Final Results

20th Apr 2011 14:28

20 April 2011 BLACKROCK ABSOLUTE RETURN STRATEGIES LTD

Final results announcement in respect of the year ended 31 December 2010

Publication of Non-Statutory Accounts

The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 December 2010 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 2010 will be filed with the Jersey Financial Services Commission. The report of the Auditor for the year ended 31 December 2010 contains no qualification and did not contain statements 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$180,218,133 (90.21% of net assets) as of 31 December 2010, 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.This announcement was approved by the Board of Directors on 20 April 2011.

CHAIRMAN'S STATEMENT

I am pleased to present the third annual report to shareholders of BlackRock Absolute Return Strategies Ltd, for the year ended 31 December 2010.

Performance

The net asset value per share ("NAV") and the share price of the Company's Share classes continued to perform well during the year and the Shares are currently trading at higher market valuations than they were a year ago. It is encouraging to note that each NAV has now recovered its launch price.

At 31 December the NAV of the US Dollar Shares, Euro Shares and Sterling Shares had increased by 9.0%, 9.2% and 9.4% over the year, whilst the corresponding share prices rose by 8.6%, 13.3% and 8.9%.

Since the year end the NAV of the US Dollar Shares, the Euro Shares and the Sterling Shares have increased by 2.9%, 2.7% and 2.9% respectively.

Share price discount

During 2010 two reverse auction tender offers were implemented as aconsequence of which stock was bought back through the purchase of shares inSeptember 2010 and March 2011. A total of 12.5% of the Company's issued sharecapital, excluding treasury shares, was repurchased through the reverseauction tenders. Investors should be careful not to place any reliance on suchmechanisms although the Board regularly considers a variety of options at itsdisposal.Despite the strong positive return delivered by the Company's NAV over thelast two years and the reduction in the supply of the Company's Shares throughthe reverse auction tender offer and the on-market share repurchase, the shareprice discount to NAV of each share class has continued to be relatively wide.The Board will continue to explore different ways to address the discount that will benefit all shareholders.

EU Alternative Investment Fund Managers Directive

The EU Alternative Investment Fund Managers Directive (the "Directive") isexpected to be implemented into national EU member states laws by June 2013.Listed investment companies will constitute "alternative investment funds" forthe purposes of the Directive, which will regulate, inter alia, the managementof the Company by the Manager and marketing of the Company's securities toinvestors within the EU.Requirements of the Directive include increased transparency and disclosureobligations for the Company and may, in certain circumstances, includeensuring that the Company has an appropriately authorised institution actingas its "depositary", the requirement to have independent portfolio valuationsand ensuring that any delegate of the Manager is notified to a competentregulatory authority. Whilst certain provisions of the Directive may benefitthe Company (such as the possibility of an increased ability to market theCompany's securities to professional investors throughout the EU from 2015),some of these changes may have material implications for the Company (and allsimilar investment companies) and might materially increase compliance andregulatory costs. Furthermore, service providers of the Company, such ascustodians, may become subject to increased regulatory standards and statutoryliability under the Directive.

AGM

The AGM will be held at 2.30 pm on Thursday, 30 June 2011 at the offices of BlackRock (Channel Islands) Limited, Forum House, Grenville Street, St Helier, Jersey JE1 0BR.

OutlookLooking forward we see a number of governments facing difficult policy choiceswhich will have long term economic and capital market implications.Historically, uncertainty has been positive for the hedge fund sector as itthrows up significant asset mispricings of which skilled hedge fund managerscan take advantage. We expect a steady flow of opportunities that could bedisproportionately impacted by the fear and uncertainty accompanying suchdifficult policy choices in the year ahead and we believe this prevailingcomplexity could lead to attractive risk adjusted returns in 2011.Colin MaltbyChairman20 April 2011

Principal risks and uncertainties

The key risks faced by the Company are set out below, full details of these risks can be found in the Company’s prospectus dated 4 April 2008.

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 riskprocesses together with an in depth review of strategies and investmentopportunities in the current market environment. The Board monitors andmaintains an adequate spread of investments in order to minimise the risksassociated with particular investment strategies, based on the diversificationrequirements inherent in the Company's investment policy.

Regulatory risk - The Company is exposed to regulatory risk through changes in laws or regulations, including tax laws, or new interpretations or applications of 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 certaingeneral market 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,depend on the effective operation of these systems. These are regularly testedand monitored 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 counterpartyrisk with respect to the brokers, counterparties, clearing houses andexchanges with which they deal. Any default by one of these parties couldresult in material losses to a Fund Investment, and therefore the Company. Theassets of Fund Investments held by brokers or counterparties are generally notheld in segregated accounts, and accordingly, in the event of any such defaulta Fund Investment may only have the rights of a general creditor in the eventany broker or counterparty dissolves or files for bankruptcy. In addition, theinstitutions, including brokerage firms and banks, with which a FundInvestment trades or invests may encounter financial difficulties that impairthe operational 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 ofthe Investment Manager or an External Investment Advisor, intentional orinadvertent deviations from their communicated investment strategy, includingexcessive concentration, directional investing outside pre-defined ranges orin new 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 ofthe External Investment Advisors as described in the Prospectus, it may bedifficult, if not impossible, for the Investment Manager to protect theCompany from the risk of External Investment Advisor fraud, misrepresentationor material strategy alteration. The Investment Manager will have no controlover the 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 varietyof financial risks that inter alia include liquidity risk, credit risk,foreign currency risk and interest rate risk. There are also risks linked tothe Company's use of derivative transactions.

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 consists of five non-executive Directors, all of whom, with theexception of Mr Ruck Keene and Mr Frank Le Feuvre, who are employees of theInvestment Manager, are considered to be independent by the Board. None ofthe Directors has a service contract with the Company. For the year ended 31 December 2010, the Chairman received an annual fee of £35,000, the Chairman of the Audit and Management Engagement Committee received an annual fee of£27,000 and the other independent non-executive Director received an annualfee of £25,000. Mr Ruck Keene and Mr Le Feuvre waived their entitlement totheir fees.

Two members of the Board hold shares in the Company. Mr Maltby holds 4,366 Euro denominated Shares of no par value and Mr Ruck Keene holds 5,000 Sterling denominated Shares of no par value. Mr Smith, Mr Siska and Mr Le Feuvre do not hold any shares in the Company at this time.

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 ofthe business and the position of the Company, together with a description ofthe principal risks and uncertainties that the Company faces.Colin MaltbyChairman20 April 2010INVESTMENT MANAGER'S REPORTMarket Review

Global markets largely continued to move away from their recessionary lows inthe first half of 2010, but rising concerns of a revisited recessionaryenvironment appeared to dampen investor confidence, particularly during thelatter half of the second quarter. Although the global rebound remainstenuous, investors appeared to remain fairly confident through April, butafter 12 months of tightening credit spreads and rising equity prices, marketsexperienced a sharp correction in May and June, with most regional equityindices accumulating double digit losses, and credit-sensitive high yieldnames also taking the brunt of the decline.Despite a broader backdrop characterised by a slow ongoing recovery, pocketsof economic strain continued to give the market reasons to remain vigilant forlarger systemic issues. A cautious focus was concentrated on the EuropeanUnion ("EU"), where several economically weak countries appeared to flirt withpotential defaults of their sovereign debt. A sovereign default within the EUwould likely cast greater doubt on the fiscal integrity of some other membercountries, in turn potentially sending the region back into recession, orworse, possibly developing into a financial panic. After the EU passed atrillion dollar backstop centered on restoring near-term confidence in itsfinancial system and improving austerity efforts in the second quarter of2010, investors appeared to shift somewhat their immediate concerns ofregional deficit levels and imminent financial collapse toward a broaderdebate as to whether deficit reduction measures will send the region back intodeep recession.July marked resolutions to a number of large outstanding issues, helping toput investors a little more at ease. The US passed its financial regulationbill into law, and European banks largely passed stress tests later in themonth, removing some notable sources of uncertainty vexing investors inprevious months. The oil spill in the Gulf of Mexico was also finally cappedduring the month, helping to lift the cloud over the energy sector. In Augustand September, however, investors focused on the strength of the economy,moving markets in a volatile fashion on daily news regarding employment,production and trade. Generally speaking, economic news was perceived as poorin August, as US GDP growth was revised downward, Chinese import growth slowedand the Japanese yen climbed, hurting export activity in those countries.Investors were quick to latch onto positive news in September, rallying onimproved manufacturing data and resolutions from key central banks to step upquantitative easing efforts.The market environment in the fourth quarter of 2010 seemed to have beenlargely dominated by the economic health and actions of global governments.The announcement and implementation of the second round of quantitative easing("QE2") in the United States appeared to have quelled investor uncertainty forthe time being, and contributed to a double digit gain in US equity marketsfor the quarter. Meanwhile, solvency issues surrounding certain Europeannations reared their head again, giving markets pause in November, inparticular. Ireland steered away from potential nearer-term default byaccepting an €85 billion-aid package in the EU in return for austeritymeasures. Sovereign debt downgrades may presage similar scenarios for Portugaland possibly Spain down the road. Elsewhere, the tone of further policy andmonetary tightening in China persisted, while geopolitical concernssurrounding heightened conflict between North and South Korea served as areminder of risks that can emerge outside of economic factors.

