Half-yearly Report

23rd Aug 2010 07:00

20 August 2010 BLACKROCK ABSOLUTE RETURN STRATEGIES LTD Half yearly financial results announcement in respect of the six months ended 30 June 2010 SummaryStructureBlackRock Absolute Return Strategies Ltd ("BARS", the "Company") wasincorporated in Jersey on 18 March 2008 under the Companies (Jersey) Law 1991as a limited liability registered closed-ended investment company. TheCompany's three classes of shares, US Dollar, Euro and Sterling, were listed onthe London Stock Exchange on 24 April 2008 and commenced unconditional tradingon 29 April 2008.

Investment Objective and Policy

BARS is a diversified, fund of hedge funds investment vehicle with exposure toabsolute return strategies which seek to generate absolute returns in excess ofthe yields on short term LIBOR securities, while endeavouring to minimise thecorresponding level of volatility.

The Company aims to generate a target net return of approximately 3-month LIBOR plus 6% per annum with a standard deviation of 8%.

Manager Relationships

The investment manager ("BAA") has been actively engaged in re-evaluating itsmanager relationships to improve the structures in which its clients investwith hedge fund organisations that it believes are stable and have talentedinvestment professionals. BAA has sought to work with managers to set upcustomised structures designed primarily for investment by BAA client funds oraccounts. The potential benefits to the Company of these structures may includegreater control over investment guidelines and investment terms (e.g., fees.),mitigation of potential negative side effects from other investors' actions,enhanced transparency, and a strengthening of investor governance rights. BAA'ssize, depth of relationships with managers and reputation as a stable partnerhave led to its ability to negotiate investment terms as well as create customstructures with some of the underlying funds in the Company's portfolio.

Chairman's Statement

Performance Review

It is encouraging to report that over the six month period ended 30 June 2010,the net asset value ("NAV") of the Company's US Dollar Shares, Euro Shares andSterling Shares increased by 2.9%, 2.9% and 3.0% per share respectively, withthe corresponding share prices rising by 8.1%, 6.8% and 6.8%. The Companydemonstrated an ability to protect capital during challenging months such asMay and June, closing the six month period in positive territory and generallyoutperforming broader market indices. Performance of the NAV was driven acrossall primary disciplines, spearheaded by managers pursuing Fundamental Long/Short, Relative Value and Event Driven investment strategies. The performanceon a monthly basis is set out on the table below:

For the period ended 30 June 2010

Jan 10 Feb 10 Mar 10 Apr 10 May 10 Jun 10 % % % % % % BARS - GBP (net) 1.41 0.42 1.56 1.14 -1.10 -0.39BARS - EUR (net) 1.43 0.39 1.54 1.19 -1.15 -0.51BARS - USD (net) 1.39 0.35 1.45 1.19 -1.13 -0.39S&P 500 Index (USD)* -3.60 3.10 6.03 1.58 -7.99 -5.23FTSE All-Share Index (GBP) -3.57 3.37 6.76 -1.39 -6.23 -4.62MSCI World Index (USD)* -4.13 1.41 6.19 0.01 -9.58 -3.43

HFRI FOF Conservative Index (USD)* 0.35 0.23 1.12 1.06 -1.86 -0.63 BofAML GBP 3-Month LIBOR (GBP) 0.05 0.04 0.05 0.05 0.05 0.06

*Where performance of a USD Index is show with non-USD denominated Fund classes, a comparison of returns should include consideration of the fact that the effect of currency exchange rate fluctuations is not included in the returns for USD indices.

Reverse Auction Tender Offer

At an Extraordinary General Meeting held on 29 June 2010 shareholders approvedthe proposal that up to 7.5% of the Shares of each class in issue on 16 March2010 would be repurchased by the Company, through a reverse auction tenderoffer.The reverse auction tender offer closed on 19 July 2010 and the results were asfollows:Share class US$ € £Number of shares tendered 222,158 341,623 4,470,458% of 30 April 2010 issued share capital tendered(excluding treasury shares) 10.96% 15.61% 41.86%Strike discount 9% 11% 14%Strike price 8.62 8.18 7.91

It is expected that settlement of the Reverse Auction Tender Offer will occur by 7 September 2010.

At the Extraordinary General Meeting the Company was also given furtherauthority for a second reverse auction tender offer, which may or may not beimplemented in December 2010 at the Board's discretion. A further announcementwill be made in this regard in due course.

AIFM Directive

The European Union's ("EU") draft "AIFM Directive" is a controversial measureaimed at regulating managers of alternative investment funds which, in itscurrent form, has major implications for your Company. At present, the proposedDirective is at a discussion stage through which the EU Parliament, the EUCouncil and the EU Commission are attempting to reconcile the differentcompromise texts of the Directive previously produced by the EU Parliament andEU Council prior to the EU Parliament voting on the revised common text.A final vote is likely to be postponed, at least, until September to allow moretime for completion of the negotiations over outstanding areas of differencebetween the drafts, including, in particular, third country issues relating tothe conditions on which funds and managers based outside the EU can market toinvestors within the EU.The Association of Investment Companies (AIC) recognises the far reachingimplications of the AIFM Directive for listed investment companies and iscurrently engaged with the EU to seek the development of rules which wouldallow the business model of the listed investment company sector to continue(albeit with additional regulatory obligations). BlackRock is also makingrepresentations to the EU to seek a final form of the AIFM Directive which willregulate companies such as this in a more proportionate, fair and effectiveway.

