ANNUAL report. BlackRock UK Special Situations Fund. 1 March 2014 to 28 February 2015

Transcription

1 ANNUAL reort BlackRock UK Secial Situations Fund 1 March 2014 to 28 February 2015

2 About the Fund Managers BlackRock UK Secial Situations Fund Richard Plackett, Managing Director and Portfolio Manager, is a member of the UK Small/Mid Ca Team in the Fundamental Equity division of BlackRock s Alha Strategies Grou. Mr. Plackett co-manages the BlackRock UK Secial Situations Fund alongside Roland Arnold. Mr. Plackett s service with the firm dates back to 2002, including his years with Merrill Lynch Investment Managers ( MLIM ), which merged with BlackRock in Prior to joining MLIM in 2002, Mr. Plackett worked for M&G, where he managed the smaller comanies and income fund teams, as well as heading u the entire UK investment rocess. He began his career at 3i rivate equity. Mr. Plackett earned an MA in Economics from Cambridge University in Roland Arnold, CFA, Director and Portfolio Manager, is a member of the UK Equity Team within the Fundamental Equity Division of BlackRock s Alha Strategies Grou. Mr. Arnold has been co-manager of the BlackRock UK Secial Situations Fund since August 2012, and manager of the UK Small & Mid Ca UK Equity Portfolio since Mr. Arnold is also resonsible for the analysis of the UK technology sector. Mr. Arnold s service with the firm dates back to 2000, including his years with MLIM, which merged with BlackRock in Mr. Arnold reviously worked at a UK retail bank as a erformance and credit analyst. Mr. Arnold earned a BA (Hons) in Economics and Management from Leeds University in Investment Objective & Policy The aim of the BlackRock UK Secial Situations Fund (the Fund ) is to achieve long-term caital growth for investors. The Fund invests rimarily in the shares of comanies incororated or listed in the UK and will normally have an emhasis on small or medium sized comanies. The Fund may also invest in collective investment schemes. Small and medium sized comanies are those whose market caitalisation is lower than that of comanies in the FTSE 100 Index at the time of the Fund s investment. This Annual Reort covers the year ended 28 February The first six months were commented on in the Interim Reort to 31 August For a coy, lease contact us. Performance Table Period of Reort One Year Five Years Since Launch CAPITAL RETURN Class A Income BlackRock UK Secial Situations Fund -2.5% +69.4% % Total Return (with net income reinvested) Class A Accumulation BlackRock UK Secial Situations Fund -1.4% +79.4% % IA UK All Comanies Sector Average^#ø +3.7% +71.2% % All Fund figures quoted are based on bid-to-bid dealing rices (the rice at which units are sold) and are calculated net of fees. Performance returns are cumulative. All returns are in Sterling. ^ Figures from Morningstar. Daily data is not available for this index. Figures have therefore been estimated for the quoted eriods using nearest available start and end dates. Index not available on a caital only basis. # FTSE 250 Index used rior to 1 Aril FTSE All Share Index used rior to 1 October Since launch figures reflect offer (buying) rices, as bid rices were not available on this date for the Fund. Accumulation units have only been available since Aril Figure shown is estimated from Distribution units (using figures from Morningstar). ø Investment Association UK All Comanies Sector Average is the Fund s eer grou benchmark. The risk benchmark for the Fund is the FTSE All-Share Index. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and the return of your initial investment amount cannot be guaranteed. Changes in exchange rates may cause the value of an investment to fluctuate. Past erformance is not a guide to future erformance and should not be the sole factor of consideration when selecting a roduct. The Fund was established on 27 January The name of the Fund was changed to Mercury Recovery Fund (from Mercury Income and Recovery Fund) in February 1984, to Merrill Lynch Recovery Fund on 30 Setember 2000, to Merrill Lynch UK Value Fund on 10 Setember 2001 and to Merrill Lynch UK Secial Situations Fund on 1 Setember The Fund changed its investment objective on 1 October The Fund adoted its resent name with effect from 28 Aril Coies of Manager s Reorts and Prosectus are available on request. Dealing and Investor Services: blackrock.co.uk 1 BlackRock UK Secial Situations Fund 2

3 Performance Record Annual erformance to most recent quarter end to to to to to BlackRock UK Secial Situations Fund -6.1% +23.3% +18.2% -8.7% +35.1% All figures quoted are based on bid-to-bid dealing rices (the rice at which units are sold), with net income reinvested. Performance is calculated net of fees. Performance is shown for comlete 12 month eriods only. Distributions Payable A Income The final distribution ayable on 30 Aril 2015 is net er income unit (30 Aril 2014: net er income unit). A Accumulation The final accumulation distribution ayable on 30 Aril 2015 is net er accumulation unit (30 Aril 2014: net er accumulation unit). D Income The final distribution ayable on 30 Aril 2015 is net er income unit (30 Aril 2014: net er income unit). D Accumulation The final accumulation distribution ayable on 30 Aril 2015 is net er accumulation unit (30 Aril 2014: net er accumulation unit). X Income The final distribution ayable on 30 Aril 2015 is net er income unit (30 Aril 2014: net er income unit). Net Asset Value in Issue Net Asset Value Net Asset Value er Unit A Income 28 February ,772, ,092,299 1, February ,569, ,202,972 2, Aril 2013* 16,284, ,454,669 1,753 A Accumulation 28 February ,143, ,416,482 3, February ,656,799 1,214,271,881 3, Aril 2013* 34,793,734 1,012,056,380 2,909 D Income 28 February ,963, ,746,938 1, February ,968, ,509,876 2, Aril 2013* 8,706, ,729,740 1,754 D Accumulation 28 February ,083, ,323,191 3, February ,249, ,316,791 3, Aril 2013* 7,721, ,682,361 2,974 X Income 28 February ,428,944 28,257,338 1, February ,186,107 24,121,067 2, Aril 2013* 625,455 10,964,213 1,753 * As communicated in a letter to investors dated 28 May 2013, the Manager has changed the Fund s annual accounting date in order to consolidate the ublication of the reorts. 3 BlackRock UK Secial Situations Fund 4

