Final Results

26th Apr 2012 12:23

BlackRock Absolute Return Strategies Ltd Final results announcement in respect of the year ended 31 December 2011 Chairman's Statement

I am pleased to present the fourth annual report to Shareholders of BlackRock Absolute Return Strategies Ltd, for the year ended 31 December 2011.

Change in strategy

As I wrote in my 2010 Chairman's statement, despite the strong positive returndelivered by the Company's investment performance, the increase in NAV over thelast two years and the reduction in the supply of the Company's Shares throughreverse auction tender offers and on-market share repurchases, the share pricediscount to NAV of each share class had remained relatively wide. As aconsequence, I reported that the Board would continue to explore different waysto address the discount for the benefit of all Shareholders. Followingdiscussions with many of the Company's major Shareholders it was subsequentlyannounced on 31 May 2011 that the Board had determined to recommend that theCompany commence a managed wind-down of its portfolio with a view to realisingits investments in an orderly fashion, in a manner consistent with theprinciples of prudent investment management, and subsequently returning capitalto Shareholders.

On 15 July 2011, a circular was sent to Shareholders outlining proposals regarding the Company's future. The proposals were to:

- amend the Company's Investment Objective and Policy to commence the managed

wind-down process;

- revise the Company's hedging programme to permit the Board to terminate the

programme at its sole discretion; and

- amend the Articles (i) to permit the compulsory redemption of Shares at the

discretion of the Board until the Company's voluntary liquidation and (ii) to

permit the Board to suspend the right of conversion between Share classes at

its sole discretion at any time during the course of the managed wind-down

process.

On 25 August 2011, Shareholders approved the proposals. The investmentobjective and policy changed in order for the Company to be managed with theintention of realising all remaining assets in the portfolio, in a mannerconsistent with the principles of prudent investment management and spread ofinvestment risk, with a view to returning invested capital to the Shareholdersin an orderly manner.First RedemptionUnder the terms of the managed wind-down, the Board and the Manager arecommitted to distributing as much of the available cash as quickly asreasonably practical having regard to cost efficiency and working capitalrequirements. The first distribution to Shareholders of the cash proceeds fromthe realisation of the Company's investments was made on 10 February 2012, when73.5% of the Company's issued share capital was redeemed. Details of thepayments made to Shareholders are given in note 6 to the financial statements.The Company intends to make distributions to Shareholders by means of furtherredemptions, until its NAV decreases to an amount such that it is consideredappropriate to put the Company into voluntary liquidation. The Board will thenconsider, in light of the then prevailing market conditions and Shareholders'views, proposing a resolution for the immediate voluntary liquidation of theCompany. At present, based on the current liquidity profile, the Directorsbelieve that the Company will be in a position to put forward a resolution forvoluntary liquidation in early 2013. However, this is subject to changedepending on the ability of the Company to realise its assets.

Currency hedging

The Board considered that the Company's hedging programme would becomeinefficient following the first redemption and accordingly the programme wasterminated on 2 February 2012. Consequently, holders of Sterling and Euro classshares became exposed to Sterling:US Dollar and Euro:US Dollar exchange ratefluctuations.

Conversion between share classes

The Board determined on 21 November 2011 to suspend the share conversionfacility which had enabled Shareholders to convert between share classes. TheCompany had previously advised that, as the number of outstanding shares ofeach class reduced in consequence of the compulsory redemptions of shares, itwould consider merging the US Dollar and Euro Shares into the Sterling shareclass at an appropriate juncture. Following the first redemption, the Boarddetermined to merge the share classes on 9 March 2012 and full details areprovided in note 6 to the financial statements.

Listing

As communicated previously, the Board intends to continue to monitor the cost efficiency of retaining the Company's listing during the managed wind-down process. In the coming months, as the managed wind-down of the Company progresses, the Board intends to liaise with shareholders with a view to gauging opinion as to the optimum timing for the Company's eventual winding-up and/or delisting. Management Fee

The Manager is entitled to a Management Fee which is payable quarterly and calculated as one-fourth of 1.5% of the NAV of the relevant class of Shares as at the last Valuation Date in the relevant quarter.

The Manager has voluntarily waived the management fee that would otherwise havebeen payable in respect of the cash held by the Company resulting from therealisation of the Company's assets and awaiting distribution to Shareholdersthrough the compulsory redemption of Shares pursuant to the managed wind-downprocess. Board of Directors

In view of the Company's change in corporate strategy, Jonathan Ruck Keene has chosen to resign as a Director with effect from 26 April 2012.

Jonathan joined the Board at the formation of the Company in 2008 and I wish to express the Board's gratitude and appreciation for his significant contribution during his time as a Director.

Annual General Meeting ("AGM")

The AGM will be held at 2.30 pm on Thursday, 28 June 2012 at the offices of BlackRock (Channel Islands) Limited, 4th Floor, One Waverley Place, Union Street, St Helier, Jersey JE1 0BR.

Whilst writing, I should like to take this opportunity to express my thanks toall of those who have been supportive of the Company since its inception. Inparticular, my thanks are due to my fellow Directors for their considerableefforts and input, to the Investment Manager for generating strong positivereturns and to the Shareholders for their support.Colin MaltbyChairman26 April 2012Principal risks

The key risks faced by the Company until 25 August 2011 are set out below, fulldetails of these risks can be found in the Company's prospectus dated 4 April2008.

The Board regularly reviews and agrees policies for managing each risk, as summarised below.

Strategy/performance risk - The Board is responsible for deciding theinvestment strategy to fulfil the Company's objectives and monitoring theperformance of the Investment Manager. The strategies employed by the ExternalInvestment Advisors may be speculative and involve substantial risk of loss inthe event of failure or deterioration. To manage this risk the InvestmentManager provides an explanation of its investment management and risk processestogether with an in depth review of strategies and investment opportunities inthe current market environment. The Board monitors and maintains an adequatespread of investments in order to minimise the risks associated with particularinvestment strategies, based on the diversification requirements inherent inthe Company's investment policy.Regulatory risk - The Company is exposed to regulatory risk through changes inlaws or regulations, including tax laws, or new interpretations or applicationsof laws and regulations, that are applicable to the Company's business.Market risk - The Company is exposed to market risk. Market risk is riskassociated with changes in, among other things, market prices of securities orcommodities or foreign exchange or interest rates and there are certain generalmarket conditions in which any investment strategy is unlikely to beprofitable. The Investment Manager has no ability to control or predict suchmarket conditions.General economic and market conditions, such as currency and interest ratefluctuations, availability of credit, inflation rates, economic uncertainty,changes in laws, trade barriers, currency exchange controls and national andinternational conflicts or political circumstances, as well as naturalcircumstances, may affect the price level, volatility and liquidity ofsecurities. Economic and market conditions of this nature could result insignificant losses for the Company, which would have a material adverse effecton the performance of the Company and returns to shareholders.Operational risk - The Company has no employees and therefore relies upon theservices provided by third parties and is dependent on the control systems ofthe Manager, the Investment Manager, the Sub-Administrator and the Custodian.The security, for example, of the Company's assets, dealing procedures,accounting records and maintenance of regulatory and legal requirements, dependon the effective operation of these systems. These are regularly tested andmonitored and an internal controls report, which includes an assessment ofrisks together with procedures to mitigate such risks, is prepared by theManager and reviewed by the Audit and Management Engagement Committee at leasttwice a year.Counterparty risk - Fund Investments are generally subject to counterparty riskwith respect to the brokers, counterparties, clearing houses and exchanges withwhich they deal. Any default by one of these parties could result in materiallosses to a Fund Investment, and therefore the Company. The assets of FundInvestments held by brokers or counterparties are generally not held insegregated accounts, and accordingly, in the event of any such default a FundInvestment may only have the rights of a general creditor in the event anybroker or counterparty dissolves or files for bankruptcy. In addition, theinstitutions, including brokerage firms and banks, with which a Fund Investmenttrades or invests may encounter financial difficulties that impair theoperational capabilities or the capital position of such Fund Investment.Neither the Company nor the Investment Manager will have any control over thecounterparties or brokers used by the Fund Investments.Manager risk - Manager risk is the risk of loss due to fraud on the part of theInvestment Manager or an External Investment Advisor, intentional orinadvertent deviations from their communicated investment strategy, includingexcessive concentration, directional investing outside pre-defined ranges or innew capital markets, excessive leverage and risk taking, or simply poorjudgment. Although the Investment Manager will seek to allocate the Company'sassets to External Investment Advisors whom it believes will operate withintegrity and sound operational and organisational standards, the InvestmentManager may have no, or only limited, access to information regarding theactivities of the External Investment Advisors and the Investment Managercannot guarantee the accuracy or completeness of such information. As aconsequence, although the Investment Manager will monitor the activities of theExternal Investment Advisors as described in the Prospectus, it may bedifficult, if not impossible, for the Investment Manager to protect the Companyfrom the risk of External Investment Advisor fraud, misrepresentation ormaterial strategy alteration. The Investment Manager will have no control overthe day-to-day operations of any of the Fund Investments managed by theExternal Investment Advisors. As a result, there can be no assurance that theconduct of every such collective investment vehicle will conform to thesestandards. The failure of operations, IT systems or contingency/disasterrecovery plans may result in significant losses for the collective investmentvehicles managed by the External Investment Advisors. Shareholders themselveswill have no direct dealings or contractual relationships with ExternalInvestment Advisors.Financial risks - The Company's investment activities expose it to a variety offinancial risks that inter alia include liquidity risk, credit risk, foreigncurrency risk and interest rate risk. There are also risks linked to theCompany's use of derivative transactions. Further details are disclosed innotes 4 and 5, together with a summary of the policies for managing theserisks.Set out on page 9 of the circular sent to Shareholders on 15 July 2011,regarding the proposed managed wind-down of the Company, were the risksassociated with the proposals subsequently approved by Shareholders at theExtraordinary General Meeting and class meetings of the Euro, Sterling andDollar shareholders held on 25 August 2011. These risks and uncertainties, asdetailed below, are in addition to those risks set out above and contained inthe Company's prospectus.

- The value of the Portfolio may fluctuate and Shareholders' investment in the

Company could decline substantially.

- The Company's assets may not be realised at their Net Asset Value, and it is

possible that the Company may not be able to realise some assets at any value.

- In a managed wind-down, the value of the Portfolio will be reduced and

concentrated in fewer holdings. In addition, as the Portfolio is concentrated

in fewer holdings, the number of underlying managers in respect of Portfolio

assets may be reduced and the Company's exposure to varying management

strategies may be limited.

- Following the termination of the Company's current currency hedging

arrangements and the conversion of the US Dollar and Euro Shares into Sterling

Shares, holders of Sterling Shares are exposed to subsequent fluctuations in

the US Dollar/Sterling exchange rates.

- The liquidity profile of the Portfolio is such that Shareholders may have to

wait a considerable period of time before receiving all their distributions

pursuant to the managed wind-down. During that time the Portfolio may not be

managed in a balanced manner which may adversely affect its performance.

- The maintenance of the Company as an ongoing listed vehicle will entail

administrative, legal and listing costs, which will decrease the amount

ultimately distributed to Shareholders. The listing of the Shares may at some

stage during the managed wind-down be suspended and subsequently cancelled, at

which point such Shares will no longer be capable of being traded on the London

Stock Exchange.

