BlackRock Collective Investment Funds

Transcription

1 ANNUAL report BlackRock Collective Investment Funds ended 29 February 2016 `` BlackRock Balanced Managed Fund `` BlackRock Continental European Equity Tracker Fund `` BlackRock Corporate Bond 1 10 Year Fund `` BlackRock Corporate Bond Tracker Fund `` BlackRock Emerging Markets Equity Tracker Fund `` BlackRock Global Property Securities Equity Tracker Fund `` BlackRock Index Linked Gilt Tracker Fund `` BlackRock Japan Equity Tracker Fund `` BlackRock Mid Cap UK Equity Tracker Fund `` BlackRock North American Equity Tracker Fund `` BlackRock Overseas Corporate Bond Tracker Fund `` BlackRock Overseas Government Bond Tracker Fund `` BlackRock Pacific ex Japan Equity Tracker Fund `` BlackRock UK Equity Tracker Fund `` BlackRock UK Gilts All Stocks Tracker Fund `` BlackRock US Equity Tracker Fund `` BlackRock 100 UK Equity Tracker Fund `` BlackRock 350 UK Equity Tracker Fund

2 Contents About the Trust About the Trust 2 Accounting and Distribution Policies 4 8 Financial Instruments and Risks 9 37 BlackRock Balanced Managed Fund BlackRock Continental European Equity Tracker Fund BlackRock Collective Investment Funds (the Trust ) is organised as an umbrella unit trust scheme comprising separate funds with segregated liability (each referred to as a Fund and together the Funds ). The Trust is an authorised unit trust scheme and qualifies as a UCITS scheme under the Financial Conduct Authority s Collective Investment Schemes Sourcebook (the COLL Sourcebook ). Cross sub-fund holdings within the Trust: As at 29 February 2016 there were no cross sub-fund holdings within the Trust. BlackRock Corporate Bond 1 10 Year Fund BlackRock Corporate Bond Tracker Fund BlackRock Emerging Markets Equity Tracker Fund BlackRock Global Property Securities Equity Tracker Fund BlackRock Index Linked Gilt Tracker Fund BlackRock Japan Equity Tracker Fund BlackRock Mid Cap UK Equity Tracker Fund BlackRock North American Equity Tracker Fund BlackRock Overseas Corporate Bond Tracker Fund BlackRock Overseas Government Bond Tracker Fund BlackRock Pacific ex Japan Equity Tracker Fund BlackRock UK Equity Tracker Fund BlackRock UK Gilts All Stocks Tracker Fund BlackRock US Equity Tracker Fund BlackRock 100 UK Equity Tracker Fund BlackRock 350 UK Equity Tracker Fund Statement of Manager s and Trustee s Responsibilities 770 Report of the Trustee 770 Independent Auditor s Report General Information 774 Funds not yet launched Funds approved by the FCA but not yet launched are as follows: BlackRock Developed Asia Pacific ex Japan Equity Tracker Fund BlackRock Over 15 Years Gilts Tracker Fund BlackRock World ex UK Equity Tracker Fund About the Fund Managers Andy Warwick, CFA, Managing Director and portfolio manager, is a member of the Diversified Strategies team within BlackRock s Multi-Asset Strategy group, which is responsible for developing, assembling and managing investment strategies involving multiple asset classes. Within Diversified Strategies he is lead portfolio manager for BlackRock Dynamic Return Strategy Fund and a portfolio manager for BlackRock Dynamic Diversified Growth Fund. Mr. Warwick s service with the firm dates back to 2005, including his years with Merrill Lynch Investment Managers ( MLIM ), which merged with BlackRock in Prior to MLIM he worked with Mako Global Derivatives and Dalton Strategic Partnership from Mr. Warwick initially worked for MLIM from as a manager for MLIM s unit trusts before joining the quantitative and derivatives team as a portfolio manager and equity derivatives head trader in He was subsequently co-portfolio manager of MLIM s first hedge fund, the Mercury Equity Arbitrage Fund. Mr. Warwick earned a MSc in finance from the University of Leicester in Duncan Fergusson, Director and portfolio manager, is a member of BlackRock s Model-Based Fixed Income Portfolio Management group. Mr. Fergusson s service with the firm dates back to 2003, including his years with Barclays Global Investors ( BGI ), which merged with BlackRock in At BGI, he was a member of the Portfolio Solutions team. Prior to this, he worked on the Securities Lending team. Mr. Fergusson earned a BSc degree in business administration from the University of Bath. Copies of Manager s Reports and Prospectus are available on request. Dealing and Investor Services: blackrock.co.uk 1 BlackRock Collective Investment Funds 2