4 Performance Record continued Income (Net Distributions/Net Accumulations) A Income A Accumulation D Income # D Accumulation ± X Income Calendar Year Pence er Unit Pence er Unit Pence er Unit Pence er Unit Pence er Unit 2015* N/A N/A N/A * To 30 Aril. # D Income class commenced June ± D Accumulation class commenced Aril X Income class commenced Setember Risk and Reward Profile Unit Class Lower risk Tyically lower rewards Higher risk Tyically higher rewards A Income A Accumulation D Income D Accumulation X Income The risk indicator was calculated incororating historical or simulated historical data and may not be a reliable indication of the future risk rofile of each unit class. The risk category shown is not guaranteed and may change over time. The lowest category does not mean risk free. Caital (Unit s) Calendar Year A Income Highest Offer Lowest Bid A Accumulation Highest Offer Lowest Bid D Income # Highest Offer Lowest Bid D Accumulation ± Highest Offer Lowest Bid X Income Highest Offer Lowest Bid 2015* 2,094 1,812 3,541 3,065 2,003 1,818 3,497 3,176 2,011 1, ,153 1,660 3,602 2,807 2,058 1,662 3,528 2,903 2,062 1, ,121 1,671 3,547 2,761 2,026 1,675 3,473 2,817 2,030 1, ,750 1,423 2,891 2,321 1,670 1,424 2,809 2,351 1,671 1, ,730 1,269 2,799 2,053 1,640 1,266 2,690 2,075 N/A N/A ,660 1,125 2,677 1,795 N/A N/A 2,562 1,840 N/A N/A * To 28 February. # D Income class commenced June ± D Accumulation class commenced Aril X Income class commenced Setember The use of derivatives will imact the value of the Fund and may exose the Fund to a higher degree of risk. Derivatives are highly sensitive to changes in the value of the asset on which they are based and can increase the size of losses and gains, resulting in greater fluctuations in the value of the Fund. For more information on this, lease see the Fund s Key Investor Information Documents (KIIDs), which are available at Ongoing Charges Detailed in the following table are the charges used to meet the costs of running the Fund, which include the costs of marketing and distribution. These charges reduce the otential growth of your investments. The charges may vary from year to year. The charges exclude ortfolio trade-related costs, excet costs aid to the custodian/trustee and entry/exit charges aid to an underlying collective investment scheme (if any). Unit Class A Income 1.67% 1.66% A Accumulation 1.67% 1.66% D Income 0.92% 0.91% D Accumulation 0.92% 0.91% X Income 0.06% 0.16% Ongoing charges figures are based on annualised exenses for the eriod ended 28 February Please note the annual registrar fee was reduced during the year from 0.15% to an annual fee of 12 lus VAT er unitholder in resect to class X units. 5 BlackRock UK Secial Situations Fund 6

5 Investment Reort Summary of Performance over the Period The Fund returned -1.4%*, over the eriod from 1 March 2014 to 28 February 2015, undererforming its benchmark, the IA UK All Comanies Sector Average, which returned 3.7%. Over the six months to 28 February 2015, the Fund returned 4.9%*, undererforming its benchmark, which returned 5.2%. Very regrettably, the Fund s erformance over the twelve months was affected by a number of holdings whose trading erformance disaointed, meaning their shares undererformed the broader market. Fund Managers Commentary Small and medium-sized comanies undererformed the broader UK market early in the eriod under review, which affected erformance because the Fund has more exosure to these kinds of comanies. However, medium-sized comanies gradually recovered that lost ground over the remainder of the year. Over the twelve months, several stock-secific disaointments hindered erformance, most notably Aveva and Xaar, both of which fell on weaker demand for their roducts. Oxford Instruments undererformed after downgrading its estimate for future earnings. Positive contributors included Howdens Joinery, which issued a good trading udate, wealth manager Rathbone Brothers and lastic and fibre manufacturer Essentra. The latter half of the eriod was more ositive, driven by good trading results among core holdings in small and medium-sized comanies like Howdens Joinery and Ted Baker. Our decision to hold less exosure to the oil sector than the benchmark was also beneficial after the oil rice fell sharly. During the eriod we bought into Prudential, BT and Reed Elsevier and a number of new small and medium-sized comanies. We sold out of Rotork, Keller Grou and Standard Chartered. Recent macroeconomic data from the UK and US is relatively encouraging, but it s counterbalanced by renewed worries from Euroe. The Euroean Central Bank s recent announcement of a massive rogramme of sending in suort of its economy (what s known as quantitative easing) should rove helful. Overall global gross domestic roduct growth remains modest but equity valuations continue to look attractive relative to other assets. We continue to focus on high quality, well-financed comanies we believe can roser in today s relatively low growth world. March 2015 * Performance figures quoted are based on bid-to-bid dealing rices (the rice at which units are sold) and are not the same as the net asset value reorted in the financial statements which is at close of business. Performance is calculated net of fees and reorted for the Fund s class A Accumulation. Portfolio Statement at 28 February 2015 Holding or Market % of Nominal Value Total Net Value Investment Assets EQUITIES 99.48%; % UNITED KINGDOM 99.48%; % Aerosace & Defence 2.89%; % 12,546,462 Senior 42,657, Banks 9.02%; % 12,052,854 Barclays 30,957, ,686,991 HSBC 61,695, ,232,456 Lloyds Banking 28,616, ,676,912 Virgin Money 11,802, ,073, Beverages 1.65%; % 1,255,442 Diageo 24,299, Chemicals 2.61%; % 3,447,784 Elementis 9,898, ,513,818 Victrex 28,565, Construction & Materials 0.00%; % 38,464, Electronic & Electrical Equiment 1.57%; % 1,064,620 Domino Printing Sciences 8,170, ,815 Sectris 7,916, ,847,236 Xaar 7,088, ,176, Financial Services 8.02%; % 1,014,578 Close Brothers 16,649, ,834,730 Juiter Fund Management 36,867, ,942,215 Rathbone Brothers 43,583, ,439 Schroders non-voting shares 21,178, ,278, Fixed Line Telecommunications 2.71%; % 2,435,317 Alternative Networks 11,933, ,165,827 BT 28,097, ,030, Food & Drug Retailers 1.45%; % 8,557,558 Booker 13,734, ,416,464 Clinigen 7,641, ,376, BlackRock UK Secial Situations Fund 8

