Annual Report and Audited Accounts Title (40–50 Characters) Blackrock Strategic Funds (Bsf) Subtitle (40-50 Characters) R.C.S
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ANNUAL REPORT AND AUDITED ACCOUNTS TITLE (40–50 CHARACTERS) BLACKROCK STRATEGIC FUNDS (BSF) SUBTITLE (40-50 CHARACTERS) R.C.S. Luxembourg: B 127481 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 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 Values 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 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 2014. 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 emerging- market 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 USD 10 billion. It then took the decision in January 2014 to trim by a further USD 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 USD 3,937m to USD 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 EUR 11.1m to EUR 512.2m, and the BlackRock Fixed Income Strategies Fund, which increased from EUR 113.0m to EUR 625.5m over the year. The BlackRock Emerging Markets Flexi Dynamic Bond Fund, which was launched during the year, has done well, attracting USD 148.0m. Other notable strategies in terms of asset growth included the BlackRock Asia Extension Fund, which increased from USD 46.4m to USD 202.7m and the BlackRock European Credit Strategies Fund, which grew from EUR 766.7m to EUR 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) 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 EUR 8.3m to less than EUR 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 USD 9m to less than USD 1m. Should you have any questions on any of this Letter, please contact us via our website: www.blackrockinternational.com 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 2014. 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 BSF Investment Adviser’s Report Performance Overview 1 June 2013 – 31 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”).