UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSR
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT INVESTMENT COMPANIES
Investment Company Act file number: 811-05742
Name of Fund: | BlackRock Funds |
BlackRock Defensive Advantage Emerging Markets Fund |
BlackRock Defensive Advantage International Fund |
BlackRock Defensive Advantage U.S. Fund |
Fund Address: | 100 Bellevue Parkway, Wilmington, DE 19809 |
Name and address of agent for service: John M. Perlowski, Chief Executive Officer, BlackRock Funds, 55 East 52nd Street, New York, NY 10055
Registrant’s telephone number, including area code: (800) 441-7762
Date of fiscal year end: 04/30/2021
Date of reporting period: 04/30/2021
Item 1 – Report to Stockholders
(a) The Report to Shareholders is attached herewith.
APRIL 30, 2021 |
2021 Annual Report |
BlackRock FundsSM
· | BlackRock Defensive Advantage Emerging Markets Fund |
· | BlackRock Defensive Advantage International Fund |
· | BlackRock Defensive Advantage U.S. Fund |
Not FDIC Insured • May Lose Value • No Bank Guarantee |
Dear Shareholder,
The 12-month reporting period as of April 30, 2021 reflected a remarkable period of adaptation and recovery, as the global economy dealt with the implications of the coronavirus (or “COVID-19”) pandemic. As the period began, the response to the virus’s spread was well underway, and countries around the world felt the effect of economically disruptive countermeasures. Stay-at-home orders and closures of non-essential businesses were imposed in many parts of the world, workers were laid off, and unemployment claims spiked, causing a global recession.
As May 2020 began, stocks had just begun to recover from the lowest point following the onset of the pandemic. This recovery continued throughout the reporting period, as businesses continued re-opening and governments learned to adapt to life with the virus. Equity prices rose through the summer, fed by strong fiscal and monetary support and improving economic indicators. The implementation of mass vaccination campaigns and passage of an additional $1.9 trillion of fiscal stimulus further boosted stocks, and many equity indices neared or surpassed all-time highs late in the reporting period. In the United States, both large- and small-capitalization stocks posted a significant advance. International equities also gained, as both developed countries and emerging markets rebounded substantially.
The 10-year U.S. Treasury yield (which is inversely related to bond prices) had fallen sharply prior to the beginning of the reporting period, which meant bonds were priced for extreme risk avoidance and economic disruption. Despite expectations of doom and gloom, the economy expanded rapidly, stoking inflation concerns late in the reporting period, which led to higher yields and a negative overall return for most U.S. Treasuries. In the corporate bond market, support from the U.S. Federal Reserve (the “Fed”) assuaged credit concerns and led to substantial returns for high-yield corporate bonds, although investment-grade corporates declined slightly.
The Fed remained committed to accommodative monetary policy by maintaining near zero interest rates and by announcing that inflation could exceed its 2% target for a sustained period without triggering a rate increase. To stabilize credit markets, the Fed also continued purchasing significant quantities of bonds, as did other influential central banks around the world, including the European Central Bank and the Bank of Japan.
Looking ahead, while coronavirus-related disruptions have clearly hindered worldwide economic growth, we believe that the global expansion will continue to accelerate as vaccination efforts ramp up and pent-up consumer demand leads to higher spending. While we expect inflation to increase somewhat as the expansion continues, we believe the recent uptick owes more to temporary supply disruptions than a lasting change in fundamentals. The change in Fed policy also means that moderate inflation is less likely to be followed by interest rate hikes that could threaten the economic expansion.
Overall, we favor a positive stance toward risk, with an overweight in equities. We see U.S. and Asian equities outside of Japan benefiting from structural growth trends in technology, while emerging markets should be particularly helped by a vaccine-led economic expansion. While we are underweight overall on credit, global high-yield and Asian bonds present attractive opportunities. We believe that international diversification and a focus on sustainability can help provide portfolio resilience, and the disruption created by the coronavirus appears to be accelerating the shift toward sustainable investments.
In this environment, our view is that investors need to think globally, extend their scope across a broad array of asset classes, and be nimble as market conditions change. We encourage you to talk with your financial advisor and visit blackrock.com for further insight about investing in today’s markets.
Sincerely,
Rob Kapito
President, BlackRock Advisors, LLC
Rob Kapito
President, BlackRock Advisors, LLC
Total Returns as of April 30, 2021 | ||||||||
6-Month | 12-Month | |||||||
U.S. large cap equities | 28.85 | % | 45.98 | % | ||||
U.S. small cap equities | 48.06 | 74.91 | ||||||
International equities (MSCI Europe, Australasia, Far East Index) | 28.84 | 39.88 | ||||||
Emerging market equities | 22.95 | 48.71 | ||||||
3-month Treasury bills | 0.05 | 0.11 | ||||||
U.S. Treasury securities | (6.26) | (7.79) | ||||||
U.S. investment grade bonds (Bloomberg Barclays U.S. Aggregate Bond Index) | (1.52) | (0.27) | ||||||
Tax-exempt municipal bonds (S&P Municipal Bond Index) | 2.42 | 7.40 | ||||||
U.S. high yield bonds (Bloomberg Barclays U.S. Corporate High Yield 2% Issuer Capped Index) | 7.98 | 19.57 |
Past performance is not an indication of future results. Index performance is shown for illustrative purposes only. You cannot invest directly in an index.
2 | THIS PAGE IS NOT PART OF YOUR FUND REPORT |
Table of Contents
Page | ||||
2 | ||||
Annual Report: | ||||
4 | ||||
7 | ||||
7 | ||||
7 | ||||
Financial Statements: | ||||
8 | ||||
20 | ||||
22 | ||||
23 | ||||
24 | ||||
33 | ||||
44 | ||||
45 | ||||
46 | ||||
49 | ||||
50 | ||||
54 | ||||
56 |
3 |
Fund Summary as of April 30, 2021 | BlackRock Defensive Advantage Emerging Markets Fund |
Investment Objective
BlackRock Defensive Advantage Emerging Markets Fund’s (the “Fund”) investment objective is to seek to provide long-term capital appreciation.
Expense Example
Actual | Hypothetical(a) | |||||||||||||||||||||||||||||||
| Beginning Account Value (12/21/20) | (b) | | Ending Account Value (04/30/21) | | | Expenses Paid During the Period | (c) | | Beginning Account Value (12/21/20) | (b) | | Ending Account Value (04/30/21) | | | Expenses Paid During the Period | (c) | | Annualized Expense Ratio | | ||||||||||||
Institutional | $ | 1,000.00 | $ | 1,081.40 | $ | 3.00 | $ | 1,000.00 | $ | 1,014.92 | $ | 2.91 | 0.81 | % | ||||||||||||||||||
Investor A | 1,000.00 | 1,081.40 | 3.93 | 1,000.00 | 1,014.03 | 3.80 | 1.06 | |||||||||||||||||||||||||
Class K | 1,000.00 | 1,081.40 | 3.00 | 1,000.00 | 1,014.92 | 2.91 | 0.81 |
(a) | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
(b) | Commencement of operations. |
(c) | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 130/365 (to reflect the period since inception date of December 21, 2020 to April 30, 2021). |
See “Disclosure of Expenses” for further information on how expenses were calculated.
Portfolio Information
TEN LARGEST HOLDINGS |
| |||
Security(a) | Percent of Net Assets | |||
iShares MSCI Qatar ETF | 2 | % | ||
Siam Cement PCL | 2 | |||
WuXi AppTec Co. Ltd., Class A | 2 | |||
MediaTek, Inc. | 2 | |||
Shanghai Pharmaceuticals Holding Co. Ltd., Class H | 2 | |||
JD.com, Inc. | 2 | |||
Etihad Etisalat Co. | 1 | |||
Al Rajhi Bank | 1 | |||
EDP - Energias do Brasil SA | 1 | |||
Saudi Arabian Oil Co. | 1 |
GEOGRAPHIC ALLOCATION |
| |||
Country/Geographic Region | Percent of Net Assets | |||
China | 30 | % | ||
Taiwan | 19 | |||
United States | 13 | |||
South Korea | 8 | |||
Saudi Arabia | 8 | |||
Malaysia | 6 | |||
Thailand | 3 | |||
Mexico | 2 | |||
Brazil | 2 | |||
India | 2 | |||
South Africa | 2 | |||
Russia | 1 | |||
Hong Kong | 1 | |||
Philippines | 1 | |||
Peru | 1 | |||
Other# | — | (b) | ||
Other Assets Less Liabilities | 1 |
(a) | Excludes short-term securities. |
(b) | Rounds to less than 1% of net assets. |
# | Includes holdings within countries/geographic regions that are 1% or less of net assets. Please refer to the Schedule of Investments for such countries. |
4 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Fund Summary as of April 30, 2021 | BlackRock Defensive Advantage International Fund |
Investment Objective
BlackRock Defensive Advantage International Fund’s (the “Fund”) investment objective is to seek to provide long-term capital appreciation.
Expense Example
Actual | Hypothetical(a) | |||||||||||||||||||||||||||||||
| Beginning Account Value (12/21/20) | (b) | | Ending Account Value (04/30/21) | | | Expenses Paid During the Period | (c) | | Beginning Account Value (12/21/20) | (b) | | Ending Account Value (04/30/21) | | | Expenses Paid During the Period | (c) | | Annualized Expense Ratio | | ||||||||||||
Institutional | $ | 1,000.00 | $ | 1,063.00 | $ | 1.65 | $ | 1,000.00 | $ | 1,016.21 | $ | 1.62 | 0.45 | % | ||||||||||||||||||
Investor A | 1,000.00 | 1,062.00 | 2.57 | 1,000.00 | 1,015.32 | 2.51 | 0.70 | |||||||||||||||||||||||||
Class K | 1,000.00 | 1,063.00 | 1.65 | 1,000.00 | 1,016.21 | 1.62 | 0.45 |
(a) | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
(b) | Commencement of operations. |
(c) | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 130/365 (to reflect the period since inception date of December 21, 2020 to April 30, 2021). |
See “Disclosure of Expenses” for further information on how expenses were calculated.
Portfolio Information
TEN LARGEST HOLDINGS |
| |||
Security(a) | Percent of Net Assets | |||
Unilever PLC | 2 | % | ||
Coloplast A/S, Class B | 2 | |||
Deutsche Post AG | 2 | |||
Nestle SA | 2 | |||
Jardine Cycle & Carriage Ltd. | 2 | |||
Medibank Pvt Ltd. | 1 | |||
Givaudan SA | 1 | |||
Nice Ltd. | 1 | |||
National Grid PLC | 1 | |||
Novo Nordisk A/S, Class B | 1 |
GEOGRAPHIC ALLOCATION |
| |||
Country/Geographic Region | Percent of Net Assets | |||
Japan | 29 | % | ||
Switzerland | 13 | |||
United Kingdom | 9 | |||
Hong Kong | 7 | |||
France | 6 | |||
Denmark | 5 | |||
Singapore | 5 | |||
Germany | 4 | |||
Israel | 4 | |||
Netherlands | 4 | |||
Australia | 3 | |||
United States | 3 | |||
Sweden | 3 | |||
China | 2 | |||
Finland | 2 | |||
Italy | 1 | |||
Norway | 1 | |||
Other# | — | (b) | ||
Liabilities in Excess of Other Assets | (1 | ) |
(a) | Excludes short-term securities. |
(b) | Rounds to less than 1% of net assets. |
# | Includes holdings within countries/geographic regions that are 1% or less of net assets. Please refer to the Schedule of Investments for such countries. |
FUND SUMMARY | 5 |
Fund Summary as of April 30, 2021 | BlackRock Defensive Advantage U.S. Fund |
Investment Objective
BlackRock Defensive Advantage U.S. Fund’s (the “Fund”) investment objective is to seek to provide long-term capital appreciation.
| ||
Expense Example |
Actual | Hypothetical(a) | |||||||||||||||||||||||||||||||
| Beginning Account Value (12/21/20) | (b) | | Ending Account Value (04/30/21) | | | Expenses Paid During the Period | (c) | | Beginning Account Value (12/21/20) | (b) | | Ending Account Value (04/30/21) | | | Expenses Paid During the Period | (c) | | Annualized Expense Ratio | | ||||||||||||
Institutional | $ | 1,000.00 | $ | 1,079.50 | $ | 1.59 | $ | 1,000.00 | $ | 1,016.28 | $ | 1.54 | 0.43 | % | ||||||||||||||||||
Investor A | 1,000.00 | 1,079.50 | 2.52 | 1,000.00 | 1,015.39 | 2.44 | 0.68 | |||||||||||||||||||||||||
Class K | 1,000.00 | 1,079.50 | 1.59 | 1,000.00 | 1,016.28 | 1.54 | 0.43 |
(a) | Hypothetical 5% annual return before expenses is calculated by prorating the number of days in the most recent fiscal half year divided by 365. |
(b) | Commencement of operations. |
(c) | For each class of the Fund, expenses are equal to the annualized expense ratio for the class, multiplied by the average account value over the period, multiplied by 130/365 (to reflect the period since inception date of December 21, 2020 to April 30, 2021). |
See “Disclosure of Expenses” for further information on how expenses were calculated.
Portfolio Information
TEN LARGEST HOLDINGS |
| |||
Security(a) | Percent of Net Assets | |||
QTS Realty Trust, Inc., Class A | 5 | % | ||
AT&T, Inc. | 4 | |||
Kimberly-Clark Corp. | 4 | |||
Adobe, Inc. | 4 | |||
Agilent Technologies, Inc. | 4 | |||
Keysight Technologies, Inc. | 3 | |||
Consolidated Edison, Inc. | 3 | |||
Alleghany Corp. | 3 | |||
Zoetis, Inc. | 2 | |||
Western Union Co. | 2 |
SECTOR ALLOCATION |
| |||
Sector(b) | Percent of Net Assets | |||
Information Technology | 22 | % | ||
Health Care | 20 | |||
Consumer Staples | 14 | |||
Industrials | 12 | |||
Utilities | 8 | |||
Communication Services | 6 | |||
Financials | 6 | |||
Real Estate | 5 | |||
Energy | 2 | |||
Consumer Discretionary | 2 | |||
Materials | 1 | |||
Short-Term Securities | 3 | |||
Liabilities in Excess of Other Assets | (1 | ) |
(a) | Excludes short-term securities. |
(b) | For Fund compliance purposes, the Fund’s sector classifications refer to one or more of the sector sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such sector sub-classifications for reporting ease. |
6 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Institutional Shares and Class K Shares are not subject to any sales charge. These shares bear no ongoing distribution or service fees and are available only to certain eligible investors.
Investor A Shares are subject to a maximum initial sales charge (front-end load) of 5.25% and a service fee of 0.25% per year (but no distribution fee). Certain redemptions of these shares may be subject to a contingent deferred sales charge (“CDSC”) where no initial sales charge was paid at the time of purchase. These shares are generally available through financial intermediaries.
Past performance is not an indication of future results. Financial markets have experienced extreme volatility and trading in many instruments has been disrupted. These circumstances may continue for an extended period of time, and may continue to affect adversely the value and liquidity of the fund’s investments. As a result, current performance may be lower or higher than the performance data quoted. Refer to blackrock.com to obtain performance data current to the most recent month-end. Performance results do not reflect the deduction of taxes that a shareholder would pay on Fund distributions or the redemption of Fund shares. Investment return and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Distributions paid to each class of shares will vary because of the different levels of service, distribution and transfer agency fees applicable to each class, which are deducted from the income available to be paid to shareholders.
BlackRock Advisors, LLC (the “Manager”), each Fund’s investment adviser, has contractually and/or voluntarily agreed to waive and/or reimburse a portion of each Fund’s expenses. Without such waiver(s) and/or reimbursement(s), each Fund’s performance would have been lower. With respect to each Fund’s voluntary waiver(s), if any, the Manager is under no obligation to waive and/or reimburse or to continue waiving and/or reimbursing its fees and such voluntary waiver(s) may be reduced or discontinued at any time. With respect to each Fund’s contractual waiver(s), if any, the Manager is under no obligation to continue waiving and/or reimbursing its fees after the applicable termination date of such agreement. See the Notes to Financial Statements for additional information on waivers and/or reimbursements.
Shareholders of each Fund may incur the following charges: (a) transactional expenses, such as sales charges; and (b) operating expenses, including investment advisory fees, administration fees, service and distribution fees, including 12b-1 fees, acquired fund fees and expenses, and other fund expenses. The expense examples shown (which are based on a hypothetical investment of $1,000 invested on December 21, 2020 (commencement of operations) and held through April 30, 2021) are intended to assist shareholders both in calculating expenses based on an investment in each Fund and in comparing these expenses with similar costs of investing in other mutual funds.
The expense examples provide information about actual account values and actual expenses. In order to estimate the expenses a shareholder paid during the period covered by this report, shareholders can divide their account value by $1,000 and then multiply the result by the number corresponding to their Fund and share class under the heading entitled “Expenses Paid During the Period.”
The expense examples also provide information about hypothetical account values and hypothetical expenses based on a Fund’s actual expense ratio and an assumed rate of return of 5% per year before expenses. In order to assist shareholders in comparing the ongoing expenses of investing in these Funds and other funds, compare the 5% hypothetical examples with the 5% hypothetical examples that appear in shareholder reports of other funds.
The expenses shown in the expense examples are intended to highlight shareholders’ ongoing costs only and do not reflect transactional expenses, such as sales charges, if any. Therefore, the hypothetical examples are useful in comparing ongoing expenses only, and will not help shareholders determine the relative total expenses of owning different funds. If these transactional expenses were included, shareholder expenses would have been higher.
Derivative Financial Instruments
The Funds may invest in various derivative financial instruments. These instruments are used to obtain exposure to a security, commodity, index, market, and/or other assets without owning or taking physical custody of securities, commodities and/or other referenced assets or to manage market, equity, credit, interest rate, foreign currency exchange rate, commodity and/or other risks. Derivative financial instruments may give rise to a form of economic leverage and involve risks, including the imperfect correlation between the value of a derivative financial instrument and the underlying asset, possible default of the counterparty to the transaction or illiquidity of the instrument. The Funds’ successful use of a derivative financial instrument depends on the investment adviser’s ability to predict pertinent market movements accurately, which cannot be assured. The use of these instruments may result in losses greater than if they had not been used, may limit the amount of appreciation a Fund can realize on an investment and/or may result in lower distributions paid to shareholders. The Funds’ investments in these instruments, if any, are discussed in detail in the Notes to Financial Statements.