6 Portfolio Statement continued Holding or Market % of Nominal Value Total Net Value Investment Assets Food Producers 2.01%; % 1,036,466 Unilever 29,705, General Industrials 0.05%; % 304,000 Patisserie 802, General Retailers 1.14%; % 14,584,323 boohoo.com 3,354, ,047,793 Dunelm 9,603, ,385,130 Stanley Gibbons 3,850, ,808, Healthcare Equiment & Services 0.01%; % 71,775 Cambian 145, Household Goods & Home Construction 4.22%; % 1,686,161 Bellway 33,554, ,966,901 Bovis Homes 28,675, ,229, Industrial Engineering 3.08%; % 1,336,422 Bodycote 10,317, ,093,953 Sirax-Sarco Engineering 35,137, ,454, Life Insurance 2.12%; % 1,916,482 Prudential 31,219, Media 2.13%; % 1,084,919 M&C Saatchi 4,014, ,449,630 Reed Elsevier 27,362, ,376, Mining 4.52%; % 1,082,847 BHP Billiton 17,504, ,539,085 Rio Tinto 49,127, ,631, Mobile Telecommunications 1.98%; % 12,989,203 Vodafone 29,141, Holding or Market % of Nominal Value Total Net Value Investment Assets Oil & Gas Producers 8.86%; % 1,172,138 BG 11,229, ,646,723 BP 38,737, ,802,296 Faroe Petroleum 8,074, ,611,697 Ithaca Energy 2,075, ,194,657 Royal Dutch Shell class B shares 70,458, Oil Equiment Services & Distribution 0.00%; % 130,574, Personal Goods 2.43%; % 796,165 Burberry 14,904, ,229 Ted Baker 20,919, ,824, Pharmaceuticals & Biotechnology 7.28%; % 653,883 AstraZeneca 29,225, ,730 Dechra Pharmaceuticals 7,420, ,341,541 GlaxoSmithKline 51,493, ,000 Shire 14,229, ,693,397 Skyeharma 5,207, ,574, Real Estate Investment & Services 1.14%; % 6,698,536 Develoment Securities 16,763, Real Estate Investment Trusts 6.07%; % 1,661,946 Big Yellow 10,470, ,793,511 Great Portland Estates 30,329, ,694,270 Shaftesbury 29,979, ,171,442 Worksace 18,663, ,441, Software & Comuter Services 1.00%; % 470,514 AVEVA 7,499, ,170 Fidessa 6,726, ,743 SDL 417, ,643, Suort Services 12.72%; % 1,794,437 Ashtead 21,335, ,072,041 Brammer 7,355, ,412,173 Essentra 24,531, ,171,073 Grafton 8,771, ,753,837 Hays 7,273, BlackRock UK Secial Situations Fund 10

7 Portfolio Statement continued Holding or Market % of Nominal Value Total Net Value Investment Assets 10,149,409 Howden Joinery 47,072, ,316 Latchways 4,840, ,226 PayPoint 7,123, ,794,085 Robert Walters 17,066, ,624,126 RWS 13,723, ,680,457 SIG 21,136, ,803,892 Seedy Hire 7,450, Technology Hardware & Equiment 0.00%; % 187,682, Tobacco 1.02%; % 396,125 British American Tobacco 14,981, Travel & Leisure 7.78%; % 764,942 Carnival 22,351, ,748,328 Cineworld 7,905, ,000,000 Comass 23,040, ,383 Fuller, Smith & Turner class A shares 4,764, ,321,166 Merlin Entertainments 13,982, ,046,109 Restaurant Grou 22,465, ,320,903 Stagecoach 7,835, ,685 Young & Co s Brewery (non-voting) 4,295, ,317 Young & Co s Brewery class A shares 8,180, UNITED STATES 0.00%; % Mobile Telecommunications 0.00%; % INVESTMENT FUNDS 0.48%; % 114,820, Short-term Money Market Funds 0.48%; % 7,035,240 Institutional Cash Series Sterling Liquidity Fund* 7,035, Portfolio of investments 1,474,213, Net other assets 622, Total net assets 1,474,836, Unless otherwise stated, all holdings are quoted in ordinary shares and listed on a recognised exchange. Note: comarative figures show ercentages for each category of holding at 28 February * Managed by a related arty. The Fund will not be subject to any initial subscrition or redemtion fees on its investment into an underlying fund managed by a related arty. The Fund may indirectly incur management charges by investing in an underlying fund. The Fund invests, where ossible, in a share class of an underlying fund that is not subject to management charges. Alternatively, where this is not ossible, the Manager will rebate management charges to the Fund. Statement of Total Return for the year ended 28 February 2015 Notes Income Net caital (losses)/gains during the year/eriod 2 (95,618,842) 284,663,048 Revenue 3 50,325,625 46,353,725 Exenses 4 (23,473,511) (24,520,614) Finance costs: Interest 6 Net revenue before taxation 26,852,114 21,833,111 Taxation 5 Net revenue after taxation for the year/eriod 26,852,114 21,833,111 Total return before distributions (68,766,728) 306,496,159 Finance costs: Distributions 6 (27,068,155) (21,926,143) Change in net assets attributable to unitholders from investment activities (95,834,883) 284,570,016 Statement of Change in Net Assets Attributable to Unitholders for the year ended 28 February 2015 Oening net assets attributable to unitholders 2,172,422,587 1,690,887,363 Amounts received on creation of units 53,008, ,839,380 Amounts aid on cancellation of units (673,141,724) (94,433,697) (620,133,642) 182,405,683 Stam duty reserve tax (413,509) (1,427,392) Unclaimed distributions over 6 years old 24,017 10,088 Change in net assets attributable to unitholders from investment activities (95,834,883) 284,570,016 Retained distribution on accumulation units 18,771,678 15,976,829 Closing net assets attributable to unitholders 1,474,836,248 2,172,422, BlackRock UK Secial Situations Fund 12