Overall, managers continued to navigate the uncertain environment through a strong focus on fundamental valuation amidst the day-to-day volatility, appropriate hedging to maintain lower net exposures and create asymmetric return profiles. As a result, many managers enjoyed strong downside protection during the August downdraft, but, not unexpectedly, lagged broader markets during the periodic rallies.

Strategy Review

Convergence strategies posted gains during the year even as implied volatilitysank steadily lower through the period. First half performance was generallyhelped by improved convertible bond pricing impacted by tightening creditspreads and rising equity prices. However, despite a relatively strong periodfrom January 2010 through April, convertible bond arbitrage gains were offsetin part by the consequences of May's flight-to-safety, including wideningcredit spreads and a decline in market valuations, with average discounts tofundamental value reaching over 2%. Additional selling pressure in the secondquarter of 2010 came from volatile fund flows from long-only and convertiblebond mutual funds, as well as from market makers unwilling to take onsignificantly more inventory. Nonetheless, gains from hedging activity, incomeand gamma trading opportunities helped to blunt losses from May.The trend of a shrinking convertible bond universe continued throughout theyear, with roughly US$54 billion redeemed during 2010, the net decline ofUS$20.1 billion marked the third consecutive year of net redemptions and sixthdecline in the past seven years. The US$66 billion of global new issuancecontinued the decline from US$174 billion in 2007, US$90 billion in 2008 andUS$83 billion in 2009. One bright spot was new issuance from Asia ex-Japan ofUS$12.4 billion for the year. This represents 19% of global issuance, up from9% in 2008 and 10% in 2009, with the potential for further growth iffavourable economic conditions in the region persist. All of the above data issourced from Bank of America Merrill Lynch. Notable new issues during theperiod included a US$5 billion new issue from General Motors in November, anUS$800 million bond from AU Optronics Corporation in October and a US$1.5billion bond from LUKoil in December. The latter offered a favourable tradingopportunity as it was issued at an implied volatility level in the low 20s andtraded up to an implied volatility around 30% over the course of about threeweeks based on strong demand.Secondary markets generally richened for convertible bonds amidst generallyrising equity markets, credit spread tightening and low interest rates. USconvertibles began July at a 2.04% discount to theoretical value and ended theyear at 0.27%, cheap, according to data from Bank of America Merrill Lynch.However, managers generally posted strong gains later in the year, benefitingfrom narrowing credit spreads as well as cash flows into the convertible bonduniverse.Abundant government and central bank activity throughout the year continued tocreate opportunities for certain rates managers, in many cases takingadvantage of policy uncertainty and the natural consequences of a dynamiccredit environment. Developments in Europe proved to be generally profitablefor managers that had positioned for anticipated weakness in regionalsovereigns and were taking advantage of mispricings due to volatile economicindicators. 2010 was also beneficial for certain managers who had establishedpositions focused on systemic risks earlier in the year when protection wasrelatively cheap. For example, one manager generated favourable resultsthrough LIBOR vs OIS spread positions, trading around volatility in intra-bankcredit risk. For another, long-side exposure to short-term US rates alsobenefited as investors bid up safe haven assets in a volatile market.While a topic of debate in the spring focused on the timing and rapidity withwhich the US Federal Reserve (the "Fed") may withdraw quantitative easingprograms and begin to raise interest rates, reality turned a different cornerwith the majority of activity actually centered on the announcement andimplementation of further quantitative easing by Japan in the third quarter,and by the Fed in the fourth quarter. Ultimately, the announcement of QE2 inOctober was broadly anticipated, and foreshadowing by the Fed served to keepsurprises to a minimum. While the US$600 billion headline amount of potentialUS Treasury security purchases through QE2 was generally in line with marketexpectations, the Fed's description of purchases targeting average durationsof between five and six years contributed to select opportunities for managersto trade the yield curve, while the prospect of "low rates for longer"impacted expectations and valuations for mortgage assets. Certain managerstargeted repricing in Treasury futures markets as a result of theannouncement, while others targeted purchases of specific Treasury securitiesin anticipation of purchasing activity by the Fed and securities dealers oncethe QE2 program commenced. Further, differences in monetary policy and actionsacross different governments contributed to divergent yield curve movementsand expectations. This, along with solvency concerns for certain Europeansovereignties, contributed to a number of secondary effects in fixed incomemarkets such as choppiness of swap spreads and demand for flight-to-safetyassets such as US Treasury securities, contributing to trading opportunitiesfor rates based strategies later in the year.Volatility arbitrage manager performance was largely idiosyncratic. Managerswho were positioned net long volatility, or opportunistically traded in thevolatility of volatility (vol-squared), benefited from the increaseduncertainty in May, but either suffered or repositioned their portfolios asvolatility declined over the second half of the year. However, performancefrom managers with less directional exposure to volatility, or with hedgesthat relied on greater differentiation within the equity market, tended to bemuch more dispersed. For example, one manager hedged against an equity marketcorrection by positioning a trade to benefit from a widening spread involatility between small and large capitalisation stocks. However, that spreaddid not materialise as large cap volatility actually outpaced smallcapitalisation volatility, leading to losses for the manager early in May.QE2 also served as another source of opportunity, notably through itspotential impact on currency related volatility. In one manager's view, byusing quantitative easing to reduce systemic risks and promote economicgrowth, the program is effectively serving to dampen equity volatility.However, the manager believes an unintended consequence may be a transfer ofinvestor uncertainty from equity markets to currency markets and has increasedallocations to select volatility trades in longer fixed income rates andcertain currency instruments. The announcement of QE2 also impacted equityoption markets, including flattening skews and causing a shift from put tocall buying activity in the US, creating trading opportunities for optionsfocused managers. Despite muddled overall results, volatility managers arereporting that reduced proprietary desk activity has been a source ofopportunity as the withdrawal of this source of capital increases thefrequency and severity of volatility related dislocations across markets.For risk arbitrage strategies, with accelerating deal activity and favourablemarket conditions, managers focused on risk arbitrage and corporate actionsposted generally favourable returns. Deal volume progressively gained steamthrough the year, starting with US$482.4 billion of deal volume in the firstquarter of 2010 and US$436.7 billion in the second quarter, and ending withUS$608 billion in the third quarter and US$668 billion for the fourth quarter,the highest quarterly total since the US$721.0 billion of activity in thethird quarter of 2008.Early deals were focused on large acqusitions; Oracle/Sun Microsystems,Berkshire Hathaway/Burlington Northern Santa Fe, Kraft Foods/Cadbury andExxonMobil/XTO closed during the first six months, providing a source of gainsfor many managers. Later in the year, deal activity was notably concentratedin energy related industries, including Chevron Corporation's US$4.9 billionbid for Atlas Energy, Inc., a US$5.2 billion proposed management buyout ofEXCO Resources, Inc. and Icahn Enterprises LP's offer for Dynegy, Inc. which,at US$4.7 billion, exceeded the third quarter proposal from Blackstone GroupLP. Finally, some headway was made in the stand off between Alcon, Inc. andNovartis AG in the fourth quarter of 2010 as Alcon accepted a sweetened offerin December for the remaining 23% of outstanding shares that Novartis did notalready own. While the deal is expected to close in the first half of 2011,Alcon's stock posted mixed results in the fourth quarter as investors wereperhaps not satisfied with the final deal terms that value Alcon shares atUS$168, but with payment in a combination of shares and cash, with the latterpotentially subject to a withholding tax for foreign investors. The year endmay also have been notable for deals that did not reach successful conclusionsby year end. Among these, BHP Billiton Limited withdrew its US$40 billionhostile bid for Potash Corp. of Saskatchewan, Inc. in mid-November after theCanadian government voiced its opposition to the deal.Overall, despite mixed outcomes across many of these deals, certain managerswere still able to extract positive results or curtail downside throughopportunistic or risk mitigating trading, such as certain managers exitingPotash in anticipation of the deal breaking down, as well as dynamicpositioning. For example, one manager generated incremental returns in Genzymeby capturing option premiums through a straddle position based on a view thata resolution would not be reached before the year end.For distressed managers, default activity continued to fall throughout theyear. On its face, this appears to impact negatively the future attractivenessof distressed strategies, but we believe this may actually be evidence of abroader supply of opportunities for managers to target. Extraordinary newissuance levels have been accommodated by high yield markets in recent months,in many cases merely buying an extension for troubled companies to reachbetter times. However, in the context of a potentially long and volatileeconomic recovery, we remain sceptical toward the market's long-termgenerosity to companies with unsustainable capital structures and substantialfundamental challenges. According to Moody's, of the 100 distressed exchangesthat took place in 2009, three-quarters are low rated at Caa1 or below, with30% at Caa2 or below, indicating a high risk of near to medium term default.It is our view that a robust future supply of distressed securities is likelya matter of "when," not "if."Despite these low default volumes, distressed managers have identified a broadopportunity set in recent months. First, previous defaults such as GeneralMotors, Visteon, Tribune, Chemtura and AbitibiBowater, in addition to thefinancial names noted above, have been in focus as these companies progress intheir restructurings or liquidations. Post reorganisation situations, such asLyondellBasell, General Growth Properties, Six Flags Entertainment and Dex OneCorporation have also been a source of opportunity as select companies emergefrom bankruptcy protection with meaningfully improved capital structures.Separately, although headline default rates remain low, default rates amongmiddle market borrowers are significantly higher. According to data fromStandard & Poor's LCD, middle market loan default rates are currently around9%, compared to roughly 3% for larger corporations that enjoy greater accessto capital markets. Finally, managers have also been actively involved instressed credits to amend or restructure debt directly as an alternative toentering the bankruptcy process.Given the uncertainty in the macro environment, fundamental long/shortmanagers in aggregate continued to take a more balanced view of the market. Asmarkets richened earlier in the year, many managers took the opportunity toreduce net exposure, increase hedges and position insurance, use cashpositions strategically and look for shorter term or catalyst driven tradingopportunities. For example, one manager generated substantial gains byactively building and reducing long and short positions and hedges amidst theshifting markets, not as part of a broader macroeconomic view, but in reactionto changes in individual fundamental valuations within the portfolio.Similarly, several successful managers took advantage of more recent highvolatility levels and elevated inter-stock correlations, trading appropriatelyas security prices oscillate around their fundamental values.Due to long and short positioning that reduces net exposure, the direct impactof such market rallies is less consequential to the returns of underlyingfunds. However, favourable market conditions can have a positive secondaryimpact, as companies may be more likely to implement measures such as sharebuybacks, dividend increases, strategic acquisitions and capital structurechanges that can be accretive to shareholders. BofA Merrill Lynch GlobalResearch estimates that trailing 12-month share buybacks among companies inthe S&P 500 Index breached 2% of total market capitalisation by the year end,compared to roughly 0.75% earlier in the year. They put forth that this may beattributable in part to the spread between earnings yield and the after taxcost of debt, which has increased markedly in recent quarters from roughly0.5% to 2% prior to 2009 and in excess of 4% at year end, on average, thoughmuch higher (or lower) for individual companies. For example, Coca-ColaEnterprises recently issued US$1.5 billion in bonds at 3% to buy back equitythat featured 10% free cash flow yields.Many managers remain undecided as to the future direction of the broadermarkets, and continue to focus on a fundamental company level view inestablishing their positions, as well as a balance in their long and shortpositioning. Long positions have recently been somewhat biased toward higherquality companies with strong pricing power, healthy balance sheets andmulti-national revenue streams, such as oil servicers, payment processors andbroadband tower operators. Short selling has been focused on companies withtroubled operations, weak balance sheets and poor competitiveness in theirrespective sector. While performance in the short book was often frustrating,managers that held to their short-side convictions were rewarded mid-year, asdouble digit broad market losses and a number of global headline eventsrewarded defensive positioning and select hedging.Positive performance for fundamental long/short credit strategies followed asimilar pattern to that of long/short equity. High yield credit spreadsfinished the year at roughly 400 bps, their narrowest level since late 2007.Leveraged loans also closed out a strong year, with the 9.7% return in 2010representing the third best annual performance on record, according toBarclays Capital. This performance was driven in part by bond-for-loanrefinancings, as issuers continued to take advantage of accommodative primarymarkets to refinance debt and push out maturities. Data from Standard & Poor'sLCD indicates that during the fourth quarter, the amount of institutionalloans that will come due by year end 2014 contracted by US$56 billion (for atotal contraction of US$154 billion in 2010) to US$265 billion. And data fromJP Morgan indicates that of the US$302 billion of US high yield new issuevolume in 2010, roughly 66% was used to refinance outstanding debt.Identifying securities that may benefit from refinancing activity, andselectively taking an active role with corporations to refinance orrestructure debt, has been supportive of performance of the long side forlong/short credit programs in recent periods. However, as credit markets havetraded up more broadly, there may be reduced scope for further broad-basedappreciation. Barclays Capital notes that the yield on its Barclays High YieldIndex at the year end, at 7.51%, stood 216 bps inside of its 15 year median of9.67%. Further, the average valuation stood US$7.55 above its median price, atUS$101.77. This appreciation, perhaps in combination with the relative shiftin average equity earnings yields versus bond yields, has contributed to arecent shift in investor preferences from bonds to equities. Data from theInvestment Company Institute indicates that US bond fund outflows of US$800million in November broke a 22 month streak of positive inflows. Redemptionsaccelerated in December, with US$14.5 billion of outflows (which weredominated by US$12.5 billion from municipal bond funds). November and Decemberalso marked the first months in over two years that equity fund flows werepositive while bond flows were negative, and also that equity fund flowsexceeded bond flows. Under these circumstances for credit markets, we haveobserved certain managers reducing net exposures, either by divesting longpositions or increasing short exposure. Within short exposures, certainmanagers have continued to target select sovereign credits in Europe, thoughreturns have generally been mixed.Direct sourcing strategies generally posted gains as tightening credit spreadsand an improving economy benefited existing positions while year enddivestments from financial institutions offered a healthy opportunity set fornew purchases. While a degree of year end divestments from banks was expectedas they seek to clean up their balance sheets, selling activity may have beenboosted by banks having built up their capital reserve levels and postingstrong earnings in recent periods. This left banks in a better position toabsorb the capital losses associated with selling underwater assets.Consequently, as bank health has slowly improved, the volume of bank assetsales has been strong. One manager estimates that there may be roughly US$1trillion of potential asset sales yet to come from European banks andfinancial institutions. This opportunity set has attracted a number of newinvestors, but we have observed certain direct sourcing managers enjoyingsuccess at auctions given their ability to bid on diverse pools of assets andreputation for efficiency and reliability in closing deals. For example, inthe fourth quarter one manager purchased seven pools of commercial andindustrial small business loans from community banks that referenced over 230underlying assets at an average price below 50 cents on the dollar. Anothermanager sourced a pool of 19 loans from a Korean bank that elected to sell theentire pool to the manager despite receiving higher bids for individual loans,a decision that was motivated by the simplicity and rapidity of executing thesale to the manager. The purchase appears attractive for the manager from asum-of-parts perspective, as it began receiving higher bids for individualunderlying loans shortly after closing the deal.Secondary markets also continued to be a meaningful source of opportunity fordirect sourcing managers. Real estate related positions have been a particularfocus, though positioning spans across multiple industries, such as gaming andcasinos, auto parts manufacturers and transportation, as well as acrossborrower types, including consumer, commercial, industrial and structuredcredits. While banks have been a meaningful source of secondary opportunitiessince the financial crisis, the pressure many institutions face to clean upbalance sheets has escalated recently with the release of Basel IIIguidelines. Many banks in Europe, in particular, have announced significantasset sales in recent months as they seek to accelerate deleveraging measures.Middle market corporations are another market segment that is facing a capitalimbalance. While larger corporations have been able to access credit markets,taking advantage of low rates and high investor demand to refinance existingdebt, many middle market borrowers may be too small to access high yieldmarkets. These companies have typically relied upon leveraged loans providedby regional banks or collateralised loan obligations to meet financing needs.However, both of these sources of capital have been meaningfully impaired. Onemanager estimates that of the over 150 middle market lenders competing fortransactions in 2007, fewer than 20 are still in business today. In thisenvironment, managers have reported being able to underwrite loans to stressedcompanies at liquidation value, effectively pricing in the worst case scenariobased on today's valuations, potentially resulting in favourable payoffscenarios with limited downside.