Outlook

Investors continue to be confronted by uncertainty with respect to global economic stabilisation and recovery.

Against this backdrop, we believe investment opportunities are prevalent andthat investors seeking attractive risk-adjusted returns are more likely to findthem in areas of the market rife with inefficiencies and where capital ispriced at a premium, rather than crowded beta-driven segments where capital isabundant. While opportunities are likely to continue to emerge within theshorter-end of the liquidity spectrum, we are particularly encouraged by thefavourable prospects for longer-maturity assets.Colin MaltbyChairman20 August 2010

Interim Management Report and Responsibility Statement

The Chairman's Statement as set out above and the Investment Manager's Reportwhich follows give details of the important events which have occurred duringthe period and their impact on the financial statements.

Principal risks and uncertainties

The principal risks faced by the Company can be divided into various areas asfollows:- Strategy/performance;- Regulatory;- Market;- Operational;- Counterparty;- Manager; and- Financial, including foreign currency.A detailed explanation of the risks relating to the Company was set out in theCompany's prospectus dated 4 April 2008 and can be found on pages 4 to 30 ofthe Securities Note. The Board also reported on the principal risks anduncertainties faced by the Company on pages 13 and 14 of the annual report andfinancial statements for the year ended 31 December 2009. Both documents areavailable on the Company's website at www.blackrockinternational.com/bars/Library/Literature.In the view of the Board, there have not been any changes to the fundamentalnature of these risks since the publication of the prospectus and the latestannual report. The principal risks and uncertainties as summarised above areequally applicable to the remaining six months of the financial year as theywere to the period under review.

Further information is given in relation to financial instruments with off-balance sheet risk in note 4 of the notes to the financial statements.

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.

Directors' responsibility statement

The Disclosure and Transparency Rules ("DTR") of the UK Listing Authority require the Directors to confirm their responsibilities in relation to the preparation and publication of the Interim Management Report and Financial Statements.

The Directors confirm to the best of their knowledge and belief that:

- the condensed set of financial statements contained within the half yearly financial report has been prepared in accordance with accounting principles generally accepted in the United States of America; and

- the Interim Management Report together with the Chairman's Statement and Investment Manager's Report, include a fair review of the information required by 4.2.7R and 4.2.8R of the FSA's Disclosure and Transparency Rules.

The half yearly financial report has not been audited or reviewed by the Company's Auditors.

The half yearly financial report was approved by the Board on 20 August 2010 and the above responsibility statement was signed on its behalf by the Chairman.