8 Balance Sheet at 28 February 2015 Notes Assets: Investment assets 1,474,213,782 2,166,145,982 Debtors 7 18,750,341 22,089,676 Cash and bank balances 1,956,333 4,937,369 Total other assets 20,706,674 27,027,045 Total assets 1,494,920,456 2,193,173,027 Liabilities: Creditors 8 (18,562,088) (19,009,149) Distribution ayable on income units (1,522,120) (1,741,291) Total other liabilities (20,084,208) (20,750,440) Total liabilities (20,084,208) (20,750,440) Net assets attributable to unitholders 1,474,836,248 2,172,422,587 N C D Hall (Director) R A Damm (Director) BlackRock Fund Managers Limited 30 Aril 2015 Notes to Financial Statements for the year ended 28 February Accounting and Distribution Policies Accounting Policies (a) The financial statements have been reared in accordance with the Statement of Recommended Practice ( SORP ) for Authorised Funds issued by the Investment Management Association (subsequently The Investment Association) in October (b) Dividends on quoted ordinary shares and reference shares are recognised when the securities are quoted ex-dividend. Where such securities are not quoted, dividends are recognised when they are declared. All revenue is recognised as a gross amount that takes account of any withholding taxes but excludes any other taxes such as attributable tax credits. Revenue from securities lending is accounted for net of associated costs and is recognised on an accruals basis. Bank interest is recognised on an accruals basis. All distributions from Collective Investment Schemes are recognised when the securities are quoted ex-dividend. All distributions from holdings in Collective Investment Schemes are treated as revenue with the excetion of the equalisation element, which is treated as caital. (c) Ordinary stock dividends are recognised wholly as revenue and are based on the market value of the shares on the date they are quoted ex-dividend. Where an enhancement is offered, the amount by which the market value of the shares (on the date they are quoted ex-dividend) exceeds the cash dividend is taken to caital. (d) The underlying circumstances behind both secial dividends and share buy backs are reviewed on a case by case basis in determining whether the amount is revenue or caital in nature. Amounts recognised as revenue form art of the distribution. Any tax treatment will follow the accounting treatment of the rincial amount. (e) Underwriting commission is wholly recognised as revenue when the issue takes lace, excet where the Fund is required to take u some or all of the shares underwritten, in which case an aroriate roortion of the commission received is deducted from the cost of those shares. (f) All exenses, excet those relating to the urchase and sale of investments and Stam Duty Reserve Tax are charged against revenue. All exenses are recognised on an accruals basis. (g) Provision for cororation tax is made at the current rate on the excess of taxable revenue over allowable exenses. Provision is made on all material timing differences arising from the different treatment of items for accounting and tax uroses. A deferred tax asset is recognised only to the extent that it is considered more likely than not that there will be taxable rofits in the future against which the asset can be offset. 13 BlackRock UK Secial Situations Fund 14

