ANNUAL REPORT AND AUDITED ACCOUNTS TITLE (40 50 CHARACTERS)

Transcription

1 ANNUAL REPORT AND AUDITED ACCOUNTS TITLE (40 50 CHARACTERS) BLACKROCK STRATEGIC FUNDS (BSF) SUBTITLE (40-50 CHARACTERS) R.C.S. Luxembourg: B BlackRock Strategic Funds, Société d investissement à capital variable (SICAV) under Luxembourg Law Report for Investors in Switzerland Some sub-funds of the SICAV are not approved for distribution to non-qualified investors in or from Switzerland. Therefore, no information in relation with these sub-funds is mentioned in this report. However, the investors attention is drawn to the fact that certain information contained in this report is expressed on a consolidated basis and, as a consequence, contains also information concerning the sub-funds which are not approved for distribution to non-qualified investors in or from Switzerland. 31 MAY 2014

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3 Contents BSF Chairman s Letter to Shareholders 2 BSF Investment Adviser s Report 4 BSF Directors Report 8 Board of Directors 12 Management and Administration 12 Statement of Net Assets 13 Three Year Summary of Net Asset s 17 Statement of Operations and Changes in Net Assets 21 Statement of Changes in Shares Outstanding 25 Portfolio of Investments BlackRock Americas Diversified Equity Absolute Return Fund 28 BlackRock Asia Extension Fund 53 BlackRock Emerging Markets Absolute Return Fund 58 BlackRock Emerging Markets Allocation Fund 61 BlackRock Emerging Markets Flexi Dynamic Bond Fund 73 BlackRock Euro Dynamic Diversified Growth Fund 76 BlackRock European Absolute Return Fund 80 BlackRock European Credit Strategies Fund 83 BlackRock European Diversified Equity Absolute Return Fund 99 BlackRock European Opportunities Extension Fund 112 BlackRock Fixed Income Strategies Fund 115 BlackRock Fund of ishares Conservative 123 BlackRock Fund of ishares Dynamic 124 BlackRock Fund of ishares Growth 125 BlackRock Fund of ishares Moderate 126 BlackRock Global Absolute Return Bond Fund 127 BlackRock Latin American Opportunities Fund 167 Notes to the Financial Statements 169 Report of the Réviseur d Entreprises Agréé 180 General Information 182 Appendix I Global Exposure and Leverage (Unaudited) 183 Appendix II Total Expense Ratio (Unaudited) 185 Appendix III Portfolio Turnover Rates (Unaudited) 187 Subscriptions can only be made on the basis of the current Prospectus, together with the most recent audited annual report and accounts and unaudited interim report and accounts. Copies are available from the Investor Services Centre, the Transfer Agent, the Manager or any of the Distributors. Annual Report and Audited Accounts 1

4 BSF Chairman s Letter to Shareholders Dear Shareholder I am writing to update you on the activities of BlackRock Strategic Funds (the Company ), a Luxembourg UCITS Fund range providing clients with access to BlackRock investment products which seek to take full advantage of the expanded investment powers incorporated in the UCITS directive. This report covers the Company s financial year from 1 June 2013 to 31 May For many developed market assets, 2013 proved to be a strong year, with global equities continuing to march to new highs. The rally seemed to be supported by low yields, a steady flow of cash, mergers and acquisitions activity, share buybacks and improving economic indicators. Market performance for much of the second half of 2013 was driven in large part by growth-oriented assets that in turn benefited from an acceleration of economic growth, which was better than expected. Central banks also remained accommodative, and some of the key risks that had worried many investors faded, most notably in the Euro area. In this environment, many risk assets (such as equities and corporate bonds) performed strongly, with the exception of emergingmarket equities and commodities that continued to see weaker economic growth in China and heightened political risks. The US Federal Reserve (the Fed ) finally decided to begin reducing (or tapering ) its spending in support of its economy at its December 2013 policy meeting when it confirmed it would reduce its programme of purchasing fixed income assets by 10 billion. It then took the decision in January 2014 to trim by a further 10 billion. While the Fed and the Bank of England ( BoE ) are expected to reduce their stimulus programmes as their economies improve, monetary policies of the European Central Bank ( ECB ) and the Bank of Japan continue to be supportive. Following a period of strong performance, many asset classes began to look fairly valued as investors entered 2014, though we still do not see much sign of irrational exuberance in market pricing. Expectations for economic growth in financial markets have also risen. In addition, some important differences have started to emerge in monetary policies of major central banks, particularly in the Anglo-Saxon economies, and the pace of quantitative easing in the US is slowing. The combination of improving economic indicators and the decision of the Fed to reduce its quantitative easing programme weighed on government bond prices for much of the year. Monetary policy seemed to continue to be the main decisive factor in the performance of bonds, outweighing such beneficial factors for bond performance as weak economic growth and low inflation. The performance of the Funds is covered in more detail in the separate Investment Adviser's Report, which also sets out some views regarding the investment outlook. Overall, the assets under management in the Company range have almost doubled from 3,937m to 7,598m, which reflected a strong risk appetite among investors over the twelve month period. Some of the fastest growing Funds within the range were the BlackRock European Opportunities Extension Fund, which increased in size from 11.1m to 512.2m, and the BlackRock Fixed Income Strategies Fund, which increased from 113.0m to 625.5m over the year. The BlackRock Emerging Markets Flexi Dynamic Bond Fund, which was launched during the year, has done well, attracting 148.0m. Other notable strategies in terms of asset growth included the BlackRock Asia Extension Fund, which increased from 46.4m to 202.7m and the BlackRock European Credit Strategies Fund, which grew from 766.7m to 1.5 billion. BlackRock is fully committed to remaining at the forefront of the European mutual funds industry by bringing innovative investment products to our clients and is actively working on adding other funds to the range as our product development process brings forward appropriate investment opportunities for clients. In June 2013 we launched the BlackRock Emerging Markets Flexi Dynamic Bond Fund, which seeks a combination of capital growth and income by investing predominantly in emerging market debt. In the middle of November 2013 we also launched the BlackRock Emerging Markets Allocation Fund, which seeks to achieve capital growth and income through investment in a mixture of emerging market equities and bonds. 2 BlackRock Strategic Funds (BSF)