ABOUT FUND PERFORMANCE / DISCLOSURE OF EXPENSES / DERIVATIVE FINANCIAL INSTRUMENTS | 7 |
April 30, 2021 | BlackRock Defensive Advantage Emerging Markets Fund (Percentages shown are based on Net Assets) |
Security | Shares | Value | ||||||
Common Stocks |
| |||||||
Brazil — 2.0% | ||||||||
AES Brasil Energia SA | 1,661 | $ | 4,198 | |||||
Ambev SA | 5,310 | 14,604 | ||||||
Atacadao SA | 4,642 | 18,561 | ||||||
CPFL Energia SA | 964 | 5,209 | ||||||
EDP - Energias do Brasil SA | 45,816 | 158,482 | ||||||
Omega Geracao SA(a) | 681 | 4,915 | ||||||
Sao Martinho SA | 877 | 5,032 | ||||||
|
| |||||||
211,001 | ||||||||
China — 29.8% | ||||||||
21Vianet Group, Inc., ADR(a) | 154 | 4,298 | ||||||
3SBio, Inc.(a)(b) | 165,000 | 155,978 | ||||||
Addsino Co. Ltd., Class A | 1,700 | 4,454 | ||||||
Agricultural Bank of China Ltd., Class A | 170,300 | 84,124 | ||||||
Agricultural Bank of China Ltd., Class H | 163,000 | 63,149 | ||||||
Alibaba Group Holding Ltd., ADR(a) | 496 | 114,551 | ||||||
Anhui Expressway Co. Ltd., Class H | 6,000 | 4,206 | ||||||
Bank of China Ltd., Class A | 144,200 | 72,349 | ||||||
Beijing Sinnet Technology Co. Ltd., Class A | 4,300 | 9,339 | ||||||
Beijing-Shanghai High Speed Railway Co. Ltd., Class A | 19,400 | 17,591 | ||||||
BYD Co. Ltd., Class A | 200 | 4,906 | ||||||
BYD Co. Ltd., Class H | 1,000 | 20,795 | ||||||
CAR, Inc.(a) | 18,000 | 9,202 | ||||||
China Conch Venture Holdings Ltd. | 1,500 | 7,077 | ||||||
China Life Insurance Co. Ltd., Class A | 1,900 | 9,672 | ||||||
China Longyuan Power Group Corp. Ltd., Class H | 6,000 | 8,823 | ||||||
China Petroleum & Chemical Corp., Class A | 62,700 | 41,328 | ||||||
China Resources Gas Group Ltd. | 6,000 | 32,463 | ||||||
China Resources Pharmaceutical Group Ltd.(b) | 84,000 | 56,566 | ||||||
China Resources Sanjiu Medical & Pharmaceutical Co. | ||||||||
Ltd., Class A | 8,300 | 32,007 | ||||||
China Yangtze Power Co. Ltd., Class A | 22,600 | 69,639 | ||||||
CSPC Pharmaceutical Group Ltd. | 8,000 | 9,875 | ||||||
Dali Foods Group Co. Ltd.(b) | 130,500 | 77,617 | ||||||
Daqin Railway Co. Ltd., Class A | 142,100 | 150,901 | ||||||
DaShenLin Pharmaceutical Group Co. Ltd., Class A | 3,100 | 36,173 | ||||||
Datang International Power Generation Co. Ltd., Class H | 136,000 | 20,105 | ||||||
Dynagreen Environmental Protection Group Co. Ltd., | ||||||||
Class H | 12,000 | 5,800 | ||||||
East Group Co. Ltd., Class A | 5,300 | 5,100 | ||||||
ENN Energy Holdings Ltd. | 2,600 | 44,368 | ||||||
Fu Shou Yuan International Group Ltd. | 143,000 | 154,584 | ||||||
Ganfeng Lithium Co. Ltd., Class A | 300 | 5,026 | ||||||
Ganfeng Lithium Co. Ltd., Class H(b) | 600 | 8,038 | ||||||
GCL System Integration Technology Co. Ltd., Class A(a) | 8,000 | 3,829 | ||||||
GDS Holdings Ltd., ADR(a) | 106 | 8,795 | ||||||
Geely Automobile Holdings Ltd. | 1,000 | 2,605 | ||||||
Guoxuan High-Tech Co. Ltd., Class A(a) | 800 | 4,272 | ||||||
Hangzhou Tigermed Consulting Co. Ltd., Class H(a)(b) | 700 | 13,717 | ||||||
Hengtong Optic-Electric Co. Ltd., Class A | 5,400 | 9,635 | ||||||
Industrial & Commercial Bank of China Ltd., Class A | 89,900 | 71,189 | ||||||
Industrial & Commercial Bank of China Ltd., Class H | 215,000 | 139,512 | ||||||
JD.com, Inc., ADR(a) | 2,080 | 160,909 | ||||||
Jinyu Bio-Technology Co. Ltd., Class A | 1,700 | 5,715 | ||||||
Kingdee International Software Group Co. Ltd. | 6,000 | 19,759 | ||||||
Lenovo Group Ltd. | 56,000 | 76,516 | ||||||
LONGi Green Energy Technology Co. Ltd., Class A | 400 | 6,100 | ||||||
NARI Technology Co. Ltd., Class A | 1,300 | 6,400 | ||||||
NetEase, Inc. | 1,000 | 22,350 | ||||||
NetEase, Inc., ADR | 782 | 87,631 | ||||||
New China Life Insurance Co. Ltd., Class H | 3,300 | 12,678 |
Security | Shares | Value | ||||||
China (continued) | ||||||||
New Oriental Education & Technology Group, Inc., ADR(a) | 3,573 | $ | 54,524 | |||||
NIO, Inc., ADR(a) | 208 | 8,287 | ||||||
Ping An Insurance Group Co. of China Ltd., Class H | 1,000 | 10,902 | ||||||
Postal Savings Bank of China Co. Ltd., Class H(b) | 90,000 | 58,371 | ||||||
Sanan Optoelectronics Co. Ltd., Class A | 1,100 | 4,243 | ||||||
Shanghai Baosight Software Co. Ltd., Class A | 2,000 | 19,529 | ||||||
Shanghai Electric Group Co. Ltd., Class A(a) | 6,000 | 4,728 | ||||||
Shanghai Electric Group Co. Ltd., Class H(a) | 14,000 | 4,859 | ||||||
Shanghai Pharmaceuticals Holding Co. Ltd., Class H | 73,400 | 166,917 | ||||||
Shenzhen Expressway Co. Ltd., Class H | 6,000 | 6,211 | ||||||
Shenzhen Mindray Bio-Medical Electronics Co. Ltd., Class A | 600 | 43,056 | ||||||
Shenzhou International Group Holdings Ltd. | 1,300 | 28,599 | ||||||
Sinopharm Group Co. Ltd., Class H | 8,800 | 27,142 | ||||||
Sinotruk Hong Kong Ltd. | 2,500 | 6,143 | ||||||
Sungrow Power Supply Co. Ltd., Class A | 400 | 5,516 | ||||||
Tencent Holdings Ltd. | 1,600 | 127,635 | ||||||
Tianjin Zhonghuan Semiconductor Co. Ltd., Class A | 1,200 | 5,096 | ||||||
Tianneng Power International Ltd. | 4,000 | 7,334 | ||||||
Tingyi Cayman Islands Holding Corp. | 8,000 | 14,374 | ||||||
Tongwei Co. Ltd., Class A | 800 | 4,320 | ||||||
Uni-President China Holdings Ltd. | 53,000 | 64,383 | ||||||
Want Want China Holdings Ltd. | 150,000 | 108,408 | ||||||
Weichai Power Co. Ltd., Class A | 2,000 | 5,568 | ||||||
Weichai Power Co. Ltd., Class H | 3,000 | 6,944 | ||||||
WuXi AppTec Co. Ltd., Class A | 6,900 | 168,473 | ||||||
WuXi AppTec Co. Ltd., Class H(b) | 2,300 | 54,190 | ||||||
Wuxi Biologics Cayman, Inc.(a)(b) | 3,500 | 49,132 | ||||||
Wuxi Lead Intelligent Equipment Co. Ltd., Class A | 400 | 5,432 | ||||||
Xinjiang Goldwind Science & Technology Co. Ltd., Class A | 2,200 | 4,122 | ||||||
Xinjiang Goldwind Science & Technology Co. Ltd., Class H | 3,000 | 4,943 | ||||||
Xinyi Solar Holdings Ltd. | 4,000 | 6,671 | ||||||
Yadea Group Holdings Ltd.(b) | 4,000 | 8,757 | ||||||
Yum China Holdings, Inc. | 1,714 | 107,845 | ||||||
Zhejiang Chint Electrics Co. Ltd., Class A | 900 | 4,612 | ||||||
Zhengzhou Yutong Bus Co. Ltd., Class A | 2,600 | 5,455 | ||||||
Zhongjin Gold Corp. Ltd. | 4,200 | 5,530 | ||||||
ZTE Corp., Class A | 1,000 | 4,453 | ||||||
ZTE Corp., Class H | 4,200 | 10,464 | ||||||
|
| |||||||
3,224,884 | ||||||||
Greece — 0.3% | ||||||||
Hellenic Telecommunications Organization SA | 1,800 | 30,524 | ||||||
|
| |||||||
Hong Kong — 0.8% | ||||||||
Beijing Enterprises Water Group Ltd. | 218,000 | 83,262 | ||||||
GCL-Poly Energy Holdings Ltd.(a)(c) | 14,000 | 3,568 | ||||||
|
| |||||||
86,830 | ||||||||
Hungary — 0.4% | ||||||||
OTP Bank Nyrt(a) | 946 | 42,527 | ||||||
|
| |||||||
India — 1.8% | ||||||||
HDFC Bank Ltd., ADR(a) | 499 | 35,070 | ||||||
Infosys Ltd., ADR | 4,153 | 75,086 | ||||||
Wipro Ltd., ADR | 11,434 | 81,867 | ||||||
|
| |||||||
192,023 | ||||||||
Kuwait — 0.0% | ||||||||
Mobile Telecommunications Co. KSC | 50 | 100 | ||||||
|
| |||||||
Malaysia — 5.7% | ||||||||
Axiata Group BHD | 10,400 | 9,820 | ||||||
Fraser & Neave Holdings Bhd | 7,800 | 57,043 |
8 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage Emerging Markets Fund (Percentages shown are based on Net Assets) |
Security | Shares | Value | ||||||
Malaysia (continued) | ||||||||
Malayan Banking Bhd | 36,600 | $ | 73,508 | |||||
Maxis Bhd | 107,500 | 120,679 | ||||||
Petronas Dagangan BHD | 6,000 | 29,489 | ||||||
Petronas Gas BHD | 15,400 | 59,125 | ||||||
Public Bank Bhd | 9,600 | 9,719 | ||||||
RHB Bank Bhd | 116,800 | 148,418 | ||||||
Telekom Malaysia Bhd | 31,600 | 44,021 | ||||||
Westports Holdings BHD | 62,700 | 65,816 | ||||||
|
| |||||||
617,638 | ||||||||
Mexico — 2.4% | ||||||||
Coca-Cola Femsa SAB de CV, ADR | 2,240 | 105,213 | ||||||
Grupo Bimbo SAB de CV, Series A | 72,399 | 144,891 | ||||||
Wal-Mart de Mexico SAB de CV | 3,168 | 10,370 | ||||||
|
| |||||||
260,474 | ||||||||
Peru — 0.5% | ||||||||
Cia de Minas Buenaventura SAA, ADR(a) | 868 | 8,437 | ||||||
Credicorp Ltd. | 412 | 49,193 | ||||||
|
| |||||||
57,630 | ||||||||
Philippines — 0.6% | ||||||||
Globe Telecom, Inc. | 895 | 34,071 | ||||||
Manila Electric Co. | 5,910 | 33,484 | ||||||
|
| |||||||
67,555 | ||||||||
Poland(a) — 0.4% | ||||||||
Allegro.eu SA(b) | 278 | 4,262 | ||||||
Bank Polska Kasa Opieki SA | 378 | 7,974 | ||||||
Dino Polska SA(b) | 447 | 29,001 | ||||||
|
| |||||||
41,237 | ||||||||
Qatar — 0.0% | ||||||||
Masraf Al Rayan QSC | 100 | 121 | ||||||
|
| |||||||
Russia — 1.3% | ||||||||
PhosAgro PJSC, GDR, Registered Shares | 5,232 | 96,112 | ||||||
Surgutneftegas PJSC | 99,387 | 44,951 | ||||||
|
| |||||||
141,063 | ||||||||
Saudi Arabia — 8.0% | ||||||||
Al Rajhi Bank | 6,027 | 158,686 | ||||||
Etihad Etisalat Co.(a) | 19,415 | 159,820 | ||||||
Jarir Marketing Co. | 2,761 | 146,509 | ||||||
Riyad Bank | 5,101 | 36,249 | ||||||
Saudi Arabian Oil Co.(b) | 16,692 | 157,564 | ||||||
Saudi Basic Industries Corp. | 3,498 | 115,284 | ||||||
Saudi Telecom Co. | 2,685 | 90,786 | ||||||
|
| |||||||
864,898 | ||||||||
South Africa — 1.8% | ||||||||
Impala Platinum Holdings Ltd | 936 | 17,490 | ||||||
Naspers Ltd., N Shares | 530 | 120,617 | ||||||
Spar Group Ltd. | 1,180 | 14,895 | ||||||
Vodacom Group Ltd. | 4,319 | 37,444 | ||||||
|
| |||||||
190,446 | ||||||||
South Korea — 7.8% | ||||||||
Amorepacific Group | 2,349 | 154,983 | ||||||
CJ Logistics Corp.(a) | 100 | 15,379 | ||||||
CS Wind Corp. | 75 | 5,153 | ||||||
Duk San Neolux Co. Ltd.(a) | 149 | 5,755 | ||||||
Hanwha Solutions Corp.(a) | 112 | 4,597 | ||||||
Hyundai Autoever Corp. | 4 | 371 | ||||||
Hyundai Rotem Co. Ltd.(a) | 292 | 5,278 |
Security | Shares | Value | ||||||
South Korea (continued) | ||||||||
KT Corp., ADR | 12,020 | $ | 151,452 | |||||
KT&G Corp. | 1,218 | 90,132 | ||||||
LG Household & Health Care Ltd. | 108 | 149,162 | ||||||
NAVER Corp. | 322 | 103,691 | ||||||
NCSoft Corp. | 45 | 33,474 | ||||||
Samsung SDI Co. Ltd. | 7 | 4,086 | ||||||
Samsung SDS Co. Ltd. | 124 | 20,335 | ||||||
Seoul Semiconductor Co. Ltd. | 288 | 4,847 | ||||||
SK Telecom Co. Ltd. | 365 | 99,417 | ||||||
|
| |||||||
848,112 | ||||||||
Taiwan — 18.7% | ||||||||
Arcadyan Technology Corp. | 8,000 | 32,113 | ||||||
Asustek Computer, Inc. | 3,000 | 40,181 | ||||||
Cathay Financial Holding Co. Ltd. | 21,000 | 39,204 | ||||||
Century Iron & Steel Industrial Co. Ltd. | 2,000 | 8,291 | ||||||
Chicony Electronics Co. Ltd. | 14,000 | 42,152 | ||||||
Chroma ATE Inc. | 1,000 | 6,910 | ||||||
Chunghwa Telecom Co. Ltd. | 38,000 | 154,900 | ||||||
CTBC Financial Holding Co. Ltd. | 191,000 | 155,444 | ||||||
Delta Electronics, Inc. | 2,000 | 21,426 | ||||||
Everlight Electronics Co. Ltd. | 4,000 | 6,618 | ||||||
First Financial Holding Co. Ltd. | 192,000 | 157,032 | ||||||
Foxsemicon Integrated Technology Inc. | 1,000 | 8,490 | ||||||
Giant Manufacturing Co. Ltd. | 5,000 | 63,494 | ||||||
Lite-On Technology Corp. | 69,000 | 156,369 | ||||||
MediaTek, Inc. | 4,000 | 167,690 | ||||||
Mega Financial Holding Co. Ltd. | 84,000 | 98,041 | ||||||
Nan Ya Plastics Corp. | 15,000 | 47,137 | ||||||
President Chain Store Corp. | 16,000 | 154,642 | ||||||
Quanta Computer, Inc. | 43,000 | 150,500 | ||||||
Sino-American Silicon Products Inc. | 1,000 | 6,953 | ||||||
Taiwan Cooperative Financial Holding Co. Ltd. | 205,000 | 156,769 | ||||||
Taiwan High Speed Rail Corp. | 24,000 | 26,974 | ||||||
Taiwan Mobile Co. Ltd. | 42,000 | 150,360 | ||||||
Taiwan Semiconductor Manufacturing Co. Ltd. | 7,000 | 147,417 | ||||||
Tong Hsing Electronic Industries Ltd. | 3,000 | 20,561 | ||||||
United Renewable Energy Co. Ltd./Taiwan(a) | 12,000 | 6,133 | ||||||
|
| |||||||
2,025,801 | ||||||||
Thailand — 3.0% | ||||||||
Bangkok Dusit Medical Services PCL, NVDR | 105,200 | 73,251 | ||||||
BTS Group Holdings PCL, NVDR | 138,000 | 39,647 | ||||||
Home Product Center PCL, NVDR | 90,400 | 40,851 | ||||||
Siam Cement PCL, NVDR | 11,400 | 168,937 | ||||||
Sino-Thai Engineering & Construction PCL | 10,100 | 4,697 | ||||||
|
| |||||||
327,383 | ||||||||
Turkey — 0.5% | ||||||||
Turkcell Iletisim Hizmetleri, ADR | 10,868 | 49,232 | ||||||
|
| |||||||
United Arab Emirates — 0.0% | ||||||||
Emirates Telecommunications Group Co. PJSC | 20 | 115 | ||||||
|
| |||||||
Total Common Stocks — 85.8% | 9,279,594 | |||||||
|
|
SCHEDULE OF INVESTMENTS | 9 |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage Emerging Markets Fund (Percentages shown are based on Net Assets) |
Security | Shares | Value | ||||||
Investment Companies | ||||||||
United States — 2.2% | ||||||||
iShares MSCI Qatar ETF(d) | 12,258 | $ | 240,625 | |||||
|
| |||||||
Total Investment Companies — 2.2% |
| 240,625 | ||||||
|
| |||||||
Preferred Securities | ||||||||
Preferred Stocks — 0.4% | ||||||||
South Korea — 0.4% | ||||||||
LG Household & Health Care Ltd. | 67 | 43,097 | ||||||
|
| |||||||
Total Preferred Securities — 0.4% |
| 43,097 | ||||||
|
| |||||||
Total Long-Term Investments — 88.4% |
| 9,563,316 | ||||||
|
| |||||||
Short-Term Securities |
| |||||||
Money Market Funds — 10.3% |
| |||||||
BlackRock Liquidity Funds, T-Fund, Institutional Class, 0.02%(d)(e) | 1,096,787 | 1,096,787 | ||||||
SL Liquidity Series, LLC, Money Market Series, 0.13%(d)(e)(f) | 11,547 | 11,550 | ||||||
|
| |||||||
Total Short-Term Securities — 10.3% |
| 1,108,337 | ||||||
|
| |||||||
Total Investments — 98.7% |
| 10,671,653 | ||||||
|
| |||||||
Other Assets Less Liabilities — 1.3% |
| 142,863 | ||||||
|
| |||||||
Net Assets — 100.0% |
| $ | 10,814,516 | |||||
|
|
(a) | Non-income producing security. |
(b) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(c) | Security is valued using significant unobservable inputs and is classified as Level 3 in the fair value hierarchy. |
(d) | Affiliate of the Fund. |
(e) | Annualized 7-day yield as of period end. |
(f) | All or a portion of this security was purchased with the cash collateral from loaned securities. |
Affiliates
Investments in issuers considered to be affiliate(s) of the Fund during the period ended April 30, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:
Affiliated Issuer | Value at 12/21/20(a) | Purchases at Cost | Proceeds from Sales | Net Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Value at 04/30/21 | Shares Held at 04/30/21 | Income | Capital Gain Distributions from Underlying Funds | |||||||||||||||||||||||||||
BlackRock Liquidity Funds, T-Fund, Institutional Class | $ | — | $ | 1,096,787 | (b) | $ | — | $ | — | $ | — | $ | 1,096,787 | 1,096,787 | $ | 125 | $ | — | ||||||||||||||||||
iShares MSCI Qatar ETF | — | 237,570 | (9,995 | ) | (21 | ) | 13,071 | 240,625 | 12,258 | — | — | |||||||||||||||||||||||||
SL Liquidity Series, LLC, Money Market Series | — | 11,550 | (b) | — | — | — | 11,550 | 11,547 | — | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||||||||||||
$ | (21 | ) | $ | 13,071 | $ | 1,348,962 | $ | 125 | $ | — | ||||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(a) | Commencement of operations. |
(b) | Represents net amount purchased (sold). |
10 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage Emerging Markets Fund |
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
Description | Number of Contracts | Expiration Date | Notional Amount (000) | Value/ Unrealized Appreciation (Depreciation) | ||||||||||||
Long Contracts | ||||||||||||||||
MCSI India Index. | 11 | 06/18/21 | $ | 916 | $ | (43,376 | ) | |||||||||
MSCI Emerging Markets Index. | 4 | 06/18/21 | 267 | (1,233 | ) | |||||||||||
|
| |||||||||||||||
$ | (44,609 | ) | ||||||||||||||
|
|
Derivative Financial Instruments Categorized by Risk Exposure
As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:
Commodity Contracts | Credit Contracts | Equity Contracts | Foreign Currency Exchange Contracts | Interest Rate Contracts | Other Contracts | Total | ||||||||||||||||||||||
Liabilities — Derivative Financial Instruments | ||||||||||||||||||||||||||||
Futures contracts | ||||||||||||||||||||||||||||
Unrealized depreciation on futures contracts(a) | $ | — | $ | — | $ | 44,609 | $ | — | $ | — | $ | — | $ | 44,609 |
(a) | Net cumulative unrealized appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss). |
For the period ended April 30, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
Commodity Contracts | Credit Contracts | Equity Contracts | Foreign Currency Exchange Contracts | Interest Rate Contracts | Other Contracts | Total | ||||||||||||||||||||||
Net Realized Gain (Loss) from | ||||||||||||||||||||||||||||
Futures contracts | $ | — | $ | — | $ | 278,015 | $ | — | $ | — | $ | — | $ | 278,015 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on | ||||||||||||||||||||||||||||
Futures contracts | $ | — | $ | — | $ | (44,609 | ) | $ | — | $ | — | $ | — | $ | (44,609 | ) | ||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Quarterly Balances of Outstanding Derivative Financial Instruments
Futures contracts | ||||
Average notional value of contracts — long | $ | 1,679,012 |
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.
The following tables summarize the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosed in the Schedule of Investments above.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Investments | ||||||||||||||||
Long-Term Investments | ||||||||||||||||
Common Stocks | ||||||||||||||||
Brazil | $ | 211,001 | $ | — | $ | — | $ | 211,001 | ||||||||
China | 624,457 | 2,600,427 | — | 3,224,884 | ||||||||||||
Greece | — | 30,524 | — | 30,524 | ||||||||||||
Hong Kong | — | 83,262 | 3,568 | 86,830 |
SCHEDULE OF INVESTMENTS | 11 |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage Emerging Markets Fund |
Fair Value Hierarchy as of Period End (continued)
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Common Stocks (continued) | ||||||||||||||||
Hungary | $ | — | $ | 42,527 | $ | — | $ | 42,527 | ||||||||
India | 192,023 | — | — | 192,023 | ||||||||||||
Kuwait | — | 100 | — | 100 | ||||||||||||
Malaysia | 65,816 | 551,822 | — | 617,638 | ||||||||||||
Mexico | 260,474 | — | — | 260,474 | ||||||||||||
Peru | 57,630 | — | — | 57,630 | ||||||||||||
Philippines | 67,555 | — | — | 67,555 | ||||||||||||
Poland | 4,262 | 36,975 | — | 41,237 | ||||||||||||
Qatar | — | 121 | — | 121 | ||||||||||||
Russia | 96,112 | 44,951 | — | 141,063 | ||||||||||||
Saudi Arabia | 340,322 | 524,576 | — | 864,898 | ||||||||||||
South Africa | — | 190,446 | — | 190,446 | ||||||||||||
South Korea | 151,452 | 696,660 | — | 848,112 | ||||||||||||
Taiwan | 150,360 | 1,875,441 | — | 2,025,801 | ||||||||||||
Thailand | — | 327,383 | — | 327,383 | ||||||||||||
Turkey | 49,232 | — | — | 49,232 | ||||||||||||
United Arab Emirates | 115 | — | — | 115 | ||||||||||||
Investment Companies | 240,625 | — | — | 240,625 | ||||||||||||
Preferred Securities | ||||||||||||||||
Preferred Stocks | — | 43,097 | — | 43,097 | ||||||||||||
Short-Term Securities | ||||||||||||||||
Money Market Funds | 1,096,787 | — | — | 1,096,787 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 3,608,223 | $ | 7,048,312 | $ | 3,568 | 10,660,103 | ||||||||||
|
|
|
|
|
|
|
| |||||||||
Investments Valued at NAV(a) | 11,550 | |||||||||||||||
|
| |||||||||||||||
$ | 10,671,653 | |||||||||||||||
Derivative Financial Instruments(b) | ||||||||||||||||
Liabilities | ||||||||||||||||
Equity Contracts | $ | (44,609 | ) | $ | — | $ | — | $ | (44,609 | ) | ||||||
|
|
|
|
|
|
|
|
(a) | Certain investments of the Fund were fair valued using NAV per share as no quoted market value is available and therefore have been excluded from the fair value hierarchy. |
(b) | Derivative financial instruments are futures contracts. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument. |
See notes to financial statements.