9 Notes to Financial Statements continued (h) The investments of the Fund have been valued at market values, defined as fair value, which is usually bid value at close of business on the last business day of the accounting eriod. In the case of an investment which is not quoted, listed or dealt in on a recognised market, or in resect of which a listed, traded or dealt rice or quotation is not available at the time of valuation, the fair value of such an investment shall be estimated with care and in good faith by a cometent rofessional erson, body, firm or cororation including the Investment Manager s ricing committee and such fair value shall be determined on the basis of the robable realisation value of the investment. The Investment Manager, in agreement with the Directors of the Manager, shall be entitled to adot an alternative method of valuing any articular asset if it considers that the methods of valuation set out above do not rovide a fair valuation of a articular asset. Investments in dual riced Collective Investment Schemes have been valued at market values, defined as fair value, which is usually bid value at the closing valuation oint of the underlying fund on the last business day of the accounting eriod. Investments in single riced Collective Investment Schemes have been valued at market values, defined as fair value, which is usually the quoted rice on the last business day of the accounting eriod. (i) Any transactions in foreign currencies are translated into Sterling at the rates of exchange ruling on the date of any such transaction. Assets and liabilities in foreign currencies are translated into Sterling at the exchange rates ruling at the close of business on the last business day of the accounting eriod. Revenue items in foreign currencies are translated into Sterling at the exchange rate when the revenue is received. (j) Where aroriate, certain ermitted financial instruments such as derivatives or forward currency contracts are used for efficient ortfolio management. Where such financial instruments are used to rotect or enhance revenue, the revenue and exenses derived therefrom are included in Revenue in the Statement of Total Return. Where such financial instruments are used to rotect or enhance caital, the gains and losses derived therefrom are included in Net caital (losses)/gains during the year/eriod in the Statement of Total Return. Distribution Policies (k) The ordinary element of stock dividends is treated as revenue and forms art of the distribution. (l) All of the net revenue available for distribution at the final accounting eriod end will be distributed to unitholders with the balance attributable to accumulation unitholders retained within the Fund. In order to conduct a controlled dividend flow to unitholders, interim distributions may be made at the Manager s discretion, u to a maximum of the distributable revenue available for the eriod. Should exenses and taxation together exceed revenue, there will be no distribution and the shortfall will be met from caital. 2. Net Caital (Losses)/Gains During the Year/Period The net caital (losses)/gains comrise: (Losses)/gains on non-derivative securities (95,591,726) 284,658,054 Currency (losses)/gains (12,052) 12,243 Custodian transaction costs (15,064) (7,249) Net caital (losses)/gains (95,618,842) 284,663, Revenue Interest from UK bank deosits 91,870 66,654 Overseas dividends 88, ,337 Revenue from Institutional Cash Series lc Sterling Liquidity Fund 44, ,987 Securities lending revenue 37,048 45,999 Stock dividends 959,981 1,143,444 UK dividends 48,129,628 43,876,593 UK REIT dividends 974, ,711 Total revenue 50,325,625 46,353, BlackRock UK Secial Situations Fund 16

10 Notes to Financial Statements continued 4. Exenses Payable to the Manager or associates of the Manager: Manager s charge 20,718,313 21,798,827 Registrar s fees * 2,513,697 2,490,738 23,232,010 24,289,565 Payable to the Trustee or associates of the Trustee: Trustee s fees 194, , , ,167 Other exenses: Audit fee 6,690 5,967 FCA fee Safe custody fees 40,223 41,783 47,066 47,882 Total exenses 23,473,511 24,520,614 * Please note the annual registrar fee was reduced during the year from 0.15% to an annual fee of 12 lus VAT er unitholder in resect to class X units. 5. Taxation (a) Analysis of tax charge for the year/eriod Cororation tax Total current tax charge for the year/eriod [see note 5(b)] 0 0 (b) Factors affecting the current tax charge for the year/eriod The tax assessed for the year is lower than the standard rate of cororation tax in the UK for an authorised unit trust. The differences are exlained below: Net revenue before taxation 26,852,114 21,833,111 Cororation tax at 20% (28 February 2014: 20%) 5,370,423 4,366,622 Effects of: Excess exenses for which no tax relief taken 4,465,165 4,727,302 Franked investment revenue at 20% (9,625,926) (8,775,319) Non taxable overseas dividends (17,666) (89,916) Non taxable stock dividends (191,996) (228,689) Total current tax charge for the year/eriod [see note 5(a)] 0 0 At 28 February 2015, the Fund had surlus management exenses of 165,824,332 (28 February 2014: 143,498,508). It is unlikely that the Fund will generate sufficient taxable rofits in the future to utilise these exenses and, therefore, a deferred tax asset of 33,164,867 (28 February 2014: 28,699,702) has not been recognised. 6. Finance Costs Interim distribution 17,912,604 17,280,217 Final distribution 6,374,703 5,135,254 24,287,307 22,415,471 Add: Amounts deducted on cancellation of units 3,038, ,461 Less: Amounts received on creation of units (257,256) (788,789) Net distribution for the year/eriod 27,068,155 21,926,143 Finance costs: Interest Finance costs 27,068,155 21,926,143 Net revenue after taxation for the year/eriod 26,852,114 21,833,111 Add: Equalisation on conversions 216,041 93,032 Net distribution for the year/eriod 27,068,155 21,926,143 Details of the interim and final distributions er unit are set out in the tables on age BlackRock UK Secial Situations Fund 18