Market and Strategy Outlook

2010 marked the second consecutive year of double digit gains for equities andpersistent credit spread tightening in most regions. While the year was notwithout its set backs, including the "flash crash" in May and periodic spikesof concern surrounding Eurozone sovereign credits, these were routinelycountered by targeted government actions and consistently healthy corporateearnings. While the results proved favourable for investors in 2010, thechallenge going into 2011 is to determine whether the drivers of positiveoutcomes in recent quarters represent sustainable solutions or a postponementof reckoning.Of note, strong corporate earnings and equity gains have benefited fromoperating efficiencies that may be driven by reduced capital expenditures andother spending cuts following the credit crisis that may be counterproductiveto long term profitability. Corporate credits have benefited from low interestrates that result in part from government intervention, and investors seekingyield beyond the paltry offering of US Treasury securities, for example.Amidst accommodative markets, many corporations have restructured orrefinanced to extend debt maturities, but this may not stave off ultimatedefault for those with impaired operations or business models. Finally,deleveraging in the consumer and corporate sectors, and the rescue of certainEurozone sovereignties, has often been financed by ballooning public sectordebts for many nations, a solution that may not be sustainable over time. Inlight of these challenges, we continue to advocate an investment approach thatemphasises idiosyncratic risks and the hedging or avoidance of primary marketbeta.

Relative Value - Convertible and Capital Structure Arbitrage:

Looking ahead, there may be a mixed environment for convertible arbitrage,particularly in light of muted volatility and bond prices that have broadlyrichened toward fair valuation. Valuations may continue to see support fromfixed income investors attracted to the equity optionality of convertiblebonds, given the prevailing low levels of interest rates and tighter creditspreads. Further, under these conditions corporations may continue to exhibita preference toward straight debt, potentially subduing new issuance activity.However, while a hedged approach to convertible bond investing may foregopotential upside in the event that an accommodative market setting persists,it may be less exposed to the risks of potential equity and credit marketfluctuations or rising interest rates relative to long-only investing. Certainmanagers have even highlighted increasing short exposure in convertible bonds,as some bonds appear to be trading rich relative to underlying fair valueassumptions due to ongoing demand from investors purchasing convertibles on anunhedged basis.