Colin MaltbyBy order of the Board20 August 2010Investment Manager's ReportPerformance OverviewGlobal markets largely continued to move away from their recessionary lows inthe first half of the year, but rising concerns of a revisited recessionaryenvironment appeared to dampen investor confidence, particularly during thelatter half of the second quarter. Although the global rebound remains tenuous,investors appeared to remain fairly confident through April, but after twelvemonths 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 yield namesalso taking the brunt of the decline.Despite a broader backdrop characterised by a slow ongoing recovery, pockets ofeconomic strain continue to give the market reasons to remain vigilant forlarger systemic issues. Thus far in 2010, a cautious focus has beenconcentrated on the European Union ("EU"), where several economically weakcountries appeared to flirt with potential defaults of their sovereign debt. Asovereign default within the EU is likely to cast greater doubt on the fiscalintegrity of select other member countries, in turn potentially sending theregion back into recession, or worse, possibly developing into a financialpanic. After the EU passed a trillion dollar backstop centred on restoringnear-term confidence in its financial system and improving austerity efforts inthe second quarter, investors appeared to somewhat shift their immediateconcerns regarding regional deficit levels and imminent financial collapsetoward a broader debate as to whether deficit reduction measures would send theregion back into deep recession.Generally, it was an uphill battle for investors with significant net longexposures later in the second quarter, notably in May and June. Investorconfidence in two of the global economy's primary engines, the US and China,appeared to wilt. Despite resilient earnings and manufacturing data, NorthAmerican optimism was dulled by lower than expected job growth, uncertaintysurrounding the economic and political impact of the ongoing oil spill in theGulf of Mexico, and concern over financial reform and US regulators'investigation of select financial companies. China also exhibited severe equitymarket declines, with local A-share indices dropping more than 20% in thesecond quarter to hit a 14-month low, prompted by government officials' ongoingattempts to decelerate its economy to a more sustainable pace.Within the relative value discipline, first half performance was generallyhelped by improved convertible bond pricing impacted by tightening creditspreads and rising equity prices. However, despite a relatively strong periodyear-to-date through April, convertible bond arbitrage gains were offset inpart by the consequences of May's flight-to-safety, including widening creditspreads and a decline in market valuations, with average discounts tofundamental value reaching over 2%. Additional selling pressure in the secondquarter came from volatile fund flows from long-only and convertible bondmutual funds, as well as from market makers unwilling to take on significantlymore inventory. Nonetheless, gains from hedging activity, income and gammatrading opportunities helped to blunt losses from May.Despite recent downturns in new convertible supply, many managers are stilloptimistic for traditional convertible arbitrage opportunities as the yearprogresses. Should volatility rise, there may be a greater appetite for hybridsecurities with greater convexity relative to straight bond and equity markets.Also, a greater prevalence of outright buyers for convertibles (as opposed tohedge fund buyers) tends to increase price volatility in the space, creating alarger forward potential for mispricings that managers can act upon.Abundant government and central bank activity year-to-date continued to createopportunities for certain rates managers, in many cases taking advantage ofpolicy uncertainty and the natural consequences of a dynamic creditenvironment. Developments in Europe proved to be generally profitable formanagers that had positioned for anticipated weakness in regional sovereignsand were taking advantage of mispricings due to volatile economic indicators.The first half was also beneficial for certain managers that had establishedpositions focused on systemic risks earlier in the year when protection wasrelatively cheap. For example, one manager generated favourable results throughLIBOR vs. OIS spread positions, trading around volatility in intra-bank creditrisk. For another, long-side exposure to short-term US rates also benefited asinvestors bid up safe haven assets in a volatile market.Volatility arbitrage manager performance was largely idiosyncratic. Managersthat were positioned net long volatility, or opportunistically traded in thevolatility of volatility (vol-squared), benefited from the increaseduncertainty in May. However, performance from managers with less directionalexposure to volatility, or with hedges that relied on greater differentiationwithin the equity market, tended to be much more dispersed. For example, onemanager hedged against an equity market correction by positioning a trade tobenefit from a widening spread in volatility between small and largecapitalisation stocks. However, that spread did not materialise as large capvolatility actually outpaced small capitalisation volatility, leading to lossesfor the manager early in May.Risk arbitrage strategies within the event driven space were characterised bylower deal volume dominated by select mega-deals. Among others, several largedeals - Oracle/Sun Microsystems, Berkshire Hathaway/Burlington Northern SantaFe, Kraft Foods/Cadbury, and ExxonMobil/XTO - closed during the first sixmonths, providing a source of gains for many managers. Falling new dealactivity continues to be a challenge for managers, with new volume year-to-daterunning at about two-thirds of 2008's rate, and 40% of that seen in 2007.Nonetheless, it appears that recent merger volume has been largely supported byopportunistic cash rich corporations pursuing strategic targets at the rightprice, a trend with the potential to increase given historically high corporatecash levels and modest valuations in select sectors.For distressed managers, default activity continued to fall during the firsttwo quarters of 2010. According to JP Morgan, only two defaults occurred inNorth America during June, marking the third consecutive month with only twodefaults and the lowest monthly volume since December 2007. On the face of it,this appears to impact negatively the future attractiveness of distressedstrategies, but we believe this may actually be evidence of a broader supply ofopportunities for managers to target. Extraordinary new issuance levels havebeen accommodated by high yield markets in recent months, in many cases merelybuying an extension for troubled companies to reach better times. However, inthe context of a potentially long and volatile economic recovery, we remainsceptical about the market's long-term generosity towards companies withunsustainable capital structures and substantial fundamental challenges.According to Moody's, of the 100 distressed exchanges that took place in 2009,three-quarters are low-rated at Caa1 or below, with 30% at Caa2 or below,indicating a high risk of near to medium term default. It is our view that arobust future supply of distressed securities is likely to be a matter of"when," not "if."Despite dwindling default volumes, most distressed managers continue toperceive a vigorous opportunity set with the existing supply of distressedsecurities. Positive year-todate performance for distressed strategies waslargely driven by core holdings across the financial, real estate andautomotive industries. General Growth Properties was a notable driver, asmultiple participants came forth with offers to recapitalise the real estategiant or purchase it outright. Meanwhile, Lehman Brothers claims generallytraded higher as a reorganisation plan was released in mid-March that exceededmany investors' expectations with regard to the timing and level of potentialrecoveries. Other notable holdings included AIG, Washington Mutual, Icelandicbanks, auto exposures, and select chemical producers. Outside of corporatecredit, managers also continued to pursue opportunities in smaller bankfailures, portfolio and asset sales from banks and FDIC auctions and distressedcommercial industrial loans.Given the uncertainty in the macro environment, fundamental long/short managersin aggregate continued to take a more balanced view of the market. As marketvalues improved earlier in the year, many managers took the opportunity toreduce net exposure, increase hedges and position insurance, use cash positionsstrategically, and look for shorter-term or catalyst-driven tradingopportunities. For example, one manager generated substantial gainsyear-to-date by actively building and reducing long and short positions andhedges amidst the shifting markets - not as part of a broader macroeconomicview, but in reaction to changes in individual fundamental valuations withinthe portfolio. Similarly, several successful managers took advantage of morerecent high volatility levels and elevated inter-stock correlations, tradingappropriately as security prices oscillate around their fundamental values.For both long/short equity and credit managers, the first half was a tale oftwo periods. Managers through April generally posted gains supported by slowlyimproving economic data, but notable volatility in spreads and equity priceswere fueled by EU sovereign debt concerns. In May and June, markets followedclosely a number of headline developments, with European financialdifficulties, economic deceleration in Asia and the US, uncertainty surroundingfinancial regulatory legislation and the prosecution of Goldman Sachs, and theexplosion and subsequent oil leakage in the Gulf of Mexico all providing a dragon asset values and investor confidence. Consequently, price activity tended tofocus less on company-specific factors, and boosted correlation acrosssecurities, blunting efforts for managers focused on fundamental bottom-upcatalysts.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 typicallyfrustrating in the first quarter, managers that held to their short-sideconvictions were rewarded mid-year, as double digit broad market losses and anumber of global headline events rewarded defensive positioning and selecthedging.Looking forward, managers continue to refer to a strong pipeline of fundamentalinvestment theses within a period of economic change. Nonetheless, we believeit is likely that country and region specific developments will continue toinfluence broader market performance. Top down considerations, such as thecredit-related issues in Europe, policy tightening in China, and the influenceof US monetary policy, among others, may at times dominate security specificfactors, highlighting the importance of hedging and diversification to mitigatesuch risks if they are not core to an investment thesis.Direct sourcing new origination activity continued to be held back at reducedlevels, given the spreads and liquidity available in secondary markets.Performance by many direct sourcing managers was influenced in part by creditprice fluctuations over the quarter, but attractive terms and asymmetric riskprofiles helped managers moderate downdrafts during the period, particularly inMay.Direct sourcing activity continues to be highly idiosyncratic, as managersmaintain a high degree of selectivity amidst a large opportunity set. Forexample, select disgorged assets from stressed banks have been an area ofinterest. Dispositions from asset pools that include smaller commercial andindustrial borrowers have been especially attractive recently, given thecombination of fears of a return to a recessionary environment and the cyclicalnature of these businesses. One manager acquired a large portfolio ofcommercial real estate loans at approximately 38% of par value, through onoff-market transaction sourced from a developed relationship between themanager and the seller. The portfolio was a mix of performing andnon-performing loans in hospitality, office, retail, residential, parking, andempty land, all in desirable regional markets across numerous states, withmaturities ranging up to two years, and a mix of seniority from seniormortgages to junior positions. At their purchased value, the loans areunderwritten with conservative assumptions, including zero value for certainjunior sub-performing and non-performing properties with a potential forrecovery, adding optionality to the portfolio. According to the manager, theexpected IRR on this portfolio is very attractive.The supply of capital available to middle-market businesses and assetsoverlooked by remaining traditional financing sources is still weak. Weunderstand that smaller companies (e.g., those with under US$100 millionEBITDA) may still face difficulty accessing capital markets, representing anongoing opportunity for direct sourcing managers. Additionally, we anticipatethat borrower defaults and regulatory changes which compel institutions todownsize balance sheets may also, over time, feed a supply of more complexassets, such as real estate, commodities or business ventures that may beavailable at attractive prices. We expect certain direct sourcing managers withestablished platforms and expertise in managing physical assets to bewell-suited to this opportunity set.