- It should also be noted that there may be other matters or factors which

affect the availability, amount or timing of receipt of the proceeds of

realisation of some or all of the Company's investments. In particular, ongoing

redemptions will decrease the size of the Company's assets, thereby increasing

the impact of fixed costs incurred by the Company on the remaining assets. In

determining the size of any distributions, the Directors will take into account

the Company's ongoing running costs, however, should these costs be greater

than expected or should cash receipts for the realisations of investments be

less than expected, this will reduce the amount available for Shareholders in

future distributions.

- Redemptions of Shares will be made at the Directors' sole discretion, as and

when they deem that the Company has sufficient assets available to make a

redemption. Shareholders will therefore have little certainty as to when their

Shares will be redeemed.Related party transactions

The Manager and the Investment Manager are regarded as related parties and details of the investment management and performance fees payable are set out in note 7. Other related party transactions are set out in note 9.

The Board currently consists of five non-executive Directors. With theexception of Mr Le Feuvre and Mr Ruck Keene, who are BlackRock employees, allare considered to be independent of the Company's Manager and free from anybusiness or other relationship which could interfere materially with theexercise of their independent judgement. Mr Le Feuvre and Mr Ruck Keene, asemployees of BlackRock, are deemed to be interested in the Company's managementagreement. None of the Directors has a service contract with the Company. TheChairman receives an annual fee of £35,000, the Chairman of the Audit andManagement Engagement Committee receives an annual fee of £27,000 and the otherDirector receives an annual fee of £25,000. Mr Le Feuvre and Mr Ruck Keene havewaived the entitlement to their fee.

Two members of the Board hold shares in the Company. Mr Maltby holds 961 Sterling denominated Shares and Mr Ruck Keene 1,325 Sterling denominated shares.

Directors' responsibility statement

In accordance with Disclosure and Transparency Rule 4.1.12, the Directors confirm to the best of their knowledge and belief that:

- the financial statements, prepared in accordance with applicable accounting

standards, give a true and fair view of the assets, liabilities, financial

position and profit or loss of the Company in accordance with accounting

principles generally accepted in the United States of America; and

- the Annual Report includes a fair view of the development and performance of

the business and the position of the Company, together with a description of

the principal risks and uncertainties that the Company faces.

Colin MaltbyChairman26 April 2012Investment Manager's ReportMarket Review2011 was a disappointing year for many investors, characterised by meaningfulvolatility and muted or negative returns in most asset classes, with thenotable exception of select "safe haven" assets such as US Treasuries.Expectations entering the second half of 2011 featured a tenuous hope for broadeconomic recovery from the Great Recession of 2009 despite ongoing deleveragingand residual debt and credit concerns, but a series of external developmentsshook investor confidence once again. The first systemic shock was the upheavalinterspersed through multiple nations within the Middle East and Africa,resulting in a broader nervousness surrounding economic and geopoliticalstability of the region and a subsequent spike in the price of oil. That wasquickly followed by a devastating earthquake, tsunami, and nuclear power crisisin Japan that dampened Japanese and global growth in a variety of ways.However, 2011 will most likely be remembered for the intensification of thedebt and credit issues in Europe, which led to a near collapse of the EuropeanMonetary Union. As the crisis unfolded, it became increasingly clear thatEurope needed to redouble its efforts to align both monetary and fiscalstability, but potential solutions are likely to come at a steep economic andpolitical cost. Meanwhile, economic growth and employment remained weak in theUnited States, although some pickup occurred in the fourth quarter. Stridentpolitical posturing reached new heights in Washington, DC around fiscal policy,damaging corporate and consumer confidence. Meanwhile, emerging marketinflation resulted in some monetary policy tightening measures that deceleratedgrowth for a number of countries, including China.Dangerous levels of volatility and rising correlations in markets cuedflashbacks of 2008, further damaging investor confidence and discouraging risktaking. Alternating cycles of "risk-on/risk-off" investor behaviour wasfrequently prominent in the second half of the year, with "risk-off" assetsgenerally coming out ahead. Given the uncertain market, dividends, share buybacks, and acquisitions for cash increased significantly as corporationscontinued to hesitate to expand their operations. The US equity market was anotable outperformer finishing the year almost flat, while emerging andEuropean equities broadly posted double digit percentage declines. Commoditieswere mixed and volatile, with oil and gold among the strongest. As we lookforward, uncertainty around emerging market growth, upcoming elections innumerous key markets, and the European debt situation in particular, will bekey factors in the direction of markets in the coming year.