Relative Value - Rates and Fixed Income:

Managers in rates strategies generally target opportunities in yield curvesand swap spreads that are predicated upon relative valuation differentials, asopposed to directional interest rate exposures. These opportunities arise fromboth transitory supply demand imbalances as well as structural sources ofinefficiency (e.g., institutional rigidities, accounting standards orregulatory rules). In the current environment, we believe that governmentsaround the world will continue to fuel the supply of opportunities from bothavenues as funding needs and government participation in markets aresignificant and the regulatory environment is rapidly evolving. Specifically,we anticipate that the evolution of the current quantitative easing program inthe United States and developments with at risk sovereignties will continue tobe notable drivers of rates based opportunities in the period ahead.

Relative Value - Volatility:

Equity correlation continues to fall from summer 2010 peaks as investorsgradually focus more on company specific events rather than systemic levelheadlines. We believe this improves the outlook for managers implementingvolatility and option based strategies. Furthermore, headline events such asQE2 in the US or potential shocks to the economic system may continue to be aprominent source of idiosyncratic trading opportunities for managers targetingvolatility arbitrage or exhibiting a long volatility bias.

Event Driven - Risk Arbitrage:

Looking ahead, with accommodative interest rates and credit markets togetherwith economic growth and cash rich corporations and private equity funds,market conditions appear well suited for a continuation of healthy levels ofcorporate activity. A recent study by McKinsey & Company found that UScorporate executives are willing to invest in growth through acquisition andthat the majority are sufficiently confident in economic conditions that theydo not feel a need to postpone deal making. While this may bode well for dealvolumes, the flip side is that such favourable conditions also contribute toelevated investor confidence and lower deal spreads. Overall, we believe thatan absolute return approach to investing in mergers and acquisitions appearsfavourable as skilled managers may add value through dynamic positioning andportfolio management where headline spreads appear less robust.

Event Driven - Distressed:

Considering strong market technicals, a lesser degree of maturities in 2011and forecasts for modest GDP growth, it may be reasonable to expect acontinuation of muted default activity in the periods ahead in the absence ofa double dip recession. J.P. Morgan currently forecasts par-weightedhigh-yield bond defaults of 1.5% and loan defaults of 2% in 2011. With manydistressed investing hedge fund programs reportedly sitting on significantamounts of cash and a number of notable outstanding distressed deals expectedto roll off in coming months, including Nortel Networks and Washington Mutual,we anticipate a potentially less favourable environment for plain vanilladistressed investing. However, smaller or middle market companies continue toface greater difficulty engaging credit markets to refinance or restructuredebt, providing a potentially more active pool of opportunity for off-the-rundistressed investing.

Fundamental Long/Short - Equity:

Fundamental long/short strategies are predicated on the discrimination betweenstronger and weaker companies. This approach should be largely agnostic tomarket movements, as relative out or under performance of a security can occurwhether markets are rising or falling. While net long exposure may introduce aresidual market bias, BAA seeks to invest with managers that emphasiseidiosyncratic risks over market exposure, and we anticipate that long/shortstrategies will underperform long only investing in periods of consistentlyrising markets. While elevated levels of corporate actions and furthereconomic recovery may benefit long positions, they also present a challengingenvironment for shorting and portfolio hedging. Even so, such exposures mayprove beneficial in the event of an economic or geopolitical shock, or even amitigation of widespread investor bullishness.

Fundamental Long/Short - Credit:

The potential risk/return profile of long only investing in credit securitiesappears to have evolved in recent periods as credit valuations approach orexceed par, leaving potentially limited scope for further capital gains. Whilethese circumstances may prove challenging to long only investors, we believecertain hedge fund strategies may be better positioned for credit marketinvesting in the periods ahead. Hedge funds enjoy the ability to short creditsand low bond yields reduce the cost of carrying short positions. Combined withtighter credit spreads, this may offer an attractive asymmetry betweenpositive and negative price movement potential. We anticipate that managerswill continue to use this environment as an opportunity to trim long positionswith limited upside, while also building short positions in credits where theexpected gain in a credit event may outweigh the cost of shorting or buyingprotection.

Direct Sourcing:

In our view, the general mandate of direct sourcing strategies is to providecapital to segments of markets that are overlooked or underserved by othercapital providers. In the wake of the credit crisis, a much broader swathe ofcapital markets fits this description from the perspective of underwritingdirect investments as well as purchasing assets in secondary markets. Banksand other investors continue to work through impaired or non core assetportfolios, with selling activity continuing at a strong pace. We believe thatmanagers with strong underwriting skills and the ability to take control ofand manage assets when necessary will have ample opportunities for capitaldeployment for the foreseeable future.Mark WoolleyBlackRock Alternative Advisors20 April 2011

Portfolio Analysis

Asset Allocation 31 December 2010

Discipline and Strategy % Relative Value:Capital Structure 1.5Convergence 14.4Rates 7.4Statistical 3.4Volatility 1.8Event Driven:Distressed 18.1Mergers/Acquisitions 3.8Corporate Actions 5.0Fundamental Long/Short:Equity Active Selection 15.8Equity Active Value 0.2Credit 22.9Direct Sourcing:Lending 1.7Equity Financing 2.9Real Estate 0.5Insurance 0.0 %Relative Value 28.6Event Driven 27.0Fundamental Long/Short 38.9Direct Sourcing 5.2Strategy 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 60.2Western Europe 21.0Emerging Markets 10.0Developed Asia 8.8Statistical Summary

Aggregate Leverage of Underlying Managers 1.9x Gross US Dollar Long Exposure

192%Gross US Dollar Short Exposure -131%Number of Investment Programs 41% by Top 15 Investment Programs 51.4%Statement of Assets and Liabilitiesas at 31 December 2010 2010 2009 Notes US$ US$AssetsInvestments in private investment funds,at fair value (cost 2010: US$165,928,648; 2009: US$ 189,437,888) 3 180,218,133 186,362,959Unrealised gain on forward foreign currency exchange contracts 5 2,904,682 300,591Receivable on realised forward foreign currency exchange contracts - 1,061,693Cash and cash equivalents 4,696,893 7,298,784Due from private investment funds 12,117,057 9,033,869Investments in private investment funds made in advance

1,220,000 4,000,000Other assets 79,463 28,178 ----------- ----------- 201,236,228 208,086,074 ----------- -----------Liabilities

Unrealised loss on forward foreign currency exchange contracts - 19,729Payable on realised forward foreign currency exchange contracts - 657,030Due to redeemed shareholders 6

- 1,513,658Management fees payable 7 739,004 746,257Performance fees payable 7 489,961 -

Accounts payable and accrued expenses

236,140 250,245 ----------- ----------- 1,465,105 3,186,919 ----------- -----------Net Assets 199,771,123 204,899,155 =========== ===========Statement of Operationsfor the year ended 31 December 2010 2010 2009 Notes US$ US$IncomeInterest 1,831 2,466 ---------- -----------ExpensesManagement fees 7 2,912,081 2,813,232Performance fees 7 489,961 -

Administration and custody fees 8 102,551

98,331Other professional fees 545,147 305,890Interest 1,538 6,572 ---------- ----------- 4,051,278 3,224,025 ---------- -----------Net investment loss (4,049,447) (3,221,559) ---------- -----------Net realised gain/(loss) on:

Investments in private investment funds 2,157,075

(7,807,075)

Forward foreign currency exchange contracts (10,047,428)

(22,517,558) ---------- ----------- (7,890,353) (30,324,633) ---------- -----------Net change in unrealised gain/(loss) on:Investments in private investment funds 17,364,414

49,495,088

Forward foreign currency exchange contracts 2,623,820

36,778,497 ---------- ----------- 19,988,234 86,273,585 ---------- -----------

Increase in net assets resulting from operations 8,048,434

52,727,393

==========

===========

Statement of Changes in Net Assets

for the year ended 31 December 2010

US$

For the year ended 31 December 2010

-----------Net assets, beginning of year 204,899,155 -----------Increase/(decrease) in net assets:From operationsNet investment loss (4,049,447)Net realised gain on investments in private investment funds 2,157,075Net realised loss on forward foreign currency exchange contracts (10,047,428)

Net change in unrealised gain/(loss) on investments in private investment funds

17,364,414Net 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 18,860,618Conversion to 123,874 Euro denominated shares 1,564,534Conversion to 1,341,712 Sterling denominated shares 20,014,677Conversion 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 ===========

For the year ended 31 December 2009

-----------Net assets, beginning of year 170,766,997 -----------Increase/(decrease) in net assets:From operationsNet investment loss (3,221,559)Net realised loss on investments in private investment funds (7,807,075)Net realised loss on forward foreign currency exchange contracts (22,517,558)Net change in unrealised gain on investments in private investment funds 49,495,088Net change in unrealised gain on forward foreign currency exchange contracts 36,778,497 ----------- 52,727,393 -----------From capital transactionsConversion to 32,729 US Dollar denominated shares 290,541Conversion to 169,311 Euro denominated shares 1,894,182Conversion to 27,354 Sterling denominated shares 342,867Conversion of 119,217 US Dollar denominated shares (1,001,330)Conversion of 15,800 Euro denominated shares (172,786)Conversion of 106,246 Sterling denominated shares (1,353,475)Buy back of 330,750 Sterling denominated shares (3,442,166)Redemption of 196,084 US Dollar denominated shares (1,629,945)Redemption of 175,870 Euro denominated shares (1,987,796)Redemption of 881,940 Sterling denominated shares