Investment Outlook

Fiduciaries are confronted with difficult choices in setting their strategicasset allocation in the post-crisis world. Traditional asset classes couldsuffer in a slow-growth environment, as many foresee in the years ahead. Therecent edition of Bloomberg Markets magazine ironically pictures Bill Grosswith the caption: "The managers of the world's biggest bond fund championequities, convinced that the best days of bonds are over." Equities havesuffered the "lost decade" and hover around levels they first visited ten yearsago, while their prospects for future appreciation are tied to a dubious globalgrowth scenario. Turning to alternatives, fiduciaries are concerned about theilliquidity of private equity and real asset investment and the lack oftransparency presumed to exist in marketable alternatives or hedge fundinvestments. For investors with long term horizons, lower liquidity investmentsmay be manageable with a strategic allocation that explicitly considersliquidity needs. As for transparency, we believe that significant progress isbeing made in hedge fund reporting toward providing meaningful information tofiduciaries.Transparency is an ethereal term not well tethered to the practical world inwhich fiduciaries operate; hence, we use the term "meaningful transparency" or"risk characteristics." By meaningful transparency, we reference measures thatare useful in determining the risk-return characteristics of an investment(including a portfolio of investments) and its expected performance indifferent economic and capital market scenarios. This contrasts with such itemsas a ticker or CUSIP number which, on its own, is of little use to an investor,and as in the case of a CDO or other exotic security, can be almost worthless.What would a fiduciary have made of the now infamous investment "Abacus2007-AC1" if they were to have seen this on their custodian report?Instead, we believe fiduciaries should seek to understand the likelihood of a10%, 20% or 50% loss on investment, including under what conditions that islikely to occur and over what timeframe. They need, in our opinion, to haveenough substance to believe in the causality that links an investment to itspotential performance. Thankfully, this information is increasingly a part ofthe reporting package available to fiduciaries. Unlike a decade ago, whenperformance data was the primary source of information, hedge funds areincreasingly providing meaningful risk characteristics to their investors, andthe outlook is for even greater transparency going forward. In fact, aburgeoning industry is developing in the area of risk reporting on alternativeassets due to the heterogeneous nature of hedge funds that custodians aregenerally ill-equipped to handle. Fortunately, we believe that the scale ofBlackRock, the US$9 trillion in assets serviced on our firm-wide platform andour expansive analytical team put us at a comparative advantage in providingmeaningful transparency to our investors. Our commitment to this importantfunction is further underscored by our status as a principal investingalongside our clients, as opposed to an agent merely measuring risk.The last financial crisis indelibly etched into our memory the performance ofvarious asset classes, where investors commonly experienced 50 to 60%peak-to-trough losses on equities, 20 to 25% losses on hedge funds and 5 to 35%losses on bond portfolios. What can one expect if we are saddled withdeflation, inflation, credit-spread widening, increased defaults or an equitymarket shock? This is the type of transparency that empowers fiduciaries tomake thoughtful investment decisions.BlackRock Alternative Advisors20 August 2010