Strategy Review

Deal activity remained robust for risk arbitrage strategies in 2011, as $2.3trillion of deal activity represented the best calendar year of deal volumesince $2.5 trillion of global activity in 2008. However, overall deal activitymoderated in the second half, as over $600 billion in deals in the first twoquarters gave way to $550 billion of activity in the third quarter, and $468billion in the fourth quarter, which was the lowest three-month total since thesecond quarter of 2010, according to data from Bloomberg. The slowdown throughthe second half the year coincided with heighted politically driven risks,beginning with the US debt ceiling debacle in late July. There was considerablevolatility across deal spreads during the quarter, driven in part by thebroader market environment, but also by regulatory risk that was prevalent inmultiple deals. For example, the acquisition of NYSE Euronext by DeutscheBourse, which would create the world's largest stock exchange operator, wasfinally approved by the US Department of Justice in late December subject tocertain divestitures and conditions to limit Deutsche Bourse's market control.However, the deadline for completing the deal had to be extended into 2012 asEuropean Union officials have extended their investigation due to multipleconcerns, including the merger's potential impact on derivatives markets.Similarly, following significant efforts to negotiate concessions that couldallow the deal to move ahead, AT&T Inc. dropped its bid for Deutsche Telekom'sT-Mobile USA unit based on fierce government objections. Given that T-Mobile isa subsidiary of a larger company, this deal was not a significant holdingacross risk arbitrage portfolios, but its outcome is reflective of theregulatory challenges managers face in evaluating deals, particularly instrategic deals that are so prominent in today's market environment.Another notable theme included multiple bidding wars over the same target. Anotable example, Southern Union continued to rally into July, as itsubsequently received a superior bid from Williams Companies, Inc., inciting abidding war between the latter and Energy Transfer Equity, before the latterwon with a $5.7 billion offer that was accepted by shareholders in December.Elsewhere, the long running saga in the rental car space involving DollarThrifty Automotive Group, Inc. carried on over the course of the year. Itsstock jumped from roughly $70/share to over $80/share in early May on the newsthat Hertz Global Holdings, Inc. would offer $72/share, surpassing the priorbid from Avis Budget Group, Inc. The market appeared to be anticipating thatAvis would counter with a higher bid, particularly as Dollar Thriftyrecommended that shareholders reject the offer from Hertz. Ultimately, bothbidders dropped out of the race for Dollar in the second and third quarters,sending the price of Dollar Thrifty down further during the third quarter,frustrating managers holding the position. However, many of these managerscontinue to believe that Dollar Thrifty will receive renewed interest foracquisition in 2012, and steady appreciation in price during the fourth quarterseemed to be consistent with expectations that a renewed above market bid isincreasingly possible from Avis or rival Hertz Global Holdings.For distressed strategies, the year was a tale of two environments. For thefirst half of the year, performance was largely driven by position specificdevelopments related to existing portfolio holdings, as new default activityremained negligible. During the first six months of the year, US high yieldbonds and leveraged loans combined for less than $2.5 billion worth of defaultsin aggregate across 10 issuers, compared to 22 companies and $7.7 billion ofdefaults for the same period in 2010. However, the pace of corporate defaultspicked up in the second half, with $18.7 billion in defaults occurring in thelatter half of the year (according to JP Morgan), a trend that could portendgreater activity in 2012. The year as a whole saw $21.2 billion in US highyield and leverage loan defaults, up modestly from $19.8 billion in 2010.Early on, gains for distressed strategies were driven by existing portfolioholdings, notably in the financials space. The Lehman Brothers estate was anotable winner as it was announced in early June that various creditor groupsrepresenting $100 billion in claims in the Lehman Brothers bankruptcy havereached a settlement on a payout plan. While recoveries vary across claim typesand entities, the Lehman estate achieved broad approval of its liquidationplan, with initial distributions anticipated for the first half of 2012,causing underlying claims to trade substantially higher over the year. Inanother longstanding liquidation situation, claims on Nortel Networks Inc.benefited from approval by bankruptcy judges in the US and Canada for thecompany to sell a portfolio of 6,000 patents for $4.5 billion following aquarter-end auction. Activity was much more notable in the second half of theyear, as AMR Corporation's $4.11 billion and Dynegy Holding's $4.06 billion ofaffected high yield debt were the two largest high yield defaults sinceNovember 2009. In total, AMR Corp. sought Chapter 11 protection after it failedto keep pace with competitors, in part due to failing to secure cost cuttinglabour agreements. Managers quickly became active in this situation, includingAMR backed municipal airport bonds and enhanced trust certificates backed byairplane assets. MF Global was another notable default during the quarter,including in its bankruptcy filings $41 billion in assets and $39.7 billion inliabilities after it misfired on bets on European sovereign debt. Stresses inthe European financial system led to September sell-offs in names that havestruggled to rebuild since the 2008 crisis. Post reorganisation equities alsocontinue to impact returns, notably in the auto space, including the relistingof Delphi Automotive's equity in late November, which traded modestly higherthrough year-end, General Motors trading modestly lower for the quarter aftermeaningful appreciation in October, and Visteon Corporation, which finishedroughly 13% higher.The environment for fundamental long/short equity managers was challengingduring 2011. Performance was generally profitable in the first half, despite amarket correction in May and June, but markets in the second half turnedvolatile and highly correlated as the European crisis more fully developed. Ashighlighted numerous times since the 2008 credit crisis began, periods of highcorrelation among stocks can be extremely difficult for fundamental stockpickers, as the performance dispersion that they target is mitigated byequities moving in tandem. Not only did both implied and realised correlationsspike during the quarter, but they persisted at extreme levels for the betterpart of August and September. Beyond this correlation factor (and as acontributor to its existence), was the fact that markets were driven largely bysentiment swings tied to the outcomes of government decisions (or indecisions,as the case may be).Much of the year was characterised by an on-going battle between two forces:strong earnings and corporate fundamentals on the one side, and systemic risksand macroeconomic concerns on the other. Managers worked to balance these twofactors in their portfolios. Corporate activity remained an important source ofinvestment opportunity; with high corporate cash levels and prominent strategicactivity, managers are seeking those firms that may be well positioned to addvalue through catalysts such as new capital investment or acquisitions, ornon-core divestments and restructurings. For example, the motivations behind AT&T's proposed acquisition of T-Mobile USA from Deutsche Telekom includepotential synergistic cost savings as well as an upgrade of AT&T'sinfrastructure to meet increasing data transmission needs arising from theproliferation of smart phones. Elsewhere, Williams Companies, Inc. hasundertaken a strategic review of options that may unlock value, including arecent announcement that it would separate its large natural gas explorationand production portfolio from its pipeline assets. Other sources of opportunityhave been driven by developments in the solar industry, where short positioningbenefited performance as valuations broadly declined in the second quarter. Thenuclear crisis in Japan had boosted momentum for solar companies, but anexpected production glut and deterioration of underlying fundamentalscontributed to the subsequent decline.The macroeconomic environment was also a basis for a number of other selectthemes that drove manager positioning, including value hunting in oversoldmarket segments, and identification of short candidates that may be impacted bygovernment austerity measures or slowing economic growth. On the theme of valuehunting, some managers have rotated exposure to high quality regional banks,trust banks, and insurers, whose share prices have been depressed by riskaversion to the sector, but who may not be experiencing the same level ofmortgage put-back risk, regulatory scrutiny, or European sovereign/counterpartyrisk that certain money centre banks are facing. On the austerity theme,managers identified short candidates in sectors that are more dependent ongovernment spending or subsidies, including segments of the healthcare,aerospace/defence, and alternative energy industries. A long running short beton the solar sector continued to pay off for certain managers as the Europeancredit crisis and cut backs in the US called future subsidies into question atthe same time the industry is seeking a supply glut from overproduction. Thisimpacted earnings in 2011, both on a realised basis as well as in loweredearnings guidance across the industry. The situation was bad enough that one ofthe sector's leaders, First Solar, Inc., announced it would seek to move awayfrom reliance on subsidised solar markets and "find another game to play."Fundamental long/short credit strategies largely started 2011 positively, withgains once again biased toward long positions as credit premiums generallyfollowed heightened investor confidence levels. However, high yield bondperformance generally decelerated on growing evidence of a slowing US economicrecovery, apprehension over the worries over Greece and the broader Europeanfinancial system. As with many strategies, credit strategies were plagued bychallenging market dynamics throughout the second half. The "random walk" thatmarkets followed through the period, with market fluctuations driven by rapidlyevolving developments and/or speculation in the political sphere, generallyproved detrimental, making it difficult to derive gains from bottom up,fundamental investing in either direction.In response, as the year progressed, managers generally became more defensivelypositioned, focusing on shorter timeframes, trading more nimbly, andincorporating net short exposures in many cases. This helped to reduceportfolio volatility through the period for a number of managers; in August andSeptember, many long/short credit managers held up very well on a relativebasis through the heart of the panic, largely due to positive contributionsfrom these short credit holdings, notably credit protection or outright shortsof European sovereign credits. These latter positions were implemented as bothidiosyncratic bets, taking a view on the credit quality of a specific country,as well as portfolio hedges, a means of offsetting a portion of losses on othercredit positions if the financial situation in the Eurozone were to furtherdeteriorate. However, this short positioning proved detrimental for somemanagers in the fourth quarter as US high yield credit markets posted their twobest months of the year in October and December (+5.9% and +2.5%,respectively), bookending a -1.9% loss in November, according to JP Morgan. Aslong only markets rallied in October, many managers experienced losses in theirconsiderable short books, including European sovereign credit shorts, singlename credit shorts, and portfolio hedges.Meanwhile, idiosyncratic credit events have been robust. Companies have beenaggressively taking advantage of accommodative market conditions to restructurebalance sheets. More than half of all high yield bonds currently outstandinghave been originated in the post 2008 era, while only 20% were originatedduring the previous issuance boom years of 2006 and 2007. Targeting suchre-financings, or working with companies' management to effectuate suchactivity, can be a strong source of opportunity for credit focused managers onthe long side. Additionally, some managers are seeking out catalyst drivenspecial situation positions whose ultimate valuations are less sensitive toexternal events and more dependent on more diversifiable issuer specificdevelopments. Such winners included credit protection on AMR Corp., where manyinvestors had anticipated a default in 2012, but the accelerated filingbenefited select managers who had purchased near-term CDS protection based onits low cost and its attractive option like profile.Rates based strategies generally contributed to gains for the year, benefitingfrom a number of trading opportunities as yield curves and spreads oscillatedamidst headline driven "risk-on/risk-off" market behaviour. There was littleshortage of such events during the year; the US Federal Reserve's Treasurypurchase programs was an early source of opportunity, as was the potentialimpact of events such as the end of QE2 in the US, the events surrounding thetsunami in Japan, political posturing over US federal budget concerns, andsovereign debt concerns (including the landmark US debt downgrade by S&P),among numerous other factors, were among the issues that fuelled whipsawinginvestor confidence at various points in the year.Resultant investor skittishness can lead to opportunities based on shorter-termprice aberrations, while these events can also influence longer-termfundamental theses. For example, within Europe, managers were active in thisenvironment via tactical swap spread and curve trading, as well as throughdirectional and thematic trades based on monetary policy, such as trades thatexpressed the view that short-term rates would remain lower for longer (versusthe prior stance of the ECB toward tightening rates). While managers havetended to approach these "headline risk" scenarios cautiously, some havestructured trades that may profit under multiple scenarios, or that may benefitfrom potential negative developments. For example, one manager structured basistrades on sovereign bonds in peripheral Europe, taking advantage of differencesin prices between cash bonds and corresponding credit default swaps. Anothermanager balanced a long position in a long-term cash bond against a shorterduration credit protection (via CDS) on one particularly risky sovereigncredit. The cash bonds traded at a substantial discount to par due to theextreme market pessimism surrounding the country's economic viability. In theevent of a default or restructuring, the manager believed the current marketvalue is potentially attractive relative to longer-term recovery value.Meanwhile, restructuring could trigger a payout on the CDS position, resultingin potential gains from both sides of the trade over time. In the meantime, thecash yield from the bonds helped to mitigate the carry cost of the CDSprotection. The defensive and highly-hedged nature of many of these portfolioshelped them navigate market volatility in the third quarter, but tended togenerate flat performance in the fourth, as losses from hedges and tail riskpositions largely offset gains from their primary strategies as markets calmednear year-end.Convergence strategies offered mixed performance for 2011, with periodicprofits limited by mid-year losses driven by the volatile financial sector,which comprises a disproportionately large portion of existing convertible bondsupply. There continued to be little in the way of new issuance during theyear, and overall the global universe of convertible bonds shrunk to roughly$320 billion versus $394 billion at the end of 2010, with outflows in the USand Europe as the primary culprits, according to data from BofA Merrill Lynch.The global universe cheapened on a sum-of-parts valuation basis, moving fromnearly par at the end of 2010, to 0.5% rich at the end of the second quarter,but ultimately falling to 1.65% cheap as of 31 December.Early in the year and as the year closed, special situations investments were anotable source of gains for underlying managers. For example, select Germanbanks tendered for hybrid securities in January, an undertaking that hadpreviously been prohibited by regulators due to capital strengthconsiderations. Related securities traded higher in response. In addition, anew issue from a Swiss bank exhibited robust performance in secondary markettrading, benefiting managers who received allocations to the stronglysubscribed deal. Elsewhere, managers targeted opportunities in cross currencycapital structure trades, where securities of the same issuer traded atdifferent risk spreads in different markets. This was notably the case betweenthe US and Europe, as the latter market has suffered greater risk aversionamidst its political environment. Such special situations trades, and those inthe financial space discussed below, represented a significant focus formanagers during the period.However, mid-year, long positions came under pressure, with outright(long-only) buyers of convertible bonds under pressure from widening creditspreads and falling underlying equity values in some cases. Notableidiosyncratic losses were seen, particularly later in the third quarter, onnames in Europe where financial system fears impacted valuations and securitiessaw notable selling pressure. Meanwhile, a long position in Alcatel-Lucentgenerated losses in November after the company announced poor earnings and cutits profit forecast. While equity hedges mitigated losses, the credit side wasdamaging as the implied yield on the convertible bond surpassed that of thecompany's straight bonds.Volatility related strategies generated positive performance for the periodoverall, with gains driven largely by early volatility arbitrage trades whiledirectionally oriented and event-driven strategies posted mixed returns.Implied equity volatility levels, as measured by the VIX Index, began the yearat 17.75% and spiked at a number of points in the year, peaking in both Augustand September at over 45, and then falling over the course of the fourthquarter back to a level of 23 as authorities proposed stopgap measures thathelped to alleviate more immediate concerns over potential financial contagionin Europe. The volatility decline in October benefited managers holding shortvolatility positions in their books, and as managers saw trading positionspecific opportunities in an environment marked by heightened correlation andvolatility of volatility. One manager noted opportunities in the term structureof volatility, as implied volatilities at various maturities, particularlyaround January 2012 contracts, diverged meaningfully due to technical flowsfrom investors seeking shorter term insurance early in October, and thenflattened as markets moved to a more normalised state. As equity volatilitydeclined, another manager earned profits in November on the back of volatilityin the credit markets in anticipation of building pressures in various interestrate markets.During the year, managers also targeted the disparity between realized andimplied equity correlation levels, expressing a view that implied levels may betoo high relative to realized levels. The headline dominated nature of marketmovements, both up and down, caused a spike in implied and realized correlationlevels within equity markets, particularly in the third quarter. Impliedcorrelation levels within the S&P 500 Index climbed to around 90 by the end ofthe third quarter, after starting the quarter below 60. Remarkably, financialindex correlation for the XLF (the SPDR financial sector ETF) traded very neara perfect 100 level at several points. Broader market realized correlation wasonly modestly lower, remaining around 90 for several days. Logic would indicatethat such levels should not persist indefinitely, but seeking to profit fromtheir decline may be a challenging prospect amidst ongoing uncertainty inglobal markets. However, these implied equity correlation levels remainedrelatively high through year-end, contributing losses from trades structured todirectly profit from greater dispersion, as well as strategies that wouldgenerally benefit from greater position level differentiation.Direct sourcing activity generally posted gains during 2011, with steady butmodest gains through most of the year interrupted by sharper losses in Augustand September. In general, mark-to-market performance on a number of existingcredit-based holdings fluctuated to a certain degree as credit premiumsnarrowed and widened in concert with the broader market's participation in the"risk-on/ risk-off" environment. However, performance from more idiosyncraticassets, as well as income generated from manager portfolios, helped to cushionoverall results from the resulting price swings.Dislocations driving many of direct sourcing opportunities continued to beprominent. Bank divestitures, small- and middle market lending, andtransportation asset financing are among segments in which our underlyingmanagers have been collectively active in identifying attractive, highlyidiosyncratic deals. Commercial real estate asset activity has also beennotable, particularly in relatively smaller deals (i.e., $10-20 million) inoff-the-run markets. One manager was able to close 180,000 square feet of USMidwestern retail property at a 15-16% cap rate, noting by way of comparisonthat a larger property sale in a metropolitan area had recently been executedat a 4% cap rate. The prospects for further opportunity in this space appear tobe favourable, with one manager estimating a refinancing shortfall of over $600billion in US and European commercial real estate debt through 2013.The resurgence of systemic concerns and economic malaise that last plaguedmarkets in 2008-2009 continued to catalyse new opportunities as valuationsshrank and capital liquidity retreated in the latter half of the year. Managerscontinued to see attractive opportunities in the commercial real estate space,including defaulted or stressed debt backed by real estate assets that was soldby cash-strapped investors at depressed pricing. For example, one managerfocused on off-the-run credits received a bid for a portion of a real estatedevelopment project it owns in Las Vegas as development interest has picked up.We are also seeing a number of unique opportunities driven by corporations andother entities looking to strategically reposition their assets for potentiallyleaner times. For example, one manager on our platform formed a joint venturewith an energy exploration and production firm to seek out oil and natural gasproperties where current supply/demand dynamics for certain assets in the Gulfof Mexico are resulting in prices at multi-cycle lows.