12 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Schedule of Investments April 30, 2021 | BlackRock Defensive Advantage International Fund (Percentages shown are based on Net Assets) |
Security | Shares | Value | ||||||
Common Stocks |
| |||||||
Australia — 3.4% | ||||||||
Ansell Ltd. | 138 | $ | 4,489 | |||||
Goodman Group | 1,497 | 21,830 | ||||||
JB Hi-Fi Ltd. | 139 | 4,945 | ||||||
Medibank Pvt Ltd. | 68,931 | 163,551 | ||||||
REA Group Ltd. | 1,253 | 152,446 | ||||||
Technology One Ltd. | 2,292 | 16,721 | ||||||
|
| |||||||
363,982 | ||||||||
Austria — 0.3% | ||||||||
Telekom Austria AG | 3,974 | 32,489 | ||||||
|
| |||||||
Belgium — 0.5% | ||||||||
Etablissements Franz Colruyt NV | 516 | 30,603 | ||||||
Warehouses De Pauw CVA | 482 | 16,999 | ||||||
|
| |||||||
47,602 | ||||||||
China — 2.0% | ||||||||
BOC Hong Kong Holdings Ltd. | 42,500 | 149,440 | ||||||
Chow Tai Fook Jewellery Group Ltd. | 21,000 | 33,826 | ||||||
Kerry Logistics Network Ltd. | 9,500 | 28,516 | ||||||
|
| |||||||
211,782 | ||||||||
Denmark — 5.3% | ||||||||
Chr Hansen Holding A/S(a) | 1,644 | 150,931 | ||||||
Coloplast A/S, Class B | 999 | 165,474 | ||||||
Novo Nordisk A/S, Class B | 2,211 | 163,100 | ||||||
Novozymes A/S, B Shares | 1,112 | 78,866 | ||||||
|
| |||||||
558,371 | ||||||||
Finland — 1.7% | ||||||||
Kesko OYJ, -B Shares | 1,283 | 39,066 | ||||||
Kone OYJ, Class B | 1,848 | 145,147 | ||||||
|
| |||||||
184,213 | ||||||||
France — 5.5% | ||||||||
Air Liquide SA | 584 | 98,347 | ||||||
Danone SA | 845 | 59,648 | ||||||
Hermes International | 129 | 161,909 | ||||||
Kering SA | 15 | 12,020 | ||||||
Legrand SA | 1,620 | 157,691 | ||||||
L’Oreal SA | 96 | 39,309 | ||||||
Orange SA | 4,327 | 53,885 | ||||||
|
| |||||||
582,809 | ||||||||
Germany — 4.4% | ||||||||
Beiersdorf AG | 898 | 101,358 | ||||||
Deutsche Boerse AG | 933 | 160,779 | ||||||
Deutsche Post AG, Registered Shares | 2,792 | 164,441 | ||||||
E.ON SE | 1,537 | 18,533 | ||||||
Fielmann AG(a) | 315 | 23,984 | ||||||
|
| |||||||
469,095 | ||||||||
Hong Kong — 7.4% | ||||||||
Champion REIT | 4,000 | 2,323 | ||||||
CLP Holdings Ltd. | 16,500 | 162,867 | ||||||
HK Electric Investments & HK Electric Investments Ltd.(b) | 17,000 | 17,027 | ||||||
HKT Trust & HKT Ltd., Class SS(b) | 22,000 | 31,944 | ||||||
Hong Kong & China Gas Co. Ltd. | 30,000 | 48,121 | ||||||
Hongkong Land Holdings Ltd. | 14,000 | 69,233 | ||||||
Hutchison Telecommunications Hong Kong Holdings Ltd. | 40,000 | 7,767 | ||||||
Kerry Properties Ltd. | 47,500 | 160,042 | ||||||
Link REIT | 14,100 | 133,006 |
Security | Shares | Value | ||||||
Hong Kong (continued) | ||||||||
MTR Corp. Ltd. | 24,000 | $ | 133,666 | |||||
Swire Properties Ltd. | 5,200 | 15,518 | ||||||
|
| |||||||
781,514 | ||||||||
Israel — 3.7% | ||||||||
Bank Hapoalim BM(a) | 19,768 | 157,108 | ||||||
First International Bank Of Israel Ltd. | 91 | 2,775 | ||||||
Israel Discount Bank Ltd., Class A | 6,429 | 28,941 | ||||||
Nice Ltd.(a) | 677 | 163,268 | ||||||
Strauss Group Ltd. | 1,518 | 44,347 | ||||||
|
| |||||||
396,439 | ||||||||
Italy — 1.5% | ||||||||
Italgas SpA | 24,073 | 157,000 | ||||||
|
| |||||||
Japan — 29.0% | ||||||||
Astellas Pharma, Inc. | 400 | 6,021 | ||||||
Benesse Holdings, Inc. | 1,300 | 28,706 | ||||||
Calbee, Inc. | 5,200 | 124,612 | ||||||
Canon Marketing Japan, Inc. | 1,100 | 26,556 | ||||||
Fast Retailing Co. Ltd. | 100 | 82,043 | ||||||
FUJIFILM Holdings Corp. | 2,500 | 161,938 | ||||||
Itoham Yonekyu Holdings, Inc. | 1,500 | 9,650 | ||||||
Kaken Pharmaceutical Co. Ltd. | 100 | 4,123 | ||||||
Kamigumi Co. Ltd. | 4,400 | 85,730 | ||||||
Kandenko Co. Ltd. | 2,100 | 17,952 | ||||||
KDDI Corp. | 4,500 | 136,033 | ||||||
Keyence Corp. | 300 | 144,016 | ||||||
Kirin Holdings Co. Ltd. | 8,600 | 161,501 | ||||||
Kobayashi Pharmaceutical Co. Ltd. | 100 | 8,931 | ||||||
K’s Holdings Corp. | 800 | 10,914 | ||||||
Lintec Corp. | 3,000 | 65,280 | ||||||
Maruichi Steel Tube Ltd. | 400 | 10,012 | ||||||
McDonald’s Holdings Co. Japan Ltd. | 1,400 | 63,921 | ||||||
Medipal Holdings Corp. | 4,400 | 80,962 | ||||||
Morinaga & Co. Ltd/Japan | 2,100 | 69,972 | ||||||
Nintendo Co. Ltd. | 200 | 114,731 | ||||||
Nippon Telegraph & Telephone Corp. | 5,900 | 148,756 | ||||||
Nissin Foods Holdings Co. Ltd. | 300 | 21,258 | ||||||
Obic Co. Ltd. | 500 | 96,363 | ||||||
Oracle Corp. Japan | 400 | 37,502 | ||||||
Otsuka Holdings Co. Ltd. | 900 | 34,492 | ||||||
Pigeon Corp. | 1,200 | 40,726 | ||||||
Rinnai Corp. | 1,300 | 130,539 | ||||||
Sawai Group Holdings Co. Ltd. | 700 | 33,690 | ||||||
Seria Co. Ltd. | 1,000 | 36,239 | ||||||
Shimano, Inc. | 100 | 22,866 | ||||||
SMC Corp. | 100 | 58,108 | ||||||
Softbank Corp. | 5,800 | 74,764 | ||||||
Sumitomo Rubber Industries Ltd. | 13,000 | 161,042 | ||||||
Suntory Beverage & Food Ltd. | 4,100 | 138,397 | ||||||
Takeda Pharmaceutical Co. Ltd. | 4,100 | 136,942 | ||||||
Tokio Marine Holdings, Inc. | 200 | 9,591 | ||||||
Tokyo Gas Co. Ltd. | 6,700 | 135,969 | ||||||
Toyo Suisan Kaisha Ltd. | 1,600 | 65,240 | ||||||
Unicharm Corp. | 4,100 | 159,368 | ||||||
Welcia Holdings Co. Ltd. | 3,500 | 109,205 | ||||||
Yamada Holdings Co. Ltd. | 2,600 | 12,943 | ||||||
|
| |||||||
3,077,604 | ||||||||
Luxembourg — 0.2% | ||||||||
RTL Group SA(a) | 350 | 20,578 | ||||||
|
|
SCHEDULE OF INVESTMENTS | 13 |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage International Fund (Percentages shown are based on Net Assets) |
Security | Shares | Value | ||||||
Netherlands — 3.7% | ||||||||
Akzo Nobel NV | 119 | $ | 14,288 | |||||
Flow Traders(c) | 565 | 23,326 | ||||||
GrandVision NV(a)(c) | 461 | 14,909 | ||||||
Koninklijke Ahold Delhaize NV | 5,960 | 160,395 | ||||||
Koninklijke Philips NV(a) | 438 | 24,766 | ||||||
Randstad NV | 2,155 | 155,488 | ||||||
|
| |||||||
393,172 | ||||||||
New Zealand — 0.1% | ||||||||
Fisher & Paykel Healthcare Corp. Ltd. | 360 | 9,278 | ||||||
|
| |||||||
Norway — 0.6% | ||||||||
Gjensidige Forsikring ASA | 2,966 | 67,355 | ||||||
|
| |||||||
Singapore — 4.8% | ||||||||
DBS Group Holdings Ltd. | 900 | 20,170 | ||||||
Jardine Cycle & Carriage Ltd. | 9,400 | 163,630 | ||||||
Singapore Post Ltd. | 48,900 | 28,270 | ||||||
Singapore Technologies Engineering Ltd. | 32,500 | 94,021 | ||||||
Singapore Telecommunications Ltd. | 85,800 | 160,973 | ||||||
StarHub Ltd. | 7,800 | 7,903 | ||||||
United Overseas Bank Ltd. | 1,800 | 35,879 | ||||||
|
| |||||||
510,846 | ||||||||
Spain — 0.1% | ||||||||
Iberdrola SA | 889 | 12,014 | ||||||
|
| |||||||
Sweden — 2.8% | ||||||||
Atlas Copco AB, A Shares | 1,262 | 76,528 | ||||||
Axfood AB | 1,383 | 34,609 | ||||||
Swedish Match AB | 1,903 | 155,788 | ||||||
Telefonaktiebolaget LM Ericsson, B Shares | 2,256 | 30,984 | ||||||
|
| |||||||
297,909 | ||||||||
Switzerland — 12.9% | ||||||||
Cie Financiere Richemont SA, Class A, Registered Shares | 760 | 77,996 | ||||||
Galenica AG(c) | 805 | 54,480 | ||||||
Givaudan SA, Registered Shares | 39 | 163,417 | ||||||
Kuehne + Nagel International AG, Registered Shares | 501 | 149,796 | ||||||
Nestle SA, Registered Shares | 1,374 | 163,960 | ||||||
Novartis AG, Registered Shares | 600 | 51,202 | ||||||
Roche Holding AG | 946 | 318,436 | ||||||
Schindler Holding AG, Registered Shares | 70 | 19,477 | ||||||
Sika AG, Registered Shares | 541 | 161,576 |
Security | Shares | Value | ||||||
Switzerland (continued) | ||||||||
Swisscom AG, Registered Shares | 260 | $ | 141,167 | |||||
Tecan Group AG | 138 | 67,245 | ||||||
|
| |||||||
1,368,752 | ||||||||
United Kingdom — 8.7% | ||||||||
AstraZeneca PLC | 1,482 | 157,750 | ||||||
Dunelm Group PLC | 418 | 8,513 | ||||||
GlaxoSmithKline PLC | 537 | 9,924 | ||||||
J Sainsbury PLC | 46,142 | 151,553 | ||||||
Kingfisher PLC(a) | 25,635 | 126,551 | ||||||
National Grid PLC | 12,951 | 163,254 | ||||||
Segro PLC | 218 | 3,029 | ||||||
Unilever PLC | 2,837 | 165,696 | ||||||
WM Morrison Supermarkets PLC | 56,245 | 135,082 | ||||||
|
| |||||||
921,352 | ||||||||
United States — 0.1% | ||||||||
QIAGEN NV(a) | 311 | 15,162 | ||||||
|
| |||||||
Total Long-Term Investments — 98.7% | 10,479,318 | |||||||
|
| |||||||
Short-Term Securities | ||||||||
Money Market Funds — 2.8% | ||||||||
BlackRock Liquidity Funds, T-Fund, Institutional Class, 0.02%(d)(e) | 294,891 | 294,891 | ||||||
|
| |||||||
Total Short-Term Securities — 2.8% | 294,891 | |||||||
|
| |||||||
Total Investments — 101.5% | 10,774,209 | |||||||
Liabilities in Excess of Other Assets — (1.5)% | (154,133 | ) | ||||||
|
| |||||||
Net Assets — 100.0% | $ | 10,620,076 | ||||||
|
|
(a) | Non-income producing security. |
(b) | A security contractually bound to one or more other securities to form a single saleable unit which cannot be sold separately. |
(c) | Security exempt from registration pursuant to Rule 144A under the Securities Act of 1933, as amended. These securities may be resold in transactions exempt from registration to qualified institutional investors. |
(d) | Affiliate of the Fund. |
(e) | Annualized 7-day yield as of period end. |
Affiliates
Investments in issuers considered to be affiliate(s) of the Fund during the period ended April 30, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:
Affiliated Issuer | Value at 12/21/20(a) | Purchases at Cost | Proceeds from Sales | Net Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Value at 04/30/21 | Shares Held at 04/30/21 | Income | Capital Gain Distributions from Underlying Funds | |||||||||||||||||||||||||||
BlackRock Liquidity Funds, T-Fund, Institutional Class | $ | — | $ | 294,891 | (b) | $ | — | $ | — | $ | — | $ | 294,891 | 294,891 | $ | 17 | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Commencement of operations. |
(b) | Represents net amount purchased (sold). |
14 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage International Fund |
Derivative Financial Instruments Outstanding as of Period End
Futures Contracts
Description | Number of Contracts | Expiration Date | Notional Amount (000) | Value/ Unrealized Appreciation (Depreciation) | ||||||||||||
Long Contracts | ||||||||||||||||
MSCI EAFE Index | 1 | 06/18/21 | $ | 113 | $ | 2,207 | ||||||||||
|
|
Derivative Financial Instruments Categorized by Risk Exposure
As of period end, the fair values of derivative financial instruments located in the Statements of Assets and Liabilities were as follows:
Commodity Contracts | Credit Contracts | Equity Contracts | Foreign Currency Exchange Contracts | Interest Rate Contracts | Other Contracts | Total | ||||||||||||||||||||||
Assets — Derivative Financial Instruments | ||||||||||||||||||||||||||||
Futures contracts | ||||||||||||||||||||||||||||
Unrealized appreciation on futures contracts(a) | $ | — | $ | — | $ | 2,207 | $ | — | $ | — | $ | — | $ | 2,207 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) | Net cumulative unrealized appreciation (depreciation) on futures contracts and centrally cleared swaps, if any, are reported in the Schedule of Investments. In the Statements of Assets and Liabilities, only current day’s variation margin is reported in receivables or payables and the net cumulative unrealized appreciation (depreciation) is included in accumulated earnings (loss). |
For the period ended April 30, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
Commodity Contracts | Credit Contracts | Equity Contracts | Foreign Currency Exchange Contracts | Interest Rate Contracts | Other Contracts | Total | ||||||||||||||||||||||
Net Realized Gain (Loss) from | ||||||||||||||||||||||||||||
Futures contracts | $ | — | $ | — | $ | 5,101 | $ | — | $ | — | $ | — | $ | 5,101 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||
Net Change in Unrealized Appreciation (Depreciation) on | ||||||||||||||||||||||||||||
Futures contracts | $ | — | $ | — | $ | 2,207 | $ | — | $ | — | $ | — | $ | 2,207 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Quarterly Balances of Outstanding Derivative Financial Instruments
Futures contracts | ||||
Average notional value of contracts — long | $ | 109,320 |
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.
The following tables summarize the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosed in the Schedule of Investments above.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Investments | ||||||||||||||||
Long-Term Investments | ||||||||||||||||
Common Stocks | ||||||||||||||||
Australia | $ | — | $ | 363,982 | $ | — | $ | 363,982 | ||||||||
Austria | 32,489 | — | — | 32,489 | ||||||||||||
Belgium | 30,603 | 16,999 | — | 47,602 | ||||||||||||
China | — | 211,782 | — | 211,782 | ||||||||||||
Denmark | — | 558,371 | — | 558,371 | ||||||||||||
Finland | — | 184,213 | — | 184,213 |
SCHEDULE OF INVESTMENTS | 15 |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage International Fund |
Fair Value Hierarchy as of Period End (continued)
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Common Stocks (continued) | ||||||||||||||||
France | $ | — | $ | 582,809 | $ | — | $ | 582,809 | ||||||||
Germany | — | 469,095 | — | 469,095 | ||||||||||||
Hong Kong | 17,027 | 764,487 | — | 781,514 | ||||||||||||
Israel | — | 396,439 | — | 396,439 | ||||||||||||
Italy | — | 157,000 | — | 157,000 | ||||||||||||
Japan | 267,507 | 2,810,097 | — | 3,077,604 | ||||||||||||
Luxembourg | — | 20,578 | — | 20,578 | ||||||||||||
Netherlands | 38,235 | 354,937 | — | 393,172 | ||||||||||||
New Zealand | — | 9,278 | — | 9,278 | ||||||||||||
Norway | — | 67,355 | — | 67,355 | ||||||||||||
Singapore | — | 510,846 | — | 510,846 | ||||||||||||
Spain | — | 12,014 | — | 12,014 | ||||||||||||
Sweden | — | 297,909 | — | 297,909 | ||||||||||||
Switzerland | — | 1,368,752 | — | 1,368,752 | ||||||||||||
United Kingdom | 165,696 | 755,656 | — | 921,352 | ||||||||||||
United States | — | 15,162 | — | 15,162 | ||||||||||||
Short-Term Securities | ||||||||||||||||
Money Market Funds | 294,891 | — | — | 294,891 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 846,448 | $ | 9,927,761 | $ | — | $ | 10,774,209 | |||||||||
|
|
|
|
|
|
|
| |||||||||
Derivative Financial Instruments(a) | ||||||||||||||||
Assets | ||||||||||||||||
Equity Contracts | $ | 2,207 | $ | — | $ | — | $ | 2,207 | ||||||||
|
|
|
|
|
|
|
|
(a) | Derivative financial instruments are futures contracts. Futures contracts are valued at the unrealized appreciation (depreciation) on the instrument. |
See notes to financial statements.
16 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Schedule of Investments April 30, 2021 | BlackRock Defensive Advantage U.S. Fund (Percentages shown are based on Net Assets) |
Security | Shares | Value | ||||||
Common Stocks |
| |||||||
Aerospace & Defense — 2.4% | ||||||||
Lockheed Martin Corp. | 272 | $ | 103,512 | |||||
Northrop Grumman Corp. | 77 | 27,292 | ||||||
|
| |||||||
130,804 | ||||||||
Beverages — 3.7% | ||||||||
Coca-Cola Co. | 2,126 | 114,761 | ||||||
PepsiCo, Inc. | 594 | 85,631 | ||||||
|
| |||||||
200,392 | ||||||||
Biotechnology — 4.1% | ||||||||
Amgen, Inc. | 254 | 60,868 | ||||||
Biogen, Inc.(a) | 21 | 5,614 | ||||||
Gilead Sciences, Inc. | 1,194 | 75,783 | ||||||
Regeneron Pharmaceuticals, Inc.(a) | 132 | 63,532 | ||||||
Vertex Pharmaceuticals, Inc.(a) | 71 | 15,492 | ||||||
|
| |||||||
221,289 | ||||||||
Building Products — 1.6% | ||||||||
Allegion PLC | 237 | 31,848 | ||||||
Lennox International, Inc. | 155 | 51,978 | ||||||
|
| |||||||
83,826 | ||||||||
Capital Markets — 2.1% | ||||||||
FactSet Research Systems, Inc. | 154 | 51,778 | ||||||
Moody’s Corp. | 188 | 61,421 | ||||||
|
| |||||||
113,199 | ||||||||
Chemicals — 0.4% | ||||||||
WR Grace & Co. | 349 | 23,987 | ||||||
|
| |||||||
Commercial Services & Supplies — 2.5% | ||||||||
Republic Services, Inc. | 112 | 11,905 | ||||||
Waste Connections, Inc. | 827 | 98,504 | ||||||
Waste Management, Inc. | 178 | 24,559 | ||||||
|
| |||||||
134,968 | ||||||||
Communications Equipment — 0.7% | ||||||||
Arista Networks, Inc.(a) | 104 | 32,778 | ||||||
Motorola Solutions, Inc. | 13 | 2,448 | ||||||
|
| |||||||
35,226 | ||||||||
Diversified Consumer Services — 0.0% | ||||||||
frontdoor, Inc.(a) | 17 | 910 | ||||||
|
| |||||||
Diversified Telecommunication Services — 4.9% | ||||||||
AT&T, Inc. | 7,785 | 244,527 | ||||||
Cogent Communications Holdings, Inc. | 104 | 7,853 | ||||||
Verizon Communications, Inc. | 206 | 11,905 | ||||||
|
| |||||||
264,285 | ||||||||
Electric Utilities — 3.4% | ||||||||
American Electric Power Co., Inc. | 289 | 25,637 | ||||||
Eversource Energy | 60 | 5,173 | ||||||
IDACORP, Inc. | 356 | 36,483 | ||||||
NextEra Energy, Inc. | 878 | 68,054 | ||||||
Pinnacle West Capital Corp. | 46 | 3,894 | ||||||
Portland General Electric Co. | 857 | 43,587 | ||||||
|
| |||||||
182,828 | ||||||||
Electrical Equipment — 1.1% | ||||||||
AMETEK, Inc. | 452 | 60,988 | ||||||
|
|
Security | Shares | Value | ||||||
Electronic Equipment, Instruments & Components — 3.9% | ||||||||
Cognex Corp. | 675 | $ | 58,131 | |||||
Keysight Technologies, Inc.(a) | 1,062 | 153,300 | ||||||
|
| |||||||
211,431 | ||||||||
Entertainment — 1.0% | ||||||||
Electronic Arts, Inc. | 363 | 51,575 | ||||||
|
| |||||||
Equity Real Estate Investment Trusts (REITs) — 4.6% | ||||||||
QTS Realty Trust, Inc., Class A. | 3,706 | 246,412 | ||||||
|
| |||||||
Food & Staples Retailing — 0.2% | ||||||||
Costco Wholesale Corp. | 17 | 6,326 | ||||||
Kroger Co. | 30 | 1,096 | ||||||
Walmart, Inc. | 29 | 4,057 | ||||||
|
| |||||||
11,479 | ||||||||
Food Products — 5.9% | ||||||||
General Mills, Inc. | 333 | 20,266 | ||||||
Hershey Co. | 663 | 108,931 | ||||||
Kellogg Co. | 1,739 | 108,549 | ||||||
Mondelez International, Inc., Class A | 1,341 | 81,546 | ||||||
|
| |||||||
319,292 | ||||||||
Gas Utilities — 1.0% | ||||||||
National Fuel Gas Co. | 1,065 | 52,888 | ||||||
|
| |||||||
Health Care Equipment & Supplies — 1.9% | ||||||||
Edwards Lifesciences Corp.(a) | 336 | 32,095 | ||||||
Hill-Rom Holdings, Inc. | 584 | 64,368 | ||||||
Medtronic PLC | 28 | 3,666 | ||||||
|
| |||||||
100,129 | ||||||||
Health Care Providers & Services — 0.1% | ||||||||
Amedisys, Inc.(a) | 19 | 5,127 | ||||||
|
| |||||||
Health Care Technology — 1.0% | ||||||||
Cerner Corp. | 723 | 54,261 | ||||||
|
| |||||||
Hotels, Restaurants & Leisure — 0.9% | ||||||||
Aramark | 396 | 15,393 | ||||||
McDonald’s Corp. | 89 | 21,011 | ||||||
Planet Fitness, Inc., Class A(a) | 101 | 8,483 | ||||||
Wendy’s Co. | 64 | 1,444 | ||||||
|
| |||||||
46,331 | ||||||||
Household Products — 4.4% | ||||||||
Kimberly-Clark Corp. | 1,745 | 232,643 | ||||||
Procter & Gamble Co. | 16 | 2,135 | ||||||
|
| |||||||
234,778 | ||||||||
Industrial Conglomerates — 1.2% | ||||||||
3M Co. | 317 | 62,493 | ||||||
|
| |||||||
Insurance — 4.4% | ||||||||
Alleghany Corp.(a) | 209 | 141,905 | ||||||
Allstate Corp. | 117 | 14,836 | ||||||
Aon PLC, Class A | 271 | 68,140 | ||||||
Erie Indemnity Co., Class A | 6 | 1,284 | ||||||
First American Financial Corp. | 208 | 13,416 | ||||||
|
| |||||||
239,581 | ||||||||
Interactive Media & Services(a) — 0.2% | ||||||||
Alphabet, Inc., Class C. | 4 | 9,640 | ||||||
Match Group, Inc. | 12 | 1,868 | ||||||
|
| |||||||
11,508 | ||||||||
IT Services — 10.1% | ||||||||
Accenture PLC, Class A | 190 | 55,094 |
SCHEDULE OF INVESTMENTS | 17 |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage U.S. Fund (Percentages shown are based on Net Assets) |
Security | Shares | Value | ||||||
IT Services (continued) | ||||||||
Akamai Technologies, Inc.(a) | 6 | $ | 652 | |||||
Amdocs Ltd. | 1,495 | 114,726 | ||||||
Automatic Data Processing, Inc. | 246 | 46,000 | ||||||
Jack Henry & Associates, Inc. | 655 | 106,654 | ||||||
Paychex, Inc. | 54 | 5,265 | ||||||
Visa, Inc., Class A | 431 | 100,664 | ||||||
Western Union Co. | 4,566 | 117,620 | ||||||
|
| |||||||
546,675 | ||||||||
Life Sciences Tools & Services — 4.5% | ||||||||
Agilent Technologies, Inc. | 1,463 | 195,516 | ||||||
Mettler-Toledo International, Inc.(a) | 12 | 15,760 | ||||||
QIAGEN NV(a) | 233 | 11,214 | ||||||
Waters Corp.(a) | 68 | 20,391 | ||||||
|
| |||||||
242,881 | ||||||||
Machinery — 2.5% | ||||||||
Fortive Corp. | 13 | 921 | ||||||
Graco, Inc. | 1,066 | 81,869 | ||||||
Toro Co. | 451 | 51,684 | ||||||
|
| |||||||
134,474 | ||||||||
Media — 0.2% | ||||||||
Liberty Broadband Corp., Class C(a) | 61 | 9,926 | ||||||
|
| |||||||
Metals & Mining — 0.3% | ||||||||
Newmont Corp. | 279 | 17,412 | ||||||
|
| |||||||
Multi-Utilities — 3.5% | ||||||||
CMS Energy Corp. | 669 | 43,077 | ||||||
Consolidated Edison, Inc. | 1,912 | 148,008 | ||||||
|
| |||||||
191,085 | ||||||||
Oil, Gas & Consumable Fuels — 2.3% | ||||||||
Equitrans Midstream Corp. | 4,961 | 40,482 | ||||||
Murphy Oil Corp. | 4,628 | 78,352 | ||||||
Targa Resources Corp. | 98 | 3,400 | ||||||
Williams Cos., Inc. | 156 | 3,800 | ||||||
|
| |||||||
126,034 | ||||||||
Pharmaceuticals — 8.1% | ||||||||
Bristol-Myers Squibb Co. | 1,289 | 80,459 | ||||||
Eli Lilly & Co. | 70 | 12,794 | ||||||
Johnson & Johnson | 565 | 91,943 | ||||||
Merck & Co., Inc. | 1,098 | 81,801 | ||||||
Pfizer, Inc. | 1,172 | 45,298 | ||||||
Zoetis, Inc. | 735 | 127,177 | ||||||
|
| |||||||
439,472 |
Security | Shares | Value | ||||||
Professional Services — 0.6% | ||||||||
CoStar Group, Inc.(a) | 39 | $ | 33,323 | |||||
|
| |||||||
Software — 7.0% | ||||||||
Adobe, Inc.(a) | 440 | 223,670 | ||||||
j2 Global, Inc.(a) | 217 | 26,257 | ||||||
Microsoft Corp. | 119 | 30,009 | ||||||
Proofpoint, Inc.(a) | 133 | 22,891 | ||||||
ServiceNow, Inc.(a) | 141 | 71,398 | ||||||
UiPath, Inc., Class A(a) | 65 | 4,680 | ||||||
|
| |||||||
378,905 | ||||||||
Textiles, Apparel & Luxury Goods — 0.8% | ||||||||
NIKE, Inc., Class B | 310 | 41,112 | ||||||
|
| |||||||
Tobacco — 0.0% | ||||||||
Philip Morris International, Inc. | 21 | 1,995 | ||||||
|
| |||||||
Trading Companies & Distributors — 0.6% | ||||||||
Watsco, Inc. | 105 | 30,750 | ||||||
|
| |||||||
Wireless Telecommunication Services — 0.3% | ||||||||
T-Mobile US, Inc.(a) | 123 | 16,252 | ||||||
|
| |||||||
Total Long-Term Investments — 98.4% | 5,310,283 | |||||||
|
| |||||||
Short-Term Securities |
| |||||||
Money Market Funds — 2.5% | ||||||||
BlackRock Liquidity Funds, T-Fund, Institutional Class, 0.02%(b)(c) | 135,946 | 135,946 | ||||||
|
| |||||||
Total Short-Term Securities — 2.5% |
| 135,946 | ||||||
|
| |||||||
Total Investments — 100.9% |
| 5,446,229 | ||||||
Liabilities in Excess of Other Assets — (0.9)% |
| (49,180 | ) | |||||
|
| |||||||
Net Assets — 100.0% |
| $ | 5,397,049 | |||||
|
|
(a) | Non-income producing security. |
(b) | Affiliate of the Fund. |
(c) | Annualized 7-day yield as of period end. |
For Fund compliance purposes, the Fund’s industry classifications refer to one or more of the industry sub-classifications used by one or more widely recognized market indexes or rating group indexes, and/or as defined by the investment adviser. These definitions may not apply for purposes of this report, which may combine such industry sub-classifications for reporting ease.