Performance and Contribution to Return

Financial Summary 30 June 2010

Share Class US$ € £ NAV per Share 9.59 9.30 9.31Total Net Assets 21,154,030 20,360,466 99,445,317Mid-Market Share Price 8.00 7.81 7.72Discount to NAV 15.25% 13.86% 14.80%Monthly Performance 2010 % Share Class Jan Feb Mar Apr May Jun 6 Months US$ 1.39 0.35 1.45 1.19 -1.13 -0.39 2.87€ 1.43 0.39 1.54 1.19 -1.15 -0.51 2.90£ 1.41 0.42 1.56 1.14 -1.10 -0.39 3.04

All performance statistics are net of management fees and other expenses.

USD Contribution to Return by Primary DisciplineSix months to 30 June 2010 Year to date Relative value 0.86%Event driven 0.87%Fundamental long/short 0.99%Direct sourcing 0.14%Data as at 14 July 2010Source: BlackRockEuro Contribution to Return by Primary DisciplineSix months to 30 June 2010 Year to date Relative value 0.87%Event driven 0.88%Fundamental long/short 1.00%Direct sourcing 0.14%Data as at 26 July 2010Source: BlackRock

Sterling Contribution to Return by Primary Discipline Six months to 30 June 2010

Year to date Relative value 0.93%Event driven 0.92%Fundamental long/short 1.04%Direct sourcing 0.15%Data as at 14 July 2010Source: BlackRock

Asset Allocation as at 30 June 2010

Discipline and Strategy % Relative Value Capital Structure 1.7Convergence 16.2Rates 5.4Statistical 4.2Volatility 1.9 ---- 29.4 ----Event Driven Distressed 18.1Mergers/ Acquisitions 3.3 Corporate Actions 3.8 ---- 25.2 ----Fundamental Long/Short Equity Selection 15.9Equity Active Value 0.4 Credit 22.9 ---- 39.2 ----Direct Sourcing Lending 2.5Equity Financing 2.6Real Estate 1.0Insurance 0.0 ---- 6.1 ----

Discipline 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 64.6Western Europe 17.8Emerging Markets 9.7Developed Asia 8.0*Allocations as a percentage of investments. For allocation as a percentage ofnet assets see note 3.Statistical Summary Aggregate leverage of underlying managers 1.6x Gross US dollar long exposure 160% Gross US dollar shortexposure -94% Number of investmentprograms 40 % of top 15 investmentprograms 55.3% Statement of Assets and Liabilities30 June 2010 30 June 30 June 31 December 2010 2009 2009 Notes US$ US$ US$ (unaudited) (unaudited) (audited)Assets Investments in private investment funds, at fair value (cost 30.06.10: $175,611,257; 30.06.09: $194,022,617; 31.12.09: $189,437,888) 3 179,702,605 166,581,846 186,362,959 Unrealised gain on forward foreign currency exchange contracts 5 62,868 - 300,591 Receivable on realised forward foreign currency exchange contracts 961,491 6,935,528 1,061,693 Cash and cashequivalents 3,211,355 25,639,075 7,298,784 Due from privateinvestment funds 15,549,096 3,451,281 9,033,869 Investments in private investment funds made in advance - - 4,000,000 Other assets 36,797 59,096 28,178 ----------- ----------- ----------- 199,524,212 202,666,826 208,086,074 ----------- ----------- -----------Liabilities Unrealised loss on forward foreign currency exchange contracts 5 1,308,256 110,134 19,729 Payable on realisedforward foreign currency exchange contracts 2,592,478 - 657,030 Due to redeemed shareholders 6 - 15,292,768 1,513,658 Management fees payable 7 718,075 682,884 746,257 Accounts payable andaccrued expenses 203,189 205,801 250,245 Other liabilities 17,027 - - ----------- ----------- ----------- 4,839,025 16,291,587 3,186,919 ----------- ----------- -----------Net assets 194,685,187 186,375,239 204,899,155 ----------- ----------- -----------Statement of Operationsfor the six months ended 30 June 2010 Six months Six months Year ended ended ended 30 June 2010 30 June 2009 31 December 2009 US$ US$ US$ Notes (unaudited) (unaudited) (audited) Income Interest 1,145 191 2,466 --------- --------- ---------Expenses Management fees 7 1,487,669 1,335,278 2,813,232 Administration and custody fees 8 52,331 47,026 98,331 Other professional fees 235,108 22,124 305,890 Interest 1,538 5,770 6,572 --------- --------- --------- 1,776,646 1,410,198 3,224,025 --------- --------- ---------Net investment loss (1,775,501) (1,410,007) (3,221,559) --------- --------- --------- Net realised gain (loss) on: Investments in privateinvestment funds 516,254 (7,636,786) (7,807,075) Forward foreign currency exchange contracts (14,594,748) (19,879,815) (22,517,558) ---------- ---------- ---------- (14,078,494) (27,516,601) (30,324,633) ---------- ---------- ---------- Net change in unrealised gain (loss) on: Investments in privateinvestment funds 7,166,277 25,129,246 49,495,088 Forward foreign currency exchange contracts (1,526,250) 36,387,501 36,778,497 ---------- ---------- ---------- 5,640,027 61,516,747 86,273,585 ---------- ---------- ----------(Decrease) increase innet assets resulting from operations (10,213,968) 32,590,139 52,727,393 ---------- ---------- ----------Statement of Changes in Net Assetsfor the six months ended 30 June 2010 Six months Six months Year ended ended ended 30 June 2010 30 June 2009 31 December 2009 US$ US$ US$ (unaudited) (unaudited) (audited) Net assets, beginning of period 204,899,155 170,766,997