Market Outlook:

Into the end of 2011 and start of 2012, we have been actively reflecting uponthe state of the global economy and how to approach hedge fund investing in theNew Year. In so doing, we have identified a number of major themes thatcontribute to our investment decisions in the months ahead, including:

- persistence into 2012 of the investor behaviour and "risk on/risk off"

volatility witnessed in 2011;

- capital availability for fundamentally weaker borrowers and the

differentiation of fundamentally stronger companies;

- heavier government influence in capital markets; and

- restructuring of the global financial system and change in the "Street" model.

Markets are always evolving, but it seems they are evolving faster and moresubstantially in this current post-crisis world. While change and uncertaintycan drive increasing risk in directional markets, we believe they are alsocompanions to the historical sources of pricing inefficiencies that drive hedgefund returns. Many of these sources of pricing inefficiencies that we havecited since our inception, market segmentation, complexity, lopsidedincentives, and discriminatory government policies, have become exceptionallyprominent, and have the potential to serve as a springboard for cautiousoptimism in regards to opportunities in 2012 and beyond.Mark WoolleyBlackRock Alternative Advisors26 April 2012

Portfolio Analysis

Asset Allocation as at 31 December 2011

Discipline and Strategy % Relative Value: Capital Structure 0.8 Convergence 9.4 Rates 2.4 Statistical 0.5 Volatility 5.6 Event Driven: Distressed 14.0 Mergers/Acquisitions 5.9 Corporate Actions 6.3 Fundamental Long/Short: Equity Selection 30.4 Equity Active Value 0.7 Credit 16.6 Direct Sourcing: Lending 1.1 Equity Financing 4.8 Real Estate 0.6 % Relative Value 18.7 Event Driven 26.2 Fundamental Long/Short 47.7 Direct Sourcing 6.5

Strategy allocations may not sum to 100% due to residual allocations to other disciplines such as Directional Trading as well as rounding differences.

Geography % North America 59.9 Western Europe 24.7 Emerging Markets 9.2 Developed Asia 6.2 Statistical SummaryAggregate Leverage of Underlying Managers 2.2x Gross US Dollar Long Exposure 215% Gross US Dollar Short Exposure 147% Number of Investment Programs 23 % by Top 15 Investment Programs 22.6% Statement of Assets and Liabilitiesas at 31 December 2011 2011 2010 Notes US$ US$ Assets

Investments in private investment funds, at fair value (cost 2011: $42,926,377; 2010: $165,928,648) 3 42,376,512 180,218,133 Unrealised gain on forward foreign

currency exchange contracts 5 684,253 2,904,682 Cash and cash equivalents 34,799,906 4,696,893

Cash and cash equivalents denominated

in foreign currencies (cost: $52,963,288) 52,663,009 -

Due from private investment funds 59,401,129 12,117,057 Investments in private investment

funds made in advance - 1,220,000 Other assets 86,003 79,463 ----------- ----------- 190,010,812 201,236,228 ----------- ----------- Liabilities Management fees payable 7 454,780 739,004 Performance fees payable 7 73,779 489,961

Accounts payable and accrued expenses 230,660 236,140

Other liabilities 151,812 - ----------- ----------- 911,031 1,465,105 ----------- ----------- Net Assets 189,099,781 199,771,123 =========== ===========

The financial statements were approved and authorised for issue by the Board of Directors on 26 April 2012 and signed on its behalf by Colin Maltby, Chairman.

Statement of Operationsfor the year ended 31 December 2011 2011 2010 Notes US$ US$ Income Interest 12,891 1,831 ----------- ----------- Expenses Management fees 7 2,593,296 2,912,081 Performance fees 7 73,779 489,961

Administration and custody fees 8 101,340 102,551

Other professional fees 746,485 545,147 Interest - 1,538 ----------- ----------- 3,514,900 4,051,278 ----------- ----------- Net investment loss (3,502,009) (4,049,447) ----------- ----------- Net realised gain/(loss) on:

Investments in private investment

funds 17,026,621 2,157,075

Forward foreign currency exchange

contracts 1,353,097 (10,047,428) ----------- ----------- 18,379,718 (7,890,353) ----------- -----------

Net change in unrealised (loss)/gain

on:

Investments in private investment

funds (14,839,350) 17,364,414

Forward foreign currency exchange

contracts (2,220,429) 2,623,820 ----------- ----------- (17,059,779) 19,988,234 ----------- -----------

(Decrease)/increase in net assets

resulting from operations (2,182,070) 8,048,434 =========== =========== Statement of Changes in Net Assetsfor the year ended 31 December 2011 US$ For the year ended 31 December 2011 ----------- Net assets, beginning of year 199,771,123 ----------- Increase/(decrease) in net assets:

From operations Net investment loss (3,502,009)

Net realised gain on investments in private investment funds 17,026,621 Net realised gain on forward foreign currency exchange

contracts 1,353,097

Net change in unrealised gain/(loss) on investments in

private investment funds (14,839,350)

Net change in unrealised gain/(loss) on forward foreign

currency exchange contracts (2,220,429) ---------- (2,182,070) ---------- From capital transactions

Conversion to 1,054,012 US Dollar denominated shares 10,781,494 Conversion to 62,112 Euro denominated shares 891,305 Conversion to 977,783 Sterling denominated shares 15,927,107 Conversion of 1,549,353 US Dollar denominated shares (16,163,704) Conversion of 61,090 Euro denominated shares (869,891) Conversion of 679,436 Sterling denominated shares (10,566,311) Buy back of 116,976 US Dollar denominated shares (1,021,795) Buy back of 87,611 Euro denominated shares (1,002,932) Buy back of 495,731 Sterling denominated shares (6,464,545)

---------- (8,489,272) ----------- Net assets, end of year 189,099,781 ===========

For the year ended 31 December 2010 ----------- Net assets, beginning of year 204,899,155 -----------Increase/(decrease) in net assets:

From operations Net investment loss (4,049,447)

Net realised gain on investments in private investment funds 2,157,075 Net realised loss on forward foreign currency exchange

contracts (10,047,428)

Net change in unrealised gain/(loss) on investments in

private investment funds 17,364,414

Net change in unrealised gain/(loss) on forward foreign

currency exchange contracts 2,623,820 ----------- 8,048,434 -----------From capital transactions

Conversion to 1,906,859 US Dollar denominated shares 18,860,618 Conversion to 123,874 Euro denominated shares 1,564,534 Conversion to 1,341,712 Sterling denominated shares 20,014,677 Conversion of 1,731,923 US Dollar denominated shares (17,097,424) Conversion of 515,806 Euro denominated shares (6,436,915) Conversion of 1,115,340 Sterling denominated shares (16,905,490) Buy back of 165,505 US Dollar denominated shares (1,443,763) Buy back of 164,178 Euro denominated shares (1,753,868) Buy back of 816,045 Sterling denominated shares (9,978,835)

----------- (13,176,466) -----------Net assets, end of year 199,771,123 =========== Statement of Cash Flowsfor the year ended 31 December 2011 2011 2010 US$ US$ Cash provided by (used in): Operating activities

(Decrease)/increase in net assets resulting

from operations (2,182,070) 8,048,434

Adjustments to reconcile (decrease)/ increase in net assets resulting from operations to cash provided by operating

activities:

Net realised gain on investments in private

investment funds (17,026,621) (2,157,075)

Net change in unrealised loss/(gain) on investments in private investment funds 14,839,350 (17,364,414) Net change in unrealised loss/(gain) on forward foreign currency exchange contracts 2,220,429 (2,623,820) Purchases of investments in private

investment funds (14,982,920) (18,732,622)

Sales of investments in private investment

funds 108,947,740 44,095,749

Decrease in receivable on realised forward foreign currency exchange contracts - 1,061,693

Increase in other assets (6,540) (51,285)

Decrease in payable on realised forward foreign currency exchange contracts - (657,030) Decrease in management fees payable (284,224) (7,253) (Decrease)/increase in performance fees

payable (416,182) 489,961

Decrease in accounts payable and accrued

expenses (5,480) (14,105) Increase in other liabilities 151,812 - ----------- -----------

Cash provided by operating activities 91,255,294 12,088,233

----------- ----------- Financing activities

Payments on redemption of Shares - (1,513,658)

Payments on buyback of Shares (8,489,272) (13,176,466) ----------- -----------

Cash used in financing activities (8,489,272) (14,690,124) ----------- ----------- Increase/(decrease) in cash and cash

equivalents 82,766,022 (2,601,891) Cash and cash equivalents Beginning of year 4,696,893 7,298,784 ----------- ----------- End of year 87,462,915 4,696,893 =========== ===========

Supplemental disclosures of cash flow

information

Cash received during the year for interest 12,891 1,831 Cash paid during the year for interest - 2,340

=========== =========== Non-cash transactions: Conversion to US Dollar, Euro and Sterling denominated shares 27,599,906 40,439,829 Conversion of US Dollar, Euro and Sterling denominated shares (27,599,906) (40,439,829) =========== =========== In-kind purchases/sales of investments in

private investment funds 9,717,233 25,293,275 =========== ===========Financial Highlightsfor the year ended 31 December 2011 2011 2010 2011 2010 2011 2010 US$ US$ € € £ £ Per share operating performance: Net asset value, beginning of year 10.16 9.32 9.87 9.04 9.89 9.04 Income from investment operations Net investment loss (0.19) (0.19) (0.17) (0.20) (0.18) (0.21) Net realised and unrealised gain on investments and forward foreign currency exchange contracts 0.22 1.03 0.23 1.03 0.24 1.06 ----- ----- ---- ---- ---- ---- Total from investment operations 0.03 0.84 0.06 0.83 0.06 0.85 ----- ----- ---- ---- ---- ---- Net asset value, end of year 10.19 10.16 9.93 9.87 9.95 9.89 ===== ===== ==== ==== ==== ==== Total return* Before management and performance fees 1.72% 10.63% 1.88% 10.91% 1.93% 11.20% Management fees (1.32%) (1.47%) (1.31%) (1.49%) (1.31%) (1.48%) Performance fees (0.04%) (0.17%) (0.02%) (0.20%) (0.05%) (0.27%) ----- ----- ----- ----- ----- ----- 0.36% 8.99% 0.55% 9.22% 0.57% 9.45% ===== ===== ===== ===== ===== ===== Ratios/ supplemental data**: Net assets,

end of year 17,606,148 23,763,087 16,533,427 17,298,128

96,507,688 97,908,089 Ratio of expenses to average net assets Before management fees 0.43% 0.33% 0.43% 0.33% 0.43% 0.33% Management fees 1.30% 1.47% 1.32% 1.50% 1.32% 1.48% Performance fees 0.33% 0.19% 0.01% 0.18% 0.02% 0.27% ----- ----- ----- ----- ----- ----- 2.06% 1.99% 1.76% 2.01% 1.77% 2.08% ===== ===== ===== ===== ===== ===== Ratio of net investment loss to average net assets Before management fees (0.43%) (0.33%) (0.43%) (0.33%) (0.43%) (0.33%) Management fees (1.30%) (1.47%) (1.32%) (1.50%) (1.32%) (1.48%) Performance fees (0.33%) (0.19%) (0.01%) (0.18%) (0.02%) (0.27%) ----- ----- ----- ----- ----- ----- (2.06%) (1.99%) (1.76%) (2.01%) (1.77%) (2.08%) ===== ===== ===== ===== ===== =====

* Total return is calculated for each class of shares for the years ended 31 December 2011 and 31 December 2010. An individual shareholder's return may vary from the results included above due to the timing of investments.