5 BSF Chairman s Letter to Shareholders Following a review of our existing fund range, the Board of Directors of the Company took the decision to close the BlackRock European Opportunities Absolute Return Fund on 17 July 2013, following some large redemptions that reduced the size of its portfolio from about 8.3m to less than 1m. Similar reasons also led to the closure of the BlackRock Mining Opportunities Fund on 18 March 2014, which became uneconomic to manage after it reduced in size from about 9m to less than 1m. Should you have any questions on any of this Letter, please contact us via our website: Subsequent Events In a letter to shareholders dated 27 June 2014, the Board of Directors of the Company advised shareholders of its decision to liquidate the assets held in the underlying investment portfolio for each of the following Funds, with the intention of distributing redemption proceeds to shareholders on 1 September 2014: BlackRock Fund of ishares Conservative BlackRock Fund of ishares Dynamic BlackRock Fund of ishares Growth BlackRock Fund of ishares Moderate In a subsequent letter to shareholders dated 21 July 2014, in order to facilitate an orderly exit from the Funds for all shareholders, the Board of Directors of the Company decided to postpone the effective date of the closure until 31 December 2014 (the New Effective Date ). The Funds were reopened to subscriptions from 8 July The Board of Directors of the Company will write to shareholders closer to the New Effective Date but shareholders may redeem their investment at any time before this. Yours faithfully, Nicholas C.D. Hall Chairman June 2014 Annual Report and Audited Accounts 3

6 BSF Investment Adviser s Report Performance Overview 1 June May 2014 Disclosed in the table below are the performance returns for the primary non-distributing share class for each Fund, which has been selected as a representative share class. Calculation methodology is based on industry standards. The figures indicated relate to share classes publicly distributed in Switzerland. Performance figures for any other share class can be made available upon request. Past performance is not a guide to future performance and should not be the sole factor of consideration when selecting a product. All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. The Fund invests a large portion of assets which are denominated in other currencies; hence changes in the relevant exchange rate will affect the value of the investment. The performance figures do not consider charges and fees that may be levied at the time of subscription or redemption of shares. Levels and bases of taxation may change from time to time. Subscriptions may be made only on the basis of the current Prospectus, of which the most recent annual report and audited accounts and interim report and unaudited accounts form an integral part, and Key Investor Information Document (the KIID ). Copies are available from Investor Services, the Transfer Agent, the Manager or any of the Representatives or Distributors. BlackRock Strategic Funds is only available for investment by non-us citizens who are not residents of the US. It is not offered for sale or sold in the US, its territories or possessions. Financial Year Performance to 31 May 2014 Calendar Year Performance 1 year Launch Date BlackRock Americas Diversified Equity Absolute Return Fund 'A' Non Dist () 3.72% (0.98)% 10.27% 17 February 2012 LIBOR 3 Month Index () 0.26% 0.29% 0.41% BlackRock Asia Extension Fund 'A' Non Dist () 6.38% 6.71% 11.00% 10 February 2012 MSCI All Country Asia ex Japan () 7.31% 3.07% 7.98% BlackRock Emerging Markets Absolute Return Fund 'D' Non Dist () 4.24% 4.84% 1.81% 15 November 2012 LIBOR 3 Month Index () 0.26% 0.29% 0.04% BlackRock Emerging Markets Allocation Fund 'A' Non Dist () 3.20% (0.94)% 15 November % MSCI Emerging Markets Index / 40% JPMorgan Emerging Markets Bond Index Plus () 5.47% (0.02)% BlackRock Emerging Markets Flexi Dynamic Bond Fund 'A' Non Dist () 0.69% (0.34)% 12 June % JPMorgan EMBI Global Diversified / 50% JPMorgan Government Bond Index - Emerging Markets Global Diversified Index () 4.50% (1.99)% BlackRock Euro Dynamic Diversified Growth Fund 'A' Non Dist () 4.94% 6.40% 5.83% (2.19)% 28 January 2011 Euro Overnight Index Average () 0.15% 0.09% 0.23% 0.82% BlackRock European Absolute Return Fund 'A' Non Dist () 2.30% 3.66% 4.98% 6.11% 27 February Month Euro LIBOR Rate () 0.21% 0.15% 0.51% 1.36% BlackRock European Credit Strategies Fund 'H' Non Dist () 6.61% 5.22% 6.96% 2.04% 16 February Month Euro LIBOR Rate () 0.21% 0.15% 0.51% 1.23% The information stated in this report is historical and not necessarily indicative of future performance. 4 BlackRock Strategic Funds (BSF)