170,766,997

----------- -----------

-----------

Increase (decrease) in net

assets: From operations Net investment loss (1,775,501) (1,410,007) (3,221,559) Net realised gain (loss) on investments in private investment funds 516,254 (7,636,786) (7,807,075) Net realised loss on forwardforeign currency exchange contracts (14,594,748) (19,879,815) (22,517,558) Net change in unrealised gain (loss) on investments in private investment funds 7,166,277 25,129,246 49,495,088 Net change in unrealised gain(loss) on forward foreign currency exchange contracts (1,526,250) 36,387,501 36,778,497 ----------- ----------- ----------- (10,213,968) 32,590,139 52,727,393 ----------- ----------- -----------From capital transactions Conversion to 112,416 (30.06.09: 1,765; 31.12.09:

32,729) US Dollar denominated

shares 1,047,608 13,410 290,541 Conversion to 123,731

(30.06.09: 26,036; 31.12.09:

169,311) Euro denominated shares 1,562,650 269,132 1,894,182 Conversion to 264,559

(30.06.09: 11,330; 31.12.09: 27,354) Sterling denominated

shares 3,774,357 121,975 342,867 Conversion of 235,813 (30.06.09: nil; 31.12.09:

119,217) US Dollar denominated

shares (2,245,648) - (1,001,330) Conversion of 243,036

(30.06.09: 11,800; 31.12.09:

15,800) Euro denominated shares (3,068,692) (121,975) (172,786) Conversion of 73,254

(30.06.09: 26,246; 31.12.09: 106,246) Sterling denominated

shares (1,070,275) (282,542) (1,353,475) Buyback of nil (30.06.09:

175,750; 31.12.09: 330,750) Sterling denominated shares - (1,689,129)

(3,442,166)

Redemption of nil (30.06.09: 196,084; 31.12.09: 196,084) US

Dollar denominated shares - (1,629,945) (1,629,945) Redemption of nil (30.06.09: 175,870; 31.12.09: 175,870) Euro denominated shares - (1,994,731) (1,987,796) Redemption of nil (30.06.09: 881,940; 31.12.09: 881,940) Sterling denominated shares - (11,668,092) (11,535,327) ----------- ----------- ----------- - (16,981,897) (18,595,235) ----------- ----------- -----------Net assets, end of period 194,685,187 186,375,239 204,899,155 ----------- ----------- -----------Statement of Cash Flowsfor the six months ended 30 June 2010 Six months Six months Year ended ended ended 30 June 2010 30 June 2009 31 December 2009 US$ US$ US$ (unaudited) (unaudited) (audited)Cash provided by (used in): Operating activities Increase (decrease) in netassets resulting from operations (10,213,968) 32,590,139 52,727,393 Adjustments to reconcile increase (decrease) in net assets resulting from

operations to cash provided by

(used in) operating activities: Net realised (gain) loss on investments in private investment funds (516,254) 7,636,786 7,807,075 Net realised loss on forwardforeign currency exchange

contracts 14,594,748 19,879,815 22,517,558 Net change in unrealised (gain) loss on investments in

private investment funds (7,166,277) (25,129,246) (49,495,088) Net change in unrealised

(gain) loss on forward foreign

currency exchange contracts 1,526,250 (36,387,501) (36,778,497) Purchases of investments in private investment funds (4,545,595) - (18,028,187) Sales of investments in private investment funds 16,373,253 42,894,369 55,754,407 Proceeds from forward foreigncurrency exchange contracts 1,061,693 13,448,443

21,528,391

Payments on forward foreigncurrency exchange contracts (13,620,791) (40,263,786) (44,450,611) Increase in other assets (8,619) (53,825) (22,907) Decrease in management feespayable (28,182) (97,284)

(33,911)

Decrease in accounts payableand accrued expenses (47,056) (270,577)

(226,133)