** The ratios have been calculated for each class as a whole. For the purpose of calculating these ratios, average net assets are calculated before 31 December 2011 and 31 December 2010 shareholder redemptions, if any.

Notes to Financial Statements

1. The Company

BlackRock Absolute Return Strategies Ltd (the "Company") is a limited liabilityregistered closed ended investment company incorporated in Jersey on 18 March2008. The Company's Shares were listed on the London Stock Exchange on 24 April2008 and commenced unconditional trading on 29 April 2008. With effect from 1 January 2009, under the new taxation regime that became effective in Jersey,the Company's tax status changed from that of an exempt company, whereby theCompany's liability to Jersey taxation was generally limited to the exemptcompany fee of £600 per year to a zero tax rate company. Taxes relating tolocal income, profits and capital gains are not levied on the Company.

The Company has been established with an unlimited life and with the exception of Mr Le Feuvre and Mr Ruck Keene who are both employees of BlackRock, its Board of Directors is independent of the Investment Manager.

Prior to 25 August 2011 the Company's investment objective was to generate absolute returns in excess of the yields on short-term LIBOR securities, while endeavouring to minimise the corresponding level of volatility. The Company sought to generate these returns irrespective of the performance of any particular sector of the global capital markets.

In accordance with the Circular to Shareholders dated 15 July 2011 and theresolution passed at the subsequent Extraordinary General Meeting and classmeetings of the Euro, Sterling and Dollar shareholders held on 25 August 2011,the Company has commenced a managed wind-down in order to enable Shareholdersto realise in an orderly manner their investment in the Company.

The revised investment objective and policy approved by shareholders at the meetings held on 25 August 2011 is as follows:

The Company will be managed with the intention of realising all remainingassets in the Portfolio, in a manner consistent with the principles of prudentinvestment management and spread of investment risk, with a view to returninginvested capital to the Shareholders in an orderly manner.BlackRock Financial Management, Inc. ("BFM"), a Delaware corporation, is theCompany's Investment Manager and BlackRock (Channel Islands) Limited ("BCI") isthe Manager. BCI is responsible for implementing the Company's investmentpolicies and objectives as set forth by the Board of Directors. BlackRockAlternative Advisors ("BAA"), a business unit within BFM, is responsible forthe Company's investment management decisions, including identifying,evaluating, and monitoring independent investment managers, as well asdetermining the allocation of the Company's assets among these managers. BFM isregistered as an investment advisor with the United States Securities andExchange Commission and as a commodity pool operator with the United StatesCommodity Futures Trading Commission. Note 9 gives further details oftransactions with these related parties.

2. Significant accounting policies

The accompanying financial statements have been prepared on a going concernbasis in accordance with accounting principles generally accepted in the UnitedStates of America ("US GAAP"), as discussed in the Statement of Directors'Responsibilities. The financial statements reflect the following significantaccounting policies:Cash and cash equivalents

Cash and cash equivalents include investments with an original maturity of three months or less. Cash and cash equivalents include all cash which is not under the direction of any independent investment manager. All cash is held with the Sub-Administrator, (Note 8), as custodian of the Company.

Private investment funds

The Company's investments in private investment funds, valued at US$42,376,512(31 December 2010: US$180,218,133) (22.41% (31 December 2010: 90.21%) of netassets), are stated at fair value, which has been estimated by BAA in theabsence of readily ascertainable market values. These fair values are basedprimarily on the net asset value and other financial information provided bythe management of each underlying private investment fund and are reflected netof any accrued management and incentive fees due to underlying managers asrequired by each private investment fund's respective operating agreement.Private investment fund net asset values are generally provided monthly but mayalso be provided quarterly.The underlying investments of each private investment fund are accounted for atfair value as described in the private investment fund's financial statements.The fair value of certain investments may be estimated by underlying managersin the absence of observable market data. Due to the inherent uncertainty ofthese estimates, these values may differ from the values that would have beenused had a ready market for these investments existed and the differences couldbe material. In addition, the calculated fair value of certain investments,including restricted or illiquid securities, may differ from the values thatwould have been used had a ready market existed. Due to the nature of theseinstruments, an active resale market may not be readily available and pricesobtained on the date of sale may be materially different than the valuerecorded by the private investment funds.If the reported net asset value of a private investment fund is not availableor BAA determines, based on its own due diligence and investment monitoringprocedures, that the reported net asset value of any private investment fund isnot representative of fair value, and the difference between fair value and thereported value is material, BAA shall estimate the fair value of the privateinvestment funds in good faith. For the years ending 31 December 2011 and 2010,no such fair value adjustments were recorded.Investment transactions are accounted for on a trade date basis. Realised gainsand losses on investment transactions are determined using average cost. Gainsand losses from investments in private investment funds, which are net of allfees and allocations to the investment advisors of the funds, are reflected asa net gain or (loss) on investments in the statement of operations.

Fair value of financial instruments

The fair value of the Company's assets and liabilities which qualify as financial instruments under Accounting Standards Codification ("ASC") 825 Financial Instruments, approximates the carrying amounts presented in the statement of assets and liabilities.

Forward foreign currency exchange contracts

The Company enters into forward foreign currency exchange contracts for thepurchase or sale of a specific foreign currency at a fixed price on a futuredate for hedging purposes. Risks may arise upon entering into these contractsfrom the potential inability of the counterparty to meet the terms of thecontracts. The gain or loss arising on the foreign currency exchange contractsis recorded for financial statement purposes as unrealised until the contractsettlement date. Upon maturity or early settlement of the contracts, anyapplicable gain or loss is recorded as realised for financial statementpurposes.

Foreign currency translation

The Company's reporting currency is United States dollars. Assets andliabilities originating in non-United States dollar denominated currencies aretranslated into United States dollars at the appropriate rates of exchange ineffect at the date of the financial statements. Income and expense transactionsoriginated in non-United States dollar denominated currencies have beentranslated into United States dollars at the prevailing exchange rates on thedate of the transaction.The Company does not isolate that portion of the operating results arising fromchanges in foreign currency exchange rates from the results arising fromchanges in market prices of investments held. Such fluctuations are includedwithin the net gains or losses on investments in the statement of operations.

Use of estimates

The preparation of financial statements in accordance with US GAAP requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesas of the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.

Going concern

The Directors are satisfied that the Company has adequate resources to continuein operational existence for the foreseeable future and is financially sound.For this reason, they continue to adopt the going concern basis in preparingthe financial statements. The Company is able to meet all of its liabilitiesfrom its assets and the ongoing expenses are approximately 1.9% (2010: 2.0%) ofthe net assets.Following the approval by Shareholders of the managed wind-down of the Companyon 25 August 2011 the Company will be managed with the intention of realisingall remaining assets in the portfolio.

New accounting pronouncements

In January 2010, the Financial Accounting Standards Board (the "FASB") issuedAccounting Standards Update ("ASU") No. 2010-06, Fair Value Measurement (Topic820) - Improving Disclosures about Fair Value Measurements. Certain provisionsof this update were effective for fiscal years beginning after 15 December2009. Certain other amended disclosures, including disclosures about purchases,sales, issuances, and settlements in the roll forward of activity in level 3fair value measurements, are effective for fiscal years beginning after 15December 2010. As the guidance is limited to enhanced disclosures, the adoptiondid not have a material impact on the financial statements of the Company.In May 2011, the FASB issued ASU No. 2011-04, Fair Value Measurement (Topic820) - Amendments to Achieve Common Fair Value Measurement and DisclosureRequirements in U.S. GAAP and IFRSs. The update changes the wording used todescribe many of the requirements in U.S. GAAP for measuring fair value and fordisclosing information about fair value measurements. Amongst other changes,the update requires reporting entities to disclose a description of thevaluation processes used and certain quantitative information about thesignificant unobservable inputs used for level 3 fair value measurements. Theupdate is effective for fiscal years beginning after 15 December 2011.Management is currently evaluating the impact of the adoption on the Company'sfinancial statements and disclosures, if any.

Income taxes

The Company determines whether a tax position of the Company is more likelythan not to be sustained upon examination by the applicable taxing authority,including resolution of any related appeals or litigation processes, based onthe technical merits of the position. The tax impact to be recognised ismeasured as the largest amount that is greater than 50% likely of beingrealised upon ultimate settlement which could result in the Company recording atax liability that would reduce net assets. The Company invested directly andindirectly in various jurisdictions and is therefore subject to varyingpolicies and statutory time limitations with respect to examination of taxpositions. The Company has reviewed its tax positions and believes it is morelikely than not that they will be sustained upon examination.

3. Investments

As at 31 December 2011, the Company held investments in private investmentfunds with a total fair value of US$42,376,512 (31 December 2010:US$180,218,133) (22.41% (31 December 2010: 90.21%) of net assets). Noinvestments in private investment funds held by the Company exceeded 5% of theCompany's net assets at 31 December 2011 and 31 December 2010. The Company isnot able to obtain complete investment holding details on each of the privateinvestment funds held within the Company's portfolio in order to determinewhether the Company's proportional share of any investments held by the privateinvestment fund exceeds 5% of the net assets of the Company as at 31 December2011 and 31 December 2010.

Geographical allocation, on a look through basis, as a percentage of the Company's net assets at 31 December 2011 comprised 13.4% (2010: 54.2%) allocated to North America, 5.5% (2010: 18.9%) to Western Europe, 2.1% (2010: 9.1%) to Emerging Markets, and 1.4% (2010: 7.9%) to Developed Asia.