11 Notes to Financial Statements continued 7. Debtors Accrued revenue 3,881,129 5,014,014 Amounts receivable for creation of units 2,685,179 Income tax recoverable 7,035 Overseas tax recoverable 12,662 Sales awaiting settlement 14,862,177 14,377,821 Total debtors 18,750,341 22,089, Creditors Accrued Audit fee 6,691 6,690 Accrued FCA fee Accrued Manager s charge 4,317,164 6,553,583 Accrued Registrar s fee 887, ,058 Accrued Safe custody fees 8,354 16,272 Accrued Trustee s fee 40,390 58,221 Amounts ayable for cancellation of units 3,742,184 10,477,064 Custodian transaction costs 2,835 2,657 Purchases awaiting settlement 9,556,392 1,128,157 Total creditors 18,562,088 19,009, Derivatives and Other Financial Instruments (a) The Fund s financial instruments comrise securities and other investments, cash balances and debtors and creditors that arise directly from its oerations, for examle, in resect of sales and urchases awaiting settlement, amounts receivable for creations and ayable for cancellation of units and debtors for accrued revenue. The Manager shall take the risks it deems reasonable to meet the investment objective. These risks include the following: Risk Market rice Liquidity Counterarty Credit Imact of risk The valuation of the Fund s investments is calculated with reference to market rices quoted by financial agencies and brokers. Movements to those market rices may materially affect the value of the Fund s investments, which may move down as well as u. To manage the risk, the Manager undertakes research in order to achieve the best rice for any transactions entered into on behalf of the Fund. The risk of low market liquidity, through reduced trading volumes, affecting the ability of the Fund to trade financial instruments at values reviously indicated by financial brokers. All stocks are valued daily. Stocks identified as being illiquid are reviewed for ricing accuracy as the need arises and on a formal monthly basis by the BlackRock Pricing Committee. The Fund invests rimarily in comanies incororated in the United Kingdom, which is tyically considered to be a territory oerating with high levels of liquidity. From time to time, however, market liquidity may be affected by economic events. To manage the risk, the Investment Manager undertakes research of investment oortunities to select oortunities congruent with the Fund s investment objective. The risk of entering an arrangement with a counterarty, which is itself subject to financial risks which may affect its ability to trade as a going concern. The Manager maintains a list of aroved counterarties. This list is regularly monitored and revised for changes based on the counterarty s creditworthiness, market reutation and exectations of future financial erformance. Transactions will only be oened with financial intermediaries on the aroved counterarties list. During the year the Fund engaged security lending activities which exosed the Fund to credit risk. The maximum exosure of the Fund is equal to the value of the securities loaned disclosed in Note 11. Risk Foreign currency Imact of risk The risk of changes to foreign currency rates materially affecting the Sterling equivalent value of non-sterling denominated assets and liabilities accounted for by the Fund. The Fund s investments at the balance sheet date mainly comrises of UK equities denominated in Sterling, the Fund therefore has little exosure to foreign currency risk. 19 BlackRock UK Secial Situations Fund 20

12 Notes to Financial Statements continued Risk Use of derivatives Imact of risk The Fund may use derivatives for the uroses of efficient ortfolio management in order to reduce risk within the ortfolio, reduce investment costs and generate additional income. The use of derivatives will imact the value of the Fund and may exose the Fund to a higher degree of risk. In articular, derivative contracts can be highly volatile and the amount of initial margin is generally small relative to the size of the contract so that transactions may be leveraged in terms of market exosure. A relatively small market movement may have a otentially larger imact on derivatives than on standard bonds or equities. Leveraged derivative ositions can therefore increase fund volatility. As at 28 February 2015, the Manager uses a methodology known as the Value at Risk or VaR in order to measure the global exosure from financial derivative instruments of the Fund and manage the otential loss to it due to market risk. The VaR methodology measures the otential loss to the Fund at a articular confidence (robability) level over a secific time eriod and under normal market conditions. The Manager uses the 99 er cent confidence interval and one month measurement eriod for the uroses of carrying out this calculation. Any exosure to financial derivative instruments at year end is marked on the Portfolio Statement. These risks are monitored by the Manager in ursuance of the investment objective and olicy as set out in the Trust Deed. Adherence to investment guidelines and to investment and borrowing owers set out in the Trust Deed, the Prosectus and in the rules of the Collective Investment Schemes Sourcebook mitigates the risk of excessive exosure to any articular tye of security or issuer. Further information on the investment ortfolio is set out in the Investment Reort and Portfolio Statement. (b) Currency Exosures The net assets of the Fund are denominated mainly in Sterling, therefore the Balance Sheet and Statement of Total Return are unlikely to be directly affected by currency movements. As at 28 February 2015 the non-gbp currency exosure equated to 0.1% (28 February 2014: 1.7%), hence no currency table has been rovided. (c) Interest Rate Risk Profile of Financial Assets and Liabilities The Interest Rate Risk Profile of Financial Assets and Liabilities as at 28 February 2015 was as follows: Currency Floating Rate Financial Assets Fixed Rate Financial Assets Financial Assets not Carrying Interest Total UK sterling 1,956,322 1,491,064,872 1,493,021,194 US dollar 11 1,899,251 1,899,262 Total 1,956, ,492,964,123 1,494,920,456 Currency Floating Rate Financial Liabilities Financial Liabilities not Carrying Interest Total UK sterling (20,084,208) (20,084,208) Total 0 (20,084,208) (20,084,208) The Interest Rate Risk Profile of Financial Assets and Liabilities as at 28 February 2014 was as follows: Currency Floating Rate Financial Assets Fixed Rate Financial Assets Financial Assets not Carrying Interest Total UK sterling 4,937,369 2,151,423,637 2,156,361,006 US dollar 36,812,021 36,812,021 Total 4,937, ,188,235,658 2,193,173,027 Currency Floating Rate Financial Liabilities Financial Liabilities not Carrying Interest Total UK sterling (20,750,440) (20,750,440) Total 0 (20,750,440) (20,750,440) The floating rate financial assets and liabilities include: Sterling denominated bank balances which bear interest rates based on 0.25% under the one and two week LIBID rates and overdraft interest based on 3% over the base rate. All overseas deosits and loans bear interest at rates determined by the relevant Authority. (d) Fair Value of Financial Assets and Financial Liabilities There is no material difference between the value of the financial assets and liabilities, as shown in the Balance Sheet and their fair value. 21 BlackRock UK Secial Situations Fund 22