Increase in other liabilities 17,027 -

- ----------- ----------- -----------Cash (used in) provided by operating activities (2,573,771) 14,247,333 11,299,490 ----------- ----------- ----------- Financing activities Payments on redemption ofShares (1,513,658) - (13,639,411) Payments on buybacks of Shares - (1,689,129) (3,442,166) ----------- ----------- ----------- Cash (used in) provided byfinancing activities (1,513,658) (1,689,129) (17,081,577) ----------- ----------- ----------- (Decrease) increase in cashand cash equivalents (4,087,429) 12,558,204 (5,782,087) ----------- ----------- ----------- Cash and cash equivalents Beginning of period 7,298,784 13,080,871 13,080,871 ----------- ----------- ----------- End of period 3,211,355 25,639,075 7,298,784 ----------- ----------- ----------- Supplemental disclosures of cash flow information Cash paid during the periodfor interest 2,340 5,770 5,770 ----------- ----------- ----------- Financial highlightsfor the six months to 30 June 2010 Six months Six months Six months Six months Six months

Six months Year ended Year ended Year ended

ended 30 ended 30 ended 30 ended 30 ended 30

ended 30 31 31 31

June June June June June June December December December 2010 2010 2010 2009 2009 2009 2009 2009 2009 (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (unaudited) (audited) (audited) (audited) $ € £ $ € £ $ € £Per share operating performance: Net asset value, beginning of period 9.32 9.04 9.04 7.60 7.40

7.36 7.60 7.40 7.36

------ ------- ------- ------- ------- ------- ------- ------- -------Income from investment operations Net investment loss (0.08) (0.09) (0.09) (0.07) (0.06) (0.06) (0.15) (0.14) (0.14) Net realised and unrealised gain on investments and forward foreign currency exchange contracts 0.35 0.35 0.36 0.78 0.74 0.74 1.87 1.78 1.82 ------- ------- ------- ------- ------- ------- ------- ------- -------Total frominvestment operations 0.27 0.26 0.27 0.71 0.68 0.68 1.72 1.64 1.68 ------- ------- ------- ------- ------- ------- ------- ------- ------- Net asset value,end of period 9.59 9.30 9.31 8.31 8.08 8.04 9.32 9.04 9.04 ------- ------- ------- ------- ------- ------- ------- ------- -------Total return* Before management fees 3.60% 3.69% 3.79% 10.17% 10.00%

9.98% 24.17% 23.68% 24.29%

Management fees (0.73%) (0.79%) (0.75%) (0.76%) (0.75%)

(0.74%) (1.51%) (1.50%) (1.50%) ------- ------- ------- ------- ------- ------- ------- ------- ------- 2.87% 2.90% 3.04% 9.41% 9.25% 9.24% 22.66% 22.18% 22.79% ------- ------- ------- ------- ------- ------- ------- ------- -------

Ratios/supplemental data**:

Net assets, end of period 21,154,030 20,360,466 99,445,317 20,102,757 17,531,363 86,082,770 21,714,551 20,864,766 94,783,739

Ratio of expensesto average net assets Before managementfees 0.28% 0.28% 0.28% 0.08% 0.08% 0.08% 0.22% 0.22% 0.22%

Management fees 1.46% 1.58% 1.51% 1.51% 1.49%

1.46% 1.50% 1.48% 1.48% ------- ------- ------- ------- ------- ------- ------- ------- ------- 1.74% 1.86% 1.79% 1.59% 1.57% 1.54% 1.72% 1.70% 1.70% ------- ------- ------- ------- ------- ------- ------- ------- -------Ratio of netinvestment loss toaverage net assetsBefore managementfees (0.28%) (0.28%) (0.08%) (0.08%) (0.08%)

(0.08%) (0.22%) (0.22%) (0.22%)

Management fees (1.46%) (1.58%) (1.51%) (1.51%) (1.49%)

(1.46%) (1.50%) (1.48%) (1.48%) ------- ------- ------- ------- ------- ------- ------- ------- ------- (1.74%) (1.86%) (1.79%) (1.59%) (1.57%) (1.54%) (1.72%) (1.70%) (1.70%) ------- ------- ------- ------- ------- ------- ------- ------- -------

\* Total return is not annualised and is calculated for each class of shares forthe respective period. An individual shareholder's return may vary from thisreturn due to timing of investments.**Ratios have been annualised except for non-recurring expenses and performancefees. The ratios have been calculated for each class as a whole.

Notes to the Unaudited Half Yearly Financial Report

1. The Company

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

The Company has been established with an unlimited life and its Board of Directors is independent of the Investment Manager.

The Company's investment objective is to generate absolute returns in excess ofthe yields on short term LIBOR securities, while endeavouring to minimise thecorresponding level of volatility. The Company seeks to achieve its investmentobjective primarily by allocating up to 100% of the Company's capital tomultiple external investment advisors pursuing strategies that utilise avariety of securities and financial instruments and employ sophisticatedtrading and portfolio management techniques.BlackRock Financial Management, Inc. ("BFM"), a Delaware corporation, is theCompany's Investment Manager and BlackRock (Channel Islands) Limited ("BCI") isthe Manager. BCI is responsible for implementing the Company's investmentpolicies and objectives as set forth by the Board of Directors. BlackRockAlternative Advisors ("BAA"), a business unit within BFM, is responsible forthe Company's investment management decisions, including identifying,evaluating, and monitoring independent investment managers, as well asdetermining the allocation of the Company's assets among these managers. BFM isregistered as an investment advisor with the United States Securities andExchange Commission and as a commodity pool operator with the United StatesCommodity Futures Trading Commission. Note 9 gives further details oftransactions with these related parties.