The agreements related to investments in private investment funds provide forcompensation to the investment managers or general partners in the form ofmanagement fees generally ranging from 0% to 2% per annum of net assets orpartners' capital and incentive fees or allocations generally ranging from 0%to 20% of net profits earned. The private investment funds' management fees andincentive fees or allocations are reflected in the increase in net assets inthe statement of operations.ASC 820, Fair Value Measurement ("ASC 820"), provides a framework for measuringfair value and requires specific disclosures about financial instruments. ASC820 permits the Company, as a practical expedient, to estimate the fair valueof a private investment fund based on the net asset value per share or itsequivalent if the net asset value of the private investment fund is calculatedin a manner consistent with the measurement principles of ASC 946, FinancialServices - Investment Companies. The Company uses the practical expedient toestimate fair value of all private investment funds. In addition, ASC 820includes a hierarchy that classifies inputs employed to determine fair value.Investments measured and reported at fair value are classified and disclosed inone of the following categories:

Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

Level 2 Quoted prices in markets that are not considered to be active foridentical assets or liabilities, quoted prices in active or inactive marketsfor similar assets or liabilities and inputs other than quoted prices that aredirectly observable or indirectly through corroboration with observable marketdata. If a reporting entity has the ability to redeem its investment with theprivate investment fund at the net asset value per share (or its equivalent) atthe measurement date or within the near term and there are no other liquidityrestrictions, the Company's investment in the private investment fund shall becategorised as level 2;Level 3 Inputs that are both significant to the fair value measurement andunobservable, including investment specific inputs that are not derived frommarket data and inputs that cannot be corroborated by market data. Thedetermination of fair value for investments included in the level 3 categoryrequires considerable subjectivity and estimation. Investments in privateinvestment funds that are currently subject to liquidity restrictions that willnot be lifted in the near term shall be categorised as level 3.The Company's investments in private investment companies not otherwise tradedon a securities exchange are classified within level 2 or level 3 of the fairvalue hierarchy as the value of these interests are primarily based on therespective net asset value reported by management of each private investmentCompany rather than actual market transactions and other observable marketdata. The determination of whether such investment will be classified in level2 or level 3 is assessed at the partnership or class level and based upon theability to redeem such investment within a reasonable period of time (within 90days of the period end and any other month-end). If an investment in a privateinvestment Company may be redeemed within 90 days of the period end and anyother month-end and the fair value of the investment is based on informationprovided by management of the underlying Company, it is classified as level 2;in all other cases it will be classified as level 3. The Company's investmentsin foreign currency contracts are classified within level 2 of the fair valuehierarchy because they are valued using directly observable foreign currencyspot rates and forward foreign currency rates.

The following table summarises the valuation of the Company's investments under the ASC 820 fair value hierarchy as at 31 December 2011:

Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Assets Investments in private investment funds* Relative Value (a) - - 15,154,070 15,154,070 Fundamental Long/ Short (b) - 605,320 12,056,248 12,661,568 Event Driven (c) - 2,210,840 10,121,264 12,332,104 Direct Sourcing (d) - - 2,228,770 2,228,770 Total investments in private investment funds - 2,816,160 39,560,352 42,376,512 Derivatives Forward foreign currency exchange contracts - 684,253 - 684,253 ---------- ---------- ---------- ---------- - 3,500,413 39,560,352 43,060,765 ========== ========== ========== ========== * In determining the classification of investments in private investment fundsincluded in the tables above, no consideration was given to the classificationof securities held by each underlying private investment fund.

(a), (b), (c) and (d), see footnotes at the end of Note 3.

The following table summarises the valuation of the Company's investments under the ASC 820 fair value hierarchy as at 31 December 2010:

Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Assets Investments in private investment funds* Relative Value (a) - 32,534,900 43,108,852 75,643,752 Fundamental Long/ Short (b) - 32,944,228 12,796,093 45,740,321 Event Driven (c) - 25,721,822 27,868,742 53,590,564 Direct Sourcing (d) - - 5,243,496 5,243,496 Total investments in private investment funds - 91,200,950 89,017,183 180,218,133 Derivatives Forward foreign currency exchange contracts - 2,904,682 - 2,904,682 ---------- ---------- ---------- ----------- - 94,105,632 89,017,183 183,122,815 ========== ========== ========== =========== * In determining the classification of investments in private investment fundsincluded in the tables above, no consideration was given to the classificationof securities held by each underlying private investment fund.

(a), (b), (c) and (d), see footnotes at the end of Note 3.

A reconciliation of level 3 investments is presented when the Company had a significant amount of level 3 investments at the beginning and/or end of the year in relation to net assets.

The 2011 changes in investments measured at fair value using level 3 inputs arereflected below: Relative Fundamental Value Long/ Event Direct (a) Short (b) Driven (c) Sourcing (d) Total US$ US$ US$ US$ US$ Balance, 1 January 2011 43,108,852 12,796,093 27,868,742 5,243,496 89,017,183 Strategy reclassification (3,574,827) 4,222,560 - (647,733) - Purchases 10,420,437 1,418,579 1,700,000 - 13,539,016 Sales (41,601,651) (6,219,669) (17,992,970) (2,695,526) (68,509,816) Realised and unrealised gain (loss), net 3,099,047 (161,315) (1,454,508) 328,533 1,811,757 Transfers into level 3** 3,702,212 - - - 3,702,212 Transfers out of level 3 - - - - - ---------- ---------- ---------- --------- ---------- Balance, 31 December 2011 15,154,070 12,056,248 10,121,264 2,228,770 39,560,352 ========== ========== ========== ========= ========== Changes in unrealised gain (loss) related to the Company's level 3 investments held at 31 December 2011 1,909,446 639,266 (239,364) 198,734 2,508,082 ========== ========== ========== ========= ==========

** Transfers into level 3 were due to enaction of investor level gates during the year ended 31 December 2011.

The Company recognised transfers in and out of level 3 above at 1 January 2011.Realised and unrealised gains (losses) recorded for level 3 investments arereported as net realised gain on investments in private investment funds andnet unrealised gain (loss) on investments in private investment funds,respectively, in the statement of operations. The 2010 changes in investments measured at fair value using level 3 inputs arereflected below: Relative Fundamental Value Long/ Event Direct (a) Short (b) Driven (c) Sourcing (d) Total US$ US$ US$ US$ US$ Balance, 1 January 2010 56,713,288 41,696,546 30,608,179 8,989,858 138,007,871 Purchases (sales), net (14,545,299) (6,574,715) (6,089,385) (4,291,979) (31,501,378) Realised and unrealised gain (loss), net 5,240,599 402,827 3,349,948 545,617 9,538,991 Transfers into level 3 - - - - - Transfers out of level 3** (4,299,736) (22,728,565) - - (27,028,301) ---------- ---------- ---------- --------- ---------- Balance, 31 December 2010 43,108,852 12,796,093 27,868,742 5,243,496 89,017,183 ========== ========== ========== ========= ========== Changes in unrealised gain (loss) related to the Company's level 3 investments held at 31 December 2010 6,697,117 2,080,420 2,656,984 (238,384) 11,196,137 ========== ========== ========== ========= ==========

** Transfers out of level 3 were due to the expiration of fund level gates and lock-up periods during the year ended 31 December 2010.

The Company recognised transfers in and out of level 3 above at 1 January 2010.Realised and unrealised gains (losses) recorded for level 3 investments arereported as net realised gain on investments in private investment funds andnet unrealised gain (loss) on investments in private investment funds,respectively, in the statement of operations.ASC 820 requires additional disclosure to assist in understanding the natureand risk of the investments by class. The below table summarises the fair valueand other pertinent liquidity information of the underlying investments byclass as at 31 December 2011: Redemption Fair Illiquid Redemption Notice Value investments(1) Gates(2) Lock-ups(3) Frequency(4) Period(4) Major Class US$ US$ US$ US$ US$ US$ Relative 45 - 65 Value (a) 15,154,070 2,278,078 13,894,096 - Quarterly days Fundamental Long/Short Quarterly, 45 - 90 (b) 12,661,568 3,341,094 2,981,317 - Annually days Event Monthly, 60 - 90 Driven (c) 12,332,104 2,697,376 2,443,975 4,384,445 Quarterly days Direct Sourcing (d) 2,228,770 2,228,770 - - - - ---------- ---------- ---------- --------- Total 42,376,512 10,545,318 19,319,388 4,384,445 ========== ========== ========== =========

1. Represents private investment funds that cannot be voluntarily redeemed bythe Company at any time. This includes: (i) private investment funds that areliquidating and making distribution payments as their underlying assets aresold, (ii) private investment funds that have suspended redemptions/withdrawals, and (iii) side pocket holdings. These types of investments may berealised within 1 to 3 years from 31 December 2011, depending on the specificinvestment and market conditions. This does not include private investmentfunds with gates and lock-ups, which are noted above.2. Represents investor level and enacted fund level gates. The gates have beenin place for 27 to 30 months, and the time at which these restrictions will belifted cannot be estimated.

3. Represents investments that cannot be redeemed without a fee due to a lock-up provision. The lock-up period for these investments was 12 months at 31 December 2011.

4. Redemption frequency and redemption notice period reflect general redemption terms, and exclude liquidity restrictions noted above.

Private investment funds that have an investor level gate and are still in the lock-up period are represented in both (2) and (3) in the above table.

(a), (b), (c) and (d), see footnotes at the end of Note 3.

The below table summarises the fair value and other pertinent liquidity information of the underlying investments by class as at 31 December 2010:

Redemption Fair Illiquid Redemption Notice Value investments(1) Gates(2) Lock-ups(3) Frequency(4) Period(4) Major Class US$ US$ US$ US$ US$ US$ Relative Monthly, 30 - 90 Value (a) 75,643,752 7,006,484 34,140,923 - Quarterly days Fundamental Long/Short Quarterly, 45 - 90 (b) 45,740,321 3,562,373 4,997,484 3,025,099 Annually days Monthly, Quarterly, Event Annually, 30 - 150 Driven (c) 53,590,564 4,004,158 6,155,152 11,835,893 Bi-Annually days Direct Sourcing (d) 5,243,496 3,963,270 - - Annually 90 days ----------- ---------- ---------- ---------- Total 180,218,133 18,536,285 45,293,559 14,860,992 =========== ========== ========== ==========

1. Represents private investment funds that cannot be voluntarily redeemed bythe Company at any time. This includes: (i) private investment funds that areliquidating and making distribution payments as their underlying assets aresold, (ii) private investment funds that have suspended redemptions/withdrawals, and (iii) side pocket holdings. These types of investments may berealised within 1 to 3 years from 31 December 2010, depending on the specificinvestment and market conditions. This does not include private investmentfunds with gates and lockups, which are noted above.2. Represents investor level and enacted fund level gates. The gates have beenin place for 15 to 18 months, and the time at which these restrictions will belifted cannot be estimated.

3. Represents investments that cannot be redeemed without a fee due to a lock-up provision. The lock-up period for these investments ranged from 6 to 24 months at 31 December 2010.

4. Redemption frequency and redemption notice period reflect general redemption terms, and exclude liquidity restrictions noted above.

Private investment funds that have an investor level gate and are still in the lock-up period are represented in both (2) and (3) in the above table.

(a) Investment strategies within this class seek to profit from the mispricingof related financial instruments. This discipline utilises quantitative andqualitative analysis to identify securities or spreads between securities thatdeviate from their theoretical fair value and/or historical returns. The fairvalues of the investments in this class have been estimated using the net assetvalues provided by management of the private investment funds.

(b) Investment strategies within this class involve buying and/or selling a security or financial instrument believed to be significantly under-or-over-priced by the market in relation to its potential value. The fair values of the investments in this class have been estimated based on the net asset values provided by management of the private investment funds.

(c) Investment strategies within this class concentrate on companies that are,or may be, subject to extraordinary corporate events such as restructurings,takeovers, mergers, liquidations, bankruptcies or other corporate events. Thefair values of the investments in this class have been estimated based on thenet asset values provided by management of the private investment funds.(d) Investment strategies within this class seek to profit from the increasingdisintermediation of the financial services sector by entering into directtransactions with corporations, other institutions or individuals. The fairvalues of the investments in this class have been estimated using the net assetvalues provided by management of the private investment funds.