3 About the Fund Managers continued Panayotis (Panos) Ferendinos, CFA, Director, is a member of the European & Non-US Fixed Income group within BlackRock Fundamental Fixed Income. He is a portfolio manager for Sterling portfolios. Mr. Ferendinos service with the firm dates back to 1999, including his years with Merrill Lynch Investment Managers ( MLIM ), which merged with BlackRock in At MLIM, Mr. Ferendinos specialised in macroeconomic research and analysis for the Sterling investment team. He also worked within the dealer support, static data, and valuation teams. Prior to joining MLIM, Mr. Ferendinos worked for an Italian fixed income broker. Mr. Ferendinos earned a BA degree in Law, English & Psychology from the University of Natal, Durban in 1992 and a BA degree, with honours, in English literature from the University of South Africa in Francis Rayner, CFA, Director, is a member of BlackRock s Fixed Income Portfolio Solutions group. Mr. Rayner s service with the firm dates back to 2008, including his years with Barclays Global Investors ( BGI ), which merged with BlackRock in Prior to joining BGI, he spent six years working for Prudential M&G and International Financial Data Services as a client relationship manager. Mr. Rayner earned a BSc degree in mathematics from Lancaster University in 1999 and holds the Chartered Institute for Securities and Investment Diploma. Darren Wills, Director, is a portfolio manager within BlackRock s Model-Based Fixed Income Portfolio Management group. Mr. Wills service with the firm dates back to 2008, including his years with Barclays Global Investors ( BGI ), which merged with BlackRock in Prior to BGI, Mr. Wills was an investment manager at State Street Global Advisors, where he managed predominately Sterling and global credit portfolios. Mr. Wills earned a BSc degree in mathematics and management sciences from University of Manchester Institute of Science and Technology and holds the Investment Management Certificate. Kieran Doyle, CFA, Director and senior portfolio manager within the BlackRock Institutional Index Equity team in London. Mr Doyle is responsible for overseeing a team managing developed and emerging market index equity Pooled Funds for Institutional clients. Mr. Doyle s service with the firm dates back to 2004, including his years with Barclays Global Investors ( BGI ), which merged with BlackRock in At BGI, he was a Portfolio Manager in the Institutional Index Equity team. Prior to joining BGI, Mr. Doyle was with KPMG where he qualified as a Chartered Accountant in Mr. Doyle earned a Master s degree in economics and finance from Bristol University in In March 2016, Nimish Patel relinquished the responsibility for the day-to-day management of the BlackRock 100 UK Equity Tracker Fund, BlackRock 350 UK Equity Tracker, BlackRock Continental European Equity Tracker Fund, BlackRock Emerging Markets Equity Tracker Fund, BlackRock Global Property Securities Equity Tracker Fund, BlackRock Japan Equity Tracker Fund, BlackRock Mid Cap UK Equity Tracker Fund, BlackRock North American Equity Tracker Fund, BlackRock Pacific ex Japan Equity Tracker Fund, BlackRock UK Equity Tracker Fund and the BlackRock US Equity Tracker Fund. Accounting and Distribution Policies* for the year 29 February 2016 Accounting Policies (a) The financial statements have been prepared in accordance with the Statement of Recommended Practice for Authorised Funds (the SORP ) issued by the Investment Management Association (now known as the Investment Association) in May 2014.The SORP was revised in May 2014 to concur with Financial Reporting Standard 102, the new financial reporting standard applicable in the UK and Republic of Ireland. Amendments to FRS 102 Fair value hierarchy disclosures effective for annual periods beginning on or after 1 January 2017 have been early adopted. These amendments improve the consistency of fair value disclosures for financial instruments with those required by EU-adopted IFRS. The transition to the revised SORP on 1 March 2015 has not resulted in any restatement to the financial position or financial performance previously reported as at 28 February Certain presentational amendments have been required which have no impact on the total return or Net Asset Value ( NAV ) in either the current or prior accounting period. These amendments are listed below. Nature of Change in Presentation i. Cash Equivalents Investments in money market funds held in the base currency of the Funds are now classified as Cash equivalents on the Balance Sheet. ii. Tax on Distributions Tax withheld on interest distributions are now included within Distributions in the Statement of Total Return and within Distributions payable on the Balance Sheet. iii. Returns from Short Derivative Positions Returns from short derivative positions are now included within Interest payable and similar charges in the Statement of Total Return. Reasons for Changes in Presentation i. Cash Equivalents Under FRS 102 section 7 Cash equivalents are defined as short term, highly liquid investments that are readily convertible to a known amount of cash and are subject to an insignificant risk of changes in value. An investment normally qualifies as a cash equivalent when it has a short maturity. Investments in the Institutional Cash Series plc meet this definition and classifying them as cash equivalents more accurately reflects the economic substance of these transactions. The change had no impact on the NAV of the Funds. This has resulted in a reclassification which decreased the value of Investment assets and increased the value of Cash equivalents on the Balance Sheets. Please see Cash equivalents in the relevant Funds Balance Sheets which shows the full amount of this reclassification. Related balances in the relevant notes have also been updated to reflect the reclassification. ii. Tax on Distributions Section 2.76 of the SORP states that tax withheld on interest distributions should be shown as part of Distributions payable and not as part of the liability to corporation tax, since it will be settled from amounts transferred to the distribution account. The change had no impact on the NAV of the Funds. * The Accounting and Distribution Policies are an integral part of the notes to financial statements. 3 BlackRock Collective Investment Funds 4