18 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Schedule of Investments (continued) April 30, 2021 | BlackRock Defensive Advantage U.S. Fund |
Affiliates
Investments in issuers considered to be affiliate(s) of the Fund during the period ended April 30, 2021 for purposes of Section 2(a)(3) of the Investment Company Act of 1940, as amended, were as follows:
| ||||||||||||||||||||||||||||||||||||
Affiliated Issuer | Value at 12/21/20(a) | Purchases at Cost | Proceeds from Sales | Net Realized Gain (Loss) | Change in Unrealized Appreciation (Depreciation) | Value at 04/30/21 | Shares Held at 04/30/21 | Income | Capital Gain Distributions from Underlying Funds | |||||||||||||||||||||||||||
| ||||||||||||||||||||||||||||||||||||
BlackRock Liquidity Funds, T-Fund, Institutional Class | $ | — | $ | 135,946 | (b) | $ | — | $ | — | $ | — | $ | 135,946 | 135,946 | $ | 10 | $ | — | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
(a) | Commencement of operations. |
(b) | Represents net amount purchased (sold). |
Derivative Financial Instruments Categorized by Risk Exposure
For the period ended April 30, 2021, the effect of derivative financial instruments in the Statements of Operations was as follows:
Commodity Contracts | Credit Contracts | Equity Contracts | Foreign Currency Exchange Contracts | Interest Rate Contracts | Other Contracts | Total | ||||||||||||||||||||||
Net Realized Gain (Loss) from | ||||||||||||||||||||||||||||
Futures contracts | $ | — | $ | — | $ | 3,457 | $ | — | $ | — | $ | — | $ | 3,457 | ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average Quarterly Balances of Outstanding Derivative Financial Instruments
Futures contracts | ||||
Average notional value of contracts — long | $—(a) |
(a) | Derivative not held at any quarter-end. The risk exposure table serves as an indicator of activity during the period. |
For more information about the Fund’s investment risks regarding derivative financial instruments, refer to the Notes to Financial Statements.
Fair Value Hierarchy as of Period End
Various inputs are used in determining the fair value of financial instruments. For a description of the input levels and information about the Fund’s policy regarding valuation of financial instruments, refer to the Notes to Financial Statements.
The following table summarizes the Fund’s financial instruments categorized in the fair value hierarchy. The breakdown of the Fund’s investments into major categories is disclosed in the Schedule of Investments above.
Level 1 | Level 2 | Level 3 | Total | |||||||||||||
Assets | ||||||||||||||||
Investments | ||||||||||||||||
Long-Term Investments | ||||||||||||||||
Common Stocks | $ | 5,310,283 | $ | — | $ | — | $ | 5,310,283 | ||||||||
Short-Term Securities | ||||||||||||||||
Money Market Funds | 135,946 | — | — | 135,946 | ||||||||||||
|
|
|
|
|
|
|
| |||||||||
$ | 5,446,229 | $ | — | $ | — | $ | 5,446,229 | |||||||||
|
|
|
|
|
|
|
|
See notes to financial statements.
SCHEDULE OF INVESTMENTS | 19 |
Statements of Assets and Liabilities
April 30, 2021
BlackRock Defensive Advantage Emerging Markets Fund | BlackRock Defensive Advantage International Fund | BlackRock Defensive Advantage U.S. Fund | ||||||||||
ASSETS | ||||||||||||
Investments at value — unaffiliated(a) | $ | 9,322,691 | $ | 10,479,318 | $ | 5,310,283 | ||||||
Investments at value — affiliated(b) | 1,348,962 | 294,891 | 135,946 | |||||||||
Cash pledged for futures contracts | 115,000 | 8,000 | — | |||||||||
Foreign currency at value(c) | 83,489 | 16,137 | — | |||||||||
Receivables: | ||||||||||||
Investments sold | — | 119,700 | — | |||||||||
Dividends — unaffiliated | 23,865 | 36,976 | 5,863 | |||||||||
Dividends — affiliated | 21 | — | — | |||||||||
From the Manager | 20,405 | 23,620 | 16,448 | |||||||||
Variation margin on futures contracts | 17,538 | — | — | |||||||||
Deferred offering costs | 71,335 | 71,335 | 71,335 | |||||||||
Prepaid expenses | 1,380 | 1,380 | 1,380 | |||||||||
|
|
|
|
|
| |||||||
Total assets | 11,004,686 | 11,051,357 | 5,541,255 | |||||||||
|
|
|
|
|
| |||||||
LIABILITIES | ||||||||||||
Collateral on securities loaned at value | 11,550 | — | — | |||||||||
Payables: | ||||||||||||
Investments purchased | — | 251,442 | — | |||||||||
Accounting services fees | 13,520 | 13,520 | 9,230 | |||||||||
Offering costs | 97,813 | 112,257 | 97,720 | |||||||||
Trustees’ and Officer’s fees | 494 | 495 | 511 | |||||||||
Other accrued expenses | 6,185 | 9,205 | 5,996 | |||||||||
Pricing fees | 8,975 | 8,975 | 1,068 | |||||||||
Professional fees | 34,100 | 33,861 | 29,660 | |||||||||
Service fees | 21 | 21 | 21 | |||||||||
Variation margin on futures contracts | 17,512 | 1,505 | — | |||||||||
|
|
|
|
|
| |||||||
Total liabilities | 190,170 | 431,281 | 144,206 | |||||||||
|
|
|
|
|
| |||||||
NET ASSETS | $ | 10,814,516 | $ | 10,620,076 | $ | 5,397,049 | ||||||
|
|
|
|
|
| |||||||
NET ASSETS CONSIST OF | ||||||||||||
Paid-in capital | $ | 9,989,792 | $ | 9,995,120 | $ | 4,997,239 | ||||||
Accumulated earnings | 824,724 | 624,956 | 399,810 | |||||||||
|
|
|
|
|
| |||||||
NET ASSETS | $ | 10,814,516 | $ | 10,620,076 | $ | 5,397,049 | ||||||
|
|
|
|
|
| |||||||
(a) Investments at cost — unaffiliated | $ | 8,960,530 | $ | 10,134,061 | $ | 5,002,368 | ||||||
(b) Investments at cost — affiliated | $ | 1,335,891 | $ | 294,891 | $ | 135,946 | ||||||
(c) Foreign currency at cost | $ | 83,577 | $ | 16,171 | $ | — |
20 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Statements of Assets and Liabilities (continued)
April 30, 2021
BlackRock Defensive Advantage Emerging Markets Fund | BlackRock Defensive Advantage International Fund | BlackRock Defensive Advantage U.S. Fund | ||||||||||
NET ASSET VALUE | ||||||||||||
Institutional | ||||||||||||
Net assets | $ | 108,146 | $ | 106,201 | $ | 107,943 | ||||||
|
|
|
|
|
| |||||||
Shares outstanding | 10,000 | 10,000 | 10,000 | |||||||||
|
|
|
|
|
| |||||||
Net asset value | $ | 10.81 | $ | 10.62 | $ | 10.79 | ||||||
|
|
|
|
|
| |||||||
Shares authorized | Unlimited | Unlimited | Unlimited | |||||||||
|
|
|
|
|
| |||||||
Par value | $ | 0.001 | $ | 0.001 | $ | 0.001 | ||||||
|
|
|
|
|
| |||||||
Investor A | ||||||||||||
Net assets | $ | 108,057 | $ | 106,114 | $ | 107,853 | ||||||
|
|
|
|
|
| |||||||
Shares outstanding | 10,000 | 10,000 | 10,000 | |||||||||
|
|
|
|
|
| |||||||
Net asset value | $ | 10.81 | $ | 10.61 | $ | 10.79 | ||||||
|
|
|
|
|
| |||||||
Shares authorized | Unlimited | Unlimited | Unlimited | |||||||||
|
|
|
|
|
| |||||||
Par value | $ | 0.001 | $ | 0.001 | $ | 0.001 | ||||||
|
|
|
|
|
| |||||||
Class K | ||||||||||||
Net assets | $ | 10,598,313 | $ | 10,407,761 | $ | 5,181,253 | ||||||
|
|
|
|
|
| |||||||
Shares outstanding | 980,000 | 980,000 | 480,000 | |||||||||
|
|
|
|
|
| |||||||
Net asset value | $ | 10.81 | $ | 10.62 | $ | 10.79 | ||||||
|
|
|
|
|
| |||||||
Shares authorized | Unlimited | Unlimited | Unlimited | |||||||||
|
|
|
|
|
| |||||||
Par value | $ | 0.001 | $ | 0.001 | $ | 0.001 | ||||||
|
|
|
|
|
|
See notes to financial statements.
FINANCIAL STATEMENTS | 21 |
Period Ended April 30, 2021
BlackRock Defensive Advantage Emerging Markets Fund(a) | BlackRock Defensive Advantage International Fund(a) | BlackRock Defensive Advantage U.S. Fund(a) | ||||||||||||||
INVESTMENT INCOME | ||||||||||||||||
Dividends — unaffiliated | $ | 56,337 | $ | 107,245 | $ | 29,839 | ||||||||||
Dividends — affiliated | 125 | 17 | 10 | |||||||||||||
Foreign taxes withheld | (6,075 | ) | (13,849 | ) | (15 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total investment income | 50,387 | 93,413 | 29,834 | |||||||||||||
|
|
|
|
|
| |||||||||||
EXPENSES | ||||||||||||||||
Organization and offering | 51,097 | 51,097 | 51,097 | |||||||||||||
Professional | 40,950 | 40,950 | 36,010 | |||||||||||||
Investment advisory | 30,284 | 16,568 | 7,831 | |||||||||||||
Pricing | 8,975 | 8,975 | 1,068 | |||||||||||||
Custodian | 7,800 | 7,800 | 3,510 | |||||||||||||
Printing and postage | 6,370 | 6,370 | 5,330 | |||||||||||||
Accounting services | 5,720 | 5,720 | 5,720 | |||||||||||||
Trustees and Officer | 3,840 | 3,840 | 3,850 | |||||||||||||
Registration | 3,664 | 3,664 | 3,664 | |||||||||||||
Administration | 1,609 | 1,565 | 774 | |||||||||||||
Administration — class specific | 758 | 737 | 365 | |||||||||||||
Transfer agent — class specific | 390 | 390 | 390 | |||||||||||||
Service — class specific | 94 | 92 | 91 | |||||||||||||
Miscellaneous | 5,225 | 5,225 | 3,037 | |||||||||||||
|
|
|
|
|
| |||||||||||
Total expenses | 166,776 | 152,993 | 122,737 | |||||||||||||
Less: | ||||||||||||||||
Administration fees waived - class specific | (757 | ) | (737 | ) | (365 | ) | ||||||||||
Fees waived and/or reimbursed by the Administrator | (1,608 | ) | (1,565 | ) | (774 | ) | ||||||||||
Fees waived and/or reimbursed by the Manager | (133,286 | ) | (133,641 | ) | (113,297 | ) | ||||||||||
Transfer agent fees waived and/or reimbursed — class specific | (390 | ) | (390 | ) | (390 | ) | ||||||||||
|
|
|
|
|
| |||||||||||
Total expenses after fees waived and/or reimbursed | 30,735 | 16,660 | 7,911 | |||||||||||||
|
|
|
|
|
| |||||||||||
Net investment income | 19,652 | 76,753 | 21,923 | |||||||||||||
|
|
|
|
|
| |||||||||||
REALIZED AND UNREALIZED GAIN (LOSS) | ||||||||||||||||
Net realized gain (loss) from: | ||||||||||||||||
Investments — unaffiliated | 197,939 | 203,400 | 66,254 | |||||||||||||
Investments — affiliated | (21 | ) | — | — | ||||||||||||
Foreign currency transactions | (7,728 | ) | (2,935 | ) | — | |||||||||||
Futures contracts | 278,015 | 5,101 | 3,457 | |||||||||||||
|
|
|
|
|
| |||||||||||
468,205 | 205,566 | 69,711 | ||||||||||||||
|
|
|
|
|
| |||||||||||
Net change in unrealized appreciation (depreciation) on: | ||||||||||||||||
Investments — unaffiliated | 362,161 | 345,257 | 307,915 | |||||||||||||
Investments — affiliated | 13,071 | — | — | |||||||||||||
Foreign currency translations | 36 | 293 | — | |||||||||||||
Futures contracts | (44,609 | ) | 2,207 | — | ||||||||||||
|
|
|
|
|
| |||||||||||
330,659 | 347,757 | 307,915 | ||||||||||||||
|
|
|
|
|
| |||||||||||
Net realized and unrealized gain | 798,864 | 553,323 | 377,626 | |||||||||||||
|
|
|
|
|
| |||||||||||
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS | $ | 818,516 | $ | 630,076 | $ | 399,549 | ||||||||||
|
|
|
|
|
|
(a) | The Fund commenced operations on December 21, 2020. |
See notes to financial statements.
22 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Statements of Changes in Net Assets
BlackRock 12/21/20(a) to 04/30/21 | BlackRock 12/21/20(a) to 04/30/21 | BlackRock to 04/30/21 | ||||||||||
INCREASE (DECREASE) IN NET ASSETS | ||||||||||||
OPERATIONS | ||||||||||||
Net investment income | $ | 19,652 | $ | 76,753 | $ | 21,923 | ||||||
Net realized gain | 468,205 | 205,566 | 69,711 | |||||||||
Net change in unrealized appreciation | 330,659 | 347,757 | 307,915 | |||||||||
|
|
|
|
|
| |||||||
Net increase in net assets resulting from operations | 818,516 | 630,076 | 399,549 | |||||||||
|
|
|
|
|
| |||||||
DISTRIBUTIONS TO SHAREHOLDERS(b) | ||||||||||||
Institutional | (40 | ) | (100 | ) | (50 | ) | ||||||
Investor A | (33 | ) | (93 | ) | (43 | ) | ||||||
Class K | (3,927 | ) | (9,807 | ) | (2,407 | ) | ||||||
|
|
|
|
|
| |||||||
Decrease in net assets resulting from distributions to shareholders | (4,000 | ) | (10,000 | ) | (2,500 | ) | ||||||
|
|
|
|
|
| |||||||
CAPITAL SHARE TRANSACTIONS | ||||||||||||
Net increase in net assets derived from capital share transactions | 10,000,000 | 10,000,000 | 5,000,000 | |||||||||
|
|
|
|
|
| |||||||
NET ASSETS | ||||||||||||
Total increase in net assets | 10,814,516 | 10,620,076 | 5,397,049 | |||||||||
Beginning of period | — | — | — | |||||||||
|
|
|
|
|
| |||||||
End of period | $ | 10,814,516 | $ | 10,620,076 | $ | 5,397,049 | ||||||
|
|
|
|
|
|
(a) | Commencement of operations. |
(b) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
See notes to financial statements.
FINANCIAL STATEMENTS | 23 |
(For a share outstanding throughout the period)
BlackRock Defensive Advantage Emerging Markets Fund | ||||||||||||||||||||||||
Institutional | ||||||||||||||||||||||||
Period from to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.02 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.79 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.81 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.00 | )(d) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.81 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(e) | ||||||||||||||||||||||||
Based on net asset value | 8.14 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets(g) | ||||||||||||||||||||||||
Total expenses | 3.18 | %(h)(i) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.81 | %(h) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.52 | %(h) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 108 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 64 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Amount is greater than $(0.005) per share. |
(e) | Where applicable, assumes the reinvestment of distributions. |
(f) | Aggregate total return. |
(g) | Excludes expenses incurred indirectly as a result of investments in underlying funds of 0.06%. |
(h) | Annualized. |
(i) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 4.74%. |
See notes to financial statements.
24 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage Emerging Markets Fund (continued) | ||||||||||||||||||||||||
Investor A | ||||||||||||||||||||||||
Period from 12/21/20(a) to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.01 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.80 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.81 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.00 | )(d) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.81 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(e) | ||||||||||||||||||||||||
Based on net asset value. | 8.14 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets(g) | ||||||||||||||||||||||||
Total expenses | 3.43 | %(h)(i) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 1.06 | %(h) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.27 | %(h) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 108 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 64 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Amount is greater than $(0.005) per share. |
(e) | Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions. |
(f) | Aggregate total return. |
(g) | Excludes expenses incurred indirectly as a result of investments in underlying funds of 0.06%. |
(h) | Annualized. |
(i) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 4.99%. |
See notes to financial statements.
FINANCIAL HIGHLIGHTS | 25 |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage Emerging Markets Fund (continued) | ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Period from 12/21/20(a) to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.02 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.79 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.81 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.00 | )(d) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.81 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(e) | ||||||||||||||||||||||||
Based on net asset value. | 8.14 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets(g) | ||||||||||||||||||||||||
Total expenses | 2.84 | %(h)(i) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.81 | %(h) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.52 | %(h) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 10,598 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 64 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Amount is greater than $(0.005) per share. |
(e) | Where applicable, assumes the reinvestment of distributions. |
(f) | Aggregate total return. |
(g) | Excludes expenses incurred indirectly as a result of investments in underlying funds of 0.06%. |
(h) | Annualized. |
(i) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 4.40%. |
See notes to financial statements.
26 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage International Fund | ||||||||||||||||||||||||
Institutional | ||||||||||||||||||||||||
Period from 12/21/20(a) to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.08 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.55 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.63 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.01 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.62 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(d) | ||||||||||||||||||||||||
Based on net asset value | 6.30 | %(e) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 2.90 | %(f)(g) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.45 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 2.08 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 106 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 88 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Where applicable, assumes the reinvestment of distributions. |
(e) | Aggregate total return. |
(f) | Annualized. |
(g) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 4.50%. |
See notes to financial statements.
FINANCIAL HIGHLIGHTS | 27 |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage International Fund (continued) | ||||||||||||||||||||||||
Investor A | ||||||||||||||||||||||||
Period from 12/21/20(a) to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.07 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.55 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.62 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.01 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.61 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(d) | ||||||||||||||||||||||||
Based on net asset value. | 6.20 | %(e) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 3.15 | %(f)(g) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.70 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.84 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 106 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 88 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions. |
(e) | Aggregate total return. |
(f) | Annualized. |
(g) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 4.75%. |
See notes to financial statements.
28 | 2021 BLACKROCK ANNUAL REPORTTO SHAREHOLDERS |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage International Fund (continued) | ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Period from to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.08 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.55 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.63 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.01 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.62 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(d) | ||||||||||||||||||||||||
Based on net asset value. | 6.30 | %(e) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 2.55 | %(f)(g) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.45 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 2.09 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 10,408 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 88 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Where applicable, assumes the reinvestment of distributions. |
(e) | Aggregate total return. |
(f) | Annualized. |
(g) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 4.15%. |
See notes to financial statements.
FINANCIAL HIGHLIGHTS | 29 |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage U.S. Fund | ||||||||||||||||||||||||
Institutional | ||||||||||||||||||||||||
Period from to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period. | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.04 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.76 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.80 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.01 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.79 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(d) | ||||||||||||||||||||||||
Based on net asset value. | 7.95 | %(e) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 4.06 | %(f)(g) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.43 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.21 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 108 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 61 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Where applicable, assumes the reinvestment of distributions. |
(e) | Aggregate total return. |
(f) | Annualized. |
(g) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 7.07%. |
See notes to financial statements.
30 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage U.S. Fund (continued) | ||||||||||||||||||||||||
Investor A | ||||||||||||||||||||||||
Period from 12/21/20(a) to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period. | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | — | |||||||||||||||||||||||
Net realized and unrealized gain | 0.79 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.79 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.00 | )(d) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.79 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(e) | ||||||||||||||||||||||||
Based on net asset value | 7.95 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 4.31 | %(g)(h) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.68 | %(g) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 0.96 | %(g) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 108 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 61 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Amount is greater than $(0.005) per share. |
(e) | Where applicable, excludes the effects of any sales charges and assumes the reinvestment of distributions. |
(f) | Aggregate total return. |
(g) | Annualized. |
(h) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 7.32%. |
See notes to financial statements.
FINANCIAL HIGHLIGHTS | 31 |
Financial Highlights (continued)
(For a share outstanding throughout the period)
BlackRock Defensive Advantage U.S. Fund (continued) | ||||||||||||||||||||||||
Class K | ||||||||||||||||||||||||
Period from 12/21/20(a) to 04/30/21 | ||||||||||||||||||||||||
Net asset value, beginning of period. | $ | 10.00 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income(b) | 0.04 | |||||||||||||||||||||||
Net realized and unrealized gain | 0.76 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net increase from investment operations | 0.80 | |||||||||||||||||||||||
|
| |||||||||||||||||||||||
Distributions from net investment income(c) | (0.01 | ) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net asset value, end of period | $ | 10.79 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total Return(d) | ||||||||||||||||||||||||
Based on net asset value | 7.95 | %(e) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Ratios to Average Net Assets | ||||||||||||||||||||||||
Total expenses | 3.71 | %(f)(g) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Total expenses after fees waived and/or reimbursed | 0.43 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Net investment income | 1.21 | %(f) | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Supplemental Data | ||||||||||||||||||||||||
Net assets, end of period (000) | $ | 5,181 | ||||||||||||||||||||||
|
| |||||||||||||||||||||||
Portfolio turnover rate | 61 | % | ||||||||||||||||||||||
|
|
(a) | Commencement of operations. |
(b) | Based on average shares outstanding. |
(c) | Distributions for annual periods determined in accordance with U.S. federal income tax regulations. |
(d) | Where applicable, assumes the reinvestment of distributions. |
(e) | Aggregate total return. |
(f) | Annualized. |
(g) | Audit, printing, offering and organization costs were not annualized in the calculation of the expense ratios. If these expenses were annualized, the total expenses would have been 6.72%. |
See notes to financial statements.
32 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
1. | ORGANIZATION |
BlackRock FundsSM (the “Trust”) is registered under the Investment Company Act of 1940, as amended (the “1940 Act”), as an open-end management investment company. The Trust is organized as a Massachusetts business trust. The following are referred to herein collectively as the “Funds” or individually as a “Fund”:
Fund Name | Herein Referred To As | Diversification Classification | ||
BlackRock Defensive Advantage Emerging Markets Fund | Defensive Advantage Emerging Markets | Diversified | ||
BlackRock Defensive Advantage International Fund | Defensive Advantage International | Diversified | ||
BlackRock Defensive Advantage U.S. Fund. | Defensive Advantage U.S. | Diversified |
Each Fund offers multiple classes of shares. All classes of shares have identical voting, dividend, liquidation and other rights and are subject to the same terms and conditions, except that certain classes bear expenses related to the shareholder servicing and distribution of such shares. Institutional and Class K Shares are sold only to certain eligible investors. Investor A Shares bear certain expenses related to shareholder servicing of such shares. Investor A Shares are generally available through financial intermediaries. Each class has exclusive voting rights with respect to matters relating to its shareholder servicing and distribution expenditures.