4. Financial instruments with off-balance sheet risk

The Company's investments in private investment funds also involve varyingdegrees of interest rate risk, credit and counterparty risk, and market,industry or geographic concentration risks for the Company. While BAA monitorsthese risks, the varying degrees of transparency into and potential liquidityof the securities in the private investment funds may hinder BAA's ability tomanage and mitigate these risks.

Market risk

The Company holds certain derivative instruments (see Note 5) that involve varying degrees of off-balance sheet market risk, and changes in the market values of the financial instruments underlying such derivative instruments frequently result in changes in the Company's unrealised gains or (losses) on such derivative instruments as reflected in the statement of operations. Off-balance sheet market risk exists when the maximum potential loss on a particular financial instrument is greater than the carrying value of such financial instrument.

The private investment funds in which the Company is invested utilise a widevariety of financial instruments in their trading strategies includingover-the-counter ("OTC") options, futures, forward and swap agreements andsecurities sold but not yet purchased. Several of these financial instrumentscontain varying degrees of off-balance sheet risk where the maximum potentialloss on a particular financial instrument may be in excess of the amountsrecorded on each private investment fund's balance sheet. The privateinvestment funds are required to account for all investment on a fair valuebasis and recognise changes in unrealised gains and losses in their statementsof operations. In determining the fair values for these instruments, theprivate investment funds will make estimates about future interest rates,default probabilities, volatilities and other pricing factors. These estimatesof fair value could differ from actual results. The Company's maximum exposureto market risks of the private investment funds is limited to amounts includedin the Company's investments in private investment funds recorded as assets inthe statement of assets and liabilities.

The Company's exposure to market risk is influenced by a number of factors, including the relationships among the derivative instruments held by the Company as well as the volatility and liquidity in the markets in which the derivative instruments are traded.

Credit and counterparty risk

The credit and counterparty risk associated with derivative instruments arises from possible counterparty non-performance and is limited to the derivative instruments in a gain position.

The Company is indirectly subject to certain credit risks arising from theinvestments made by the private investment funds. Credit risk is the amount ofaccounting loss that the private investment funds would incur if a counterpartyfailed to perform its obligations under contractual terms. The Company is alsosubject to the credit and counterparty risk that the private investment fundsfail to perform under their respective agreements.The Company may be directly subject to credit risks arising from OTC derivativefinancial instrument transactions. The Company's direct exposure to credit andcounterparty risk at any point in time is limited to amounts included in theCompany's unrealised gain on derivative financial instruments recorded asassets or liabilities on the statement of assets and liabilities. The Companyenters into OTC derivative financial instruments transactions only with majorcommercial and investment banks in an effort to limit its OTC risk.

Liquidity risk

The private investment funds invest in securities and investments with variousdegrees of liquidity and as such the Company is subject to certain redemption/withdrawal provisions, in accordance with the private investment funds'offering agreements.Certain of the Company's private investment funds have the ability to suspendredemptions and restrict redemptions through the creation of side pockets. At31 December 2011, 1.59% (31 December 2010: 1.74%) of the Company's net assets,excluding investments in private investment funds subject to gates andlock-ups, were subject to private investment funds that had suspendedredemptions (including those private investment funds undergoing liquidation);and 3.99% (31 December 2010: 7.53%) of the Company's net assets were investeddirectly in side pockets maintained by private investment funds. The Company'sability to liquidate its investment in a private investment fund that hasimposed such provisions may be adversely impacted. In such cases, until theCompany is permitted to liquidate its interest in a private investment fund,the Company's residual interest remains subject to continued exposure tochanges in valuations.The Company may also invest in closed-end investments that may not permitredemptions or in private investment funds that impose an initial "lock-up"period before a redemption/withdrawal can be made. In addition, certain of theCompany's private investment funds have the ability to impose redemption gates,and in so doing, may reduce the Company's requested redemption below therequested amount.

5. Derivative financial instruments

ASC 815, Derivatives and Hedging, is intended to improve financial reportingabout derivative instruments and hedging activities by requiring enhanceddisclosures to enable investors to better understand how those instruments andactivities are accounted for, how and why they are used, and their effects onan entity's financial position, financial performance, and cash flows.The Company enters into forward foreign currency exchange contracts for thepurchase or sale of a specific foreign currency at a fixed price on a futuredate. Such contracts have been entered into for the purpose of hedging theCompany's share classes denominated in currencies other than United Statesdollars (Note 6). Gains and losses on forward foreign currency exchangecontracts exclusive to participating share classes denominated in currenciesother than United States dollars are specifically allocated to the respectiveparticipating share class. The contractual amounts of these instrumentsrepresent the exposure the Company has to the respective currencies associatedwith these financial instruments. The measurement of the risks associated withforward foreign currency exchange contracts is meaningful only when all relatedand offsetting transactions are considered.

The following table summarises the fair value of the Company's derivative instruments and the location on the statement of assets and liabilities:

2011 Asset derivatives Liability derivatives Fair Fair value Derivatives Location value US$ Location US$ Foreign Unrealised gain on Unrealised loss on currency foreign exchange foreign exchange contracts contracts 684,253 contracts - ========= ==== 2010 Asset derivatives Liability derivatives Fair Fair value

Derivatives Location value US$ Location

US$ Foreign Unrealised gain on Unrealised loss on currency foreign exchange foreign exchange contracts contracts 2,904,682 contracts - ========= ==== The following table presents the effect of derivative instruments on theCompany's financial performance and the location on the statement ofoperations:2011 Gain (loss) on derivativesDerivatives Location US$ Foreign currency contracts Net realised gain on foreign exchange contracts 1,353,097 Foreign currency Net change in unrealised gain (loss) on foreigncontracts exchange contracts

(2,220,429) =========== 2010 Gain (loss) on derivativesDerivatives Location US$ Foreign currency contracts Net realised loss on foreign exchange contracts (10,047,428) Foreign currency Net change in unrealised gain (loss) on foreign contracts exchange contracts 2,623,820 =========== The obligations under these financial instruments as at 31 December 2011 wereas follows: Settlement Contract Contract Currency date to deliver to receive Fair value € 27 January 2012 US$14,918,112 €11,520,000 US$15,122 £ 27 January 2012 US$103,943,199 £67,290,000 US$669,131 =============== ============== =========== ===========The obligations under these financial instruments as at 31 December 2010 wereas follows: Settlement Contract Contract Currency date to deliver to receive Fair value € 31 March 2011 US$22,389,108 €17,120,000 US$522,422 £ 31 March 2011 US$149,147,972 £97,130,000 US$2,382,260 ============= =============== ============ =============

It is the Company's practice to enter into a forward foreign currency exchange contract for each foreign currency share class for a duration of one month.

The Company's unrealised gain/(loss) relating to forward foreign currencyexchange contract obligations at 31 December 2010 was US$2,904,682, resultingin a net change in unrealised gain/(loss) of US$(2,220,429) for the year ended31 December 2011. The outstanding financial instruments have certain marginprovisions that call for cash payments to the contract counterparties to theextent that the unrealised loss is in excess of certain amounts. Amounts owed,if any, to the counterparty related to these financial instruments are securedby pledging the assets held by the Company, which are attributable toshareholders in classes denominated in currencies other than United Statesdollars.

At 31 December 2011 and 2010, all open forward foreign currency exchange contracts are with a single counterparty.

6. Share capital, voting rights, share conversion and redemption

Authorised:100 Management SharesUnlimited Shares of any class Treasury Shares in Shares Total Shares in Treasury Total issue at at Shares at issue at Shares at Shares at 31 31 31 31 31 31 December December December December December December 2011 2011 2011 2010 2010 2010 Management Shares 2 - 2 2 - 2 US Dollar denominated Shares 1,727,243 - 1,727,243 2,339,560 165,505 2,505,065 Euro denominated Shares 1,665,646 - 1,665,646 1,752,235 164,178 1,916,413 Sterling denominated Shares 9,702,237 - 9,702,237 9,899,621 1,146,795 11,046,416 ========= ====== ========= ========= ========= ==========

Shareholders have the right to receive notice of and to attend and vote at general meetings of the Company.

Management Shares carry no right to distribution of profits, or except when there are no Shares in issue, to receive notice of or vote at general meetingsof the Company.

It is not the intention of the Company to pay dividends, however the Directors have the option to declare a dividend, if deemed appropriate.

Conversion

The Board announced on 21 November 2011 that with immediate effect it hadresolved to suspend the Company's share conversion facility. Previously thisfacility had operated in March, June, September and December of each year.Shareholders could convert Shares of any class into Shares of any other class,by giving not less than 10 business days' notice to the Company in advance ofeach such currency conversion calculation date.

The following table shows the shares converted and issued as a result of the currency conversion calculation dates during the year:

Date of Currency Number of Shares issue conversion converted of new Number of Shares issued Calculation date US$ € £ Shares US$ € £

31 December 2010 30,964 - - 28 January 2011

- - 20,369

31 March 2011 1,518,389 54,467 - 28 April 2011 12,155 62,112 957,414

30 June 2011 - - - n/a - - - 30 September 2011 - 6,623 679,436 28 October 2011 1,041,857 - - ======== ====== ======= ========= ====== =======

The net asset value per share for each share class was unchanged by the conversion process on each occasion.

Redemption

Since the year end, in accordance with the powers granted to the Board at theCompany's Extraordinary General Meeting held in August 2011, the Companyannounced on 21 November 2011 that it intended to implement the firstdistribution to shareholders of the cash proceeds from the realisation of theCompany's investments in mid-February 2012 by way of a compulsory shareredemption. At the close of business on 10 February 2012, the Redemption Date,73.5% of the Company's issued share capital was redeemed. The payments made toshareholders and the number of shares of each share class redeemed were as

follows: Number of shares Resulting share Amount per share redeemed capital paidUS Dollar denominated Shares 1,269,514 457,729 $10.1927 Euro denominated Shares 1,224,241 441,405 €9.9256 Sterling denominated Shares 7,131,108 2,571,129 £9.9465 ========= ========= ========

At the close of business on 9 March 2012 the remaining 457,729 US Dollar denominated Shares and the 441,405 Euro denominated Shares were converted into the Sterling share class.

The current issued share capital is 3,234,654 Sterling denominated Shares.

US Dollar denominated Shares 2011 2010 Number of Number of Shares Shares

In issue beginning of year (excluding treasury

shares) 2,339,560 2,330,129 Converted out during the year (1,549,353) (1,731,923)

Repurchased and placed in treasury during the

year (116,976) (165,505) Converted in during the year 1,054,012 1,906,859 --------- ---------In issue end of year 1,727,243 2,339,560 ========= ========= 116,976 US Dollar denominated shares were repurchased and placed in treasury on4 March 2011 as a result of the second reverse auction tender offer in respectof 5.0% of the Company's issued share capital on 13 December 2010, excludingtreasury shares. On 20 July 2011, 282,481 US Dollar denominated shares held intreasury were cancelled.

At the close of business on 10 February 2012, the Redemption Date, 1,269,514 US Dollar denominated Shares were redeemed.