(11,535,327) ----------- (18,595,235) -----------Net assets, end of year 204,899,155 ===========Statement of Cash Flowsfor the year ended 31 December 2010 2010 2009 US$ US$Cash provided by (used in):Operating activities

Increase in net assets resulting from operations 8,048,434 52,727,393

Adjustments to reconcile increase in net assets resulting from operations to cash provided by operating activities: Net realised (gain)/loss on investments in private investment funds

(2,157,075) 7,807,075Net change in unrealised (gain) on investments in private investment funds (17,364,414) (49,495,088)Net change in unrealised (gain) on forward foreign currency exchange contracts (2,623,820) (36,778,497)Purchases of investments in private investment funds (18,732,622) (18,028,187)Sales of investments in private investment funds 44,095,749 55,754,408Decrease/(increase) in receivable on realised 1,061,693 (1,061,693)forward foreign currency exchange contractsIncrease in other assets (51,285) (22,907)(Decrease)/increase in payable on realised (657,030) 657,030forward foreign currency exchange contractsDecrease in management fees payable (7,253) (33,911)Increase in performance fees payable 489,961 -Decrease in accounts payable and accrued expenses (14,105) (226,133) ---------- ----------Cash provided by operating activities

12,088,233 11,299,490

---------- ----------Financing activitiesPayments on redemption of Shares (1,513,658) (13,639,411)Payments on buyback of Shares

(13,176,466) (3,442,166)

---------- ----------Cash used in financing activities

(14,690,124) (17,081,577)

---------- ----------Decrease in cash and cash equivalents (2,601,891) (5,782,087)Cash and cash equivalentsBeginning of year 7,298,784 13,080,871 ---------- ----------End of year 4,696,893 7,298,784 ========== ==========Supplemental disclosures of cash flow information ---------- ----------Cash paid during the year for interest 2,340 5,770 ========== ==========Non-cash transactions:Conversion to US Dollar, Euro, and Sterling denominated shares 40,439,829 2,527,590Conversion of US Dollar, Euro, and Sterling denominated shares

(40,439,829) (2,527,590)

========== ==========In-kind purchases of investments 25,293,275 -In-kind sales of investments

(25,293,275) - ========== ==========Financial Highlights

for the year ended 31 December 2010

2010 2009 2010 2009 2010 2009 US$ US$ € € £ £Per share operatingperformance:Net asset value, beginning ofyear 9.32 7.60 9.04 7.40 9.04 7.36Income from investment operationsNet investment loss (0.19) (0.15) (0.20) (0.14) (0.21) (0.14)Net realised and unrealised gainon investments and forward foreigncurrency exchange contracts 1.03 1.87 1.03 1.78 1.06 1.82 ----- ----- ----- ----- ----- -----Total from investment operations 0.84 1.72 0.83 1.64 0.85 1.68 ----- ----- ----- ----- ----- -----Net asset value, end of year 10.16 9.32 9.87 9.04 9.89 9.04 ===== ===== ===== ===== ===== =====Total return*Before management andperformance fees 10.63% 24.17% 10.91% 23.68% 11.20% 24.29%Management fees (1.47%) (1.51%) (1.49%) (1.50%) (1.48%) (1.50%)Performance fees (0.17%) 0.00% (0.20%) 0.00% (0.27%) 0.00% ------ ------ ------ ------ ------ ------ 8.99% 22.66% 9.22% 22.18% 9.45% 22.79% ====== ======

====== ====== ====== ====== Ratios/supplemental data**: Net assets, end of year

23,763,087 21,714,551 17,298,128 20,864,766 97,908,089 94,783,739Ratio of expenses toaverage net assetsBefore management and performancefees 0.33% 0.22% 0.33% 0.22% 0.33% 0.22%Management fees 1.47% 1.50% 1.50% 1.48% 1.48% 1.48%Performance fees 0.19% 0.00% 0.18% 0.00% 0.27% 0.00% ----- ----- ----- ----- ----- ----- 1.99% 1.72% 2.01% 1.70% 2.08% 1.70% ====== ===== ===== ===== ===== =====Ratio of net investmentloss to average net assetsBefore managementand performance fees (0.33%) (0.22%) (0.33%) (0.22%) (0.33%) (0.22%)Management fees (1.47%) (1.50%) (1.50%) (1.48%) (1.48%) (1.48%)Performance fees (0.19%) 0.00% (0.18%) 0.00% (0.27%) 0.00% ------ ------ ------ ------ ------ ------ (1.99%) (1.72%) (2.01%) (1.70%) (2.08%) (1.70%) ====== ===== ===== ===== ===== =====

\* Total return is calculated for each class of shares for the years ended 31 December 2010 and 2009. 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 purposeof calculating these ratios, average net assets are calculated before year endshareholder redemptions, if any.

Notes to Financial Statements

1. The Company

BlackRock Absolute Return Strategies Ltd (the "Company") is a limitedliability registered closed ended investment company incorporated in Jersey on18 March 2008. The Company's Shares were listed on the London Stock Exchangeon 24 April 2008 and commenced unconditional trading on 29 April 2008. Witheffect from 1 January 2009, under the new taxation regime that becameeffective in Jersey, the Company's tax status changed from that of an exemptcompany, whereby the Company's liability to Jersey taxation was generallylimited to the exempt company fee of £600 per year to a zero tax rate company.Taxes relating to local income, profits and capital gains are not levied onthe 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 Manager and the Investment Manager.

The Company's investment objective is to generate absolute returns in excessof the yields on short-term LIBOR securities, while endeavouring to minimisethe corresponding level of volatility. The Company seeks to achieve itsinvestment objective primarily by allocating up to 100% of the Company'scapital to multiple external investment advisors pursuing strategies thatutilise a variety of securities and financial instruments and employsophisticated trading and portfolio management techniques.BlackRock Financial Management, Inc. ("BFM"), a Delaware corporation, is theCompany's Investment Manager and BlackRock (Channel Islands) Limited ("BCI")is the 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. BFMis registered 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 concern basis in accordance with accounting principles generally accepted in the United States of America ("US GAAP"), as discussed in the Statement of Directors' Responsibilities. On 1 July 2009, the Financial Accounting Standards Board ("FASB") launched the FASB Accounting Codification (the "Codification") as the single source of authoritative non-governmental US GAAP. All existing accounting standards are superseded by the single source codification for interim and annual periods ending after 15 September 2009. The financial statements reflect the following significant accounting 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 atUS$180,218,133 (31 December 2009: US$186,362,959) (90.21% (31 December 2009:90.95%) of net assets), are stated at fair value, which has been estimated byBAA in the absence of readily ascertainable market values. These fair valuesare based primarily on the net asset value and other financial informationprovided by the management of each underlying private investment fund and arereflected net of any accrued management and incentive fees due to underlyingmanagers as required by each private investment fund's respective operatingagreement. Private investment fund net asset values are generally providedmonthly but may also be provided quarterly.The underlying investments of each private investment fund are accounted forat fair value as described in the private investment fund's financialstatements. The fair value of certain investments may be estimated byunderlying managers in the absence of observable market data. Due to theinherent uncertainty of these estimates, these values may differ from thevalues that would have been used had a ready market for these investmentsexisted and the differences could be material. In addition, the calculatedfair value of certain investments, including restricted or illiquidsecurities, may differ from the values that would have been used had a readymarket existed. Due to the nature of these instruments, an active resalemarket may not be readily available and prices obtained on date of sale may bematerially different than the value recorded 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 fundis not representative of fair value, and the difference between fair value andthe reported value is material, BAA shall estimate the fair value of theprivate investment funds in good faith. For the years ending 31 December 2010and 2009, no such fair value adjustments were recorded.Investment transactions are accounted for on a trade date basis. Realisedgains and losses on investment transactions are determined using average cost.Gains and losses from investments in private investment funds, which are netof all fees and allocations to the investment advisors of the funds, arereflected as a net gain or (loss) on investments in the statement ofoperations.

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 expensetransactions originated in non-United States dollar denominated currencieshave been translated into United States dollars at the prevailing exchangerates on the date of the transaction.The Company does not isolate that portion of the operating results arisingfrom changes 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 ofrevenues and expenses during the reporting period. Actual results could differfrom those estimates.Going concernThe Directors are satisfied that the Company has adequate resources tocontinue in operational existence for the foreseeable future and isfinancially sound. For this reason, they continue to adopt the going concernbasis in preparing the financial statements. The Company is able to meet allof its liabilities from its assets and the ongoing expenses are approximately2.0% (2009: 1.7%) of the net assets.

Comparative figures

Certain of the prior year figures have been reclassified to conform with the current year's presentation.