Share Class | Initial Sales Charge | CDSC | Conversion Privilege | |||
Institutional and Class K Shares | No | No | None | |||
Investor A Shares | Yes | No(a) | None |
(a) | Investor A Shares may be subject to a contingent deferred sales charge (“CDSC”) for certain redemptions where no initial sales charge was paid at the time of purchase. |
The Funds, together with certain other registered investment companies advised by BlackRock Advisors, LLC (the “Manager”) or its affiliates, are included in a complex of equity, multi-asset, index and money market funds referred to as the BlackRock Multi-Asset Complex.
2. | SIGNIFICANT ACCOUNTING POLICIES |
The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which may require management to make estimates and assumptions that affect the reported amounts of assets and liabilities in the financial statements, disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of increases and decreases in net assets from operations during the reporting period. Actual results could differ from those estimates. Each Fund is considered an investment company under U.S. GAAP and follows the accounting and reporting guidance applicable to investment companies. Below is a summary of significant accounting policies:
Investment Transactions and Income Recognition: For financial reporting purposes, investment transactions are recorded on the dates the transactions are executed. Realized gains and losses on investment transactions are determined using the specific identification method. Dividend income and capital gain distributions, if any, are recorded on the ex-dividend dates. Non-cash dividends, if any, are recorded on the ex-dividend dates at fair value. Dividends from foreign securities where the ex-dividend dates may have passed are subsequently recorded when the Funds are informed of the ex-dividend dates. Under the applicable foreign tax laws, a withholding tax at various rates may be imposed on capital gains, dividends and interest. Upon notification from issuers, a portion of the dividend income received from a real estate investment trust may be redesignated as a reduction of cost of the related investment and/or realized gain. Income, expenses and realized and unrealized gains and losses are allocated daily to each class based on its relative net assets.
Foreign Currency Translation: Each Fund’s books and records are maintained in U.S. dollars. Securities and other assets and liabilities denominated in foreign currencies are translated into U.S. dollars using exchange rates determined as of the close of trading on the New York Stock Exchange (“NYSE”). Purchases and sales of investments are recorded at the rates of exchange prevailing on the respective dates of such transactions. Generally, when the U.S. dollar rises in value against a foreign currency, the investments denominated in that currency will lose value; the opposite effect occurs if the U.S. dollar falls in relative value.
Each Fund does not isolate the effect of fluctuations in foreign exchange rates from the effect of fluctuations in the market prices of investments for financial reporting purposes. Accordingly, the effects of changes in exchange rates on investments are not segregated in the Statements of Operations from the effects of changes in market prices of those investments, but are included as a component of net realized and unrealized gain (loss) from investments. Each Fund reports realized currency gains (losses) on foreign currency related transactions as components of net realized gain (loss) for financial reporting purposes, whereas such components are generally treated as ordinary income for U.S. federal income tax purposes.
Foreign Taxes: The Funds may be subject to foreign taxes (a portion of which may be reclaimable) on income, stock dividends, capital gains on investments, or certain foreign currency transactions. All foreign taxes are recorded in accordance with the applicable foreign tax regulations and rates that exist in the foreign jurisdictions in which each Fund invests. These foreign taxes, if any, are paid by each Fund and are reflected in its Statements of Operations as follows: foreign taxes withheld at source are presented as a reduction of income, foreign taxes on securities lending income are presented as a reduction of securities lending income, foreign taxes on stock dividends are presented as “Foreign taxes withheld”, and foreign taxes on capital gains from sales of investments and foreign taxes on foreign currency transactions are included in their respective net realized gain (loss) categories. Foreign taxes payable or deferred as of April 30, 2021, if any, are disclosed in the Statements of Assets and Liabilities.
The Funds file withholding tax reclaims in certain jurisdictions to recover a portion of amounts previously withheld. The Funds may record a reclaim receivable based on collectability, which includes factors such as the jurisdiction’s applicable laws, payment history and market convention. The Statements of Operations include tax reclaims recorded as well as professional and other fees, if any, associated with recovery of foreign withholding taxes.
NOTES TO FINANCIAL STATEMENTS | 33 |
Notes to Financial Statements (continued)
Segregation and Collateralization: In cases where a Fund enters into certain investments (e.g., futures contracts) that would be treated as “senior securities” for 1940 Act purposes, a Fund may segregate or designate on its books and records cash or liquid assets having a market value at least equal to the amount of its future obligations under such investments. Doing so allows the investment to be excluded from treatment as a “senior security.” Furthermore, if required by an exchange or counterparty agreement, the Funds may be required to deliver/deposit cash and/or securities to/with an exchange, or broker-dealer or custodian as collateral for certain investments or obligations.
Distributions: Distributions paid by the Funds are recorded on the ex-dividend dates. The character and timing of distributions are determined in accordance with U.S. federal income tax regulations, which may differ from U.S. GAAP.
Organization and Offering Costs: Upon commencement of operations, organization costs associated with the establishment of the Funds were expensed by the Funds and reimbursed by the Manager. The Manager reimbursed each Fund $10,000, which is included in fees waived and/or reimbursed by the Manager in the Statements of Operations. Offering costs are amortized over a 12-month period beginning with the commencement of operations of a class of shares.
Indemnifications: In the normal course of business, a Fund enters into contracts that contain a variety of representations that provide general indemnification. A Fund’s maximum exposure under these arrangements is unknown because it involves future potential claims against a Fund, which cannot be predicted with any certainty.
Other: Expenses directly related to a Fund or its classes are charged to that Fund or the applicable class. Expenses directly related to the Funds and other shared expenses prorated to the Funds are allocated daily to each class based on their relative net assets or other appropriate methods. Other operating expenses shared by several funds, including other funds managed by the Manager, are prorated among those funds on the basis of relative net assets or other appropriate methods.
3. | INVESTMENT VALUATION AND FAIR VALUE MEASUREMENTS |
Investment Valuation Policies: Each Fund’s investments are valued at fair value (also referred to as “market value” within the financial statements) each day that the Fund is open for business and, for financial reporting purposes, as of the report date. U.S. GAAP defines fair value as the price a fund would receive to sell an asset or pay to transfer a liability in an orderly transaction between market participants at the measurement date. Each Fund determines the fair values of its financial instruments using various independent dealers or pricing services under policies approved by the Board of Trustees of the Trust (the “Board”). If a security’s market price is not readily available or does not otherwise accurately represent the fair value of the security, the security will be valued in accordance with a policy approved by the Board as reflecting fair value. The BlackRock Global Valuation Methodologies Committee (the “Global Valuation Committee”) is the committee formed by management to develop global pricing policies and procedures and to oversee the pricing function for all financial instruments.
Fair Value Inputs and Methodologies: The following methods and inputs are used to establish the fair value of each Fund’s assets and liabilities:
• | Equity investments traded on a recognized securities exchange are valued at that day’s official closing price, as applicable, on the exchange where the stock is primarily traded. Equity investments traded on a recognized exchange for which there were no sales on that day may be valued at the last available bid (long positions) or ask (short positions) price. |
Generally, trading in foreign instruments is substantially completed each day at various times prior to the close of trading on the NYSE. Occasionally, events affecting the values of such instruments may occur between the foreign market close and the close of trading on the NYSE that may not be reflected in the computation of the Funds’ net assets. Each business day, the Funds use a pricing service to assist with the valuation of certain foreign exchange-traded equity securities and foreign exchange-traded and over-the-counter (“OTC”) options (the “Systematic Fair Value Price”). Using current market factors, the Systematic Fair Value Price is designed to value such foreign securities and foreign options at fair value as of the close of trading on the NYSE, which follows the close of the local markets.
• | Investments in open-end U.S. mutual funds (including money market funds) are valued at that day’s published net asset value (“NAV”). |
• | The Funds value their investment in SL Liquidity Series, LLC, Money Market Series (the “Money Market Series”) at fair value, which is ordinarily based upon their pro rata ownership in the underlying fund’s net assets. |
• | Futures contracts are valued based on that day’s last reported settlement or trade price on the exchange where the contract is traded. |
If events (e.g., a market closure, market volatility, company announcement or a natural disaster) occur that are expected to materially affect the value of such investment, or in the event that application of these methods of valuation results in a price for an investment that is deemed not to be representative of the market value of such investment, or if a price is not available, the investment will be valued by the Global Valuation Committee, or its delegate, in accordance with a policy approved by the Board as reflecting fair value (“Fair Valued Investments”). The fair valuation approaches that may be used by the Global Valuation Committee include market approach, income approach and cost approach. Valuation techniques such as discounted cash flow, use of market comparables and matrix pricing are types of valuation approaches and are typically used in determining fair value. When determining the price for Fair Valued Investments, the Global Valuation Committee, or its delegate, seeks to determine the price that each Fund might reasonably expect to receive or pay from the current sale or purchase of that asset or liability in an arm’s-length transaction. Fair value determinations shall be based upon all available factors that the Global Valuation Committee, or its delegate, deems relevant and consistent with the principles of fair value measurement. The pricing of all Fair Valued Investments is subsequently reported to the Board or a committee thereof on a quarterly basis.
For investments in equity or debt issued by privately held companies or funds (“Private Company” or collectively, the “Private Companies”) and other Fair Valued Investments, the fair valuation approaches that are used by the Global Valuation Committee and third party pricing services utilize one or a combination of, but not limited to, the following inputs.
Standard Inputs Generally Considered By Third Party Pricing Services | ||
Market approach | (i) recent market transactions, including subsequent rounds of financing, in the underlying investment or comparable issuers; |
34 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Notes to Financial Statements (continued)
Standard Inputs Generally Considered By Third Party Pricing Services | ||
(ii) recapitalizations and other transactions across the capital structure; and (iii) market multiples of comparable issuers. | ||
Income approach | (i) future cash flows discounted to present and adjusted as appropriate for liquidity, credit, and/or market risks; (ii) quoted prices for similar investments or assets in active markets; and (iii) other risk factors, such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks, recovery rates, liquidation amounts and/or default rates. | |
Cost approach | (i) audited or unaudited financial statements, investor communications and financial or operational metrics issued by the Private Company; (ii) changes in the valuation of relevant indices or publicly traded companies comparable to the Private Company; (iii) relevant news and other public sources; and (iv) known secondary market transactions in the Private Company’s interests and merger or acquisition activity in companies comparable to the Private Company. |
Investments in series of preferred stock issued by Private Companies are typically valued utilizing market approach in determining the enterprise value of the company. Such investments often contain rights and preferences that differ from other series of preferred and common stock of the same issuer. Enterprise valuation techniques such as an option pricing model (“OPM”), a probability weighted expected return model (“PWERM”), current value method or a hybrid of those techniques are used, as deemed appropriate under the circumstances. The use of these valuation techniques involve a determination of the exit scenarios of the investment in order to appropriately allocate the enterprise value of the company among the various parts of its capital structure.
The Private Companies are not subject to the public company disclosure, timing, and reporting standards applicable to other investments held by a Fund. Typically, the most recently available information by a Private Company is as of a date that is earlier than the date a Fund is calculating its NAV. This factor may result in a difference between the value of the investment and the price a Fund could receive upon the sale of the investment.
Fair Value Hierarchy: Various inputs are used in determining the fair value of financial instruments. These inputs to valuation techniques are categorized into a fair value hierarchy consisting of three broad levels for financial reporting purposes as follows:
• | Level 1 – Unadjusted price quotations in active markets/exchanges for identical assets or liabilities that each Fund has the ability to access; |
• | Level 2 – Other observable inputs (including, but not limited to, quoted prices for similar assets or liabilities in markets that are active, quoted prices for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are observable for the assets or liabilities (such as interest rates, yield curves, volatilities, prepayment speeds, loss severities, credit risks and default rates) or other market–corroborated inputs); and |
• | Level 3 – Unobservable inputs based on the best information available in the circumstances, to the extent observable inputs are not available (including the Global Valuation Committee’s assumptions used in determining the fair value of financial instruments). |
The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). Accordingly, the degree of judgment exercised in determining fair value is greatest for instruments categorized in Level 3. The inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, for disclosure purposes, the fair value hierarchy classification is determined based on the lowest level input that is significant to the fair value measurement in its entirety. Investments classified within Level 3 have significant unobservable inputs used by the Global Valuation Committee in determining the price for Fair Valued Investments. Level 3 investments include equity or debt issued by privately held companies or funds that may not have a secondary market and/or may have a limited number of investors. The categorization of a value determined for financial instruments is based on the pricing transparency of the financial instruments and is not necessarily an indication of the risks associated with investing in those securities.
As of April 30, 2021, certain investments of Defensive Advantage Emerging Markets were fair valued using NAV per share as no quoted market value is available and therefore have been excluded from the fair value hierarchy.
4. | SECURITIES AND OTHER INVESTMENTS |
Preferred Stocks: Preferred stock has a preference over common stock in liquidation (and generally in receiving dividends as well), but is subordinated to the liabilities of the issuer in all respects. As a general rule, the market value of preferred stock with a fixed dividend rate and no conversion element varies inversely with interest rates and perceived credit risk, while the market price of convertible preferred stock generally also reflects some element of conversion value. Because preferred stock is junior to debt securities and other obligations of the issuer, deterioration in the credit quality of the issuer will cause greater changes in the value of a preferred stock than in a more senior debt security with similar stated yield characteristics. Unlike interest payments on debt securities, preferred stock dividends are payable only if declared by the issuer’s board of directors. Preferred stock also may be subject to optional or mandatory redemption provisions.
Securities Lending: Certain Funds may lend their securities to approved borrowers, such as brokers, dealers and other financial institutions. The borrower pledges and maintains with the Funds collateral consisting of cash, an irrevocable letter of credit issued by a bank, or securities issued or guaranteed by the U.S. Government. The initial collateral received by each Fund is required to have a value of at least 102% of the current value of the loaned securities for securities traded on U.S. exchanges and a value of at least 105% for all other securities. The collateral is maintained thereafter at a value equal to at least 100% of the current market value of the securities on loan. The market value of the loaned securities is determined at the close of each business day of the Fund and any additional required collateral is delivered to the Fund, or excess collateral returned by the Fund, on the next business day. During the term of the loan, the Funds are entitled to all distributions made on or in respect of the loaned securities, but do not receive interest income on securities received as collateral. Loans of securities are terminable at any time and the borrower, after notice, is required to return borrowed securities within the standard time period for settlement of securities transactions.
NOTES TO FINANCIAL STATEMENTS | 35 |
Notes to Financial Statements (continued)
As of period end, any securities on loan were collateralized by cash and/or U.S. Government obligations. Cash collateral invested by the securities lending agent, BlackRock Investment Management, LLC (“BIM”), if any, is disclosed in the Schedules of Investments. Any non-cash collateral received cannot be sold, re-invested or pledged by the Fund, except in the event of borrower default. The securities on loan, if any, are disclosed in the Funds’ Schedules of Investments,. The market value of any securities on loan and the value of any related collateral are shown separately in the Statements of Assets and Liabilities as a component of investments at value – affiliated, and collateral on securities loaned at value, respectively.
Securities lending transactions are entered into by the Funds under Master Securities Lending Agreements (each, an “MSLA”), which provide the right, in the event of default (including bankruptcy or insolvency), for the non-defaulting party to liquidate the collateral and calculate a net exposure to the defaulting party or request additional collateral. In the event that a borrower defaults, the Funds, as lender, would offset the market value of the collateral received against the market value of the securities loaned. When the value of the collateral is greater than that of the market value of the securities loaned, the lender is left with a net amount payable to the defaulting party. However, bankruptcy or insolvency laws of a particular jurisdiction may impose restrictions on or prohibitions against such a right of offset in the event of an MSLA counterparty’s bankruptcy or insolvency. Under the MSLA, absent an event of default, the borrower can resell or re-pledge the loaned securities, and the Funds can reinvest cash collateral received in connection with loaned securities. Upon an event of default, the parties’ obligations to return the securities or collateral to the other party are extinguished, and the parties can resell or re-pledge the loaned securities or the collateral received in connection with the loaned securities in order to satisfy the defaulting party’s net payment obligation for all transactions under the MSLA. The defaulting party remains liable for any deficiency.
The risks of securities lending include the risk that the borrower may not provide additional collateral when required or may not return the securities when due. To mitigate these risks, the Funds benefit from a borrower default indemnity provided by BIM. BIM’s indemnity allows for full replacement of the securities loaned to the extent the collateral received does not cover the value on the securities loaned in the event of borrower default. Each Fund could incur a loss if the value of an investment purchased with cash collateral falls below the market value of loaned securities or if the value of an investment purchased with cash collateral falls below the value of the original cash collateral received. Such losses are borne entirely by the Funds.
5. | DERIVATIVE FINANCIAL INSTRUMENTS |
The Funds engage in various portfolio investment strategies using derivative contracts both to increase the returns of the Funds and/or to manage their exposure to certain risks such as credit risk, equity risk, interest rate risk, foreign currency exchange rate risk, commodity price risk or other risks (e.g., inflation risk). Derivative financial instruments categorized by risk exposure are included in the Schedules of Investments. These contracts may be transacted on an exchange or OTC.
Futures Contracts: Futures contracts are purchased or sold to gain exposure to, or manage exposure to, changes in interest rates (interest rate risk) and changes in the value of equity securities (equity risk) or foreign currencies (foreign currency exchange rate risk).
Futures contracts are exchange-traded agreements between the Funds and a counterparty to buy or sell a specific quantity of an underlying instrument at a specified price and on a specified date. Depending on the terms of a contract, it is settled either through physical delivery of the underlying instrument on the settlement date or by payment of a cash amount on the settlement date. Upon entering into a futures contract, the Funds are required to deposit initial margin with the broker in the form of cash or securities in an amount that varies depending on a contract’s size and risk profile. The initial margin deposit must then be maintained at an established level over the life of the contract. Amounts pledged, which are considered restricted, are included in cash pledged for futures contracts in the Statements of Assets and Liabilities.
Securities deposited as initial margin are designated in the Schedules of Investments and cash deposited, if any, are shown as cash pledged for futures contracts in the Statements of Assets and Liabilities. Pursuant to the contract, the Funds agree to receive from or pay to the broker an amount of cash equal to the daily fluctuation in market value of the contract (“variation margin”). Variation margin is recorded as unrealized appreciation (depreciation) and, if any, shown as variation margin receivable (or payable) on futures contracts in the Statements of Assets and Liabilities. When the contract is closed, a realized gain or loss is recorded in the Statements of Operations equal to the difference between the notional amount of the contract at the time it was opened and the notional amount at the time it was closed. The use of futures contracts involves the risk of an imperfect correlation in the movements in the price of futures contracts and interest rates, foreign currency exchange rates or underlying assets.
6. | INVESTMENT ADVISORY AGREEMENT AND OTHER TRANSACTIONS WITH AFFILIATES |
Investment Advisory: The Trust, on behalf of each Fund, entered into an Investment Advisory Agreement with the Manager, the Funds’ investment adviser and an indirect, wholly-owned subsidiary of BlackRock, Inc. (“BlackRock”), to provide investment advisory services. The Manager is responsible for the management of each Fund’s portfolio and provides the personnel, facilities, equipment and certain other services necessary to the operations of each Fund.
For such services, each Fund pays the Manager a monthly fee at an annual rate equal to the following percentages of the average daily value of each Fund’s net assets:
Investment Advisory Fees | ||||||||||||
Average Daily Net Assets | Defensive Advantage Emerging Markets | Defensive Advantage International | Defensive Advantage U.S. | |||||||||
First $1 billion | 0.80 | % | 0.45 | % | 0.43 | % | ||||||
$1 billion – $3 billion | 0.75 | 0.42 | 0.40 | |||||||||
$3 billion – $5 billion | 0.72 | 0.41 | 0.39 | |||||||||
$5 billion – $10 billion | 0.70 | 0.39 | 0.37 | |||||||||
Greater than $10 billion | 0.68 | 0.38 | 0.36 |
36 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Notes to Financial Statements (continued)
With respect to each Fund, effective January 14, 2021 the Manager entered into separate sub-advisory agreements with BlackRock International Limited (“BIL”), an affiliate of the Manager. The Manager pays BIL for services it provides for that portion of each Fund for which BIL acts as sub-adviser, a monthly fee that is equal to a percentage of the investment advisory fees paid by each Fund to the Manager.
Service and Distribution Fees: The Trust, on behalf of the Funds, entered into a Distribution Agreement and a Distribution and Service Plan with BlackRock Investments, LLC (“BRIL”), an affiliate of the Manager. Pursuant to the Distribution and Service Plan and in accordance with Rule 12b-1 under the 1940 Act, each Fund pays BRIL ongoing service and distribution fees. The fees are accrued daily and paid monthly at annual rates based upon the average daily net assets of the relevant share class of the Fund as follows:
Defensive Advantage Emerging Markets | Defensive Advantage International | Defensive Advantage U.S. | ||||||||||||||||||||||
Share Class | Service Fees | Distribution Fees | Service Fees | Distribution Fees | Service Fees | Distribution Fees | ||||||||||||||||||
Investor A | 0.25 | % | N/A | 0.25 | % | N/A | 0.25 | % | N/A |
BRIL and broker-dealers, pursuant to sub-agreements with BRIL, provide shareholder servicing and distribution services to the Funds. The ongoing service and/or distribution fee compensates BRIL and each broker-dealer for providing shareholder servicing and/or distribution related services to shareholders.
For the period ended April 30, 2021, the following table shows the class specific service and distribution fees borne directly by each share class of each Fund:
Fund Name | Investor A | |||
Defensive Advantage Emerging Markets | $ | 94 | ||
Defensive Advantage International | 92 | |||
Defensive Advantage U.S | 91 |
Administration: The Trust, on behalf of each Fund, entered into an Administration Agreement with the Manager, an indirect, wholly-owned subsidiary of BlackRock, to provide administrative services. For these services, the Manager receives an administration fee computed daily and payable monthly, based on a percentage of the average daily net assets of each Fund. The administration fee, which is shown as administration in the Statements of Operations, is paid at the annual rates below.
Average Daily Net Assets | Administration Fees | |||
First $500 million | 0.0425 | % | ||
$500 million - $1 billion | 0.0400 | |||
$1 billion - $2 billion | 0.0375 | |||
$2 billion - $4 billion | 0.0350 | |||
$4 billion - $13 billion | 0.0325 | |||
Greater than $13 billion | 0.0300 |
In addition, the Manager charges each of the share classes an administration fee, which is shown as administration - class specific in the Statements of Operations, at an annual rate of 0.02% of the average daily net assets of each respective class.
For the period ended April 30, 2021, the following table shows the class specific administration fees borne directly by each share class of each Fund:
Fund Name | Institutional | Investor A | Class K | Total | ||||||||||||
Defensive Advantage Emerging Markets | $ | 7 | $ | 8 | $ | 743 | $ | 758 | ||||||||
Defensive Advantage International | 8 | 8 | 721 | 737 | ||||||||||||
Defensive Advantage U.S | 8 | 7 | 350 | 365 |
Transfer Agent: Pursuant to written agreements, certain financial intermediaries, some of which may be affiliates, provide the Funds with sub-accounting, recordkeeping, sub-transfer agency and other administrative services with respect to servicing of underlying investor accounts. For these services, these entities receive an asset-based fee or an annual fee per shareholder account, which will vary depending on share class and/or net assets. For the period ended April 30, 2021, the Funds did not pay any amounts to affiliates in return for these services.