On 9 March 2012, the remaining 457,729 US Dollar denominated Shares were converted into 296,763 Sterling denominated shares. At the date of this report there are no US Dollar denominated Shares in issue or held in treasury.

Euro denominated Shares 2011 2010 Number of Number of Shares Shares

In issue beginning of year (excluding treasury

shares) 1,752,235 2,308,345 Converted out during the year (61,090) (515,806) Repurchased and placed in treasury during the year (87,611) (164,178) Converted in during the year 62,112 123,874 --------- ---------In issue end of year 1,665,646 1,752,235 ========= =========

The 87,611 Euro denominated Shares were repurchased and placed in treasury on 4 March 2011 as a result of the second reverse auction tender offer in respect of5.0% of the Company's issued share capital on 13 December 2010, excludingtreasury shares. On 20 July 2011, 251,789 Euro denominated Shares held intreasury were cancelled.

At the close of business on 10 February 2012, the Redemption Date, 1,224,241 Euro denominated Shares were redeemed.

On 9 March 2012, the remaining 441,405 Euro denominated Shares were convertedinto 366,762 Sterling denominated shares. At the date of this report there areno Euro denominated Shares in issue or held in treasury.Sterling denominated Shares 2011 2010 Number of Number of Shares Shares

In issue beginning of year (excluding treasury

shares) 9,899,621 10,489,294 Repurchased and placed in treasury during the year (495,731) (816,045) Converted out during the year (679,436) (1,115,340) Converted in during the year 977,783 1,341,712 --------- ---------In issue end of year 9,702,237 9,899,621 ========= =========

The 495,731 Sterling denominated Shares were repurchased and placed in treasury on 4 March 2011 as a result of the second reverse auction tender offer in respect of 5.0% of the Company's issued share capital on 13 December 2010, excluding treasury shares. On 20 July 2011, 1,642,526 Sterling denominated Shares held in treasury were cancelled.

At the close of business on 10 February 2012, the Redemption Date, 7,131,108 Sterling denominated Shares were redeemed.

On 9 March 2012, 663,525 Sterling denominated Shares were issued due to the conversion of 457,729 US Dollar denominated Shares and 441,405 Euro denominated Shares. At the date of this report there are 3,234,654 Sterling denominated Shares in issue. No Sterling denominated Shares are held in treasury.

Voting rights 31 December 2011 2010 2011 2011 2010 2010 Voting Voting Shares Voting Shares Voting Rights Rights in issue Rights in issue Rights Management Shares - - 2 - 2 - US Dollar denominated Shares 1 1 1,727,243 1,727,243 2,339,560 2,339,560 Euro denominated Shares 1.3 1.4 1,665,646 2,165,339 1,752,235 2,453,129 Sterling denominated Shares* 1.5 1.6 9,702,237 14,553,355 9,899,621 15,839,394 ---------- ----------Total 18,445,937 20,632,083 ========== ==========* Excluding treasury shares With effect from 1 January 2012, the voting rights of both the Euro andSterling denominated Shares were re-calculated in accordance with theprovisions of the Articles of Association of the Company. The voting rights ofthe Sterling denominated Shares remained unchanged at 1.5 per share and thevoting rights of the Euro denominated Shares remained unchanged at 1.3 votesper share.The US Dollar denominated Shares and the Euro denominated Shares were convertedinto Sterling Shares on 9 March 2012. Each Sterling denominated Share has onevoting right.

At the date of this report the total share voting rights were 3,234,654.

7. Management and performance fees

The Company has entered into a Management Agreement with BCI to provide certaininvestment management services to the Company. Under this agreement, BCI earnsa quarterly investment management fee equal to one quarter of 1.5% of the NAVand an annual performance fee equal to 10% of the amount, if any, by which theNAV at the end of a calculation period exceeds the higher of (i) the NAV at thedate of Admission and (ii) the NAV at the end of any previous calculationperiod. As provided in the registration document, the amount of fees paid toBCI is determined based on the net assets and the performance of the Companyfor the respective calculation period. Following the approval by Shareholdersof the managed wind-down of the Company on 25 August 2011, management fees arenot incurred on cash balances. Management and performance fees are calculatedprior to any adjustments to the NAV of the relevant share class for therelevant calculation period related to the profits, losses and expenses of anycurrency hedging undertaken by the Company. For the years ended 31 December2011 and 2010, the management fees under this agreement were: Year ended Year ended 31 December 31 December 2011 2010Share class US$ US$ US Dollar denominated Shares 177,100 320,609 Euro denominated Shares 307,072 379,341 Sterling denominated Shares 2,109,124 2,212,131 --------- --------- 2,593,296 2,912,081 ========= =========For the years ended 31 December 2011 and 2010, the performance fees under thisagreement were: Year ended Year ended 31 December 31 December 2011 2010Share class US$ US$ US Dollar denominated Shares 45,143 40,862 Euro denominated Shares 1,878 45,475 Sterling denominated Shares 26,758 403,624 ------ ------- 73,779 489,961 ====== =======As at 31 December 2011, an amount of US$454,780 (31 December 2010: US$739,004)was payable in respect of the management fee. As at 31 December 2011, an amountof US$73,779 (31 December 2010: US$489,961) was payable in respect of theperformance fee.

8. Administration and custody fees

Under the terms of an Administration Agreement, UBS Fund Services (Cayman) Limited (the "Sub-Administrator") has agreed to perform certain financial, custodial, accounting, administrative and other services. For the year ended 31 December 2011, US$101,340 (2010: US$102,551) was expensed for the Sub-Administrator's services in accordance with the Administration Agreement.

9. Related party transactions

During the years ended 31 December 2011 and 31 December 2010, there wereinvestment transactions with other entities managed by BFM. The considerationpaid and received in connection with each of these transactions was based onthe prevailing net asset value of the investment at the date of thetransaction. None of these transactions had a material impact on theperformance of the Company.The Company may invest in one or more master funds through which the Companyand other funds or accounts managed by BFM or its affiliates may invest for theprimary purpose of consolidating investments by these funds and accounts into asingle investment in one or more private investment funds.

The Directors of the Company consider that all transactions with related parties have been made at values which approximate the values for which such transactions would have been made with third parties.

The Board currently consists of five non-executive Directors. With theexception of Mr Le Feuvre and Mr Ruck Keene, who are BlackRock employees, allare considered to be independent of the Company's Manager and free from anybusiness or other relationship which could interfere materially with theexercise of their independent judgement. Mr Le Feuvre and Mr Ruck Keene, asemployees of BlackRock, are deemed to be interested in the Company's managementagreement. None of the Directors has a service contract with the Company. TheChairman receives an annual fee of £35,000, the Chairman of the Audit andManagement Engagement Committee receives an annual fee of £27,000 and the otherDirector receives an annual fee of £25,000. Mr Le Feuvre and Mr Ruck Keene havewaived the entitlement to their fee.

Two members of the Board hold shares in the Company. Mr Maltby holds 961 Sterling denominated Shares and Mr Ruck Keene 1,325 Sterling denominated shares.

The total remuneration paid to Directors was US$162,928 for the year ended 31 December 2011 (2010: US$170,621). This amount includes fees for Directorsservices, reimbursement for travel and other out-of-pocket expenses relating toattendance at meetings and other matters, including any such expenses relatingto the performance of due diligence for the benefit of the Company.The Company, through a master fund, invested in R3 Capital Partners (C), Ltd.(the "R3 Fund"), a fund vehicle managed by BlackRock. In connection with thisarrangement, the Company's investment advisory fee calculation was modified toexclude the amounts invested in the R3 Fund. The Company fully redeemed fromthe master fund during 2011.10. Line of creditThe Company entered into an Uncommitted Facility Agreement (the "FacilityAgreement") and related Security Agreement with the Sub-Administrator. Advancesunder the Facility Agreement were secured by all of the Company's investmentsin private investment funds. Under the Facility Agreement, the Company waspermitted to borrow at a rate based on the UBS base rate. The FacilityAgreement was terminated on 30 September 2011 as a result of the managedwind-down.The Company had also entered into a Committed Facility Agreement and relatedSecurity Agreement with the Sub-Administrator. Advances under the CommittedFacility Agreement were secured by all of the Company's investments in privateinvestment funds. The amount of the Committed Facility was US$10,000,000. TheCommitted Facility Agreement was subject to renewal on 1 October 2011 and wasnot renewed, as a result of the managed wind-down.

11. Indemnifications

The Company enters into contracts that contain a variety of indemnifications. The Company's maximum exposure under these agreements, if any, is unknown. However, the Company has not had prior claims or losses pursuant to these contracts and expects the risk of loss to be remote.

12. Subsequent events

Management has evaluated subsequent events occurring up to 26 April 2012, thedate that these financial statements were available to be issued, and noted thefollowing:

Subsequent to 31 December 2011, the Company processed redemptions amounting to $139,524,871 (see Note 6 for further details) and terminated the currency hedging program as a result of the managed wind-down.

13.Annual General Meeting

The Annual General Meeting of the Company will be held at 4th Floor, One Waverley Place,Union Street, St Helier, Jersey JE1 0BR on Thursday, 30 June 2011 at 2:30 p.m.

26 April 20124th FloorOne Waverley PlaceUnion StreetSt HelierJerseyJE1 0BR

14. Publication of Non-Statutory Accounts

The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 December 2011 as defined in the Companies (Jersey) Law 1991, but is derived from those accounts. The annual report and financial statements for the year ended 31 December 2011 will be filed with the Jersey Financial Services Commission.

The report of the Auditor for the year ended 31 December 2011 contains noqualification or statement under section 113B(3) or (6) of the Companies(Jersey) Law 1991 (as amended), however it draws attention by way of emphasis of matter in relation to investments in private investment funds valued at US$42,376,512 (22.41% of net assets) as of 31 December 2011, whose fair values have been estimated by management in the absence of readily ascertainable fair values. Management's estimates are based primarily on the net asset value and other financial information provided by management of each underlying private investment fund. Different assumptions will impact the measurement of the investments which may have an effect on the financial statements. It is not

possible to quantify the potential effects of the resolution of this uncertainty.

The comparative figures are extracts from the audited financial statements ofBlackRock Absolute Return Strategies Ltd for the year ended 31 December 2010,which have been filed with the Jersey Financial Services Commission. The reportof the Auditor on those financial statements contained no qualification orstatement under section 113B(3) or (6) of the Companies (Jersey) Law 1991 (asamended). This announcement was approved by the Board of Directors on 26 April 2012.

ENDS

Copies of the annual report and financial statements will be posted toshareholders as soon as practicable. Copies will also be available from theCompany's registered office at 4th Floor, One Waverley Place,Union Street, StHelier, Jersey JE1 0BR, and on the Company's website at www.blackrockinternational.com/bars/Library/Literature. Neither the contents ofthe Investment Manager's website nor the contents of any website accessiblefrom hyperlinks on the Investment Manager's website (or any other website) isincorporated into, or forms part of, this announcement.

For further information, please contact:

Edward Bellew, BlackRock (Channel Islands) Limited, Secretary Tel: 01534 600806

Emma Phillips, Media & Communication, BlackRock Investment Management (UK) Limited Tel: 020 7743 2922

XLON

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