4 Accounting and Distribution Policies continued This has resulted in a reclassification which decreased the value of Other creditors (previously Creditors ) and increased the value of Distributions payable on the Balance Sheet by the same amount. Corresponding reclassifications have also been made in the Statement of Total Return which resulted in an increase in the value of Distributions and a decrease in the value of UK income tax withheld by the same amount. The Funds impacted and the reclassification amounts are set out in the table below. Related balances in the relevant notes have also been updated to reflect the reclassification. Fund Balance Sheet Amount reclassified Statement of Total Return Amount reclassified BlackRock Corporate Bond 1 10 Year Fund 3,041 6,069 BlackRock Corporate Bond Tracker Fund 2,706 5,901 BlackRock Index Linked Gilt Tracker Fund BlackRock Overseas Corporate Bond Tracker Fund 2,206 4,136 BlackRock Overseas Government Bond Tracker Fund BlackRock UK Gilts All Stocks Tracker Fund 6,346 11,438 iii. Returns from Synthetic Short Positions The Funds may use derivatives to create synthetic short positions. Synthetic short positions are positions which are in economic terms equivalent to short positions and will be implemented through the use of financial derivative instruments. Section 3.49 of the SORP states that dividends payable on short positions should be included in interest payable and similar charges and disclosed separately in the notes. The change had no impact on the NAV of the Funds. In respect of the BlackRock Balanced Managed Fund, this has resulted in a reclassification which increased the value of Revenue and of Interest payable and similar charges (previously Finance Costs: Interest ) by Related balances in the relevant notes have also been updated to reflect the reclassification. Change in Valuation Point As permitted by Section 6.8.2(5a) of the COLL Sourcebook, the financial statements for the year ended 29 February 2016 have been prepared as at each Funds valuation point at 12 noon on the last business day of the accounting period. This aligns the valuation point for financial statements purposes with the valuation point used for dealing purposes. The comparative figures as at 28 February 2015 have been prepared as at close of business on the last business day of the accounting period. (b) Dividends on quoted ordinary shares and preference shares are recognised when the securities are quoted ex-dividend. Where such securities are not quoted, dividends are recognised when they are declared. US REIT dividend revenue is accounted for partly as revenue and partly as capital, depending on the underlying REIT distribution. All REIT dividend revenue is recognised on an accruals basis. Revenue from fixed interest securities is recognised on an effective interest rate basis. Accrued interest purchased and sold on interest bearing securities is excluded from the capital cost of these securities and dealt with as part of the revenue of the Funds. All distributions from Collective Investment Schemes ( CIS ) are recognised when the securities are quoted ex-dividend. All distributions from CIS are treated as revenue with the exception of the equalisation element, which is treated as capital. Any reported revenue from an offshore fund, in excess of any distribution received in the reporting period, is recognised as revenue no later than the date on which the reporting fund makes this information available. The equalisation element is treated as capital. 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. Returns from bond futures are streamed into revenue and capital components. Amounts recognised as revenue from long positions form part of the distribution. Amounts recognised as revenue from short positions reduce the amounts available for distribution. Returns from total return swaps in the form of dividends or interest received from the underlying security or index are recognised as revenue. Capital gains on the underlying security or index are treated as capital. Bank interest is recognised on an accruals basis. The Funds receive Manager s charge rebates from BlackRock related investments in the normal course of business. These are recognised on an accruals basis and are treated as revenue, unless it is the policy of the underlying fund to charge its fees to capital, in which case these rebates will be recognised as capital. (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 capital. (d) The underlying circumstances behind both special dividends and share buy backs are reviewed on a case by case basis in determining whether the amount is revenue or capital in nature. Amounts recognised as revenue form part of the distribution. Any tax treatment will follow the accounting treatment of the principal amount. (e) Underwriting commission is wholly recognised as revenue when the issue takes place, except where the Funds are required to take up some or all of the shares underwritten, in which case an appropriate proportion of the commission received is deducted from the cost of those shares. (f) All expenses, except those relating to the purchase and sale of investments are charged against revenue. All expenses are recognised on an accruals basis. (g) Provision for corporation tax is made at the current rate on the excess of taxable revenue over allowable expenses. Provision is made on all material timing differences arising from the different treatment of items for accounting and tax purposes. A deferred tax asset is recognised only to the extent that it is considered more likely than not that there will be taxable profits in the future against which the asset can be offset. 5 BlackRock Collective Investment Funds 6