For the period ended April 30, 2021, the following table shows the class specific transfer agent fees borne directly by each share class of each Fund:
Fund Name | Institutional | Investor A | Class K | Total | ||||||||||||
Defensive Advantage Emerging Markets | $ | 130 | $ | 130 | $ | 130 | $ | 390 | ||||||||
Defensive Advantage International | 130 | 130 | 130 | 390 | ||||||||||||
Defensive Advantage U.S | 130 | 130 | 130 | 390 |
Expense Limitations, Waivers and Reimbursements: With respect to each Fund, the Manager contractually agreed to waive its investment advisory fees by the amount of investment advisory fees each Fund pays to the Manager indirectly through its investment in affiliated money market funds (the “affiliated money market fund waiver”) through August 31, 2022. The contractual agreement may be terminated upon 90 days’ notice by a majority of the trustees who are not “interested persons” of the Trust, as defined in the 1940 Act (“Independent Trustees”), or by a vote of a majority of the outstanding voting securities of a Fund. The amount of waivers and/or reimbursements of fees and expenses made pursuant to the expense limitation described below will be reduced by the amount of the affiliated money market fund waiver. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the period ended April 30, 2021, the amounts waived were as follows:
Fund Name | Amounts Waived | |||
Defensive Advantage Emerging Markets | $ | 346 |
NOTES TO FINANCIAL STATEMENTS | 37 |
Notes to Financial Statements (continued)
Fund Name | Amounts Waived | |||
Defensive Advantage International | $ | 44 | ||
Defensive Advantage U.S. | 31 |
The Manager has contractually agreed to waive its investment advisory fee with respect to any portion of each Fund’s assets invested in affiliated equity and fixed-income mutual funds and affiliated exchange-traded funds that have a contractual management fee through August 31, 2022. The contractual agreement may be terminated upon 90 days’ notice by a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of a Fund. These amounts are included in fees waived and/or reimbursed by the Manager in the Statements of Operations. For the period ended April 30, 2021, the amounts waived in investment advisory fees pursuant to these arrangements were as follows:
Fund Name | Amounts Waived | |||
Defensive Advantage Emerging Markets | $ | 1,140 |
With respect to each Fund, the Manager contractually agreed to waive and/or reimburse fees or expenses in order to limit expenses, excluding interest expense, dividend expense, tax expense, acquired fund fees and expenses, and certain other fund expenses, which constitute extraordinary expenses not incurred in the ordinary course of each Fund’s business (“expense limitation”). The expense limitations as a percentage of average daily net assets are as follows:
Fund Name | Institutional | Investor A | Class K | |||||||||
Defensive Advantage Emerging Markets | 0.86 | % | 1.11 | % | 0.81 | % | ||||||
Defensive Advantage International | 0.50 | 0.75 | 0.45 | |||||||||
Defensive Advantage U.S. | 0.48 | 0.73 | 0.43 |
The Manager has agreed not to reduce or discontinue these contractual expense limitations through August 31, 2022, unless approved by the Board, including a majority of the Independent Trustees, or by a vote of a majority of the outstanding voting securities of a Fund. For the period ended April 30, 2021, amounts included in the Statements of Operations were as follows:
Fund Name | Amounts Waived | |||
Defensive Advantage Emerging Markets | $ | 121,800 | ||
Defensive Advantage International | 123,597 | |||
Defensive Advantage U.S | 103,266 |
In addition, these amounts waived and/or reimbursed by the Manager or Administrator are included in fees waived and/or reimbursed by the Administrator, Administration fees waived — class specific and transfer agent fees waived and/or reimbursed — class specific, respectively, in the Statements of Operations. For the period ended April 30, 2021, amounts included in the Statements of Operations were as follows:
Fund Name | Fees Waived and/or Reimbursed by the Administrator | |||
Defensive Advantage Emerging Markets | $ | 1,608 | ||
Defensive Advantage International | 1,565 | |||
Defensive Advantage U.S | 774 |
Administration Fees Waived - Class Specific | ||||||||||||||||
Fund Name | Institutional | Investor A | Class K | Total | ||||||||||||
Defensive Advantage Emerging Markets | $ | 7 | $ | 8 | $ | 742 | $ | 757 | ||||||||
Defensive Advantage International | 7 | 8 | 722 | 737 | ||||||||||||
Defensive Advantage U.S | 8 | 7 | 350 | 365 |
Transfer Agent Fees Waived and/or Reimbursed - Class Specific | ||||||||||||||||
Fund Name | Institutional | Investor A | Class K | Total | ||||||||||||
Defensive Advantage Emerging Markets | $ | 130 | $ | 130 | $ | 130 | $ | 390 | ||||||||
Defensive Advantage International | 130 | 130 | 130 | 390 | ||||||||||||
Defensive Advantage U.S | 130 | 130 | 130 | 390 |
Securities Lending: The U.S. Securities and Exchange Commission (“SEC”) has issued an exemptive order which permits BIM, an affiliate of the Manager, to serve as securities lending agent for the Funds, subject to applicable conditions. As securities lending agent, BIM bears all operational costs directly related to securities lending. The Funds are responsible for expenses in connection with the investment of cash collateral received for securities on loan (the “collateral investment expenses”). The cash collateral is invested in a private investment company, Money Market Series, managed by the Manager or its affiliates. However, BIM has agreed to cap the collateral investment expenses of the Money Market Series to an annual rate of 0.04%. The investment adviser to the Money Market Series will not charge any advisory fees with respect to shares purchased by the Funds. The Money Market Series may, under certain circumstances, impose a liquidity fee of up to 2% of the value withdrawn or temporarily restrict withdrawals for up to 10 business days during a 90 day period, in the event that the private investment company’s weekly liquid assets fall below certain thresholds. The Money Market Series seeks current income consistent with maintaining liquidity and preserving capital. Although the Money Market Series is not registered under the 1940 Act, its investments may follow the parameters of investments by a money market fund that is subject to Rule 2a-7 under the 1940 Act.
38 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Notes to Financial Statements (continued)
Securities lending income is equal to the total of income earned from the reinvestment of cash collateral, net of fees and other payments to and from borrowers of securities, and less the collateral investment expenses. Each Fund retains a portion of securities lending income and remits a remaining portion to BIM as compensation for its services as securities lending agent.
Pursuant to the current securities lending agreement, Defensive Advantage U.S. retains 77% of securities lending income (which excludes collateral investment expenses), and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment fees.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the BlackRock Multi-Asset Complex in a calendar year exceeds a specified threshold, Defensive Advantage U.S., pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income in an amount equal to 81% of securities lending income, and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment fees.
Prior to January 1, 2021, Defensive Advantage U.S. retained 75% of securities lending income (which excluded collateral investment expenses) and the amount retained could never be less than 70% of the total of securities lending income plus the collateral investment expenses. In addition, commencing the business day following the date that the aggregate securities lending income earned across the BlackRock Multi-Asset Complex in a calendar year exceeded a specified threshold, the Fund would retain for the remainder of that calendar year 80% of securities lending income (which excluded collateral investment expenses), and the amount retained could never be less than 70% of the total of securities lending income plus the collateral investment expenses.
Pursuant to the current securities lending agreement, Defensive Advantage Emerging Markets and Defensive Advantage International retain 82% of securities lending income (which excludes collateral investment expenses), and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
In addition, commencing the business day following the date that the aggregate securities lending income earned across the BlackRock Multi-Asset Complex in a calendar year exceeds a specified threshold, Defensive Advantage Emerging Markets and Defensive Advantage International, pursuant to the securities lending agreement, will retain for the remainder of that calendar year securities lending income in an amount equal to 85% of securities lending income (which excludes collateral investment expenses), and this amount retained can never be less than 70% of the total of securities lending income plus the collateral investment expenses.
Interfund Lending: In accordance with an exemptive order (the “Order”) from the SEC, each Fund may participate in a joint lending and borrowing facility for temporary purposes (the “Interfund Lending Program”), subject to compliance with the terms and conditions of the Order, and to the extent permitted by each Fund’s investment policies and restrictions. Each Fund is currently permitted to borrow and lend under the Interfund Lending Program.
A lending BlackRock fund may lend in aggregate up to 15% of its net assets, but may not lend more than 5% of its net assets to any one borrowing fund through the Interfund Lending Program. A borrowing BlackRock fund may not borrow through the Interfund Lending Program or from any other source more than 33 1/3% of its total assets (or any lower threshold provided for by the fund’s investment restrictions). If a borrowing BlackRock fund’s total outstanding borrowings exceed 10% of its total assets, each of its outstanding interfund loans will be subject to collateralization of at least 102% of the outstanding principal value of the loan. All interfund loans are for temporary or emergency purposes and the interest rate to be charged will be the average of the highest current overnight repurchase agreement rate available to a lending fund and the bank loan rate, as calculated according to a formula established by the Board.
During the period ended April 30, 2021, the Funds did not participate in the Interfund Lending Program.
Trustees and Officers: Certain trustees and/or officers of the Trust are directors and/or officers of BlackRock or its affiliates. The Funds reimburse the Manager for a portion of the compensation paid to the Trust’s Chief Compliance Officer, which is included in Trustees and Officer in the Statements of Operations.
7. | PURCHASES AND SALES |
For the period ended April 30, 2021, purchases and sales of investments, excluding short-term investments, were as follows:
Fund Name | Purchases | Sales | ||||||
Defensive Advantage Emerging Markets | $ | 14,563,151 | $ | 5,561,433 | ||||
Defensive Advantage International | 18,850,199 | 8,877,997 | ||||||
Defensive Advantage U.S | 7,971,141 | 3,035,029 |
8. | INCOME TAX INFORMATION |
It is each Fund’s policy to comply with the requirements of the Internal Revenue Code of 1986, as amended, applicable to regulated investment companies, and to distribute substantially all of its taxable income to its shareholders. Therefore, no U.S. federal income tax provision is required.
Each Fund files U.S. federal and various state and local tax returns. No income tax returns are currently under examination. The statute of limitations on each Fund’s U.S. federal tax returns generally remains open for a period of three fiscal years after they are filed. The statutes of limitations on each Fund’s state and local tax returns may remain open for an additional year depending upon the jurisdiction.
Management has analyzed tax laws and regulations and their application to the Funds as of April 30, 2021, and does not believe that there are any uncertain tax positions that require recognition of a tax liability in the Funds’ financial statements.
NOTES TO FINANCIAL STATEMENTS | 39 |
Notes to Financial Statements (continued)
U.S. GAAP requires that certain components of net assets be adjusted to reflect permanent differences between financial and tax reporting. These reclassifications have no effect on net assets or NAVs per share. As of period end, the following permanent differences attributable to non-deductible expenses were reclassified to the following accounts:
Fund Name | Paid-in Capital | Accumulated Earnings (Loss) | ||||||
Defensive Advantage Emerging Markets | $ | (10,208 | ) | $ | 10,208 | |||
Defensive Advantage International | (4,880 | ) | 4,880 | |||||
Defensive Advantage U.S | (2,761 | ) | 2,761 |
The tax character of distributions paid was as follows:
Fund Name | Period Ended 04/30/21 | |||
Defensive Advantage Emerging Markets | ||||
Ordinary income | $ | 4,000 | ||
Defensive Advantage International | ||||
Ordinary income | 10,000 | |||
Defensive Advantage U.S | ||||
Ordinary income | 2,500 |
As of period end, the tax components of accumulated earnings (loss) were as follows:
Fund Name | Undistributed Ordinary Income | Undistributed Long-Term Capital Gains | Net Unrealized Gains (Losses)(a) | Total | ||||||||||||
Defensive Advantage Emerging Markets. | $ | 357,307 | $ | 93,626 | $ | 373,791 | $ | 824,724 | ||||||||
Defensive Advantage International | 300,932 | 4,384 | 319,640 | 624,956 | ||||||||||||
Defensive Advantage U.S | 94,766 | 2,074 | 302,970 | 399,810 |
(a) | The difference between book-basis and tax-basis net unrealized gains and losses was attributable primarily to the tax deferral of losses on wash sales, the realization for tax purposes of unrealized gains on investments in passive foreign investment companies and the realization for tax purposes of unrealized gains/losses on certain futures contracts. |
As of April 30, 2021, gross unrealized appreciation and depreciation based on cost of investments (including short positions and derivatives, if any) for U.S. federal income tax purposes were as follows:
Fund Name | Tax Cost | Gross Unrealized Appreciation | Gross Unrealized Depreciation | Net Unrealized Appreciation (Depreciation) | ||||||||||||
Defensive Advantage Emerging Markets | $ | 10,297,897 | $ | 594,280 | $ | (220,524 | ) | $ | 373,756 | |||||||
Defensive Advantage International | 10,454,862 | 528,847 | (209,500 | ) | 319,347 | |||||||||||
Defensive Advantage U.S | 5,143,259 | 334,429 | (31,459 | ) | 302,970 |
9. | BANK BORROWINGS |
The Funds, along with certain other funds managed by the Manager and its affiliates (“Participating Funds”), is a party to a 364-day, $2.25 billion credit agreement with a group of lenders. Under this agreement, the Funds may borrow to fund shareholder redemptions. Excluding commitments designated for certain individual funds, the Participating Funds, including the Funds, can borrow up to an aggregate commitment amount of $1.75 billion at any time outstanding, subject to asset coverage and other limitations as specified in the agreement. The credit agreement has the following terms: a fee of 0.10% per annum on unused commitment amounts and interest at a rate equal to the higher of (a) one-month LIBOR (but, in any event, not less than 0.00%) on the date the loan is made plus 0.80% per annum or (b) the Fed Funds rate (but, in any event, not less than 0.00%) in effect from time to time plus 0.80% per annum on amounts borrowed. The agreement expires in April 2022 unless extended or renewed. These fees were allocated among such funds based upon portions of the aggregate commitment available to them and relative net assets of Participating Funds. During the period ended April 30, 2021, the Funds did not borrow under the credit agreement.
10. | PRINCIPAL RISKS |
In the normal course of business, the Funds invest in securities or other instruments and may enter into certain transactions, and such activities subject each Fund to various risks, including among others, fluctuations in the market (market risk) or failure of an issuer to meet all of its obligations. The value of securities or other instruments may also be affected by various factors, including, without limitation: (i) the general economy; (ii) the overall market as well as local, regional or global political and/or social instability; (iii) regulation, taxation or international tax treaties between various countries; or (iv) currency, interest rate and price fluctuations. Local, regional or global events such as war, acts of terrorism, the spread of infectious illness or other public health issues, recessions, or other events could have a significant impact on the Funds and their investments. Each Fund’s prospectus provides details of the risks to which each Fund is subject.
40 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Notes to Financial Statements (continued)
The Funds may be exposed to additional risks when reinvesting cash collateral in money market funds that do not seek to maintain a stable NAV per share of $1.00, which may be subject to redemption gates or liquidity fees under certain circumstances.
Market Risk: Investments in the securities of issuers domiciled in countries with emerging capital markets involve certain additional risks that do not generally apply to investments in securities of issuers in more developed capital markets, such as (i) low or nonexistent trading volume, resulting in a lack of liquidity and increased volatility in prices for such securities; (ii) uncertain national policies and social, political and economic instability, increasing the potential for expropriation of assets, confiscatory taxation, high rates of inflation or unfavorable diplomatic developments; (iii) lack of publicly available or reliable information about issuers as a result of not being subject to the same degree of regulatory requirements and accounting, auditing and financial reporting standards; and (iv) possible fluctuations in exchange rates, differing legal systems and the existence or possible imposition of exchange controls, custodial restrictions or other foreign or U.S. governmental laws or restrictions applicable to such investments.
An outbreak of respiratory disease caused by a novel coronavirus has developed into a global pandemic and has resulted in closing borders, quarantines, disruptions to supply chains and customer activity, as well as general concern and uncertainty. The impact of this pandemic, and other global health crises that may arise in the future, could affect the economies of many nations, individual companies and the market in general in ways that cannot necessarily be foreseen at the present time. This pandemic may result in substantial market volatility and may adversely impact the prices and liquidity of a fund’s investments. The duration of this pandemic and its effects cannot be determined with certainty.
Valuation Risk: The market values of equities, such as common stocks and preferred securities or equity related investments, such as futures and options, may decline due to general market conditions which are not specifically related to a particular company. They may also decline due to factors which affect a particular industry or industries. A Fund may invest in illiquid investments. An illiquid investment is any investment that a Fund reasonably expects cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or disposition significantly changing the market value of the investment. A Fund may experience difficulty in selling illiquid investments in a timely manner at the price that it believes the investments are worth. Prices may fluctuate widely over short or extended periods in response to company, market or economic news. Markets also tend to move in cycles, with periods of rising and falling prices. This volatility may cause each Fund’s NAV to experience significant increases or decreases over short periods of time. If there is a general decline in the securities and other markets, the NAV of a Fund may lose value, regardless of the individual results of the securities and other instruments in which a Fund invests.
The price a Fund could receive upon the sale of any particular portfolio investment may differ from a Fund’s valuation of the investment, particularly for securities that trade in thin or volatile markets or that are valued using a fair valuation technique or a price provided by an independent pricing service. Changes to significant unobservable inputs and assumptions (i.e., publicly traded company multiples, growth rate, time to exit) due to the lack of observable inputs may significantly impact the resulting fair value and therefore a Fund’s results of operations. As a result, the price received upon the sale of an investment may be less than the value ascribed by a Fund, and a Fund could realize a greater than expected loss or lesser than expected gain upon the sale of the investment. A Fund’s ability to value its investments may also be impacted by technological issues and/or errors by pricing services or other third party service providers.
Counterparty Credit Risk: The Funds may be exposed to counterparty credit risk, or the risk that an entity may fail to or be unable to perform on its commitments related to unsettled or open transactions, including making timely interest and/or principal payments or otherwise honoring its obligations. The Funds manage counterparty credit risk by entering into transactions only with counterparties that the Manager believes have the financial resources to honor their obligations and by monitoring the financial stability of those counterparties. Financial assets, which potentially expose the Funds to market, issuer and counterparty credit risks, consist principally of financial instruments and receivables due from counterparties. The extent of the Funds’ exposure to market, issuer and counterparty credit risks with respect to these financial assets is approximately their value recorded in the Statements of Assets and Liabilities, less any collateral held by the Funds.
A derivative contract may suffer a mark-to-market loss if the value of the contract decreases due to an unfavorable change in the market rates or values of the underlying instrument. Losses can also occur if the counterparty does not perform under the contract.
With exchange-traded futures, there is less counterparty credit risk to the Funds since the exchange or clearinghouse, as counterparty to such instruments, guarantees against a possible default. The clearinghouse stands between the buyer and the seller of the contract; therefore, credit risk is limited to failure of the clearinghouse. While offset rights may exist under applicable law, a Fund does not have a contractual right of offset against a clearing broker or clearinghouse in the event of a default (including the bankruptcy or insolvency). Additionally, credit risk exists in exchange-traded futures with respect to initial and variation margin that is held in a clearing broker’s customer accounts. While clearing brokers are required to segregate customer margin from their own assets, in the event that a clearing broker becomes insolvent or goes into bankruptcy and at that time there is a shortfall in the aggregate amount of margin held by the clearing broker for all its clients, typically the shortfall would be allocated on a pro rata basis across all the clearing broker’s customers, potentially resulting in losses to the Funds.
Concentration Risk: A diversified portfolio, where this is appropriate and consistent with a fund’s objectives, minimizes the risk that a price change of a particular investment will have a material impact on the NAV of a fund. The investment concentrations within each Fund’s portfolio are disclosed in its Schedule of Investments.
Certain Funds invest a substantial amount of their assets in issuers located in a single country or a limited number of countries. When a Fund concentrates its investments in this manner, it assumes the risk that economic, regulatory, political and social conditions in those countries may have a significant impact on their investment performance and could affect the income from, or the value or liquidity of, the Fund’s portfolio. Foreign issuers may not be subject to the same uniform accounting, auditing and financial reporting standards and practices as used in the United States. Foreign securities markets may also be more volatile and less liquid than U.S. securities and may be less subject to governmental supervision not typically associated with investing in U.S. securities. Investment percentages in specific countries are presented in the Schedules of Investments.
Certain Funds invest a significant portion of their assets in securities of issuers located in Europe or with significant exposure to European issuers or countries. The European financial markets have recently experienced volatility and adverse trends due to concerns about economic downturns in, or rising government debt levels of, several European countries. These events may spread to other countries in Europe and may affect the value and liquidity of certain of the Funds’ investments.
NOTES TO FINANCIAL STATEMENTS | 41 |
Notes to Financial Statements (continued)
Responses to the financial problems by European governments, central banks and others, including austerity measures and reforms, may not work, may result in social unrest and may limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and others of their debt could have additional adverse effects on economies, financial markets and asset valuations around the world. In addition, the United Kingdom has withdrawn from the European Union, and one or more other countries may withdraw from the European Union and/or abandon the Euro, the common currency of the European Union. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but could be significant and far reaching.
Certain Funds invest a significant portion of their assets in securities of issuers located in Asia or with significant exposure to Asian issuers or countries. The Asian financial markets have recently experienced volatility and adverse trends due to concerns in several Asian countries regarding monetary policy, government intervention in the markets, rising government debt levels or economic downturns. These events may spread to other countries in Asia and may affect the value and liquidity of certain of the Funds’ investments.
Certain Funds invest a significant portion of their assets in securities of issuers located in China or with significant exposure to Chinese issuers or countries. Investments in Chinese securities, including certain Hong Kong-listed securities, involves risks specific to China. China may be subject to considerable degrees of economic, political and social instability and demonstrates significantly higher volatility from time to time in comparison to developed markets. Chinese markets generally continue to experience inefficiency, volatility and pricing anomalies resulting from governmental influence, a lack of publicly available information and/or political and social instability. Internal social unrest or confrontations with other neighboring countries may disrupt economic development in China and result in a greater risk of currency fluctuations, currency non-convertibility, interest rate fluctuations and higher rates of inflation. Incidents involving China’s or the region’s security may cause uncertainty in Chinese markets and may adversely affect the Chinese economy and the Fund’s investments. Reduction in spending on Chinese products and services, institution of tariffs or other trade barriers, or a downturn in any of the economies of China’s key trading partners may have an adverse impact on the Chinese economy. In addition, measures may be taken to limit the flow of capital and/or sanctions may be imposed, which could prohibit or restrict the ability to own or transfer fund assets and may also include retaliatory actions, such as seizure of fund assets.
LIBOR Transition Risk: The United Kingdom’s Financial Conduct Authority announced a phase out of the London Interbank Offered Rate (“LIBOR”). Although many LIBOR rates will be phased out by the end of 2021, a selection of widely used USD LIBOR rates will continue to be published through June 2023 in order to assist with the transition. The Funds may be exposed to financial instruments tied to LIBOR to determine payment obligations, financing terms, hedging strategies or investment value. The transition process away from LIBOR might lead to increased volatility and illiquidity in markets for, and reduce the effectiveness of new hedges placed against, instruments whose terms currently include LIBOR. The ultimate effect of the LIBOR transition process on the Funds is uncertain.
11. | CAPITAL SHARE TRANSACTIONS |
Transactions in capital shares for each class were as follows:
Period from 12/21/20(a) to 04/30/21 | ||||||||
Fund Name / Share Class | Shares | Amounts | ||||||
Defensive Advantage Emerging Markets | ||||||||
Shares sold | 10,001 | $ | 100,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
10,000 | $ | 100,000 | ||||||
|
|
|
| |||||
Investor A | ||||||||
Shares sold | 10,001 | $ | 100,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
10,000 | $ | 100,000 | ||||||
|
|
|
| |||||
Class K | ||||||||
Shares sold | 980,001 | $ | 9,800,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
980,000 | $ | 9,800,000 | ||||||
|
|
|
| |||||
1,000,000 | $ | 10,000,000 | ||||||
|
|
|
| |||||
Period from 12/21/20(a) to 04/30/21 | ||||||||
Fund Name / Share Class | Shares | Amounts | ||||||
Defensive Advantage International | ||||||||
Shares sold | 10,001 | $ | 100,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
10,000 | $ | 100,000 | ||||||
|
|
|
|
42 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Notes to Financial Statements (continued)
Period from 12/21/20(a) to 04/30/21 | ||||||||
Fund Name / Share Class (continued) | Shares | Amounts | ||||||
Defensive Advantage International (continued) | ||||||||
Investor A | ||||||||
Shares sold | 10,001 | $ | 100,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
10,000 | $ | 100,000 | ||||||
|
|
|
| |||||
Class K | ||||||||
Shares sold | 980,001 | $ | 9,800,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
980,000 | $ | 9,800,000 | ||||||
|
|
|
| |||||
1,000,000 | $ | 10,000,000 | ||||||
|
|
|
| |||||
Period from 12/21/20(a) to 04/30/21 | ||||||||
Fund Name / Share Class | Shares | Amounts | ||||||
Defensive Advantage U.S. | ||||||||
Shares sold | 10,001 | $ | 100,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
10,000 | $ | 100,000 | ||||||
|
|
|
| |||||
Investor A | ||||||||
Shares sold | 10,001 | $ | 100,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
10,000 | $ | 100,000 | ||||||
|
|
|
| |||||
Class K | ||||||||
Shares sold | 480,001 | $ | 4,800,010 | |||||
Shares redeemed | (1 | ) | (10 | ) | ||||
|
|
|
| |||||
480,000 | $ | 4,800,000 | ||||||
|
|
|
| |||||
500,000 | $ | 5,000,000 | ||||||
|
|
|
|
(a) | Commencement of operations. |
As of April 30, 2021, shares owned by BlackRock Financial Management, Inc., an affiliate of the Funds, were as follows:
Fund Name | Institutional | Investor A | Class K | Total | ||||||||||||
Defensive Advantage Emerging Markets | 10,000 | 10,000 | 980,000 | 1,000,000 | ||||||||||||
Defensive Advantage International | 10,000 | 10,000 | 980,000 | 1,000,000 | ||||||||||||
Defensive Advantage U.S. | 10,000 | 10,000 | 480,000 | 500,000 |
12. | SUBSEQUENT EVENTS |
Management has evaluated the impact of all subsequent events on the Funds through the date the financial statements were issued and has determined that there were no subsequent events requiring adjustment or additional disclosure in the financial statements.