13 Notes to Financial Statements continued 10. Contingent Assets and Liabilities There were no contingent assets or liabilities at the balance sheet date (28 February 2014: Nil). 11. Efficient Portfolio Management Techniques The Fund may engage in derivative transactions for the uroses of efficient ortfolio management. Please see further disclosure in Note 9 (a). During the year, the Fund engaged in securities lending, subject to the conditions and within the limits laid down by the Financial Conduct Authority. The Fund receives securities as collateral for a value in excess of the market value of the securities loaned. The collateral is registered in the name of the Trustee, on behalf of the Fund with the following collateral agents and central securities deositories: JP Morgan Chase and BNY Mellon. The Investment Manager monitors the fair value of the securities loaned and additional collateral is obtained if necessary. The collateral consists of equities admitted to or dealt in on a regulated market. The securities lending agent aointed, ursuant to the securities lending agreement is BlackRock Advisors (UK) Limited. U to 30 Aril 2014, securities lending revenue was slit between the Fund and the securities lending agent in the ratio 60:40. Effective 1 May 2014, securities lending revenue is slit between the Fund and the securities lending agent in the ratio 62.5:37.5. All oerational costs are borne out of the securities lending agent s share. There were no securities on loan or related collateral outstanding at the balance sheet date Revenue earned during the year/eriod 37,048 45,999 Value of securities on loan at the year/eriod end 7,028,943 Value of collateral held on behalf of the Fund at the year/eriod end 7,750, Investment Management The Manager has delegated to its associate, BlackRock Investment Management (UK) Limited, resonsibility for the day-to-day investment management of the Fund. For details of commission sharing agreements, refer to Note 13 Related Parties. 13. Related Parties Parties are considered to be related if one arty has the ability to control the other arty or exercise significant influence over the other arty in making financial or oerational decisions. The following entities were related arties of the Fund during the year ended 28 February 2015: Manager/Registrar: BlackRock Fund Managers Limited Investment Manager: BlackRock Investment Management (UK) Limited Securities lending agent: BlackRock Advisors (UK) Limited Trustee: BNY Mellon Trust & Deositary (UK) Limited The ultimate holding comany of the Manager and Investment Manager is BlackRock Inc. ( BlackRock ), a comany incororated in Delaware, USA. PNC Financial Services Grou Inc. ( PNC ) is a substantial shareholder in BlackRock. The Manager acts as either rincial or agent for the Trustee in resect of all transactions of units of the Fund. The aggregate monies received through creation and aid through cancellation of units are disclosed in the Statement of Change in Net Assets Attributable to Unitholders and Note 6. Any amounts due to or from the Manager at the year end are disclosed in Notes 7 and 8. Management fees and registration fees aid to BlackRock Fund Managers Limited and Trustee s fees aid to BNY Mellon Trust & Deositary (UK) Limited are shown in Note 4. The balances due at the year end in resect of these fees are shown in Note 8. The Investment Manager, in accordance with the Trust Deed, may enter into commission sharing arrangements with related arties (including, without limitation, brokers who are affiliated to the BlackRock Grou), which may result in the Fund benefiting from research or execution services which the Investment Manager believes are useful in the investment decision-making or trade execution rocess. Such research or execution services may include, without limitation and to the extent ermitted by alicable law: research reorts on comanies, industries and securities; and the rovision of economic and financial information and analysis. Due to the bundled nature of these services and the alication of such benefits across a number of BlackRock managed funds, it is not feasible to quantify the benefit to the Fund. The Investment Manager may also enter into these arrangements with brokers who are not affiliated to the BlackRock Grou. The Fund s investments in other BlackRock related roducts are detailed on the Portfolio Statement. Securities Lending The securities lending agent aointed ursuant to the securities lending agreement is BlackRock Advisors (UK) Limited, which is a related arty to the Fund. The Fund benefits from a borrower default indemnity rovided by BlackRock Inc. The indemnity allows for full relacement of securities lent. BlackRock Inc. bears all oerational costs directly related to securities loan transactions as well as the cost of indemnification against borrower default. See further information in Note 11. Material Unitholders As at 28 February 2015 there were no material untiholders in the Fund. 23 BlackRock UK Secial Situations Fund 24

14 Notes to Financial Statements continued As at 28 February 2014: Held by: % of voting units in issue No. of units held Cofunds Nominees Limited 21% 15,479,659 All related arty transactions were carried out at arm s length in the ordinary course of business. The terms and returns received by the related arties in making the investments above were no more favourable than those received by other investors investing into the same unit classes. 14. Portfolio Transaction Costs Summary of total urchase costs: Purchases before transaction costs 1,034,105, ,411,707 Commissions and other costs (including stam duty) 3,399,623 1,821,890 Total urchase costs 3,399,623 1,821,890 Gross urchases total 1,037,504, ,233,597 Summary of total sale costs: Gross sales before transaction costs 1,646,952, ,031,482 Commissions and other costs (1,326,233) (179,388) Total sale costs (1,326,233) (179,388) Total sales net of transaction costs 1,645,626, ,852, Unitholders Funds Accumulation and Income units are currently available as secified in the Prosectus. The net asset value of each unit class, net asset value er unit and the number of units in issue are given in the Performance Record. The tyes of units currently in issue and the Manager s annual charge for each unit class are shown below: Class A Income 1.50% 1.50% A Accumulation 1.50% 1.50% D Income 0.75% 0.75% D Accumulation 0.75% 0.75% X Income Nil Nil Holders of X units are charged outside of the relevant fund by way of agreement with the Manager, Princial Distributor or their affiliates. In resect of class X units, the Registrar is not entitled to a fee. For the remaining classes, the Registrar is entitled to an annual fee of u to 0.15% of the NAV. Revenue is allocated each day ro rata to the caital value of assets attributable to each class and taxation is comuted by reference to the net revenue after exenses attributable to each class. The distribution er unit class is given in the distribution table. All unit classes have the same rights on winding u. 16. Non Adjusting Post Balance Sheet Event Since the last business day of the accounting eriod, the Fund s quoted bid rices have risen as shown below: Class Bid rices as at Bid rices as at Rise (%) A Income 2,014 1, A Accumulation 3,416 3, D Income 2,018 1, D Accumulation 3,546 3, X Income 2,020 1, BlackRock UK Secial Situations Fund 26