5 Accounting and Distribution Policies continued (h) The investments of the Funds have been valued at market value, defined as fair value, which is usually bid value at 12 noon on the last business day of the accounting period. In the case of an investment which is not quoted, listed or dealt in on a recognised market, or in respect of which a listed, traded or dealt price or quotation is not available at the time of valuation, the fair value of such investment shall be estimated with care and in good faith by a competent professional person, body, firm or corporation including the Manager s pricing committee, and such fair value shall be determined on the basis of the probable realisation value of the investment. The Manager shall be entitled to adopt an alternative method of valuing any particular asset or liability if it considers that the methods of valuation set out above do not provide a fair valuation of a particular asset or liability. For over the counter derivatives (e.g. credit default swaps, interest rate swaps, total return swaps and currency options), market value is determined based on valuation pricing models which take into account relevant market inputs as well as the time values, liquidity and volatility factors underlying the positions. Amounts due to and from an individual counterparty which falls under a legally enforceable master netting agreement are netted. Investments in dual priced CIS have been valued at market values, defined as fair value, which is usually bid value at the 12 noon valuation point of the underlying fund on the last business day of the accounting period. Investments in single priced CIS have been valued at market values, defined as fair value, which is usually the latest available price at the Funds 12 noon valuation point on the last business day of the accounting period. (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 12 noon on the last business day of the accounting period. Revenue items in foreign currencies are translated into Sterling at the exchange rate when the revenue is received. (j) Where appropriate, certain permitted financial instruments such as derivatives are used for efficient portfolio management. Where such financial instruments are used to protect or enhance revenue, the revenue and expenses derived therefrom are included in Revenue in the Statement of Total Return. Where such financial instruments are used to protect or enhance capital, the gains and losses derived therefrom are included in Net capital gains or losses in the Statement of Total Return. (k) Cash and bank balances consist of deposits held on call with banks and cash held with clearing brokers and counterparties. Cash equivalents are short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. (l) Cash collateral provided by the Funds is identified on the Balance Sheet as pledged cash collateral and is not included as a component of cash and cash equivalents. For collateral other than cash provided by the Funds, the party to whom the collateral is provided has the right by contract to sell or repledge the collateral but has an obligation to return equivalent securities to the Funds on maturity or sale of the contract. The Funds classify these assets on their Balance Sheets separately from other assets and identify the asset as pledged investments. Such assets are valued consistently with the accounting policies listed above. Cash collateral provided to the Funds by counterparties is identified in the Balance Sheets as cash collateral payable. The Funds may reinvest this cash collateral and the assets purchased are included in investment assets or cash equivalents on the Balance Sheet. For collateral received from counterparties other than cash, a disclosure of the collateral provided is made in the notes to the financial statements. Distribution Policies (m) The ordinary element of stock dividends is treated as revenue but does not form part of the distribution. (n) All of the net revenue available for distribution at the final accounting period end will be distributed to unitholders with the balance attributable to accumulation unitholders retained within the Funds. In order to conduct a controlled dividend flow to unitholders, interim distributions may be made at the Manager s discretion, up to a maximum of the distributable revenue available for the period. Should expenses and taxation together exceed revenue, there will be no distribution and the shortfall will be met from capital. (o) The Corporate Bond 1-10 Year, Corporate Bond, Index Linked Gilt, Overseas Corporate Bond, Overseas Government Bond and UK Gilts All Stocks Tracker Funds have satisfied the qualifying investments tests as specified in S468L ICTA 1988 at all times throughout their distribution period. As such, any revenue available for distribution will be paid as an interest distribution. All other funds will pay a dividend distribution. (p) The Index Linked Gilt Tracker Fund pays distributions on a coupon rate basis. Revenue is recognised on an effective interest rate basis and these positions have been reconciled in the Distributions note. 7 BlackRock Collective Investment Funds 8

6 Financial Instruments and Risks* Introduction and overview The Funds investment activities expose them to the various types of risk which are associated with the financial instruments and markets in which they invest. The following information is not intended to be a comprehensive summary of all risks and investors should refer to the Prospectus of each fund for a more detailed discussion of the risks inherent in investing in the Funds. Risk management framework The Manager has delegated the day-to-day administration of the investment programme to the Investment Manager. The Investment Manager is also responsible for ensuring that the Funds are managed within the terms of their investment guidelines and limits set out in the Prospectus. The Manager reserves to itself the investment performance, product risk monitoring and oversight and the responsibility for the monitoring and oversight of regulatory and operational risk for the Funds. The Manager has appointed a risk manager who has responsibility for the daily risk management process with assistance from key risk management personnel of the Investment Manager, including members of the Risk and Quantitative Analysis Group ( RQA Group ) which is a centralised group which performs an independent risk management function. The RQA Group independently identifies, measures and monitors investment risk. The RQA Group tracks the actual risk management practices being deployed across the different funds. By breaking down the components of the process, the RQA Group has the ability to determine if the appropriate risk management processes are in place for the Funds. This captures the risk management tools employed, how the levels of risk are controlled, ensuring risk/return is considered in portfolio construction and reviewing outcomes. The risk profiles of the Funds are set out as follows: a) Market risk Market risk arises mainly from uncertainty about future values of financial instruments influenced by other price, currency and interest rate movements. It represents the potential loss the Funds may suffer through holding market positions in the face of market movements. The Funds are exposed to market risk by virtue of their investments in equities, warrants, rights, corporate bonds, government bonds, futures contracts and forward currency contracts. A key metric the RQA Group uses to measure market risk is VaR which encompasses price, currency and interest rate risk. VaR is a statistical risk measure that estimates the potential portfolio loss from adverse market moves in an ordinary market environment. VaR analysis reflects the interdependencies between risk variables, unlike a traditional sensitivity analysis. The VaR calculations are based on an adjusted historical simulation model with a confidence level of 99%, a holding period of one day and a historical observation period of not less than one year (250 days). A VaR number is defined at a specified probability and a specified time horizon. A 99% one day VaR means that the expectation is that 99% of the time over a one day period a Fund will lose less than this number in percentage terms. Therefore, higher VaR numbers indicate higher risk. It is noted that the use of the VaR methodology has limitations, namely that the use of historical market data as a basis for estimating future events does not encompass all possible scenarios, particularly those that are of an extreme nature and that the use of a specified confidence level (e.g. 99%) does not take into account losses that occur beyond this level. There is some probability that the loss could be greater than the VaR amounts. These limitations and the nature of the VaR measure mean that the Funds can neither guarantee that losses will not exceed the VaR amounts indicated, nor that losses in excess of the VaR amounts, will not occur more frequently. The one day VaR as at 29 February 2016 and 28 February 2015 based on a 99% confidence level is outlined in the table below: Fund 29 February 2016 % 28 February 2015 % Balanced Managed Fund Continental European Equity Tracker Fund Corporate Bond 1 10 Year Fund Corporate Bond Tracker Fund Emerging Markets Equity Tracker Fund Global Property Securities Equity Tracker Fund Index Linked Gilt Tracker Fund Japan Equity Tracker Fund Mid Cap UK Equity Tracker Fund North American Equity Tracker Fund Overseas Corporate Bond Tracker Fund Overseas Government Bond Tracker Fund Pacific ex Japan Equity Tracker Fund UK Equity Tracker Fund UK Gilts All Stocks Tracker Fund US Equity Tracker Fund UK Equity Tracker Fund UK Equity Tracker Fund During the year the VaR model used by the RQA Group changed from a parametric model to an adjusted historical simulation model to measure more appropriately the Funds exposure to market risk. The previous model used a holding period of one month (20 days). The comparative VaR as of 28 February 2015 has been updated in line with the new model. * The information relating to Financial Instruments and Risks is an integral part of the notes to financial statements. 9 BlackRock Collective Investment Funds 10