7 BSF Investment Adviser s Report Performance Overview 1 June May 2014 continued Financial Year Performance to 31 May 2014 Calendar Year Performance 1 year Launch Date BlackRock European Diversified Equity Absolute Return Fund 'A' Non Dist () 6.77% 18.00% (0.53)% (4.55)% 6 August Month Euro LIBOR Rate () 0.21% 0.15% 0.51% 1.36% BlackRock European Opportunities Absolute Return Fund 'A' Non Dist ()* (0.25)% 3.69% 2.00% 3.79% 6 August Month Euro LIBOR Rate () 0.02% 0.07% 0.51% 1.36% BlackRock European Opportunities Extension Fund 'A' Non Dist () 38.92% 44.94% 22.92% (8.79)% 31 August 2007 S&P Europe BMI Index (Developed Markets only) () b % 22.32% 19.09% (8.59)% MSCI Europe (net) () 16.98% 19.82% 17.29% (8.08)% BlackRock Fixed Income Strategies Fund 'A' Non Dist () 5.27% 3.80% 7.64% (1.30)% 30 September 2009 Euro Overnight Index Average () 0.15% 0.09% 0.23% 0.87% BlackRock Fund of ishares - Conservative 'K' Non Dist () 3.60% 0.27% 9.05% (0.76)% 17 September 2010 BlackRock Fund of ishares Conservative Customised Benchmark () 4.85% 1.78% 10.43% 0.89% BlackRock Fund of ishares - Dynamic 'K' Non Dist () 10.17% 12.37% 10.13% (9.92)% 17 September 2010 BlackRock Fund of ishares Dynamic Customised Benchmark () 11.25% 12.96% 12.29% (7.56)% BlackRock Fund of ishares - Growth 'K' Non Dist () 8.11% 8.18% 10.29% (6.75)% 17 September 2010 BlackRock Fund of ishares Growth Customised Benchmark () 9.07% 8.89% 12.18% (4.72)% BlackRock Fund of ishares - Moderate 'K' Non Dist () 5.99% 3.82% 10.19% (2.97)% 17 September 2010 BlackRock Fund of ishares Moderate Customised Benchmark () 6.72% 4.66% 11.84% (1.33)% BlackRock Global Absolute Return Bond Fund 'A' Non Dist () 0.88% 1.51% 2.20% 25 May month Euribor Index () 0.24% 0.20% 0.33% BlackRock Latin American Opportunities Fund 'A' Non Dist () (5.63)% (13.15)% 20.03% (28.12)% 14 November 2007 MSCI Emerging Market Latin America Index () (4.75)% (13.36)% 8.66% (19.35)% MSCI Emerging Market Latin America 10/40 (net) () (4.75)% (13.36)% 9.58% (18.57)% BlackRock Mining Opportunities Fund 'D' Non Dist RF ()** 1.01% (28.09)% 7.21% 31 May 2012 HSBC Global Mining () (0.16)% (22.63)% 16.94% * The Fund was liquidated on 17 July ** The Fund was liquidated on 18 March b1 Previously known as Citigroup BMI Europe Index. Fund performance returns are based on dealing prices with net dividends (after deduction of withholding tax) reinvested and are shown net of fees. Index Sources: Indices Financial Times, MSCI, Citigroup, DataStream, MorningStar; Funds BlackRock Investment Management (UK) Limited. The information stated in this report is historical and not necessarily indicative of future performance. Annual Report and Audited Accounts 5

8 BSF Investment Adviser s Report Performance Overview 1 June May 2014 continued Market Review Most global equity markets delivered good positive gains over the twelve month period, with the FTSE All-World Index up by 17.7% 1. The gains were pared back to some extent by concerns about the potential timing and extent of a reduction in monetary easing by the Fed, but positive economic news proved the bigger influence over the year. The main exceptions to this were Latin America (-5.6%) and Eastern Europe (-2.1%), which registered declines amid concerns over slow economic growth and heightened political risks. Brazil was a key negative contributor to Latin America s underperformance as it fell by 6.7%, while Eastern European companies became affected by geopolitical concerns over the tensions between Russia and Ukraine, with the Russian market posting a loss of 3.0% over the year. US equities (+20.8%), which represent over a half of the global equity market and Europe outperformed the broader global market. Italy (+36.9%), France (+26.1%) and Germany (+25.4%) were strong, while Greece and Ireland continued to recover strongly following a period of underperformance with gains of 44.7% and 41.2% respectively. UK equities also finished the year well, with a total return of 19.0%. Asia Pacific ex Japan equities underperformed the broader global market but still produced a respectable gain of 9.0%. Their performance was affected by concerns about the health of the Chinese economy and the impact of the Fed s reduced monetary stimulus measures. India gained 17.9%, as the landslide victory of Narenda Modi and his party brought high hopes that the new administration s focus on less government and more governance will help unlock India s economic potential. Japanese equities performed relatively well, gaining 6.7%, as they drew strength from supportive monetary policies. From the sector perspective, technology, health care and industrials were the strongest areas, while basic materials underperformed. In fixed income, the combination of improving economic news in developed economies and the Fed s decision to taper weighed on government bond prices over the year, as they underperformed corporate bonds. Over the first few months of 2014, government bonds recovered some of the ground they lost in They benefited from the Fed and the BoE reassuring investors that they will continue to support their respective economies until there is notable improvement in employment figures, with low inflation also remaining a key concern. Fund Performance Equity Fund Performance All equity-based funds within the BlackRock Strategic Funds range produced positive returns over the year with the exception of our Latin American equity strategy. For the year under review, Latin American small and mid-caps, the focus of our strategy, underperformed their larger peers. In particular, large-cap names in the Brazilian banking and oil and gas sectors, some of the key components of the Fund s all-cap benchmark, performed well on the back of strong third quarter 2013 earnings for the banks and optimism around a price adjustment mechanism for Petrobras. Later in the year, these sectors were buoyed by the growing potential for an opposition win in the forthcoming presidential elections in Brazil. The BlackRock Latin American Opportunities Fund declined by 5.63%, underperforming the MSCI Emerging Market Latin America Index and the MSCI Emerging Market Latin America 10/40 Index, which were down by 4.75% Within our absolute return strategies, the BlackRock European Diversified Equity Absolute Return Fund rose by 6.77% and the BlackRock European Absolute Return Fund rose by 2.30%. Both Funds generated good positive annualised returns since their inception, 17.39% and 23.97% since 6 August 2010 and 27 February 2009 respectively, thus continuing to match their long-term objectives of providing positive performance within a low-volatility and risk-aware strategy. Both of these Funds are based on model-driven investment insights. The BlackRock Americas Diversified Equity Absolute Return Fund gained 3.72%, outperforming the LIBOR 3 Month Index (), which was up by 0.26%. One of our more recent additions to the range, the BlackRock Emerging Markets Absolute Return Fund, produced a positive absolute return of 4.24%, outperforming the LIBOR 3 Month Index (), which was up by 0.26%. The BlackRock European Opportunities Extension Fund was the best-performing Fund within the range over the year, returning 38.92% and outperforming its benchmark, the S&P Europe BMI Index (Developed Markets Only), which was up by 19.02%. The BlackRock Asia Extension Fund, meanwhile, returned 6.38% but underperformed its benchmark, the MSCI All Country Asia ex Japan Index, which was up by 7.31%. The BlackRock Emerging Markets Flexi Dynamic Bond Fund rose by 0.69% from its launch on 12 June 2013, underperforming its composite benchmark, which was up by 4.50%. The recently launched BlackRock Emerging 1 All returns quoted are total returns, given in US dollar terms. Source: FTSE All World indices, over 12 months to 31 May The information stated in this report is historical and not necessarily indicative of future performance. 6 BlackRock Strategic Funds (BSF)