15 Distribution Tables for the year ended 28 February 2015 Final Distribution in Pence er Unit Grou 1 urchased rior to 1 Setember 2014 Grou 2 urchased 1 Setember 2014 to 28 February 2015 A Income A Accumulation D Income D Accumulation X Income Grou 1 Grou 2 Grou 1 Grou 2 Grou 1 Grou 2 Grou 1 Grou 2 Grou 1 Grou 2 Net revenue (dividend) Equalisation Distribution ayable Distribution aid Interim Distribution in Pence er Unit Grou 1 urchased rior to 1 March 2014 Grou 2 urchased 1 March 2014 to 31 August 2014 Authorised Status BlackRock UK Secial Situations Fund is an authorised unit trust Scheme under Section 243 of the Financial Services and Markets Act 2000 and is established as a UCITS retail Scheme under the Financial Conduct Authority s Collective Investment Schemes Sourcebook (the Sourcebook ). Stam Duty Reserve Tax ( SDRT ) Prior to 30 March 2014, SDRT was levied on the dealing of units in unit trust schemes under Schedule 19 of the Finance Act 1999 ( Schedule 19 ) at the rate of 0.5% on the value of units surrendered. In order to increase the cometitiveness of the asset management industry in the UK, the charge to SDRT under Schedule 19 has been abolished since 30 March 2014 and there is no SDRT charge levied on the surrender of units in unit trust schemes after this date. A Income A Accumulation D Income D Accumulation X Income Grou 1 Grou 2 Grou 1 Grou 2 Grou 1 Grou 2 Grou 1 Grou 2 Grou 1 Grou 2 Net revenue (dividend) Equalisation Distribution aid Distribution aid Equalisation alies only to units urchased during the distribution eriod (Grou 2 units). It is the average amount of revenue included in the urchase rice of all Grou 2 units and is refunded to holders of these units as a return of caital. Being caital, it is not liable to income tax but must be deducted from the cost of units for caital gains tax uroses. 27 BlackRock UK Secial Situations Fund 28

16 Statement of Manager s and Trustee s Resonsibilities The Manager is required by the rules of the Sourcebook to reare the financial statements for each financial year. These financial statements must be reared in accordance with generally acceted accounting standards in the United Kingdom to give a true and fair view of the state of affairs of the Fund at the year end and of the net revenue for the year. The financial statements should comly with the disclosure requirements of the Statement of Recommended Practice (the SORP ) for Authorised Funds issued by the Investment Management Association (subsequently The Investment Association) and must comly with any relevant rovisions of the Trust Deed. The Manager is resonsible for keeing such accounting records as are necessary to enable it to ensure that the financial statements comly with the Sourcebook, the SORP and the Trust Deed. The Trustee is resonsible for the safekeeing of all the roerty of the Scheme (other than tangible moveable roerty) which is entrusted to it and for the collection of revenue that arises from that roerty. It is the duty of the Trustee to take reasonable care to ensure that the Scheme is managed in accordance with the Sourcebook, the Fund s Trust Deed and Prosectus, in relation to the ricing of, and dealings in, units in the Fund; the alication of revenue of the Scheme; and the investment and borrowing owers of the Fund. Reort of the Trustee Having carried out such rocedures as we considered necessary to discharge our resonsibilities as Trustee of the Fund, it is our oinion, based on the information available to us and the exlanations rovided, that, in all material resects, the Manager: (i) has carried out the issue, sale, redemtion and cancellation, and calculation of the rice of the Fund s units and the alication of the Fund s revenue in accordance with the Sourcebook, the Trust Deed and Prosectus, and (ii) has observed the investment and borrowing owers and restrictions alicable to the Fund. BNY Mellon Trust & Deositary London (UK) Limited 30 Aril 2015 Indeendent Auditor s Reort to the Unitholders of BlackRock UK Secial Situations Fund We have audited the financial statements of BlackRock UK Secial Situations Fund ( the Fund ) for the year ended 28 February 2015 which comrise the Statement of Total Return, the Statement of Change in Net Assets Attributable to Unitholders, the Balance Sheet, the related notes 1 to 16 and the Distribution Tables. The financial reorting framework that has been alied in their rearation is alicable law and United Kingdom Accounting Standards (United Kingdom Generally Acceted Accounting Practice). This reort is made solely to the unitholders of the Fund, as a body, ursuant to Paragrah of the rules of the Collective Investment Schemes Sourcebook of the Financial Conduct Authority. Our audit work has been undertaken so that we might state to the unitholders those matters we are required to state to them in an auditor s reort and for no other urose. To the fullest extent ermitted by law, we do not accet or assume resonsibility to anyone other than the Fund and the unitholders as a body, for our audit work, for this reort, or for the oinions we have formed. Resective resonsibilities of the Manager and auditor As exlained more fully in the Manager s resonsibilities statement set out on age 29, the Manager is resonsible for the rearation of the financial statements and for being satisfied that they give a true and fair view. Our resonsibility is to audit and exress an oinion on the financial statements in accordance with alicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comly with the Auditing Practices Board s Ethical Standards for Auditors. Scoe of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting olicies are aroriate to the Fund s circumstances and have been consistently alied and adequately disclosed; the reasonableness of significant accounting estimates made by the Manager; and the overall resentation of the financial statements. In addition, we read all the financial and non financial information in the Annual Reort to identify material inconsistencies with the audited financial statements and to identify any information that is aarently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of erforming the audit. If we become aware of any aarent material misstatements or inconsistencies we consider the imlications for our reort. 29 BlackRock UK Secial Situations Fund 30