NOTES TO FINANCIAL STATEMENTS | 43 |
Report of Independent Registered Public Accounting Firm
To the Shareholders of BlackRock Defensive Advantage Emerging Markets Fund, BlackRock Defensive Advantage International Fund, and BlackRock Defensive Advantage U.S. Fund and the Board of Trustees of BlackRock FundsSM:
Opinion on the Financial Statements and Financial Highlights
We have audited the accompanying statements of assets and liabilities of BlackRock Defensive Advantage Emerging Markets Fund, BlackRock Defensive Advantage International Fund, and BlackRock Defensive Advantage U.S. Fund of BlackRock FundsSM (the “Funds”), including the schedules of investments, as of April 30, 2021, the related statements of operations, changes in net assets, and the financial highlights for the period from December 21, 2020 (commencement of operations) through April 30, 2021, and the related notes. In our opinion, the financial statements and financial highlights present fairly, in all material respects, the financial position of the Funds as of April 30, 2021, and the results of their operations, the changes in their net assets, and the financial highlights for the period from December 21, 2020 (commencement of operations) through April 30, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements and financial highlights are the responsibility of the Funds’ management. Our responsibility is to express an opinion on the Funds’ financial statements and financial highlights based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Funds in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements and financial highlights are free of material misstatement, whether due to error or fraud. The Funds are not required to have, nor were we engaged to perform, an audit of their internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Funds’ internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements and financial highlights, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements and financial highlights. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and financial highlights. Our procedures included confirmation of securities owned as of April 30, 2021, by correspondence with the custodian and brokers; when replies were not received from brokers, we performed other auditing procedures. We believe that our audits provide a reasonable basis for our opinion.
Deloitte & Touche LLP
Boston, Massachusetts
June 22, 2021
We have served as the auditor of one or more BlackRock investment companies since 1992.
44 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Important Tax Information (unaudited)
For corporate shareholders, the percentage of ordinary income distributions paid during the fiscal year ended April 30, 2021 that qualified for the dividends-received deduction were as follows:
Fund Name | Dividends-Received Deduction | |||
Defensive Advantage U.S. | 24.37 | % |
The following maximum amounts are hereby designated as qualified dividend income for individuals for the fiscal year ended April 30, 2021:
Fund Name | Qualified Dividend Income | |||
Defensive Advantage Emerging Markets | $ | 24,621 | ||
Defensive Advantage International | 88,293 | |||
Defensive Advantage U.S. | 25,004 |
For the fiscal year ended April 30, 2021, the Funds earned foreign source income and paid foreign taxes which they intend to pass through to their shareholders:
Fund Name | Foreign Source Income Earned | Foreign Taxes Paid | ||||||
Defensive Advantage Emerging Markets | $ | 38,411 | $ | 3,489 | ||||
Defensive Advantage International | 88,597 | 10,424 |
IMPORTANT TAX INFORMATION | 45 |
Disclosure of Investment Advisory Agreement
Disclosure of Investment Advisory Agreement
The Board of Trustees (the “Board,” the members of which are referred to as “Board Members”) of BlackRock Funds (the “Trust”) met on November 9-11, 2020 (the “Organizational Meeting”) to consider the approval of the proposed investment advisory agreement (the “Agreement”) between the Trust, on behalf of BlackRock Defensive Advantage U.S. Fund (the “Defensive Advantage U.S. Fund”), BlackRock Defensive Advantage International Fund (the “Defensive Advantage International Fund”) and BlackRock Defensive Advantage Emerging Markets Fund (the “Defensive Advantage Emerging Markets Fund” and, together with the Defensive Advantage U.S. Fund and the Defensive Advantage International Fund, the “Funds” and, each individually, a “Fund”), each a series of the Trust, and BlackRock Advisors, LLC (the “Manager” or “BlackRock”), the Trust’s investment advisor. The Agreement was the same agreement that had been previously approved by the Board with respect to certain series of the Trust.
Activities and Composition of the Board
On the date of the Organizational Meeting, the Board consisted of fourteen individuals, twelve of whom were not “interested persons” of the Trust as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). The Board Members are responsible for the oversight of the operations of the Trust and perform the various duties imposed on the directors of investment companies by the 1940 Act. The Independent Board Members have retained independent legal counsel to assist them in connection with their duties. The Chair of the Board is an Independent Board Member. The Board has established five standing committees: an Audit Committee, a Governance and Nominating Committee, a Compliance Committee, a Performance Oversight Committee and an Ad Hoc Topics Committee, each of which is chaired by an Independent Board Member and composed of Independent Board Members (except for the Ad Hoc Topics Committee, which also has one interested Board Member).
The Agreement
Consistent with the requirements of the 1940 Act, the Trust is required to consider the initial approval of the Agreement. In connection with this deliberative process, the Board assessed, among other things, the nature, extent and quality of the services to be provided to the Funds by BlackRock, BlackRock’s personnel and affiliates, including (as applicable): investment management services; accounting oversight; administrative and shareholder services; oversight of each Fund’s service providers; risk management and oversight; and legal, regulatory and compliance services.
Board Considerations in Approving the Agreement
The Approval Process: At the Organizational Meeting, the Board reviewed materials relating to its consideration of the proposed Agreement. The Board considered all factors it believed relevant with respect to the Funds, including, among other things: (a) the nature, extent and quality of the services to be provided by BlackRock; (b) the investment performance of each Funds as compared with a peer group of funds and to other metrics, as applicable; (c) the advisory fee and the estimated cost of the services and estimated profits to be realized by BlackRock and its affiliates from their relationship with the Funds; (d) the existence and sharing of potential economies of scale; (e) any fall-out benefits to BlackRock and its affiliates as a result of BlackRock’s relationship with the Funds; (f) possible alternatives to the proposed Agreement; (g) the policies and practices of BlackRock with respect to portfolio transactions for each Fund; (h) BlackRock’s portfolio compliance systems and capabilities; and (i) other factors deemed relevant by the Board Members.
In considering approval of the Agreement, the Board met with the relevant investment advisory personnel from BlackRock and considered all information it deemed reasonably necessary to evaluate the terms of the Agreement. The Board received materials in advance of the Organizational Meeting relating to its consideration of the Agreement, including (a) information independently compiled and prepared by Broadridge Financial Solutions, Inc. (“Broadridge”) regarding each Fund’s fees and estimated expense ratio as compared with a peer group of funds as determined by Broadridge (“Expense Peers”); (b) information regarding BlackRock’s economic outlook for each Fund and its general investment outlook for the markets; (c) information regarding fees paid to service providers that are affiliates of BlackRock; and (d) information outlining the legal duties of the Board under the 1940 Act with respect to the consideration and approval of the Agreement. The Board also noted information received at prior Board meetings concerning compliance records and regulatory matters relating to BlackRock.
The Board also considered other matters it deemed important to the approval process, such as other payments made to BlackRock or its affiliates relating to securities lending and cash management and BlackRock’s services related to the valuation and pricing of the Funds’ portfolio holdings. The Board noted the willingness of BlackRock’s personnel to engage in open, candid discussions with the Board. The Board did not identify any particular information as determinative, and each Board Member may have attributed different weights to the various items considered.
A. Nature, Extent and Quality of the Services Provided by BlackRock
The Board, including the Independent Board Members, reviewed the nature, extent and quality of services to be provided by BlackRock, including the investment advisory services to be provided to the Funds. The Board received information concerning the investment philosophy and investment process to be used by BlackRock in managing the Funds, as well as a description of the capabilities, personnel and services of BlackRock. The Board considered the scope of the services provided by BlackRock to the Funds under the Agreement relative to services typically provided by third parties to other funds. The Board noted that the standard of care applicable under the Agreement was comparable to that found generally in investment company advisory agreements. The Board concluded that the scope of BlackRock’s services to be provided to the Funds was consistent with each Fund’s operational requirements, including, in addition to seeking to meet the pertinent Fund’s investment objective(s), compliance with investment restrictions, tax and reporting requirements and related shareholder services.
The Board, including the Independent Board Members, also considered the quality of the administrative and other non-investment advisory services to be provided by BlackRock and its affiliates to the Funds. The Board evaluated the procedures of BlackRock designed to fulfill its fiduciary duty to the Funds with respect to possible conflicts of interest, including BlackRock’s code of ethics (regulating the personal trading of BlackRock’s officers and employees), the procedures by which BlackRock allocates trades among its various investment advisory clients, the integrity of the systems in place to ensure compliance with the foregoing and the record of BlackRock in these matters. The Board also noted information received at prior Board meetings concerning standards of BlackRock with respect to the execution of portfolio transactions.
46 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Disclosure of Investment Advisory Agreement (continued)
Disclosure of Investment Advisory Agreement (continued)
The Board considered, among other factors, with respect to BlackRock: the number, education and experience of investment personnel generally and each Fund’s portfolio management team; research capabilities; investments by portfolio managers in the funds they manage; portfolio trading capabilities; use of technology; commitment to compliance; credit analysis capabilities; risk analysis and oversight capabilities; and the approach to training and retaining portfolio managers and other research, advisory and management personnel. The Board also considered BlackRock’s overall risk management program, including the continued efforts of BlackRock and its affiliates to address cybersecurity risks and the role of BlackRock’s Risk & Quantitative Analysis Group. The Board engaged in a review of BlackRock’s compensation structure with respect to the Fund’s portfolio management team and BlackRock’s ability to attract and retain high-quality talent and create performance incentives. The Board also considered the business reputation of BlackRock and its financial resources and concluded that BlackRock would be able to meet any reasonably foreseeable obligation under the Agreement.
In addition to investment advisory services, the Board considered the nature and quality of the administrative and other non-investment advisory services to be provided to the Funds. The Board considered that BlackRock and its affiliates will provide the Funds with certain administrative, shareholder and other services (in addition to any such services provided to the Funds by third parties) and officers and other personnel as are necessary for the operations of the pertinent Fund. In particular, BlackRock and its affiliates will provide the Funds with administrative services, including, among others: (i) responsibility for disclosure documents, such as the prospectus, the summary prospectus (as applicable), the statement of additional information and periodic shareholder reports; (ii) oversight of daily accounting and pricing; (iii) responsibility for periodic filings with regulators; (iv) overseeing and coordinating the activities of third-party service providers, including, among others, each Fund’s custodian, fund accountant, transfer agent, and auditor; (v) organizing Board meetings and preparing the materials for such Board meetings; (vi) providing legal and compliance support; (vii) furnishing analytical and other support to assist the Board in its consideration of strategic issues such as the merger, consolidation or repurposing of certain open-end funds; and (viii) performing or managing administrative functions necessary for the operation of the Funds, such as tax reporting, expense management, fulfilling regulatory filing requirements, overseeing each Fund’s distribution partners, and shareholder call center and other services. The Board reviewed the structure and duties of BlackRock’s fund administration, shareholder services, and legal & compliance departments and considered BlackRock’s policies and procedures for assuring compliance with applicable laws and regulations.
B. The Investment Performance of the Funds and BlackRock
The Board, including the Independent Board Members, previously received and considered information about BlackRock’s investment performance for other funds. The Board, however, did not consider the performance history of the Funds because the Funds was newly organized and had not yet commenced operations as of the date of the Organizational Meeting.
C. Consideration of the Advisory/Management Fees and the Estimated Cost of the Services to be Provided and Estimated Profits to be Realized by BlackRock and its Affiliates from their Relationship with the Funds
In connection with the initial approval of the Agreement, the Board, including the Independent Board Members, reviewed each Fund’s contractual management fee rate compared with those of its Expense Peers. The contractual management fee rate represents a combination of the advisory fee and any administrative fees, before taking into account any reimbursements or fee waivers. The Board also compared each Fund’s estimated total expense ratio, as well as its estimated actual management fee rate, to those of its Expense Peers. The total expense ratio represents a fund’s total net operating expenses, including any 12b-1 or non-12b-1 service fees. The total expense ratio gives effect to any expense reimbursements or fee waivers that benefit a fund, and the actual management fee rate gives effect to any management fee reimbursements or waivers that benefit a fund. Additionally, the Board noted information received at prior Board meetings concerning the services provided and the fees charged by BlackRock and its affiliates to other types of clients with similar investment mandates, as applicable, including institutional accounts and sub-advised mutual funds (including mutual funds sponsored by third parties).
The Board noted that the Defensive Advantage International Fund’s contractual management fee rate ranked in the first quartile, and that the estimated actual management fee rate and estimated total expense ratio each ranked in the first quartile relative to the Fund’s Expense Peers.
The Board noted that each of the Defensive Advantage U.S. Fund’s and the Defensive Advantage Emerging Markets Fund’s contractual management fee rate ranked in the second quartile, and that the estimated actual management fee rate and estimated total expense ratio each ranked in the first quartile relative to the pertinent Fund’s Expense Peers.
The Board also noted that each Fund has an advisory fee arrangement that includes breakpoints that adjust the fee rate downward as the size of the Fund increases above certain contractually specified levels. The Board noted that if the size of a Fund were to decrease, the Fund could lose the benefit of one or more breakpoints. The Board further noted that BlackRock and the Board have contractually agreed to a cap on each Fund’s total expenses as a percentage of the Fund’s average daily net assets on a class-by-class basis.
Following consideration of this information, the Board, including the independent Board Members, concluded that the fees to be paid pursuant to the Agreement were fair and reasonable in light of the services provided.
As the Funds had not commenced operations as of the date of the Organizational Meeting, BlackRock was not able to provide the Board with specific information concerning the expected profits to be realized by BlackRock and its affiliates from their relationships with the Funds. BlackRock, however, will provide the Board with such information at future meetings.
D. Economies of Scale
The Board, including the Independent Board Members, considered the extent to which economies of scale might be realized as the assets of the Funds increase, including the existence of fee waivers and/or expense caps, as applicable, noting that any contractual fee waivers and expense caps had been approved by the Board.
DISCLOSURE OF INVESTMENT ADVISORY AGREEMENT | 47 |
Disclosure of Investment Advisory Agreement (continued)
Disclosure of Investment Advisory Agreement (continued)
E. Other Factors Deemed Relevant by the Board Members
The Board, including the Independent Board Members, also took into account other ancillary or “fall-out” benefits that BlackRock or its affiliates may derive from BlackRock’s respective relationships with the Funds, both tangible and intangible, such as BlackRock’s ability to leverage its investment professionals who manage other portfolios and risk management personnel, an increase in BlackRock’s profile in the investment advisory community, and the engagement of BlackRock’s affiliates as service providers to the Funds, including for administrative, distribution, securities lending and cash management services. The Board also considered BlackRock’s overall operations and its efforts to expand the scale of, and improve the quality of, its operations. The Board also noted that, subject to applicable law, BlackRock may use and benefit from third-party research obtained by soft dollars generated by certain registered fund transactions to assist in managing all or a number of its other client accounts.
In connection with its consideration of the Agreement, the Board also received information regarding BlackRock’s brokerage and soft dollar practices. The Board received reports from BlackRock which included information on brokerage commissions and trade execution practices throughout the year.
The Board noted the competitive nature of the open-end fund marketplace, and that shareholders are able to redeem their Fund shares if they believe that the pertinent Fund’s fees and expenses are too high or if they are dissatisfied with the performance of the Fund.
Conclusion
The Board Members present at the Organizational Meeting, including the Independent Board Members, unanimously approved the Agreement between the Manager and the Trust, with respect to each Fund, for a two-year term beginning on the effective date of the Agreement. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including the Independent Board Members, was satisfied that the terms of the Agreement were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination.
48 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Disclosure of Investment Sub-Advisory Agreement
Disclosure of Investment Sub-Advisory Agreement
The Board of Directors (the “Board,” the members of which are referred to as “Board Members”) of BlackRock Funds (the “Trust”) met on January 7, 2021 (the “Meeting”) to consider the initial approval of the proposed sub-advisory agreement (the “Sub-Advisory Agreement”) between BlackRock Advisors, LLC (the “Manager”), the Trust’s investment advisor, and BlackRock International Limited (the “Sub-Advisor”) with respect to BlackRock Defensive Advantage U.S. Fund (the “Defensive Advantage U.S. Fund”), BlackRock Defensive Advantage International Fund (the “Defensive Advantage International Fund”) and BlackRock Defensive Advantage Emerging Markets Fund (the “Defensive Advantage Emerging Markets Fund” and, together with the Defensive Advantage U.S. Fund and the Defensive Advantage International Fund, the “Funds” and, each individually, a “Fund”), each a series of the Trust. The Sub-Advisory Agreement was substantially the same as sub-advisory agreements that had previously been approved by the Board with respect to certain other portfolios of the Trust.
On the date of the Meeting, the Board consisted of fourteen individuals, twelve of whom were not “interested persons” of the Trust as defined in the Investment Company Act of 1940, as amended (the “1940 Act”) (the “Independent Board Members”). Consistent with the requirements of the 1940 Act, the Board considers the initial approval of the Sub-Advisory Agreement.
At the Meeting, the Board reviewed materials relating to its consideration of the Sub-Advisory Agreement. The Board previously met on November 9-11, 2020 (the “November 2020 Meeting”) to consider the initial approval of the Trust’s investment advisory agreement (the “Advisory Agreement”) between the Trust and the Manager. At the November 2020 Meeting, the Board, including the Independent Board Members, unanimously approved the continuation of the Advisory Agreement for a two-year term beginning on the effective date of the Advisory Agreement. A discussion of the basis for the Board’s initial approval of the Advisory Agreement at the November 2020 Meeting is included in the semi-annual shareholder report for the Funds for the period ended April 30, 2021. The factors considered by the Board at the Meeting in connection with the approval of the proposed Sub-Advisory Agreement were substantially the same as the factors considered at the November 2020 Meeting with respect to approval of the Advisory Agreement.
Following discussion, the Board, including the Independent Board Members, unanimously approved the Sub-Advisory Agreement between the Manager and the Sub-Advisor, with respect to the Funds, for a two-year term beginning on the effective date of the Sub-Advisory Agreement. Based upon its evaluation of all of the aforementioned factors in their totality, as well as other information, the Board, including a majority of the Independent Board Members, was satisfied that the terms of the Sub-Advisory Agreement were fair and reasonable and in the best interest of each Fund and its shareholders. In arriving at its decision to approve the Sub-Advisory Agreement, the Board did not identify any single factor or group of factors as all-important or controlling, but considered all factors together, and different Board Members may have attributed different weights to the various factors considered. The Independent Board Members were also assisted by the advice of independent legal counsel in making this determination.