9 BSF Investment Adviser s Report Performance Overview 1 June May 2014 continued Markets Allocation Fund returned 3.20% since its launch on 15 November 2013, underperforming the 60% MSCI Emerging Markets Index / 40% JPMorgan Emerging Markets Bond Index Plus, which was up by 5.47% over the same period. Bond Fund Performance The best-performing bond Fund within the range was the BlackRock European Credit Strategies Fund, which returned 6.61% compared to 0.21% for its benchmark, the 3 Month Euro Libor Rate. It was followed closely by the BlackRock Fixed Income Strategies Fund, which was up by 5.27%, which also outperformed its benchmark, the Euro Overnight Index Average, which rose by 0.15%. The Fund offers the option of dynamic asset allocation across the whole investment universe and an ability to go net short duration. It gives investors an opportunity to take advantage of relative value opportunities without being locked into a benchmarkconstrained product. The BlackRock Global Absolute Return Bond Fund gained 0.88%, ahead of its benchmark, the 3 Month Euribor Index, which was up by 0.24%. Mixed Fund Performance The BlackRock Euro Dynamic Diversified Growth Fund produced an absolute return of 4.94% over the year, outperforming its benchmark, the Euro Overnight Index Average, which was up by 0.15%. Fund of Funds Performance The BlackRock Funds of ishares range, which was launched in September 2010, offers investors four diversified, multiasset class funds for different risk appetites: Conservative, Moderate, Growth and Dynamic. The Funds deliver their objectives via a combination of the asset-allocation expertise of BlackRock and subsequent investment in BlackRock s award-winning ishares Exchange Traded Funds ( ETF ) range. All four Funds achieved levels of risk appropriate to their respective profiles. The best-performing Fund in this range was the BlackRock Fund of ishares Dynamic, which delivered an absolute return of 10.17%, which was followed by the BlackRock Fund of ishares Growth +8.11%, the BlackRock Fund of ishares Moderate +5.99% and the BlackRock Fund of ishares Conservative +3.60%. Outlook An important question for investors is whether we are simply in a more mature phase of an economic cycle, so that future returns will be weaker than we have seen but ultimately worth playing for? Or are we at a later stage in the cycle warranting a fundamentally more negative stance for a period? We remain in the first camp. Firstly, we expect some firming of economic growth. One of the challenges in the markets so far this year is that this has been a consensus view, and in the first few months of 2014 global economic growth has actually lost some momentum. This partly appeared to reflect some random effects such as poor weather in the US, and recent signs, albeit tentative, are that growth momentum is beginning to pick up again. It s important to stress that this improvement is focused on the US and Europe it is less evident in Japan, partly as a result of the VAT increase, or in emerging markets. Nevertheless, there is some evidence emerging that is consistent with a realistically positive view on global growth. It s also interesting to note that commodity prices have strengthened materially in recent weeks. This increase has been broadly based, including cyclically sensitive areas such as industrial metals. And while several drivers have caused this increase, it would be unusual to see such a broad-based rise in commodity prices in the absence of economic activity. The second element in the positive market view is that we expect this firming of economic growth to translate into stronger corporate earnings growth. One major concern is that high margins in the US mean that there is now a materially higher risk to corporate earnings. However, there are two counters to this point. The first is that margins can remain elevated for an extended, multi-year period, and US earnings are still coming in ahead of expectations. Secondly, outside the US, earnings are still relatively depressed, so at the global level, profit margins are a long way from peak levels. The third component of a pro-risk view is that the policy background in the developed world remains supportive. Our central case is still that the Fed will not raise interest rates for at least another year, and possibly longer. For the moment, the risk is that monetary policy in the developed economies gets even looser if the Bank of Japan, and possibly the ECB, loosens policy further over the coming months. The final element of the pro-risk view is valuations. As we have said, risk-asset valuations have normalised, but they have not become unrealistic. At some stage in the current cycle, though, it is feasible that they will do so. There are four particular triggers for a more defensive stance to become more appropriate: Increased geopolitical risks A material slowdown in economic growth Earlier-than-expected policy tightening Valuations become unsustainable June 2014 The information stated in this report is historical and not necessarily indicative of future performance. Annual Report and Audited Accounts 7