7 Financial Instruments and Risks continued i) Market risk arising from foreign currency risk All funds with exception of the Balanced Managed Fund Exposure to foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Funds may invest in securities, which as far as possible and practicable, consist of the component securities of the benchmark index of each Fund, and which may be denominated in currencies other than its reporting currency. The Funds, in line with their benchmarks, are unhedged and are therefore exposed to foreign currency risk. Consequently, each Fund is exposed to the risk of currency fluctuations between the base currency of the benchmark index and the base currency of the constituent securities of the benchmark index. Balanced Managed Fund The Fund is not managed in reference to a benchmark index but is exposed to foreign currency risk from its financial assets and financial liabilities denominated in non Sterling currencies. The tables below outline each Fund s exposure to foreign currency risk as at the Balance Sheet date. Foreign currency exposure 29 February 2016 Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets Balanced Managed Fund Australian dollar (8) - (8) 0.00 Canadian dollar (2,745) (2,745) (0.59) Euro 15,601 (28,089) (12,488) (2.71) Japanese yen , Polish zloty South African rand (5,275) (5,275) (1.14) US dollar 16, , , Total exposure to foreign currencies 32,634 66,711 99, February 2015 Balanced Managed Fund Australian dollar (8) (4,879) (4,887) (0.95) Brazilian real 10, , Canadian dollar (4,752) (4,752) (0.92) Euro 45,576 (10,834) 34, Hungarian forint (9,888) (9,888) (1.92) Japanese yen 175 9,458 9, Mexican peso New Zealand dollar 10,064 10, South African rand (5,299) (5,299) (1.03) South Korean won Swedish krona (4,800) (4,800) (0.93) Swiss franc 8,957 8, US dollar 39,870 81, , Total exposure to foreign currencies 96,224 70, , BlackRock Collective Investment Funds 12

8 Financial Instruments and Risks continued Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets 29 February February 2016 Continental European Equity Tracker Fund Czech koruna 2,975 2, Danish krone 128, , Euro 1,916,961 1,916, Hungarian forint 5,343 5, Norwegian krone 39,517 39, Polish zloty 25,068 25, Swedish krona 189, , Swiss franc 592, , Turkish lira 27,751 27, US dollar Total exposure to foreign currencies 2,927,947 2,927, February 2015 Continental European Equity Tracker Fund Czech koruna 3,809 3, Danish krone 104, , Euro 1,908,464 1,908, Hungarian forint 3,801 3, Norwegian krone 44,492 44, Polish zloty 27,242 27, Swedish krona 203, , Swiss franc 588, , Turkish lira 28,275 28, US dollar r Total exposure to foreign currencies 2,913,102 2,913, Emerging Markets Equity Tracker Fund Brazilian real 39,826 39, Chinese yuan renminbi Colombian peso 3,651 3, Czech koruna 1,083 1, Egyptian pound 1,816 1, Euro Hong Kong dollar 147, , Hungarian forint 2,157 2, Indonesian rupiah 17,408 17, Malaysian ringgit 27,471 27, Mexican peso 32,379 32, Moroccan dirham Peruvian Nuevo sol Philippine peso 11,211 11, Polish zloty 9,525 9, Russian rouble 1,347 1, South African rand 50,527 50, Taiwan dollar 88,132 88, Thai baht 16,734 16, Turkish lira 10,038 10, UAE dirham 5,078 5, US dollar 111, , Total exposure to foreign currencies 578, , BlackRock Collective Investment Funds 14