DISCLOSURE OF INVESTMENT SUB - ADVISORY AGREEMENT | 49 |
Trustee and Officer Information
Independent Trustees(a) | ||||||||
Name Year of Birth(b) | Position(s) Held (Length of Service)(c) | Principal Occupation(s) During Past Five Years | Number of BlackRock-Advised Investment Portfolios (“Portfolios”) Overseen | Public Company Past Five Years | ||||
Mark Stalnecker 1951 | Chair of the Board (Since 2019) and Trustee (Since 2015) | Chief Investment Officer, University of Delaware from 1999 to 2013; Trustee and Chair of the Finance and Investment Committees, Winterthur Museum and Country Estate from 2005 to 2016; Member of the Investment Committee, Delaware Public Employees’ Retirement System since 2002; Member of the Investment Committee, Christiana Care Health System from 2009 to 2017; Member of the Investment Committee, Delaware Community Foundation from 2013 to 2014; Director and Chair of the Audit Committee, SEI Private Trust Co. from 2001 to 2014. | 30 RICs consisting of 152 Portfolios | None | ||||
Bruce R. Bond 1946 | Trustee (Since 2019) | Board Member, Amsphere Limited (software) since 2018; Trustee and Member of the Governance Committee, State Street Research Mutual Funds from 1997 to 2005; Board Member of Governance, Audit and Finance Committee, Avaya Inc. (computer equipment) from 2003 to 2007. | 30 RICs consisting of 152 Portfolios | None | ||||
Susan J. Carter 1956 | Trustee (Since 2016) | Director, Pacific Pension Institute from 2014 to 2018; Advisory Board Member, Center for Private Equity and Entrepreneurship at Tuck School of Business since 1997; Senior Advisor, Commonfund Capital, Inc. (“CCI”) (investment adviser) in 2015; Chief Executive Officer, CCI from 2013 to 2014; President & Chief Executive Officer, CCI from 1997 to 2013; Advisory Board Member, Girls Who Invest from 2015 to 2018 and Board Member thereof since 2018; Advisory Board Member, Bridges Fund Management since 2016; Trustee, Financial Accounting Foundation since 2017; Practitioner Advisory Board Member, Private Capital Research Institute (“PCRI”) since 2017; Lecturer in the Practice of Management, Yale School of Management since 2019. Advisor to Finance Committee, Altman Foundation since 2020. | 30 RICs consisting of 152 Portfolios | None | ||||
Collette Chilton 1958 | Trustee (Since 2015) | Chief Investment Officer, Williams College since 2006; Chief Investment Officer, Lucent Asset Management Corporation from 1998 to 2006; Director, Boys and Girls Club of Boston since 2017; Director, B1 Capital since 2018; Director, David and Lucile Packard Foundation since 2020. | 30 RICs consisting of 152 Portfolios | None | ||||
Neil A. Cotty 1954 | Trustee (Since 2016) | Bank of America Corporation from 1996 to 2015, serving in various senior finance leadership roles, including Chief Accounting Officer from 2009 to 2015, Chief Financial Officer of Global Banking, Markets and Wealth Management from 2008 to 2009, Chief Accounting Officer from 2004 to 2008, Chief Financial Officer of Consumer Bank from 2003 to 2004, Chief Financial Officer of Global Corporate Investment Bank from 1999 to 2002. | 30 RICs consisting of 152 Portfolios | None | ||||
Lena G. Goldberg 1949 | Trustee (Since 2019) | Senior Lecturer, Harvard Business School, since 2008; Director, Charles Stark Draper Laboratory, Inc. since 2013; FMR LLC/Fidelity Investments (financial services) from 1996 to 2008, serving in various senior roles including Executive Vice President - Strategic Corporate Initiatives and Executive Vice President and General Counsel; Partner, Sullivan & Worcester LLP from 1985 to 1996 and Associate thereof from 1979 to 1985. | 30 RICs consisting of 152 Portfolios | None |
50 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Trustee and Officer Information (continued)
Independent Trustees(a) (continued) | ||||||||
Name Year of Birth(b) | Position(s) Held (Length of Service)(c) | Principal Occupation(s) During Past Five Years | Number of BlackRock-Advised Investment Portfolios (“Portfolios”) Overseen | Public Company Past Five Years | ||||
Henry R. Keizer 1956 | Trustee (Since 2019) | Director, Park Indemnity Ltd. (captive insurer) since 2010; Director, MUFG Americas Holdings Corporation and MUFG Union Bank, N.A. (financial and bank holding company) from 2014 to 2016; Director, American Institute of Certified Public Accountants from 2009 to 2011; Director, KPMG LLP (audit, tax and advisory services) from 2004 to 2005 and 2010 to 2012; Director, KPMG International in 2012, Deputy Chairman and Chief Operating Officer thereof from 2010 to 2012 and U.S. Vice Chairman of Audit thereof from 2005 to 2010; Global Head of Audit, KPMGI (consortium of KPMG firms) from 2006 to 2010; Director, YMCA of Greater New York from 2006 to 2010. | 30 RICs consisting of 152 Portfolios | Hertz Global Holdings (car rental); WABCO (commercial vehicle safety systems) from 2015 to 2020; Montpelier Re Holdings, Ltd. (publicly held property and casualty reinsurance) from 2013 until 2015; Sealed Air Corp. (packaging) | ||||
Cynthia A. Montgomery 1952 | Trustee (Since 2007) | Professor, Harvard Business School since 1989. | 30 RICs consisting of 152 Portfolios | Newell Rubbermaid, Inc. (manufacturing) from 1995 to 2016. | ||||
Donald C. Opatrny 1952 | Trustee (Since 2019) | Trustee, Vice Chair, Member of the Executive Committee and Chair of the Investment Committee, Cornell University from 2004 to 2019; President, Trustee and Member of the Investment Committee, The Aldrich Contemporary Art Museum from 2007 to 2014; Member of the Board and Investment Committee, University School from 2007 to 2018; Member of the Investment Committee, Mellon Foundation from 2009 to 2015; Trustee, Artstor (a Mellon Foundation affiliate) from 2010 to 2015; President and Trustee, the Center for the Arts, Jackson Hole from 2011 to 2018; Director, Athena Capital Advisors LLC (investment management firm) since 2013; Trustee and Chair of the Investment Committee, Community Foundation of Jackson Hole since 2014; Member of Affordable Housing Supply Board of Jackson, Wyoming since 2017; Member, Investment Funds Committee, State of Wyoming since 2017; Trustee, Phoenix Art Museum since 2018; Trustee, Arizona Community Foundation and Member of Investment Committee since 2020. | 30 RICs consisting of 152 Portfolios | None | ||||
Joseph P. Platt 1947 | Trustee (Since 2007) | General Partner, Thorn Partners, LP (private investments) since 1998; Director, WQED Multi-Media (public broadcasting not-for-profit) since 2001; Chair, Basic Health International (non-profit) since 2015. | 30 RICs consisting of 152 Portfolios | Greenlight Capital Re, Ltd. (reinsurance company); Consol Energy Inc. | ||||
Kenneth L. Urish 1951 | Trustee (Since 2007) | Managing Partner, Urish Popeck & Co., LLC (certified public accountants and consultants) since 1976; Past- Chairman of the Professional Ethics Committee of the Pennsylvania Institute of Certified Public Accountants and Committee Member thereof since 2007; Member of External Advisory Board, The Pennsylvania State University Accounting Department since founding in 2001; Principal, UP Strategic Wealth Investment Advisors, LLC since 2013; Trustee, The Holy Family Institute from 2001 to 2010; President and Trustee, Pittsburgh Catholic Publishing Associates from 2003 to 2008; Director, Inter- Tel from 2006 to 2007; Member Advisory Board, ESG Competent Boards since 2020. | 30 RICs consisting of 152 Portfolios | None |
TRUSTEE AND OFFICER INFORMATION | 51 |
Trustee and Officer Information (continued)
Independent Trustees(a) (continued) | ||||||||
Name Year of Birth(b) | Position(s) Held (Length of Service)(c) | Principal Occupation(s) During Past Five Years | Number of BlackRock-Advised Investment Portfolios (“Portfolios”) Overseen | Public Company Past Five Years | ||||
Claire A. Walton 1957 | Trustee (Since 2016) | Chief Operating Officer and Chief Financial Officer of Liberty Square Asset Management, LP from 1998 to 2015; General Partner of Neon Liberty Capital Management, LLC since 2003; Director, Boston Hedge Fund Group from 2009 to 2018; Director, Woodstock Ski Runners since 2013; Director, Massachusetts Council on Economic Education from 2013 to 2015. | 30 RICs consisting of 152 Portfolios | None | ||||
Interested Trustees(a)(d) | ||||||||
Name Year of Birth(b) | Position(s) Held (Length of Service)(c) | Principal Occupation(s) During Past Five Years | Number of BlackRock-Advised Investment Portfolios (“Portfolios”) Overseen | Public Company Held During Past Five Years | ||||
Robert Fairbairn 1965 | Trustee (Since 2018) | Vice Chairman of BlackRock, Inc. since 2019; Member of BlackRock’s Global Executive and Global Operating Committees; Co-Chair of BlackRock’s Human Capital Committee; Senior Managing Director of BlackRock, Inc. from 2010 to 2019; oversaw BlackRock’s Strategic Partner Program and Strategic Product Management Group from 2012 to 2019; Member of the Board of Managers of BlackRock Investments, LLC from 2011 to 2018; Global Head of BlackRock’s Retail and iShares® businesses from 2012 to 2016. | 103 RICs consisting of 250 Portfolios | None | ||||
John M. Perlowski(e) 1964 | Trustee (Since 2015) President and Chief Executive Officer (Since 2010) | Managing Director of BlackRock, Inc. since 2009; Head of BlackRock Global Accounting and Product Services since 2009; Advisory Director of Family Resource Network (charitable foundation) since 2009. | 105 RICs consisting of 252 Portfolios | None | ||||
(a) The address of each Trustee is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055. (b) Independent Trustees serve until their resignation, retirement, removal or death, or until December 31 of the year in which they turn 75. The Board may determine to extend the terms of Independent Trustees on a case-by-case basis, as appropriate. (c) Following the combination of Merrill Lynch Investment Managers, L.P. (“MLIM”) and BlackRock, Inc. in September 2006, the various legacy MLIM and legacy BlackRock fund boards were realigned and consolidated into three new fund boards in 2007. Furthermore, effective January 1, 2019, three BlackRock Fund Complexes were realigned and consolidated into two BlackRock Fund Complexes. As a result, although the chart shows the year that each Independent Trustee joined the Board, certain Independent Trustees first became members of the boards of other BlackRock-advised Funds, legacy MLIM funds or legacy BlackRock funds as follows: Bruce R. Bond, 2005; Cynthia A. Montgomery, 1994; Joseph P. Platt, 1999; Kenneth L. Urish, 1999; Lena G. Goldberg, 2016; Henry R. Keizer, 2016; Donald C. Opatrny, 2015. (d) Mr. Fairbairn and Mr. Perlowski are both “interested persons,” as defined in the 1940 Act, of the Trust based on their positions with BlackRock, Inc. and its affiliates. Mr. Fairbairn and Mr. Perlowski are also board members of the BlackRock Fixed-Income Complex. (e) Mr. Perlowski is also a trustee of the BlackRock Credit Strategies Fund and BlackRock Private Investments Fund. |
52 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Trustee and Officer Information (continued)
Officers Who Are Not Trustees(a) | ||||
Name Year of Birth(b) | Position(s) Held (Length of Service) | Principal Occupation(s) During Past Five Years | ||
Thomas Callahan 1968 | Vice President (Since 2016) | Managing Director of BlackRock, Inc. since 2013; Member of the Board of Managers of BlackRock Investments, LLC (principal underwriter) since 2019 and Managing Director thereof since 2017; Head of BlackRock’s Global Cash Management Business since 2016; Co-Head of the Global Cash Management Business from 2014 to 2016; Deputy Head of the Global Cash Management Business from 2013 to 2014; Member of the Cash Management Group Executive Committee since 2013; Chief Executive Officer of NYSE Liffe U.S. from 2008 to 2013. | ||
Jennifer McGovern 1977 | Vice President (Since 2014) | Managing Director of BlackRock, Inc. since 2016; Director of BlackRock, Inc. from 2011 to 2015; Head of Americas Product Development and Governance for BlackRock’s Global Product Group since 2019; Head of Product Structure and Oversight for BlackRock’s U.S. Wealth Advisory Group from 2013 to 2019. | ||
Trent Walker 1974 | Chief Financial Officer (Since 2021) | Managing Director of BlackRock, Inc. since September 2019; Executive Vice President of PIMCO from 2016 to 2019; Senior Vice President of PIMCO from 2008 to 2015; Treasurer from 2013 to 2019 and Assistant Treasurer from 2007 to 2017 of PIMCO Funds, PIMCO Variable Insurance Trust, PIMCO ETF Trust, PIMCO Equity Series, PIMCO Equity Series VIT, PIMCO Managed Accounts Trust, 2 PIMCO-sponsored interval funds and 21 PIMCO-sponsored closed-end funds. | ||
Jay M. Fife 1970 | Treasurer (Since 2007) | Managing Director of BlackRock, Inc. since 2007. | ||
Charles Park 1967 | Chief Compliance Officer (Since 2014) | Anti-Money Laundering Compliance Officer for certain BlackRock-advised Funds from 2014 to 2015; Chief Compliance Officer of BlackRock Advisors, LLC and the BlackRock-advised Funds in the BlackRock Multi-Asset Complex and the BlackRock Fixed-Income Complex since 2014; Principal of and Chief Compliance Officer for iShares® Delaware Trust Sponsor LLC since 2012 and BlackRock Fund Advisors (“BFA”) since 2006; Chief Compliance Officer for the BFA-advised iShares® exchange traded funds since 2006; Chief Compliance Officer for BlackRock Asset Management International Inc. since 2012. | ||
Lisa Belle 1968 | Anti-Money Laundering Compliance Officer (Since 2019) | Managing Director of BlackRock, Inc. since 2019; Global Financial Crime Head for Asset and Wealth Management of JP Morgan from 2013 to 2019; Managing Director of RBS Securities from 2012 to 2013; Head of Financial Crimes for Barclays Wealth Americas from 2010 to 2012. | ||
Janey Ahn 1975 | Secretary (Since 2019) | Managing Director of BlackRock, Inc. since 2018; Director of BlackRock, Inc. from 2009 to 2017. | ||
(a) The address of each Officer is c/o BlackRock, Inc., 55 East 52nd Street, New York, New York 10055. (b) Officers of the Trust serve at the pleasure of the Board. |
Neal J. Andrews retired as the Chief Financial Officer effective December 31, 2020, and Trent Walker was elected as the Chief Financial Officer effective January 1, 2021.
TRUSTEE AND OFFICER INFORMATION | 53 |
Regulation Regarding Derivatives
On October 28, 2020, the Securities and Exchange Commission (the “SEC”) adopted new regulations governing the use of derivatives by registered investment companies (“Rule 18f-4”). The Funds will be required to implement and comply with Rule 18f-4 by August 19, 2022. Once implemented, Rule 18f-4 will impose limits on the amount of derivatives a fund can enter into, eliminate the asset segregation framework currently used by funds to comply with Section 18 of the 1940 Act, treat derivatives as senior securities and require funds whose use of derivatives is more than a limited specified exposure amount to establish and maintain a comprehensive derivatives risk management program and appoint a derivatives risk manager.
General Information
Quarterly performance, semi-annual and annual reports, current net asset value and other information regarding the Funds may be found on BlackRock’s website, which can be accessed at blackrock.com. Any reference to BlackRock’s website in this report is intended to allow investors public access to information regarding the Funds and does not, and is not intended to, incorporate BlackRock’s website in this report.
Householding
The Funds will mail only one copy of shareholder documents, including prospectuses, annual and semi-annual reports, Rule 30e-3 notices and proxy statements, to shareholders with multiple accounts at the same address. This practice is commonly called “householding” and is intended to reduce expenses and eliminate duplicate mailings of shareholder documents. Mailings of your shareholder documents may be householded indefinitely unless you instruct us otherwise. If you do not want the mailing of these documents to be combined with those for other members of your household, please call the Funds at (800) 441-7762.
Availability of Quarterly Schedule of Investments
The Funds file their complete schedule of portfolio holdings with the SEC for the first and third quarters of each fiscal year as an exhibit to their reports on Form N-PORT. The Funds’ Forms N-PORT are available on the SEC’s website at sec.gov. Additionally, each Fund makes its portfolio holdings for the first and third quarters of each fiscal year available at blackrock.com/fundreports.
Availability of Proxy Voting Policies, Procedures and Voting Records
A description of the policies and procedures that the Funds use to determine how to vote proxies relating to portfolio securities and information about how the Funds voted proxies relating to securities held in the Funds’ portfolios during the most recent 12-month period ended June 30 is available without charge, upon request (1) by calling (800) 441-7762; (2) on the BlackRock website at blackrock.com; and (3) on the SEC’s website at sec.gov.
BlackRock’s Mutual Fund Family
BlackRock offers a diverse lineup of open-end mutual funds crossing all investment styles and managed by experts in equity, fixed-income and tax-exempt investing. Visit blackrock.com for more information.
Shareholder Privileges
Account Information
Call us at (800) 441-7762 from 8:00 AM to 6:00 PM ET on any business day to get information about your account balances, recent transactions and share prices. You can also visit blackrock.com for more information.
Automatic Investment Plans
Investor class shareholders who want to invest regularly can arrange to have $50 or more automatically deducted from their checking or savings account and invested in any of the BlackRock funds.
Systematic Withdrawal Plans
Investor class shareholders can establish a systematic withdrawal plan and receive periodic payments of $50 or more from their BlackRock funds, as long as their account balance is at least $10,000.
Retirement Plans
Shareholders may make investments in conjunction with Traditional, Rollover, Roth, Coverdell, Simple IRAs, SEP IRAs and 403(b) Plans.
54 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Additional Information (continued)
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund investors and individual clients (collectively, “Clients”) and to safeguarding their non-public personal information. The following information is provided to help you understand what personal information BlackRock collects, how we protect that information and why in certain cases we share such information with select parties.
If you are located in a jurisdiction where specific laws, rules or regulations require BlackRock to provide you with additional or different privacy-related rights beyond what is set forth below, then BlackRock will comply with those specific laws, rules or regulations.
BlackRock obtains or verifies personal non-public information from and about you from different sources, including the following: (i) information we receive from you or, if applicable, your financial intermediary, on applications, forms or other documents; (ii) information about your transactions with us, our affiliates, or others; (iii) information we receive from a consumer reporting agency; and (iv) from visits to our websites.
BlackRock does not sell or disclose to non-affiliated third parties any non-public personal information about its Clients, except as permitted by law or as is necessary to respond to regulatory requests or to service Client accounts. These non-affiliated third parties are required to protect the confidentiality and security of this information and to use it only for its intended purpose.
We may share information with our affiliates to service your account or to provide you with information about other BlackRock products or services that may be of interest to you. In addition, BlackRock restricts access to non-public personal information about its Clients to those BlackRock employees with a legitimate business need for the information. BlackRock maintains physical, electronic and procedural safeguards that are designed to protect the non-public personal information of its Clients, including procedures relating to the proper storage and disposal of such information.
Fund and Service Providers
Investment Adviser |
BlackRock Advisors, LLC |
Wilmington, DE 19809
|
Sub-Adviser |
BlackRock International Limited |
Edinburgh, EH3 8BL |
United Kingdom
|
Accounting Agent and Custodian |
State Street Bank and Trust Company |
Boston, MA 02111
|
Transfer Agent |
BNY Mellon Investment Servicing (US) Inc. |
Wilmington, DE 19809 |
Distributor |
BlackRock Investments, LLC |
New York, NY 10022
|
Independent Registered Public Accounting Firm |
Deloitte & Touche LLP |
Boston, MA 02116
|
Legal Counsel |
Sidley Austin LLP |
New York, NY 10019
|
Address of the Funds |
100 Bellevue Parkway |
Wilmington, DE 19809 |
ADDITIONAL INFORMATION | 55 |
Glossary of Terms Used in this Report
Portfolio Abbreviation
ADR | American Depositary Receipt | |
CVA | Certificaten Van Aandelen (Dutch Certificate) | |
ETF | Exchange-Traded Fund | |
GDR | Global Depositary Receipt | |
MSCI | Morgan Stanley Capital International | |
NVDR | Non-Voting Depositary Receipt | |
PCL | Public Company Limited | |
PJSC | Public Joint Stock Company | |
REIT | Real Estate Investment Trust | |
SAB | Special Assessment Bonds | |
SAN | State Aid Notes |
56 | 2 0 2 1 BLACK ROCK ANNUAL REPORT TO SHAREHOLDERS |
Want to know more?
blackrock.com | 800-441-7762
This report is intended for current holders. It is not authorized for use as an offer of sale or a solicitation of an offer to buy shares of the Funds unless preceded or accompanied by the Funds’ current prospectus. Past performance results shown in this report should not be considered a representation of future performance. Investment returns and principal value of shares will fluctuate so that shares, when redeemed, may be worth more or less than their original cost. Statements and other information herein are as dated and are subject to change.
DEF-04/21-AR
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(b) Not Applicable
Item 3 – | Audit Committee Financial Expert – The registrant’s board of directors (the “board of directors”), has determined that (i) the registrant has the following audit committee financial experts serving on its audit committee and (ii) each audit committee financial expert is independent: |
Neil A. Cotty
Henry R. Keizer
Kenneth L. Urish
Under applicable securities laws, a person determined to be an audit committee financial expert will not be deemed an “expert” for any purpose, including without limitation for the purposes of Section 11 of the Securities Act of 1933, as a result of being designated or identified as an audit committee financial expert. The designation or identification of a person as an audit committee financial expert does not impose on such person any duties, obligations, or liabilities greater than the duties, obligations, and liabilities imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. The designation or identification of a person as an audit committee financial expert does not affect the duties, obligations, or liability of any other member of the audit committee or board of directors.
Item 4 – | Principal Accountant Fees and Services |
The following table presents fees billed by PricewaterhouseCoopers LLP (“PwC”) and Deloitte & Touche (“D&T”) in each of the last two fiscal years for the services rendered to the Fund:
(a) Audit Fees | (b) Audit-Related Fees1 | (c) Tax Fees2 | (d) All Other Fees | |||||||||||||
Entity Name | Current Fiscal Year End | Previous Fiscal Year End | Current Fiscal Year End | Previous Fiscal Year End | Current Fiscal Year End3 | Previous Fiscal Year End | Current Fiscal Year End | Previous Fiscal Year End | ||||||||
BlackRock Defensive Advantage Emerging Markets Fund | $26,765 | N/A | $0 | N/A | $13,700 | N/A | $0 | N/A | ||||||||
BlackRock Defensive Advantage International Fund | $26,765 | N/A | $0 | N/A | $13,700 | N/A | $0 | N/A | ||||||||
BlackRock Defensive Advantage U.S. Fund | $22,220 | N/A | $0 | N/A | $12,700 | N/A | $0 | N/A |
The following table presents fees billed by PwC that were required to be approved by the registrant’s audit committee (the “Committee”) for services that relate directly to the operations or financial reporting of the Fund and that are rendered on behalf of BlackRock Advisors, LLC (the “Investment Adviser” or “BlackRock”) and entities controlling, controlled by, or under common control with BlackRock (not
2
including any sub-adviser whose role is primarily portfolio management and is subcontracted with or overseen by another investment adviser) that provide ongoing services to the Fund (“Affiliated Service Providers”):
Current Fiscal Year End | Previous Fiscal Year End | |||
(b) Audit-Related Fees1 | $0 | $0 | ||
(c) Tax Fees2 | $0 | $0 | ||
(d) All Other Fees4 | $0 | $0 |
1 | The nature of the services includes assurance and related services reasonably related to the performance of the audit or review of financial statements not included in Audit Fees, including accounting consultations, agreed-upon procedure reports, attestation reports, comfort letters, out-of-pocket expenses and internal control reviews not required by regulators. |
2 | The nature of the services includes tax compliance and/or tax preparation, including services relating to the filing or amendment of federal, state or local income tax returns, regulated investment company qualification reviews, taxable income and tax distribution calculations. |
3 | Aggregate fees borne by BlackRock in connection with the review of compliance procedures and attestation thereto performed by PwC with respect to all of the registered closed-end funds and some of the registered open-end funds advised by BlackRock. |
(e)(1) Audit Committee Pre-Approval Policies and Procedures:
The Committee has adopted policies and procedures with regard to the pre-approval of services. Audit, audit-related and tax compliance services provided to the registrant on an annual basis require specific pre-approval by the Committee. The Committee also must approve other non-audit services provided to the registrant and those non-audit services provided to the Investment Adviser and Affiliated Service Providers that relate directly to the operations and the financial reporting of the registrant. Certain of these non-audit services that the Committee believes are (a) consistent with the SEC’s auditor independence rules and (b) routine and recurring services that will not impair the independence of the independent accountants may be approved by the Committee without consideration on a specific case-by-case basis (“general pre-approval”). The term of any general pre-approval is 12 months from the date of the pre-approval, unless the Committee provides for a different period. Tax or other non-audit services provided to the registrant which have a direct impact on the operations or financial reporting of the registrant will only be deemed pre-approved provided that any individual project does not exceed $10,000 attributable to the registrant or $50,000 per project. For this purpose, multiple projects will be aggregated to determine if they exceed the previously mentioned cost levels.
Any proposed services exceeding the pre-approved cost levels will require specific pre-approval by the Committee, as will any other services not subject to general pre-approval (e.g., unanticipated but permissible services). The Committee is informed of each service approved subject to general pre-approval at the next regularly scheduled in-person board meeting. At this meeting, an analysis of such services is presented to the Committee for ratification. The Committee may delegate to the Committee Chairman the authority to approve the provision of and fees for any specific engagement of permitted non-audit services, including services exceeding pre-approved cost levels.
(e)(2) None of the services described in each of Items 4(b) through (d) were approved by the Committee pursuant to the de minimis exception in paragraph (c)(7)(i)(C) of Rule 2-01 of Regulation S-X.
(f) Not Applicable
(g) The aggregate non-audit fees, defined as the sum of the fees shown under “Audit-Related Fees,” “Tax Fees” and “All Other Fees,” paid to the accountant for services rendered by the accountant to the registrant, the Investment Adviser and the Affiliated Service Providers were:
3
Entity Name | Current Fiscal Year End | Previous Fiscal Year End | ||
BlackRock Defensive Advantage Emerging Markets Fund | $13,700 | N/A | ||
BlackRock Defensive Advantage International Fund | $13,700 | N/A | ||
BlackRock Defensive Advantage U.S. Fund | $12,700 | N/A |
(h) The Committee has considered and determined that the provision of non-audit services that were rendered to the Investment Adviser and the Affiliated Service Providers that were not pre-approved pursuant to paragraph (c)(7)(ii) of Rule 2-01 of Regulation S-X is compatible with maintaining the principal accountant’s independence.
Item 5 – | Audit Committee of Listed Registrant – Not Applicable |
Item 6 – | Investments |
(a) The registrant’s Schedule of Investments is included as part of the Report to Stockholders filed under Item 1 of this Form.
(b) Not Applicable due to no such divestments during the semi-annual period covered since the previous Form N-CSR filing.
Item 7 – | Disclosure of Proxy Voting Policies and Procedures for Closed-End Management Investment Companies – Not Applicable |
Item 8 – | Portfolio Managers of Closed-End Management Investment Companies – Not Applicable |
Item 9 – | Purchases of Equity Securities by Closed-End Management Investment Company and Affiliated Purchasers – Not Applicable |
Item 10 – | Submission of Matters to a Vote of Security Holders – There have been no material changes to these procedures. |
Item 11 – | Controls and Procedures |
(a) The registrant’s principal executive and principal financial officers, or persons performing similar functions, have concluded that the registrant’s disclosure controls and procedures (as defined in Rule 30a-3(c) under the Investment Company Act of 1940, as amended (the “1940 Act”)) are effective as of a date within 90 days of the filing of this report based on the evaluation of these controls and procedures required by Rule 30a-3(b) under the 1940 Act and Rule 15d-15(b) under the Securities Exchange Act of 1934, as amended.
(b) There were no changes in the registrant’s internal control over financial reporting (as defined in Rule 30a-3(d) under the 1940 Act) that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.
Item 12 – | Disclosure of Securities Lending Activities for Closed-End Management Investment Companies –Not Applicable |
4
Item 13 – | Exhibits attached hereto |
(a)(1) Code of Ethics – See Item 2
(a)(2) Section 302 Certifications are attached
(a)(3) Not Applicable
(a)(4) Not Applicable
(b) Section 906 Certifications are attached
5
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Funds
By: | /s/ John M. Perlowski | |||
John M. Perlowski | ||||
Chief Executive Officer (principal executive officer) of | ||||
BlackRock Funds |
Date: July 6, 2021
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
By: | /s/ John M. Perlowski | |||
John M. Perlowski | ||||
Chief Executive Officer (principal executive officer) of | ||||
BlackRock Funds |
Date: July 6, 2021
By: | /s/ Trent Walker | |||
Trent Walker | ||||
Chief Financial Officer (principal financial officer) of | ||||
BlackRock Funds |
Date: July 6, 2021
6