10 BSF Directors Report Corporate Governance Statement Introduction BlackRock Strategic Funds (the Company ) is a public limited company (société anonyme) established under the laws of the Grand Duchy of Luxembourg as an open ended variable capital investment company (société d investissement à capital variable). The Company has been authorised by the Commission de Surveillance du Secteur Financier (the CSSF ) as an undertaking for collective investment in transferable securities ( UCITS ) pursuant to the provisions of Part I of the law of 17 December 2010 relating to undertakings for collective investments, as amended from time to time and is regulated pursuant to such law. The Company is an umbrella structure comprising a number of different Funds, each having a separate portfolio of investments. The Company complies with the principles set out in the Association of the Luxembourg Fund Industry (the ALFI ) Code of Conduct Revision 2013 (the Code ) issued by ALFI in June The Board of Directors of the Company (the Board ) is committed to maintaining the highest standards of corporate governance and is accountable to shareholders for the governance of the Company s affairs. The Board has considered the principles and recommendations of the Code and has put in place a framework for corporate governance which it believes is appropriate for adherence to the principles of the Code given the nature of its structure as an investment company. This statement summarises the corporate governance structure and processes in place for the Company for the year under review from 1 June 2013 to 31 May Board Composition The Board currently consists of six non-executive Directors (including one independent Director). The Board is committed to maintaining an appropriate balance of skills, experience, independence and knowledge amongst its members. The Directors biographies, on pages 10 and 11, collectively demonstrate a breadth of investment knowledge and experience, business and financial skills and legal and regulatory familiarity which enables them to provide effective strategic leadership, oversight and proper governance of the Company. BlackRock considers the current compositions to be a suitable and appropriate balance for the Board. Article 13 of the Company s Articles of Association, in accordance with Luxembourg law, provides that Directors shall be elected by the shareholders at their annual general meeting for a period ending at the next annual general meeting and until their successors are elected. Any Director who resigns his/her position is obliged to confirm to the Board and the CSSF that the resignation is not connected with any issues with or claims against the Company. The Board supports a planned and progressive renewing of the Board. BlackRock is committed to ensuring that Directors put forward for election by the shareholders possess the skills needed to maintain this balance. The Board is committed to carrying out an annual review of its performance and activities. The Directors have a continuing obligation to ensure they have sufficient time to discharge their duties. The details of each Director s (including the Chairman), other appointments and commitments are made available to the Board and BlackRock Investment Management (UK) Limited ( BIM UK ) for inspection. All new appointments or significant commitments require the prior approval of BIM UK. Before a new Director is proposed to the shareholders for appointment he or she will receive a full induction incorporating relevant information regarding the Company and his or her duties and responsibilities as a Director. In addition, a new Director is required to spend some time with representatives of BIM UK so that the new Director will become familiar with the various processes which are considered necessary for the proper performance of his or her duties and responsibilities to the Company. The Company s policy is to encourage Directors to keep up to date with developments relevant to the Company. The Directors have attended and will continue to attend updates and briefings run by BIM UK and affiliated entities in the U.S. and elsewhere. The Directors also receive regular briefings from, amongst others, the auditors, investment strategists, risk specialists, custodian and legal advisors regarding any proposed product developments or changes in laws or regulations that could affect the Company. Board s Responsibilities The Board meets at least quarterly and also on an ad hoc basis as required. The Board is supplied with information in a timely manner and in a form and of a quality appropriate to enable it to discharge its duties. The Board is responsible for the longterm success of the Company and recognises its responsibility to provide leadership, direction and control to the Company within a framework of prudent and effective controls which enables risk to be assessed and managed. The Board reserves to itself decisions relating to the determination of investment policy and objectives, any change in investment strategy and entering into any material contracts. The Board has responsibility for the KIID and also approves the prospectus and any addenda to it, circulars to shareholders, the financial statements and other relevant legal documentation. The Chairman s main responsibility is to lead and manage the Board, encourage critical discussions and promote effective communication within the Board. In addition, he is responsible for promoting best practice corporate governance and effective communication with shareholders. 8 BlackRock Strategic Funds (BSF)