9 Financial Instruments and Risks continued Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets 28 February February 2016 Emerging Markets Equity Tracker Fund Brazilian real 69,467 69, Columbian peso 4,713 4, Czech koruna 1,671 1, Egyptian pound 2,658 2, Euro Hong Kong dollar 175, , Hungarian forint 1,533 1, Indonesian rupiah 21,087 21, Malaysian ringgit 31,654 31, Mexican peso 38,786 38, Moroccan dirham Philippine peso 13,417 13, Polish zloty 11,656 11, South African rand 69,162 69, Taiwan dollar 103, , Thai baht 21,748 21, Turkish lira 12,179 12, UAE dirham 5,443 5, US dollar 134, , Total exposure to foreign currencies 719, , Global Property Securities Equity Tracker Fund Australian dollar 58,936 58, Canadian dollar 26,023 26, Euro 84,267 84, Hong Kong dollar 63,462 63, Israeli shekel Japanese yen 114, , New Zealand dollar Norwegian krone Singapore dollar 19,698 19, Swedish krona 11,353 11, Swiss franc 8,731 8, US dollar 527, , Total exposure to foreign currencies 916, , February 2015 Global Property Securities Equity Tracker Fund Australian dollar 46,860 46, Canadian dollar 24,066 24, Euro 61,286 61, Hong Kong dollar 56,531 56, Israeli shekel Japanese yen 89,371 89, New Zealand dollar Norwegian krone Singapore dollar 24,838 24, Swedish krona 8,492 8, Swiss franc 7,150 7, US dollar 406, , Total exposure to foreign currencies 726, , BlackRock Collective Investment Funds 16

10 Financial Instruments and Risks continued Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets 29 February February 2016 Japan Equity Tracker Fund Japanese yen 1,311,988 1,311, Total exposure to foreign currencies 1,311,988 1,311, February 2015 Japan Equity Tracker Fund Japanese yen 985, , Total exposure to foreign currencies 985, , February 2016 North American Equity Tracker Fund Canadian dollar 155, , US dollar 3,134,927 3,134, Total exposure to foreign currencies 3,290,724 3,290, February 2015 North American Equity Tracker Fund Canadian dollar 165, , US dollar 2,773,068 2,773, Total exposure to foreign currencies 2,938,276 2,938, Overseas Corporate Bond Tracker Fund Australian dollar 5,188 5, Canadian dollar 29,688 29, Euro 235, , Japanese yen 23,539 23, New Zealand dollar Singapore dollar South Korean won Swiss franc 7,249 7, US dollar 753, , Total exposure to foreign currencies 1,055, ,056, February 2015 Overseas Corporate Bond Tracker Fund Australian dollar 4,991 4, Canadian dollar 27,639 27, Euro 207, , Japanese yen 20,947 20, New Zealand dollar Singapore dollar South Korean won (936) Swiss franc 6,987 6, US dollar 608, , Total exposure to foreign currencies 876, , BlackRock Collective Investment Funds 18

11 Financial Instruments and Risks continued Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets Foreign currency exposure Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets 29 February February 2016 Overseas Government Bond Tracker Fund Australian dollar 3,099 3, Canadian dollar 2,958 2, Danish krone 1,092 1, Euro 65,980 65, Japanese yen 57,457 57, Swedish krona US dollar 101, , Total exposure to foreign currencies 233, , February 2015 Overseas Government Bond Tracker Fund Australian dollar 1,991 1, Canadian dollar 2,277 2, Danish krone Euro 45,008 45, Japanese yen 36,371 36, Swedish krona US dollar 66,404 66, Total exposure to foreign currencies 153, , Pacific ex Japan Equity Tracker Fund Australian dollar 243, , Chinese yuan renminbi Hong Kong dollar 119, , Malaysian ringgit 39,131 39, New Zealand dollar 8,048 8, Singapore dollar 46,308 46, South Korean won 153, , Taiwan dollar 130, , Thai baht 24,335 24, US dollar 9,557 9, Total exposure to foreign currencies 774, , February 2015 Pacific ex Japan Equity Tracker Fund Australian dollar 266, , Hong Kong dollar 121, , Malaysian ringgit 38,753 38, New Zealand dollar 6,798 6, Singapore dollar 50,592 50, South Korean won 147, , Taiwan dollar 128, , Thai baht 26,654 26, US dollar 11,777 11, Total exposure to foreign currencies 798, , BlackRock Collective Investment Funds 20

