management fee ratio paid by the BlackRock U.S. Mortgage Portfolios Peers, in each case before taking into account any expense reimbursements or fee waivers. The Board also noted that the
BlackRock U.S. Mortgage Portfolio has an advisory fee arrangement that includes breakpoints that adjust the fee ratio downward as the size of the BlackRock U.S. Mortgage Portfolio increases above certain contractually specified levels. The Board
further noted that BlackRock has contractually agreed to waive fees or reimburse expenses in order to limit, to a specified amount, the BlackRock U.S. Mortgage Portfolios total net expenses on a class-by-class basis, as applicable.
D. Economies of Scale: The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of each
Fund increase, as well as the existence of expense caps. The Board also considered the extent to which each Fund benefits from such economies and whether there should be changes in the advisory fee rate or structure in order to enable the Fund to
participate in these economies of scale, for example through the use of revised breakpoints in the advisory fee based upon the asset level of the Fund. In its consideration, the Board Members took into account the existence of expense caps and
further considered the continuation and/or implementation, as applicable, of such caps.
E. Other Factors Deemed Relevant by the Board Members: The
Board, including the Independent Board Members, also took into account other ancillary or fall-out benefits that BlackRock or its affiliates may derive from their respective relationships with each Fund, both tangible and intangible,
such as BlackRocks ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRocks profile in the investment advisory community, and the engagement of BlackRocks
affiliates as service providers to the Fund, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRocks overall operations and its efforts to expand the scale of, and
improve the
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46
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OCTOBER 31, 2012
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Disclosure of Investment Advisory Agreement and Sub-Advisory Agreements (concluded)
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quality of, its operations. The Board also noted that BlackRock may use and benefit from third party research obtained by soft dollars generated by certain registered fund transactions to assist
in managing all or a number of its other client accounts. The Board further noted that it had considered the investment by BlackRocks funds in ETFs without any offset against the management fees payable by the funds to BlackRock.
In connection with its consideration of the Agreements, the Board also received information regarding BlackRocks brokerage and soft dollar practices. The
Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.
The Board
noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Fund shares if they believe that a Funds fees and expenses are too high or if they are dissatisfied with the performance of the Fund.
Conclusion
The Board, including all the
Independent Board Members, approved the continuation of the Advisory Agreement between the Manager and the
Trust, on behalf of each Fund, for a one-year term ending June 30, 2013, and the Sub-Advisory Agreements between the Manager and the Sub-Advisors with respect to each Fund, as applicable,
for a one-year term ending June 30, 2013. Based upon its evaluation of all of the aforementioned factors in their totality, the Board, including the Independent Board Members, was satisfied that the terms of the Agreements were fair and
reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreements, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all
factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination. The
contractual fee arrangements for each Fund reflect the results of several years of review by the Board Members and predecessor Board Members, and discussions between such Board Members (and predecessor Board Members) and BlackRock. As a result, the
Board Members conclusions may be based in part on their consideration of these arrangements in prior years.
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MANAGED ACCOUNT SERIES
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OCTOBER 31, 2012
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47
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Robert M. Hernandez, Chairman of the Board and Trustee
Fred G. Weiss, Vice Chairman of the Board and Trustee
Paul L. Audet, Trustee
James H. Bodurtha, Trustee
Bruce R. Bond, Trustee
Donald W. Burton, Trustee
Honorable Stuart E. Eizenstat, Trustee
Laurence D. Fink, Trustee
Kenneth A. Froot, Trustee
Henry Gabbay, Trustee
John F. OBrien, Trustee
Roberta Cooper Ramo, Trustee
David H. Walsh, Trustee
John M. Perlowski, President and Chief Executive Officer
Brendan Kyne, Vice President
Neal Andrews, Chief Financial Officer
Jay Fife, Treasurer
Brian Kindelan, Chief Compliance Officer and Anti-Money
Laundering Officer
Benjamin Archibald, Secretary
1
1
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Effective May 8, 2012, Ira P. Shapiro resigned as Secretary of the Fund and Benjamin Archibald became Secretary of the Fund.
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Investment Advisor
BlackRock Advisors, LLC
Wilmington, DE 19809
Sub-Advisor
BlackRock Financial Management, Inc.