11 BSF Directors Report continued The Directors have access to the advice and services of external counsel and the resources of BIM UK and BlackRock (Luxembourg) S.A. (the Management Company ) should they be needed. Where necessary, in the furtherance of their duties, the Board and individual Directors may seek independent professional advice. The Board has responsibility for ensuring that the Company keeps proper accounting records which disclose, with reasonable accuracy, at any time the financial position of the Company and which enable it to ensure that the financial statements comply with relevant accounting standards. It is the Board s responsibility to present a balanced and understandable assessment of the Company s financial position, which extends to interim financial statements and other reports made available to shareholders and the public. The Board is responsible for taking reasonable steps for safeguarding the assets of the Company and for taking reasonable steps in the prevention and detection of fraud and other irregularities. Insurance The Company maintains appropriate Directors and Officers liability insurance cover. Delegation of Responsibilities As an open ended variable capital investment company most of the Company s day-to-day management and administration is delegated to BlackRock Group companies such as the Management Company which employs dedicated compliance and risk professionals, the Investment Advisers and other third party service providers. The Board has delegated the following areas of responsibility: Management and Administration The Board of the Company has delegated the investment management, distribution and administration of the Company and its Funds to the Management Company. The Management Company has delegated the management of the investment portfolio to the Investment Advisers. The Investment Advisers operate under guidelines determined by the Board and as detailed in the Company s prospectus relating to the Company s Funds. The relevant Investment Advisers have direct responsibility for the decisions relating to the day-to-day running of the Company s Funds and are accountable to both the Management Company and the Company for the investment performance of the Funds. The Board has also delegated the exercise of voting rights attaching to the securities held in the portfolio to the respective Investment Advisers who may in turn delegate to BIM UK. Voting on behalf of shareholders is done so in a manner which is believed to be in the best economic interest of shareholders as long-term investors. The Management Company has delegated its responsibilities for administrative services of the Company and its Funds to State Street Bank Luxembourg S.A. (the Administrator ). The Administrator has the responsibility for the administration of the Company s affairs including the calculation of the net asset value and preparation of the financial statements of the Company, subject to the overall supervision of the Directors and the Management Company. The Administrator is a subsidiary of State Street Bank & Trust Co. The Company has appointed State Street Bank Luxembourg S.A. as Custodian of its assets, which has responsibility for safe-keeping of such assets, pursuant to the regulations. The Custodian is a subsidiary of State Street Bank & Trust Co. The Management Company has delegated transfer agent and share registration services to J.P. Morgan Bank Luxembourg S.A. The Management Company reports to the Board on a quarterly basis and by exception where necessary. Reporting is in place to ensure that the Board can effectively oversee the actions of its delegates. The Management Company is responsible for the risk management and internal controls of the Company and for reviewing their effectiveness, for ensuring that financial information published or used within the business is reliable, and for regularly monitoring compliance with regulations governing the operation of the Company. The Management Company reviews the effectiveness of the internal control and risk management systems on an on-going basis to identify, evaluate and manage the Company s significant risks. As part of that process, there are procedures designed to capture and evaluate any failings or weaknesses. Should a case be categorised by the Board as significant, procedures exist to ensure that necessary action is taken to remedy the failings. The Board is also responsible for establishing and maintaining adequate internal control and risk management systems of the Company in relation to the financial reporting process. Such systems are designed to manage rather than eliminate the risk of failure to achieve the Company s financial reporting objectives. The Company has procedures in place to ensure all relevant accounting records are properly maintained and are readily available, including production of annual and half-yearly financial statements. These procedures include appointing the Administrator to maintain the accounting records of the Company independently of the Investment Manager and the Custodian. The financial statements are prepared in accordance with applicable law and Luxembourg Generally Accepted Accounting Principles ( GAAP ) and are approved by the Board of Directors of the Company. The accounting information given in the annual report is required to be audited and the Auditor s report, including any qualifications, is reproduced in full in the annual report of the Company. The control processes over the risks identified, covering financial, operational, compliance and risk management, is Annual Report and Audited Accounts 9

12 BSF Directors Report continued embedded in the operations of the Management Company, BIM UK and other parties including the Administrator and the Custodian. There is a monitoring and reporting process to review these controls, which has been in place throughout the year under review and up to the date of this report, carried out by BIM UK s internal audit department. BIM UK s internal audit and operational risk units report to the Board through the Management Company on a quarterly basis. The Management Company also receives a report from the Administrator and the Custodian on the internal controls of the administrative and custodial operations of the Company. The Board recognises that these control systems can only be designed to manage rather than eliminate the risk of failure to achieve fund objectives, and to provide reasonable, but not absolute, assurance against material misstatement or loss, and relies on the operating controls established by the service providers. Financial Reporting The Company prepares its financial statements under Luxembourg GAAP and on a going concern basis. Remuneration The Company is an investment company and has no employees or executive Directors. No Director (past or present) has any entitlement to a pension and the Company has not awarded any share options or long-term performance incentives. No element of Directors remuneration is performance-related. Those Directors who are also employees of the BlackRock group are not entitled to receive a Director s fee. All other Directors are paid fees which are submitted for approval by the shareholders at the annual general meeting and are disclosed on page 175. The Board believes that the level of remuneration for those Directors who take a fee properly reflects the time commitment and responsibilities of their roles. The maximum amount of remuneration payable to the Directors is determined by the Board. The Directors have a continuing obligation to ensure they have sufficient time to discharge their duties. The detail of each Director s, including the Chairman s, other appointments and commitments are made available to the Board for inspection and all new appointments or significant commitments require the prior approval of the Investment Manager. Communication with Shareholders The Board is responsible for convening the annual general meeting and all other general meetings of the Company. Shareholders have the opportunity to and are encouraged to attend and vote at general meetings. Notice of general meetings is issued in accordance with the Articles of Association of the Company and notice of the annual general meeting is sent out at least 8 days in advance of the meeting. All substantive matters put before a general meeting are dealt with by way of separate resolution. Proxy voting figures are noted by the chairman of the general meeting. The proceedings of general meetings are governed by the Articles of Association of the Company. The Board has reporting procedures in place such that client communication with BIM UK and/or the Management Company is reported to the Board, including shareholder complaints. In addition to this the Company has appointed BlackRock (Channel Islands) Limited as Principal Distributor who are tasked with actively managing the relationship between the Company and its shareholders. Directors Biographies Nicholas C.D. Hall (Chairman) (British): Mr Hall was, until he retired in May 2009, General Counsel of BlackRock International (previously known as Merrill Lynch Investment Managers International) based in London which was a position he held from his appointment in August He joined the Group in He was educated at St. Catharine s College, Cambridge graduating with a MA (Law) degree in He qualified as a solicitor in England and Wales in 1978 and in Hong Kong in He is a non-executive director of BlackRock Investment Management (UK) Limited, BlackRock Advisors (UK) Limited, BlackRock International Limited, Chairman of the Board of BlackRock Life Limited, BlackRock Global Funds and BlackRock Global Index Funds and serves on the Boards of a number of other BlackRock entities and sponsored funds. Mr Hall is a member of the BlackRock Group Limited Audit and Risk Committees and he Chairs the BlackRock Conflicts Management Committee and the BlackRock Europe, Middle East and Africa ( EMEA ) Nominations Committee. Francine Keiser (Luxembourgish): Mrs Keiser is a former Partner of Linklaters LLP and is now a consultant to the firm. She has been a member of the Luxembourg Bar since Mrs Keiser is an experienced investment funds lawyer with wide expertise in all legal aspects of investment management, in particular in the UCITS area. She serves on the Boards of flagship funds of several major fund promoters, including BlackRock Global Funds and BlackRock Global Index Funds. Alexander C. Hoctor-Duncan (British): Mr Hoctor-Duncan is a Managing Director of BlackRock and is Head of BlackRock s Europe, Middle East and Africa Retail business. He is a member of the Global Client Group Executive Committee, Leadership Committee, European Executive Committee and also serves as a Director on the Boards of BlackRock Global Funds and BlackRock Global Index Funds. Mr Hoctor-Duncan is based in London. Prior to moving to his current role, Mr Hoctor-Duncan was Head of Retail Sales in the EMEA region. Mr Hoctor-Duncan s service with the firm dates back to 1997, including his 10 BlackRock Strategic Funds (BSF)