12 Financial Instruments and Risks continued Foreign currency exposure 29 February 2016 US Equity Tracker Fund Gross Foreign Currency Exposure Forward Currency Contracts Net Foreign Currency Exposure % of Net Assets US dollar 806, , Total exposure to foreign currencies 806, , February 2015 US Equity Tracker Fund US dollar 735, , Total exposure to foreign currencies 735, , For Funds not included in the tables above, their financial assets and financial liabilities are denominated mainly in their respective functional currencies and therefore are unlikely to be materially exposed to foreign currency risk. Management of foreign currency risk Foreign currency exposures are managed within parameters utilising forward currency contracts. The details of the contracts in place at the year-end are disclosed in the portfolio statement of each Fund. ii) Market risk arising from other price risk Exposure to other price risk Other price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market. The Funds are exposed to other price risk arising from their investments. The exposure of the Funds to other price risk is the market value of the investments held as shown in the portfolio statement of each Fund. Management of other price risk The Investment Manager manages the Funds other price risk on a daily basis in accordance with their investment objectives. By diversifying the portfolios, where this is appropriate and consistent with the Funds objectives, the risk that a price change of a particular investment will have a material impact on the net asset value of the Funds is minimised. The investment concentrations within the portfolios are disclosed in the portfolio statement of each Fund by investment type. iii) Market risk arising from interest rate risk Exposure to interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Funds are exposed to interest rate risk on their cash and bank balances held at The Bank of New York Mellon (International) Limited, amounts held at futures clearing houses and brokers, cash equivalent holdings and their investments in fixed and floating rate interest bearing securities where the value of these securities may fluctuate as a result of a change in interest rates. Cash held on deposit at The Bank of New York (International) Limited receives/incurs interest at the prevailing daily rate which may be negative depending on the currency in which the cash is held. The Balanced Managed Fund has additional indirect exposure to interest rate risk through its investments in CIS, whereby the values of an underlying fund may fluctuate as a result of a change in interest rates through its investment in interest bearing securities. The interest rate risk profile of the Funds investments as at 29 February 2016 was as follows: Exposure to interest rate risk Floating Rate Investments Fixed Rate Investments Non-Interest Bearing Investments Total Balanced Managed Fund 115, , ,727 Continental European Equity Tracker Fund 2,868,987 2,868,987 Corporate Bond 1 10 Year Fund 109, , ,086 Corporate Bond Tracker Fund 80,473 1,111,579 1,192,052 Emerging Markets Equity Tracker Fund 529, ,775 Global Property Securities Equity Tracker Fund 950, ,597 Index Linked Gilt Tracker Fund 309, ,598 Japan Equity Tracker Fund 1,264,300 1,264,300 Mid Cap UK Equity Tracker Fund 165, ,784 North American Equity Tracker Fund 3,273,396 3,273,396 Overseas Corporate Bond Tracker Fund 29,618 1,005, ,035,203 Overseas Government Bond Tracker Fund 231, ,229 Pacific ex Japan Equity Tracker Fund 760, ,986 UK Equity Tracker Fund 7,724,093 7,724,093 UK Gilts All Stocks Tracker Fund 3,534,060 3,534,060 US Equity Tracker Fund 802, , UK Equity Tracker Fund 602, , UK Equity Tracker Fund 1,544,244 1,544,244 The other price risk inherent in holdings in CIS is monitored by the Investment Manager by understanding the investment objectives of the underlying funds as well as their internal control policies and regular risk and performance reporting. 21 BlackRock Collective Investment Funds 22

13 Financial Instruments and Risks continued The interest rate risk profile of the Funds investments as at 28 February 2015 was as follows: Exposure to interest rate risk Floating Rate Investments Fixed Rate Investments Non-Interest Bearing Investments Total Balanced Managed Fund 104, , ,417 Continental European Equity Tracker Fund 2,868,284 2,868,284 Corporate Bond 1 10 Year Fund 126, , ,158 Corporate Bond Tracker Fund 86, ,812 1,011,186 Emerging Markets Equity Tracker Fund 680, ,639 Global Property Securities Equity Tracker Fund 766, ,019 Index Linked Gilt Tracker Fund 357, ,579 Japan Equity Tracker Fund 966, ,574 Mid Cap UK Equity Tracker Fund 245, ,084 North American Equity Tracker Fund 2,924,116 2,924,116 Overseas Corporate Bond Tracker Fund 29, , ,098 Overseas Government Bond Tracker Fund 152, ,406 Pacific ex Japan Equity Tracker Fund 787, ,732 UK Equity Tracker Fund 8,402,770 8,402,770 UK Gilts All Stocks Tracker Fund 3,314,737 3,314,737 US Equity Tracker Fund 733, , UK Equity Tracker Fund 671, , UK Equity Tracker Fund 1,792,929 1,792,929 Management of interest rate risk Interest rate risk exposure is managed by constantly monitoring the position for deviations outside of a pre-determined tolerance level and, when necessary, rebalancing back to the original desired parameters. b) Counterparty credit risk Exposure to counterparty credit risk Counterparty credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Funds are exposed to counterparty credit risk from the parties with which they trade and will bear the risk of settlement default. Management of counterparty credit risk Counterparty credit risk is monitored and managed by BlackRock s RQA Counterparty & Concentration Risk Team. The team is headed by BlackRock s Chief Credit Officer who reports directly to the Global Head of RQA. Credit authority resides with the Chief Credit Officer and selected team members to whom specific credit authority has been delegated. As such, counterparty approvals may be granted by the Chief Credit Officer or by identified RQA Credit Risk Officers who have been formally delegated authority by the Chief Credit Officer as deemed appropriate. BlackRock s RQA Counterparty & Concentration Risk Team completes a formal review of each new counterparty, monitors and reviews all approved counterparties on an ongoing basis and maintains an active oversight of counterparty exposures. The Manager maintains a list of approved counterparties. This list is regularly monitored and revised for changes based on the counterparty s creditworthiness, market reputation and expectations of future financial performance. Transactions will only be opened with financial intermediaries on the approved counterparties list. i) Exchange Traded Financial Derivative Instruments The Funds holdings in futures contracts expose the Funds to counterparty credit risk. Management of counterparty credit risk related to futures contracts The exposure is limited by trading the contracts through a clearing house. The Funds exposure to counterparty credit risk on contracts in which they currently have a gain position is reduced by such gains received in cash from the counterparty under the daily mark-to market mechanism on exchange traded futures contracts (variation margin). The Funds exposure to credit risk on contracts in which they currently have a loss position is equal to the amount of margin posted to the counterparty which has not been transferred to the exchange under the daily mark-to-market mechanism. The counterparty for futures contracts is Goldman Sachs. Margin is paid or received on futures to cover any exposure by the counterparty or the Funds to each other. Margin receivable from the Funds clearing brokers and the counterparty is included in Cash and bank balances on the Balance Sheet. Margin payable to the Funds clearing brokers and the counterparty is included in Amounts held at futures clearing houses and brokers on the Balance Sheet. 23 BlackRock Collective Investment Funds 24