2
New York, NY 10055
BlackRock Investment Management, LLC
3
Princeton, NJ 08540
Custodian
State Street Bank and Trust Company
2
Boston, MA 02110
Brown Brothers Harriman & Co.
3
Boston, MA 02109
Transfer Agent
BNY Mellon
Investment Servicing (US) Inc.
Wilmington, DE 19809
Accounting Agent
State Street Bank and Trust Company
Boston, MA 02110
Distributor
BlackRock Investments, LLC
New York, NY 10022
Legal
Counsel
Willkie Farr & Gallagher LLP
New York, NY 10019
Independent Registered Public Accounting Firm
Deloitte & Touche LLP
Boston, MA 02116
Address of the Fund
100
Bellevue Parkway
Wilmington, DE 19809
2
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For U.S. Mortgage Portfolio.
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3
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For Global SmallCap Portfolio and Mid Cap Value Opportunities Portfolio.
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48
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MANAGED ACCOUNT SERIES
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OCTOBER 31, 2012
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Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on the Funds website or shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by enrolling in the Funds electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisors, Banks or Brokerages:
Please contact your financial advisor. Please note that not all investment advisors, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1)
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Access the BlackRock website at http://www.blackrock.com/edelivery
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2)
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Select eDelivery under the More Information section
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Householding
The Fund will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports and proxy statements, to shareholders with
multiple accounts at the same address. This practice is commonly called householding and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. 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 call the Fund at (800) 441-7762.
Availability of Quarterly Schedule of Investments
Each Portfolio files its complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year on Form N-Q. The Portfolios Forms N-Q are available on the SECs website
at http://www.sec.gov and may also be reviewed and copied at the SECs Public Reference Room in Washington, DC. Information on how to access documents on the SECs website without charge may be obtained by calling (800) SEC-0330. The
Portfolios Forms N-Q may also be obtained upon request and without charge by calling (800) 441-7762.
Availability of Proxy Voting Policies
and Procedures
A description of the policies and procedures that a Portfolio uses to determine how to vote proxies relating to portfolio securities is
available (1) without charge, upon request, by calling (800) 441-7762; (2) at http://www.blackrock.com; and (3) on the SECs website at http://www.sec.gov.
Availability of Proxy Voting Record
Information about how a Portfolio voted proxies relating to securities held in
the Portfolios portfolio during the most recent 12-month period ended June 30 is available upon request and without charge (1) at http://www.blackrock.com or by calling (800) 441-7762 and (2) on the SECs website at
http://www.sec.gov.
Account Information
Call us at (800) 441-7762 from 8:00 AM to 6:00 PM EST on any business day to get information about your account balances, recent transactions and share prices.
You can also reach us on the Web at http://www.blackrock.com/funds.
Automatic Investment Plans
Investor Class shareholders of BlackRock U.S. Mortgage Portfolio who want to invest regularly can arrange to have $50 or more automatically deducted from their checking or savings account and invested in any of the
BlackRock funds.
Systematic Withdrawal Plans
Investor Class shareholders of BlackRock U.S. Mortgage Portfolio can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock funds, as long as their account balance
is at least $10,000.
Retirement Plans
Shareholders may
make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.
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MANAGED ACCOUNT SERIES
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OCTOBER 31, 2012
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49
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Additional Information (concluded)
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BlackRock Privacy Principles
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BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients
(collectively, Clients) and to safeguarding their non-public 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 non-public 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 websites.
BlackRock does not sell or disclose to non-affiliated third parties any non-public 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 non-affiliated 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 non-public 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 non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.
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50
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MANAGED ACCOUNT SERIES
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OCTOBER 31, 2012
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A World-Class Mutual Fund Family
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BlackRock offers a diverse lineup of open-end mutual funds crossing all investment styles and managed by experts in equity, fixed income and tax-exempt investing.