13 BSF Directors Report continued years with Mercury Asset Management and Merrill Lynch Investment Management ( MLIM ), which merged with BlackRock in At MLIM, he was head of the UK Retail business and Head of Sales in the UK retail market. Frank P. Le Feuvre (British nationality, Jersey resident): Mr Le Feuvre is the Country Manager for the Channel Islands and a member of BlackRock s Global Client Group. He is also the Managing Director of BlackRock (Channel Islands) Limited. Mr Le Feuvre s service with the firm dates back to 1972, including his years with Merrill Lynch Investment Managers (MLIM), which merged with BlackRock in At MLIM, he was Head of the Jersey business and Managing Director of Merrill Lynch Investment Management (Channel Islands) Limited. Mr Le Feuvre also serves as Director on the Boards of BlackRock Global Funds and BlackRock Global Index Funds and serves on the Boards of a number of other BlackRock entities and sponsored funds. Geoffrey D. Radcliffe (British nationality, Luxembourg resident): Mr Radcliffe is a Managing Director of BlackRock and is based in Luxembourg. He is a Fellow of The Institute of Chartered Accountants in England and Wales and an Associate of The Chartered Institute of Bankers. Mr Radcliffe has 30 years of banking, accounting and fund experience in the Isle of Man, London, Bermuda and Luxembourg. Mr Radcliffe joined the BlackRock Group in He is responsible for BlackRock EMEA and Asia Pacific Fund Administration and is also a Director of a number of BlackRock funds including BlackRock Global Funds and BlackRock Global Index Funds. Bruno Rovelli (Italian): Mr Rovelli is Head of Investment Advisory for BlackRock in Italy. Before joining BlackRock in 2011 Mr Rovelli had been working for over 11 years at Eurizon Capital, the largest asset manager in Italy. At Eurizon Capital Mr Rovelli served in various roles including Chief Strategist, Chief Investment Officer of the institutional business, Head of Quantitative Strategies and, from 2005 onwards, Chief Investment Officer for the mutual funds business. Prior to joining Eurizon Capital Mr Rovelli served as an economist and fixed income strategist for Citigroup, Bank of America and Unicredit. Mr Rovelli is a graduate in economics (First Class Honours) from Luigi Bocconi University in Milan. Mr Rovelli also serves as a Director on the Board of BlackRock Global Funds and BlackRock Global Index Funds. Annual Report and Audited Accounts 11

14 Board of Directors 1 Management and Administration continued Nicholas C.D. Hall (Chairman) Frank P. Le Feuvre Alexander C. Hoctor-Duncan Francine Keiser Geoffrey D. Radcliffe Bruno Rovelli 2 1 All Directors are non-executive Directors. 2 Appointed 20 November 2013 Management and Administration Management Company BlackRock (Luxembourg) S.A. 6D, route de Trèves L-2633 Senningerberg Grand Duchy of Luxembourg Investment Advisers BlackRock Financial Management, Inc., Park Avenue Plaza 55 East 52 nd Street New York, NY USA BlackRock Institutional Trust Company N.A. 400 Howard Street San Francisco CA USA BlackRock Investment Management, LLC 100 Bellevue Parkway Wilmington Delaware USA BlackRock Investment Management (UK) Limited 12 Throgmorton Avenue London EC2N 2DL United Kingdom BlackRock (Singapore) Limited #18-01 Twenty Anson 20 Anson Road Singapore, Sub-Investment Advisers BlackRock Asset Management North Asia Limited* 16/F Cheung Kong Center 2 Queen s Road Central Hong Kong BlackRock Investment Management (Australia) Limited Level 26, 101 Collins Street Melbourne 3000 Australia BlackRock Japan Co., Ltd Marunouchi Chiyoda-ku Tokyo Japan Principal Distributor BlackRock (Channel Islands) Limited One Waverley Place Union Street St. Helier Jersey JE1 0BR Channel Islands Enquiries In the absence of other arrangements, enquiries regarding the Company should be addressed as follows: Written Enquiries: BlackRock Investment Management (UK) Limited, c/o BlackRock (Luxembourg) S.A. P.O. Box 1058 L-1010 Luxembourg Grand Duchy of Luxembourg All other enquiries: Telephone: , Fax: investor.services@blackrock.com Custodian Bank and Administrative Agent State Street Bank Luxembourg S.A. 49, avenue J.F. Kennedy L-1855 Luxembourg Grand Duchy of Luxembourg Transfer Agent and Registrar J.P. Morgan Bank Luxembourg S.A. 6C, route de Trèves L-2633 Senningerberg Grand Duchy of Luxembourg Réviseur d Entreprises Agréé Deloitte Audit, Société à responsabilité limitée 560, rue de Neudorf L-2220 Luxembourg Grand Duchy of Luxembourg Legal Adviser Linklaters LLP 35, avenue J.F. Kennedy L-1855 Luxembourg Grand Duchy of Luxembourg Paying Agents A list of Paying Agents is to be found on page 182. Registered Office 49, avenue J.F. Kennedy L-1855 Luxembourg Grand Duchy of Luxembourg * Appointed on 4 October BlackRock Strategic Funds (BSF)