New accounting pronouncementsOn 21 January 2010, the Financial Accounting Standards Board ("FASB") issuedAccounting Standards Update ("ASU") No 2010-06 which provides amendments toASC Subtopic 820-10, Fair Value Measurements and Disclosures. This guidancerequires new fair value disclosures, and also clarifies existing fair valuedisclosures. The new disclosures relate to the transfers in and out of Level 1and Level 2 investments, and disclosures about purchases, sales, issuances,and settlements in the rollforward of activity in Level 3 fair valuemeasurements. The guidance also clarifies existing disclosures regarding thelevel of disaggregation, and disclosures about inputs and valuationtechniques. The new disclosures and clarifications of existing disclosures areeffective for annual periods beginning after 15 December 2009, except for thedisclosures about purchases, sales, issuances, and settlements in therollforward of activity in Level 3 fair value measurements, which areeffective for fiscal years beginning after 15 December 2010. As the guidanceis limited to enhanced disclosures, the adoption did not have a materialimpact on the financial statements of the Company.

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 recordinga tax liability that would reduce net assets. The Company invested directlyand indirectly 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. Accordingly, noincome tax liability has been recorded in the accompanying financialstatements.

The Company has reviewed its tax positions and believes it is more likely than not that they will be sustained upon examination. Accordingly, the Company does not have any unrecognised tax benefits.

The Company has invested in numerous jurisdictions and is therefore subject tovarying policies and statutory time limitations with respect to examination

oftax positions.3. Investments

As at 31 December 2010, the Company held investments in private investmentfunds with a total fair value of US$180,218,133 (90.21% of net assets). Noinvestments in private investment funds held by the Company exceeded 5% of theCompany's net assets at 31 December 2010. Summarised information reflectingthe Company's investments in private investment funds as at 31 December 2009is detailed below. Investments held by the Company which exceed 5% of netassets are individually identified, while smaller investments in other fundsare aggregated. The Company is not able to obtain complete investment holdingdetails on each of the private investment funds held within the Company'sportfolio in order to determine whether the Company's proportional share ofany investments held by the private investment fund exceeds 5% of the netassets of the Company as at 31 December 2010 and 31 December 2009. % of Fair Value Company's Primary Primary RedemptionsInvestment US$ Net Assets

Disciplines Geographic Location* Permitted

North America,

Western Europe,Citadel Kensington Global Strategies Relative Emerging Markets,Fund Ltd** 11,774,603 5.75 Value Developed Asia Quarterly North America, Western Europe, Event Emerging Markets,Elliott International Limited** 10,368,149 5.06 Driven Developed Asia QuarterlyOther funds 164,220,207 80.14 ----------- -----Total 186,362,959 90.95 =========== =====

* Refers to the primary geographic locations of the investments held by the private investment fund.

** Investment made through a master fund managed by BlackRock or its affiliates as discussed in note 9.

Geographical allocation, on a look through basis, as a percentage of the Company's net assets at 31 December 2010 comprised 54.2% (2009: 65.5%) allocated to North America, 18.9% (2009: 17.0%) to Western Europe, 9.1% (2009: 10.0%) to Emerging Markets, and 7.9% (2009: 7.5%) 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 feesand incentive fees or allocations are reflected in the increase in net assetsin the statement of operations.ASC 820, Fair Value Measurements and Disclosures ("ASC 820") (formerly SFAS157), provides a framework for measuring fair value and requires specificdisclosures about financial instruments. ASC 820 permits the Company, as apractical expedient to estimate the fair value of a private investment fundbased on the net asset value per share or its equivalent if the net assetvalue of the private investment fund is calculated in a manner consistent withthe measurement principles of ASC 946, Financial Services - InvestmentCompanies. The Company uses the practical expedient to estimate fair value ofall private investment funds. In addition, ASC 820 includes a hierarchy thatclassifies inputs employed to determine fair value. Investments measured andreported at fair value are classified and disclosed in one of the followingcategories:

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 markets for similarassets or liabilities and inputs other than quoted prices that are directlyobservable or indirectly through corroboration with observable market data. Ifa reporting entity has the ability to redeem its investment with the privateinvestment fund at the net asset value per share (or its equivalent) at themeasurement date or within the near term and there are no other liquidityrestrictions, the Company's investment in the private investment fund shall becategorised as a 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 thatwill not be lifted in the near term shall be categorised as a Level 3.The Company's investments in private investment funds not otherwise traded ona securities exchange are classified within level 2 or level 3 of the fairvalue hierarchy as the value of these interests is primarily based on therespective net asset value reported by management of each underlying privateinvestment fund rather than actual market transactions and other observablemarket data. The determination of whether such investment will be classifiedin level 2 or level 3 is assessed at the partnership or class level and basedupon the ability to redeem such investment within a reasonable period of time(within 90 days of any month-end during the period). If an investment in aprivate investment fund may be redeemed within 90 days of any month-end duringthe period and the fair value of the investment is based on informationprovided by management of the underlying fund it is classified as level 2; inall other cases it will be classified as level 3. The Company's investments inforeign currency exchange contracts are classified within level 2 of the fairvalue hierarchy, because they are valued using directly observable foreigncurrency spot 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 2010:

Level I Level 2 Level 3 Total US$ US$ US$ US$AssetsInvestments in private investment funds*Relative Value (a) - 32,534,900 43,108,852 75,643,752Fundamental Long/Short (b) - 32,944,228 12,796,093 45,740,321Event Driven (c) - 25,721,822 27,868,742 53,590,564Direct Sourcing (d) - - 5,243,496 5,243,496

Total investments in private investment funds - 91,200,950 89,017,183 180,218,133DerivativesForward 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.

The following table summarises the valuation of the Company's investments under the ASC 820 fair value hierarchy as at 31 December 2009:

Level I Level 2 Level 3 Total US$ US$ US$ US$

Investments in private investment funds* -

48,355,088 138,007,871 186,362,959 Unrealised gain on forward foreign currency exchange contracts

- 300,591 - 300,591Unrealised loss on forward foreign currency exchangecontracts - (19,729) - (19,729) ---------- ---------- ----------- ----------- - 48,635,950 138,007,871 186,643,821 ========== ========== =========== ===========*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 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 2010 changes in investments measured at fair value using level 3 inputs are reflected 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 8,989,858 138,007,871Purchases (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 9,538,991Transfers in to 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) relatedto the Company's level 3 investmentsheld 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 January2010. Realised and unrealised gains (losses) recorded for level 3 investmentsare reported as net realised gain on investments in private investment fundsand net unrealised gain (loss) on investments in private investment funds,respectively, in the statement of operations.The 2009 changes in investments measured at fair value using level 3 inputsare reflected below: US$Balance, 1 January 2009 169,003,326Purchases (sales), net (24,328,380)Realised and unrealised gain (loss), net 41,688,013Transfers in and out of level 3, net (48,355,088)Balance, 31 December 2009 138,007,871 -----------

Change in unrealised gain (loss) related to the Company's level 3 investments held at 31 December 2009

37,218,219 ===========As a result of the adoption of Accounting Standards Update 2009-12, theCompany recognised transfers in and out of Level 3 above at 31 December 2009.Realised and unrealised gains recorded for level 3 investments are reported asnet realised gain from investments and net change in unrealised gain (loss)from investments 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 fairvalue and other pertinent liquidity information of the underlying investmentsby class as at 31 December 2010: Redemption Fair Illiquid Redemption Notice Value investments1 Gates2 Lock-ups3 Frequency4 Period4Major Category US$ US$ US$ US$ US$ US$ Monthly,Relative Value (a) 75,643,752 7,006,484 34,140,923

- Quarterly 30 - 90 days

Quarterly,Fundamental Long/Short (b) 45,740,321 3,562,373 4,997,484 3,025,099 Annually 45 - 90 days Monthly, Quarterly, Annually,Event Driven (c) 53,590,564 4,004,158 6,155,152

11,835,893 Bi-Annually 30 - 150 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 fund at any time. This includes: (i) private investment funds that areliquidating and making distribution payments as their underlying assets aresold, (ii) suspended redemptions/withdrawals, and (iii) side pocket holdings.These types of investments may be realised within 1 to 3 years from 31December 2010, depending on the specific investment and market conditions.This does not include private investment funds with gates and lockups, whichare 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 redemptionterms, and exclude liquidity restrictions noted above. Private investmentfunds that have an investor level gate and are still in the lock-up period arerepresented 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 2009:

31 December 2009 Illiquid Redemption Fair Value Investments(1) Gates(2) Lock-ups(3) Redemption NoticeMajor Category US$ US$ US$ US$ Frequency(4) Period Monthly, Quarterly, Semi-

Relative Value (a) 74,488,110 8,098,990 33,084,026 6,331,027 Annually 30 - 90 days

Monthly,Fundamental Long/ Quarterly,Short (b) 52,538,708 4,431,284 4,248,915

6,321,234 Annually 30 - 90 days

Monthly, Quarterly,Event Driven (c) 50,346,284 4,367,969 -

17,135,755 Annually 30 - 150 days

Quarterly,

Direct Sourcing (d) 8,989,857 3,290,353 -

- Annually 90 - 120 days

----------- ---------- ---------- ----------Total 186,362,959 20,188,596 37,332,941 29,788,016 =========== ========== ========== ==========

(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) suspended redemptions/withdrawals, and (iii) side pocket holdings.These types of investments may be realised within 1 to 3 years from 31December 2009 depending on the specific investment and market conditions. Thisdoes not include private investment funds with gates and lock-ups, which arenoted above.(2)Represents fund level gates. The gates have been in place for 6 to 18 months at 31 December 2009, and the time at which these restrictions will be lifted 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 5 months to 23 months at 31 December 2009.