BlackRock ACWI ex-US Index Fund
BlackRock All-Cap Energy & Resources Portfolio
BlackRock Balanced Capital Fund
BlackRock Basic Value Fund
BlackRock Capital Appreciation Fund
BlackRock China Fund
BlackRock Commodity Strategies Fund
BlackRock Emerging Markets Fund
BlackRock Emerging Markets Long/Short Equity Fund
BlackRock Energy & Resources Portfolio
BlackRock Equity Dividend Fund
BlackRock EuroFund
BlackRock Flexible Equity Fund
BlackRock Focus Growth Fund
BlackRock Global Allocation Fund
BlackRock Global Dividend Income Portfolio
BlackRock Global Opportunities Portfolio
BlackRock Global SmallCap Fund
BlackRock Health Sciences Opportunities Portfolio
BlackRock Index Equity Portfolio
BlackRock India Fund
BlackRock International Fund
BlackRock International Index Fund
BlackRock International Opportunities Portfolio
BlackRock Large Cap Core Fund
BlackRock Large Cap Core Plus Fund
BlackRock Large Cap Growth Fund
BlackRock Large Cap Value Fund
BlackRock Latin America Fund
BlackRock Long-Horizon Equity Fund
BlackRock Managed Volatility Portfolio
BlackRock Mid-Cap Growth Equity Portfolio
BlackRock Mid Cap Value Opportunities Fund
BlackRock Natural Resources Trust
BlackRock Pacific Fund
BlackRock Real Estate Securities Fund
BlackRock Russell 1000 Index Fund
BlackRock Science & Technology Opportunities Portfolio
BlackRock Small
Cap Growth Equity Portfolio
BlackRock Small Cap Growth Fund II
BlackRock Small Cap Index Fund
BlackRock S&P 500 Index Fund
BlackRock S&P 500 Stock Fund
BlackRock U.S. Opportunities Portfolio
BlackRock Value Opportunities Fund
BlackRock World Gold Fund
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Taxable Fixed Income Funds
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BlackRock Bond Index Fund
BlackRock Core Bond Portfolio
BlackRock CoreAlpha Bond Fund
BlackRock Emerging Market Local Debt Portfolio
BlackRock Floating Rate Income Portfolio
BlackRock Global Long/Short Credit Fund
BlackRock GNMA Portfolio
BlackRock High Yield Bond Portfolio
BlackRock Inflation Protected Bond Portfolio
BlackRock International Bond Portfolio
BlackRock Long Duration Bond Portfolio
BlackRock Low Duration Bond Portfolio
BlackRock Multi-Asset Income Portfolio
BlackRock Secured Credit Portfolio
BlackRock Strategic Income Opportunities Portfolio
BlackRock Total Return Fund
BlackRock US Government Bond Portfolio
BlackRock US Mortgage Portfolio
BlackRock World Income Fund
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Municipal Fixed Income Funds
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BlackRock California Municipal Bond Fund
BlackRock High Yield Municipal Fund
BlackRock Intermediate Municipal Fund
BlackRock National Municipal Fund
BlackRock New Jersey Municipal Bond Fund
BlackRock New York Municipal Bond Fund
BlackRock Pennsylvania Municipal Bond Fund
BlackRock Short-Term Municipal Fund
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Target Risk & Target Date Funds
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BlackRock Prepared Portfolios
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LifePath Active Portfolios
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LifePath Portfolios
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LifePath Index Portfolios
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Conservative Prepared Portfolio
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2015
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2035
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Retirement
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2040
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Retirement
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2040
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Moderate Prepared Portfolio
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2020
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2040
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2020
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2045
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2020
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2045
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Growth Prepared Portfolio
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2025
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2045
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2025
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2050
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2025
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2050
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Aggressive Growth Prepared Portfolio
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2030
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2050
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2030
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2055
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2030
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2055
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2035
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2035
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BlackRock mutual funds are currently distributed
by BlackRock Investments, LLC. You should consider the investment objectives, risks, charges and expenses of the funds under consideration carefully before investing. Each funds prospectus contains this and other information and is available
at www.blackrock.com or by calling (800) 441-7762 or from your financial advisor. The prospectus should be read carefully before investing.
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MANAGED ACCOUNT SERIES
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OCTOBER 31, 2012
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51
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This report is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the
Portfolios unless accompanied or preceded by the Funds current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will
fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change. Please see the Funds prospectus for a description of risks associated
with global investments.
Shares of each Portfolio, except BlackRock U.S. Mortgage Portfolio, may be purchased and held only by or on behalf of
separately managed account clients who have retained BlackRock Advisors, LLC or an affiliate (BlackRock) to manage their accounts pursuant to an investment management agreement with BlackRock and/or a managed account program sponsor.
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#MAS-10/12-SAR
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