15 Statement of Net Assets as at 31 May 2014 BlackRock Strategic Funds Combined BlackRock Americas Diversified Equity Absolute Return Fund BlackRock Asia Extension Fund BlackRock Emerging Markets Absolute Return Fund BlackRock Emerging Markets Allocation Fund* Note Assets Securities portfolio at cost 6,923,087,298 98,991, ,624,569 29,024,312 46,486, ,426,952 5,289 3,180 1,349, ,864 Securities portfolio at market value 7,149,514,250 98,997, ,627,749 30,374,207 47,419,732 Cash at bank 2(a) 464,826,342 23,544,654 33,275,907 1,144,110 6,979,589 Time Deposits 2(a) 148,480,518 9,280,000 Due from broker 15 64,435,216 2,415,000 3,219,019 Dividend receivable on contracts for difference 3,889, ,715 2,208, ,883 Interest and dividends receivable 41,593, ,447 42, , ,069 Interest and dividends receivable on swaps Receivable for investments sold 2(a) 417,909,036 66,534 21,592 1,600,946 11,221 Receivable for Fund shares subscribed 112,662,087 1,136,101 93,115 appreciation on: Open Forward foreign exchange transactions 2(d) 2,364,005 Contracts for difference 2(d) 16,738,283 3,454,563 8,367, ,361 Market value of swaps 2(d) 6,283,090 Market value of purchased options/swaptions 2(d) 3,870,665 Other assets 226,918 14,934 1,377 Total assets 8,432,794, ,558, ,959,827 45,893,699 55,581,232 Liabilities Interest payable on contracts for difference 2,080, , ,864 27, ,345 Due to broker 15 13,087,601 2,742,000 2,954,803 Interest and dividends payable on swaps 5,495,135 Dividend payable on contracts for difference 1,995, ,046 Dividends payable 129,633 Payable for investments purchased 2(a) 632,731, ,255 4,027, , ,182 Payable for Fund shares redeemed 18,635, ,880 92,539 4,771 depreciation on: Open Exchange traded futures contracts 2(d) 25,431, ,897 49,627 30,484 Open Forward foreign exchange transactions 2(d) 20,541, , ,377 Contracts for difference 2(d) 17,196,648 2,653,536 Market value of swaps 2(d) 30,800, ,278 Market value of written options/swaptions 2(d) 3,443,837 Other liabilities 4,5,6,7 63,459, , , , ,425 Total liabilities 835,027,876 6,562,035 5,293,674 3,822,704 3,979,239 Total net assets 7,597,766, ,996, ,666,153 42,070,995 51,601,993 * The Fund commenced trading on 15 November The notes on pages 169 to 179 form an integral part of these financial statements. Annual Report and Audited Accounts 13

16 Statement of Net Assets as at 31 May 2014 continued BlackRock Emerging Markets Flexi Dynamic Bond Fund* BlackRock Euro Dynamic Diversified Growth Fund BlackRock European Absolute Return Fund BlackRock European Credit Strategies Fund BlackRock European Diversified Equity Absolute Return Fund Note Assets Securities portfolio at cost 121,479, ,249,120 1,136,536,679 1,491,914, ,654,955 5,586,325 21,977,142 14,894,027 79,800,551 (457) Securities portfolio at market value 127,065, ,226,262 1,151,430,706 1,571,715, ,654,498 Cash at bank 2(a) 22,226,655 46,450, ,970,071 3,961,871 36,974,618 Time Deposits 2(a) Due from broker 15 4,582,956 1,280,221 24,114,598 10,030,209 Dividend receivable on contracts for difference Interest and dividends receivable 1,516, , ,126 19,632,083 61,451 Interest and dividends receivable on swaps Receivable for investments sold 2(a) 3,555,164 8,849,356 96,359,489 Receivable for Fund shares subscribed 80, ,360 18,772,219 4,062,851 appreciation on: Open Forward foreign exchange transactions 2(d) 431,062 19,631 Contracts for difference 2(d) 626,777 Market value of swaps 2(d) 3,389,528 Market value of purchased options/swaptions 2(d) 1,898, ,850 Other assets 4,034 64,972 Total assets 155,906, ,841,734 1,340,173,488 1,720,706, ,380,195 Liabilities Interest payable on contracts for difference 189, ,027 Due to broker 15 1,782,000 Interest and dividends payable on swaps 540,357 5,258 2,910,030 Dividend payable on contracts for difference 581, ,134 Dividends payable 86,863 Payable for investments purchased 2(a) 2,840,476 5,814, ,797,404 17,180,950 Payable for Fund shares redeemed 18,108 3,290,806 5,999, ,709 depreciation on: Open Exchange traded futures contracts 2(d) 1, ,825 9,805,833 6,302,518 Open Forward foreign exchange transactions 2(d) 2,931,511 5,425, ,663 Contracts for difference 2(d) 10,677,553 Market value of swaps 2(d) 4,378,934 17,394,370 Market value of written options/swaptions 2(d) 951, ,107 Other liabilities 4,5,6,7 58, ,294 13,706,295 20,988,470 2,435,623 Total liabilities 7,906,945 4,990,313 44,413, ,817,840 23,500,106 Total net assets 147,999, ,851,421 1,295,759,972 1,493,888, ,880,089 * The Fund commenced trading on 12 June BlackRock Strategic Funds (BSF)