(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 table above.

(a)Investment strategies within this category seek to profit from the mispricing of related financial instruments. This discipline utilises quantitative and qualitative analysis to identify securities or spreads between securities that deviate from their theoretical fair value and/or historical returns. The fair values of the investments in this category have been estimated using the net asset values provided by management of the private investment funds.

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

(c)Investment strategies within this category concentrate on companies that are, or may be, subject to extraordinary corporate events such as restructurings, takeovers, mergers, liquidations, bankruptcies or other corporate events. The fair values of the investments in this category have been estimated based on the net asset values provided by management of the private investment funds.

(d)Investment strategies within this category seek to profit from theincreasing disintermediation of the financial services sector by entering intodirect transactions with corporations, other institutions or individuals. Thefair values of the investments in this category have been estimated using thenet asset values 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 acounterparty failed to perform its obligations under contractual terms. TheCompany is also subject to the credit risk that the private investment fundsfail to perform under their respective agreements.The Company may be directly subject to credit risks arising from OTCderivative financial instrument transactions. The Company's direct exposure tocredit 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 certainredemption/withdrawal provisions, in accordance with the private investmentfunds' offering agreements. These provisions generally range from monthly toannual redemptions/withdrawals, with 60 to 180 days notice.Certain of the Company's private investment funds have the ability to suspendredemptions and restrict redemptions through the creation of side pockets. At31 December 2010, 1.74% (31 December 2009: 3.23%) of the Company's net assets,and excluding investments in private funds subject to gates and lockups,were subject to private investment funds that had suspended redemptions(including those private investment funds undergoing liquidation); and 7.53%(31 December 2009: 6.62%) of the Company's net assets were invested directlyin side pockets maintained by private investment funds. The Company's abilityto liquidate its investment in a private investment fund that has imposed suchprovisions may be adversely impacted. In such cases, until the Company ispermitted to liquidate its interest in a private investment fund, theCompany's residual interest remains subject to continued exposure to changesin valuations.

The Company may also invest in closed-end investments that may not permit redemptions or in private investment funds that impose an initial "lockup" period before a redemption/withdrawal can be made. In addition, certain of the Company's private investment funds have the ability to impose redemption gates, and in so doing, may reduce the Company's requested redemption below the requested amount.

5. Derivative financial instruments

On 1 January 2009, the Company adopted SFAS No. 161, Disclosures aboutDerivative Instruments and Hedging Activities ("SFAS 161"). As of 1 July 2009,the disclosures required by SFAS 161 have been included within ASC 815Derivatives and Hedging ("ASC 815"). SFAS 161 amends and expands thedisclosure requirements of SFAS No. 133, Accounting for Derivative Instrumentsand Hedging Activities. SFAS 161 is intended to improve financial reportingabout derivative instruments and hedging activities by requiring enhanceddisclosures to enable investors to understand better 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 periodically executes forward foreign currency exchange contracts.The contracts are designed to hedge against foreign currency exchange raterisks associated with its share classes denominated in currencies other thanUnited States dollars. Gains and losses on forward foreign currency exchangecontracts exclusive to share classes denominated in currencies other thanUnited States dollars are specifically allocated to the respective shareclass. The contractual amounts of these instruments represent the exposure theCompany has to the respective currencies associated with these financialinstruments. The measurement of the risks associated with forward foreigncurrency exchange contracts is meaningful only when all related and offsettingtransactions 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:

2010 Asset derivatives

Liability derivatives

Fair value Fair valueDerivatives Location US$ Location US$ Unrealised gain on Unrealised loss onForeign exchange contracts foreign exchange contracts 2,904,682 foreign exchange contracts - 2009 Asset derivatives Liability derivatives Fair value Fair valueDerivatives Location US$ Location US$ Unrealised gain on Unrealised loss onForeign exchange contracts foreign exchange contracts 300,591 foreign exchange contracts (19,729)The following table presents the effect of derivative instruments on theCompany's financial performance and the location on the statement ofoperations:2010 Gain (loss) on derivativesDerivatives Location US$

Foreign exchange contracts Net realised loss on foreign exchange contracts (10,047,428)

Foreign exchange contracts Net change in unrealised gain (loss) on foreign 2,623,820 exchange contracts 2009 Gain (loss) on derivativesDerivatives Location US$

Foreign exchange contracts Net realised loss on foreign exchange contracts (22,517,558)

Foreign exchange contracts Net change in unrealised gain (loss) on foreign 36,778,497

exchange contractsThe obligations under these financial instruments as at 31 December 2010 were as follows: Settlement Contract to Contract toCurrency date deliver 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$2,382,260The obligations under these financial instruments as at 31 December 2009 wereas follows: Settlement Contract to Contract toCurrency date deliver receive Fair value€ 1 April 2010 US$29,598,161 €20,650,000 US$(19,729)£ 1 April 2010 US$151,254,101 £93,760,000 US$300,591It is the Company's general practice to enter into a forward foreign currencyexchange contract for each foreign currency share class for a duration ofapproximately 3 months. In the event of an investor subscription or redemptionin a foreign currency share class, the Company may increase or decrease itshedge by entering into one or more additional forward foreign currencyexchange contracts with the same settlement date.The Company's unrealised gain/(loss) relating to forward foreign currencyexchange contract obligations at 31 December 2009 was US$280,862, resulting ina net change in unrealised gain/(loss) of US$2,623,820 for the year ended 31December 2010. 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 2010 and 2009, all open forward foreign currency exchange contracts are with a single counterparty.

6. Share capital, voting rights, share conversion and redemptionAuthorised:100 Management SharesUnlimited Shares of any class Shares in Treasury Total Shares in Treasury Total issue at Shares at Shares at issue at Shares at Shares at 31 December 31 December 31 December 31

December 31 December 31 December

2010 2010 2010 2009 2009 2009Management Shares 2 - 2 2 - 2

US Dollar denominated Shares 2,339,560 165,505 2,505,065 2,330,129

- 2,330,129

Euro denominated Shares 1,752,235 164,178 1,916,413 2,308,345

- 2,308,345

Sterling denominated Shares 9,899,621 1,146,795 11,046,416 10,489,294 330,750 10,820,044

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 meetings of 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

In March, June, September and December of each year, shareholders may convertShares of any class into Shares of any other class, by giving not less than 10business days' notice to the Company in advance of such currency conversioncalculation date.

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

Currency conversion Number of Shares converted Date of issue Number of Shares issuedCalculation date US$ € £ of new Shares US$ € £31 December 2009 75,723 - 72,601 28 January 2010 112,416 1,034 48,28531 March 2010 160,090 243,036 653 30 April 2010 - 122,697 216,27430 June 2010 - 122,697 - 30 July 2010 870 - 99,76330 September 2010 1,496,110 150,073 1,042,086 29 October 2010 1,793,573 143 977,39031 December 2010 30,964 - - 28 January 2011 - - 20,369

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

Since the year end, as a result of the requests received to convert Shares asat the currency conversion date of 31 March 2011, 1,518,389 US Dollardenominated Shares and 54,467 Euro denominated Shares will be converted. Basedon the estimated 31 March 2011 net asset value, 12,155 US Dollar denominated Shares, 62,112 Euro denominated Shares and 957,414 Sterling denominated Shares are expected to be issued on or before 28 April 2011.

Reverse Auction Tenders

Two reverse auction tenders were implemented during 2010, the first in June and the second in December. The results were as follows:

% of issued capital Number of shares Scale back applied toShare (ex treasury shares) repurchased and

tenders received at Strike Price

valid tenders received placed in treasuryClass in respect of on Strike Discount the strike discount (per share) June December 7 September 4 March June December June December June December 2010 2010 2010 2011 2010 2010 2010 2010 2010 2010US Dollar 10.96% 76.91% 165,505 116,976 9.00% 14.00% 64.23% 14.89% US$8.62 US$8.66Euro 15.61% 14.09% 164,178 87,611 11.00% 14.00% 8.61% 4.29% €8.18 €8.43Sterling 41.86% 32.51% 801,045 495,731 14.00% 17.50% 17.46% 39.11% £7.91 £8.11US Dollar denominated Shares 2010 2009 Number of Number of Shares SharesIn issue beginning of year 2,330,129 2,612,701Converted out during the year (1,731,923) (119,217)Repurchased and placed in treasury during the year (165,505) -Redeemed during the year - (196,084)Converted in during the year 1,906,859 32,729 --------- ---------In issue end of year 2,339,560 2,330,129 ========= =========

Since the year end a further 116,976 US Dollar denominated shares were repurchased and placed in treasury as a result of the second reverse auction tender offer.

Since the year end, a further 30,964 US Dollar denominated Shares were converted as a result of the December 2010 Currency Conversion Calculation Date.

At the date of this report there are 2,191,620 US Dollar denominated Shares in issue excluding 282,481 US Dollar denominated Shares held in treasury.