14 Financial Instruments and Risks continued ii) Over-the-Counter ( OTC ) Financial Derivative Instruments The Funds holdings in forward currency contracts also expose the Funds to counterparty credit risk. The Funds maximum exposure to counterparty credit risk from holding forward currency contracts will be equal to the notional amount of the currency and any net unrealised gains or losses as disclosed in the portfolio statement of each Fund. The Balanced Managed Fund s holdings in credit default swaps, options and total return swaps expose the Fund to counterparty credit risk. Counterparty credit risk arises from the failure of the counterparty to perform according to the terms of the contract. The Fund s exposure to counterparty credit risk is limited to the contracts in which it currently has a gain position reduced by the cash collateral received from the counterparty or to counterparties who have received collateral from the Fund. For the Balanced Managed Fund, the carrying value of financial assets together with cash best represents the Fund s gross maximum exposure to counterparty credit risk at the reporting date, before including the effect of International Swaps and Derivatives Association, Inc. master agreements and close-out netting, which would reduce the overall counterparty credit risk exposure. Cash held as security by the counterparty to derivative contracts is subject to the credit risk of the counterparty. Management of counterparty credit risk related to OTC Financial Derivative Instruments Forward currency contracts do not require variation margins and thus the counterparty credit risk is monitored through the BlackRock RQA Counterparty & Concentration Risk Team who monitor the creditworthiness of the counterparty. The counterparties for forward currency contracts are disclosed in the portfolio statement of each Fund. The lowest credit rating of any one counterparty is BBB- (28 February 2015: BBB-) (Standard & Poor s rating). iii) Trustee and Custodian The Funds Trustee is BNY Mellon Trust & Depositary (UK) Limited (the Trustee ). The Trustee has delegated the function of custodian of the property of the Funds to The Bank of New York Mellon (International) Limited (the Custodian ). Substantially all of the investments other than financial derivative instruments of the Funds are held by the Custodian at year end. Investments are segregated from the assets of the Custodian, with ownership rights remaining with the Funds. Bankruptcy or insolvency of the Custodian may cause the Funds rights with respect to their investments held by the Custodian to be delayed or limited. The maximum exposure to this risk is the amount of long investments disclosed in the portfolio statement of each Fund. Management of counterparty credit risk related to the Trustee and Custodian To mitigate the Funds credit risk with respect to the Trustee, the Investment Manager of the Funds employs specific procedures to ensure that the Trustee employed is a reputable institution and that the associated credit risk is acceptable to the Funds. The Funds only transact with counterparties that are regulated entities subject to prudential supervision, or with high creditratings assigned by international credit-rating agencies. The long term credit rating of the parent company of the Trustee and Custodian, The Bank of New York Mellon Corporation as at 29 February 2016 was A+ (28 February 2015: A+) (Standard & Poor s rating). iv) Counterparties All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation. Counterparty credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered small due to the short settlement period involved and the high credit quality of the brokers used. Management of counterparty credit risk related to Counterparties The Manager monitors the credit rating and financial position of the brokers used to further mitigate this risk. v) Debt securities Issuer credit risk is the default risk of one of the issuers of any securities held by the Funds. Bonds or other debt securities involve credit risk to the issuer which may be evidenced by the issuer s credit rating. Securities which are subordinated and/or have a lower credit rating are generally considered to have a higher credit risk and a greater possibility of default than more highly rated. A number of the Funds invest into sovereign and corporate debt. This exposes the Funds to the risk that the issuer of the bonds may default on interest or principal payments. Management of counterparty credit risk related to debt securities To manage this risk the Investment Manager invests in a wide range of securities, subject to the investment objectives of each Fund and monitors the credit ratings of the investments as disclosed in each Fund s portfolio statement. The ratings of the debt securities are continually monitored by the BlackRock Portfolio Management Group. The Funds will be exposed to the credit risk of the Custodian, or any depositary used by the Trustee regarding cash balances held in accounts with same. In the event of insolvency or bankruptcy of the Custodian or any depositary used by the Trustee, the Funds will be treated as a general creditor of the Trustee. 25 BlackRock Collective Investment Funds 26