Following the March 2011 Currency Conversion Calculation Date, as a result ofthe conversion requests received, based on the estimated 31 March 2011 net assetvalue, an additional 1,518,389 US Dollar denominated Shares are expected to be converted to 917,266 Sterling denominated Shares and 62,112 Euro denominated Shares, on or before 28 April 2011. As a result of the conversion of 8,842 Euro denominated Shares based on the estimated 31 March 2011 net asset value, a further 12,155 US Dollar denominated Shares are expected to be issued, on or before 28 April

2011.Euro denominated Shares 2010 2009 Number of Number of Shares SharesIn issue beginning of year 2,308,345 2,330,704Converted out during the year (515,806)

(15,800)

Repurchased and placed in treasury during the year (164,178) -Redeemed during the year - (175,870)Converted in during the year 123,874 169,311 --------- ---------In issue end of year 1,752,235 2,308,345 ========= =========

Since the year end a further 87,611 Euro denominated shares were repurchased and placed in treasury as a result of the second reverse auction tender offer.

At the date of this report there are 1,664,624 Euro denominated Shares in issue excluding 251,789 Euro denominated Shares held in treasury.

Following the March 2011 Currency Conversion Calculation Date, as a result ofthe conversion requests received, based on the estimated 31 March 2011 net assetvalue, an additional 54,467 Euro denominated Shares are expected to be converted to 40,148 Sterling denominated Shares and 12,155 US Dollar denominated Shares on or before 28 April 2011. As a result of the conversion of 85,389 US Dollar denominated Shares, based on the estimated 31 March 2011 net asset value, a further 62,112 Euro denominated Shares are also expected to be issued, on or before 28 April 2011.Sterling denominated Shares 2010 2009 Number of Number of Shares SharesIn issue beginning of year (excluding treasury shares) 10,489,294 11,780,876Repurchased and placed in treasury during the year (816,045) (330,750)Converted out during the year (1,115,340) (106,246)Redeemed during the year - (881,940)Converted in during the year 1,341,712 27,354In issue end of year 9,899,621 10,489,294

15,000 Sterling denominated shares were purchased and placed in treasury for a total consideration of £117,000 on 23 December 2010.

Since the year end a further 495,731 Sterling denominated shares were repurchased and placed in treasury as a result of the second reverse auction tender offer.

Since the year end, a further 20,369 Sterling denominated Shares were issued on 28 January 2011 as a result of the December 2010 Currency Conversion Calculation Date.

At the date of this report there are 9,424,259 Sterling denominated Shares in issue excluding 1,642,526 Sterling denominated Shares held in treasury.

Following the March 2011 Currency Conversion Calculation Date, as a result of the conversion of 1,433,000 US Dollar denominated Shares and 45,625 Euro denominated Shares, based on the estimated 31 March 2011 net asset value, a

further 957,414 Sterling denominated Shares are expected to be issued, on or before 28 April 2011.Voting rights 31 December 2010 2009 2010 2010 2009 2009 Voting Voting Shares Voting Shares Voting Rights Rights in issue Rights in issue RightsManagement Shares - - 2 - 2 -US Dollar denominated Shares 1 1 2,339,560 2,339,560 2,330,129 2,330,129Euro denominated Shares 1.4 1.4 1,752,235 2,453,129 2,308,345 3,231,683Sterling denominated Shares* 1.6 1.4 9,899,621 15,839,394 10,489,294 14,685,012 ---------- ----------Total 20,632,083 20,246,824 ========== ==========*excluding treasury shares

With effect from 1 January 2011, the voting rights of both the Euro and Sterling denominated Shares were re-calculated in accordance with the provisions of the Articles of Association of the Company and the voting rights of the Sterling denominated Shares changed to 1.5 per share and the voting rights of the Euro denominated Shares changed to 1.3 votes per share.

At the date of this report the total share voting rights were 18,492,020.

7. Management and performance fees

The Company has entered into a Management Agreement with BCI to providecertain investment management services to the Company. Under this agreement,BCI earns a quarterly investment management fee equal to one quarter of 1.5%of the NAV and an annual performance fee equal to 10% of the amount, if any,by which the NAV at the end of a calculation period exceeds the higher of (i)the NAV at the date of Admission and (ii) the NAV at the end of any previouscalculation period. As provided in the registration document, the amount offees paid to BCI is determined based on the net assets and the performance ofthe Company for the respective calculation period. Management and performancefees are calculated prior to any adjustments to the NAV of the relevant shareclass for the relevant calculation period related to the profits, losses and expenses of any currency hedging undertaken by the Company. For the years ended 31 December 2010 and 2009, the management fees under this agreement

were: Year ended Year ended 31 December 31 December 2010 2009Share class US$ US$US Dollar denominated Shares 320,609 309,353Euro denominated Shares 379,341 396,407Sterling denominated Shares 2,212,131 2,107,472 --------- --------- 2,912,081 2,813,232 ========= =========For the year ended 31 December 2010, the performance fees under this agreementwere: Year ended Year ended 31 December 31 December 2010 2009Share class US$ US$US Dollar denominated Shares 40,862 -Euro denominated Shares 45,475 -Sterling denominated Shares 403,624 - ------- -------- 489,961 - ======= ========As at 31 December 2010, an amount of US$739,004 (31 December 2009: US$746,257)was payable in respect of the management fee. As at 31 December 2010, anamount of US$489,961 was payable in respect of the performance fee. There wereno performance fees earned for the year ended 31 December 2009.

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 2010, US$102,551 (2009: US$98,331) was expensed for the Sub-Administrator's services in accordance with the Administration Agreement.

9. Related party transactions

During the years ended 31 December 2010 and 31 December 2009, 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 forthe primary purpose of consolidating investments by these funds and accountsinto a single investment in one or more private investment funds.The Directors of the Company consider that all transactions with relatedparties have been made at values which approximate the values for which suchtransactions would have been made with third parties. The total remunerationpaid to Directors was US$170,621 for the year ended 31 December 2010 (2009:US$169,168). This amount includes fees for Directors services, reimbursementfor travel and other out-of-pocket expenses relating to attendance at meetingsand other matters, including any such expenses relating to the performance ofdue diligence for the benefit of the Company.

Two Directors of the Company have shareholdings in the Company which are disclosed in the Directors' Report on page 19.

Through its investment in a master fund managed by BlackRock or itsaffiliates, the Company is invested in R3 Capital Partners (C), Ltd. (the "R3Fund"), a fund vehicle previously managed by R3 Capital Partners ("R3").Effective 30 April 2009, BlackRock assumed responsibilities for the managementof the R3 Fund and a number of R3 employees are now employed by BlackRock. Inconnection with this arrangement, the Company's investment advisory feecalculation was modified to exclude the amounts invested in the R3 Fund.

10. Line of credit

The Company has entered into an Uncommitted Facility Agreement (the "FacilityAgreement") and related Security Agreement with the Sub-Administrator.Advances under the Facility Agreement are secured by all of the Company'sinvestments in private investment funds. Under the Facility Agreement, theCompany is permitted to borrow at a rate based on the UBS base rate. Theborrowing rate on 31 December 2010 was 1.47% (2009: 1.42%). As at 31 December2010 and 2009, the Company had no outstanding balance under the FacilityAgreement.The Company has also entered into a Committed Facility Agreement and relatedSecurity Agreement with the Sub-Administrator. Advances under the CommittedFacility Agreement are secured by all of the Company's investments in privateinvestment funds. The amount of the Committed Facility is US$10,000,000 and itis subject to renewal at 1 October 2011. The borrowing rate on the CommittedFacility is based on the UBS base rate and on 31 December 2010 the borrowingrate was 1.47% (2009: 1.42%). There has been no borrowing on the CommittedFacility.

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 20 April 2011, thedate that these financial statements were available to be issued, anddetermined that no subsequent events occurred that would require recognitionor additional disclosure in these financial statements.

13. Dividends

The Directors do not recommend the payment of a dividend.

14. Annual General Meeting

The Annual General Meeting of the Company will be held at Forum House, Grenville Street, St. Helier, Jersey, Channel Islands JE1 0BR on Thursday, 30 June 2011 at 2:30 p.m.

20 April 2011Forum HouseGrenville StreetSt. HelierJerseyChannel IslandsJE1 0BR

15. Publication of Non-Statutory Accounts

The financial information contained in this announcement does not constitutestatutory accounts as defined in the Companies (Jersey) Law 1991. The annualreport and financial statements for the year ended 31 December 2010 will befiled with the Jersey Financial Services Commission.

The report of the Auditor for the year ended 31 December 2010 contains no qualification or statement under section 113B(3) or (6) of the Companies (Jersey) Law 1991 (as amended).

The comparative figures are extracts from the audited financial statements ofBlackRock Absolute Return Strategies Ltd for the year ended 31 December 2009,which have been filed with the Jersey Financial Services Commission. Thereport of the Auditor on those financial statements contained no qualificationor statement under section 113B(3) or (6) of the Companies (Jersey) Law 1991(as amended).This announcement was approved by the Board of Directors on 20 April 2011.

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 Forum House, Grenville Street, St. Helier,Jersey, Channel Islands JE1 0BR, and on the Company's website atwww.blackrockinternational.com/bars/Library/Literature. Neither the contents of the Investment Manager’s website nor the contents of any website accessible from hyperlinks on the Investment Manager’s website (or any other website) is incorporated into, or forms part of, this announcement.

For further information, please contact: Jonathan Ruck Keene, Managing Director, Investment Companies, BlackRock Investment Management (UK) Limited Tel: 020 7743 2178 Emma Phillips, Media & Communication, BlackRock Investment Management (UK) Limited Tel: 020 7743 2922

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