2. Significant Accounting Policies

The accompanying financial statements have been prepared on a going concernbasis in accordance with accounting principles generally accepted in the UnitedStates of America ("US GAAP"), as discussed in the Statement of Directors'Responsibilities. On 1 July 2009, the Financial Accounting Standards Board("FASB") launched the FASB Accounting Codification (the "Codification") as thesingle source of authoritative non-governmental US GAAP. All existingaccounting standards are superseded by the single source Half Yearly FinancialReport 30 June 2010 25 codification for interim and annual periods ending after15 September 2009. The financial statements reflect the following significantaccounting policies:Cash and cash equivalents

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

Private investment funds

The Company's investments in private investment funds, valued at US$179,702,605(30 June 2009: US$166,581,846; 31 December 2009: US$186,362,959) (92.30% (30June 2009: 89.38%; 31 December 2009: 90.95%) of net assets), are stated at fairvalue, which has been estimated by BAA in the absence of readily ascertainablemarket values. These fair values are based primarily on the net asset value andother financial information provided by the management of each underlyingprivate investment fund and are reflected net of any accrued management andincentive fees due to underlying managers as required by each privateinvestment fund's respective operating agreement. Private investment fund netasset values are generally provided monthly but may also be provided quarterly.The underlying investments of each private investment fund are accounted for atfair value as described in the private investment fund's financial statements.The fair value of certain investments may be estimated by underlying managersin the absence of observable market data. Due to the inherent uncertainty ofthese estimates, these values may differ from the values that would have beenused had a ready market for these investments existed and the differences couldbe material. In addition, the calculated fair value of certain investments,including restricted or illiquid securities, may differ from the values thatwould have been used had a ready market existed. Due to the nature of theseinstruments, an active resale market may not be readily available and pricesobtained on the date of sale may be materially different than the valuerecorded by the private investment funds.If BAA determines, based on its own due diligence and investment monitoringprocedures, that the reported net asset value of any private investment fund isnot representative of fair value, and the difference between fair value and thereported value is material, BAA shall estimate the fair value of the privateinvestment funds in good faith. For the periods ending 30 June 2010, 30 June2009 and 31 December 2009, no such fair value adjustments were recorded.Investment transactions are accounted for on a trade date basis. Realised gainsand losses on investment transactions are determined using average cost. Gainsand losses from investments in private investment funds, which are net of allfees and allocations to the investment advisors of the funds, are reflected asa net gain or (loss) on investments in the statement of operations.

Fair value of financial instruments

The fair value of the Company's assets and liabilities which qualify as financial instruments under Accounting Standards Codification ("ASC") 825 Financial Instruments (formerly Statement of Financial Accounting Standards ("SFAS") No. 107, Disclosure about Fair Value of Financial Instruments), approximates the carrying amounts presented in the statement of assets and liabilities.

Forward foreign currency exchange contracts

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

Foreign currency translation

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

Use of estimates

The preparation of financial statements in accordance with US GAAP requiresmanagement to make estimates and assumptions that affect the reported amountsof assets and liabilities and disclosures of contingent assets and liabilitiesas of the date of the financial statements and the reported amounts of revenuesand expenses during the reporting period. Actual results could differ fromthose estimates.Going concernThe Directors are satisfied that the Company has adequate resources to continuein operational existence for the foreseeable future and is financially sound.For this reason, they continue to adopt the going concern basis in preparingthe financial statements. The Company is able to meet all of its liabilitiesfrom its assets and the ongoing expenses are approximately 1.8% of the netassets.

Comparative figures

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

Income taxesIn June 2006 FASB issued Interpretation No. 48 ("FIN 48"), Accounting forUncertainty in Income Taxes. As of 1 July 2009, the disclosures required by FIN48 have been included within ASC 740, Income Taxes. FIN 48 clarifies theaccounting for uncertainty in income taxes recognised in an entity's financialstatements. FIN 48 requires entities to determine whether it is more likelythan not that a tax position will be sustained upon examination by theappropriate taxing authorities before any part of the benefit can be recordedin the financial statements. It also provides guidance on the recognition,measurement and classification of income tax uncertainties, along with anyrelated interest and penalties.The Company has reviewed its tax positions and believes it is more likely thannot that they will be sustained upon examination. Accordingly, the Company doesnot have any unrecognised tax benefits or liabilities.The Company has invested in numerous jurisdictions and is therefore subject tovarying policies and statutory time limitations with respect to examination

oftax positions.3. InvestmentsSummary information reflecting the Company's investments in private investmentfunds as at 30 June 2010, 30 June 2009 and 31 December 2009 is detailed below.Investments held by the Company which exceed 5% of net assets are individuallyidentified, while smaller investments in other funds are aggregated. TheCompany is not able to obtain complete investment holding details on each ofthe private investment funds held within the Company's portfolio in order todetermine whether the Company's proportional share of any investments held bythe private investment fund exceeds 5% of the net assets of the Company at theend of each period.30 June 2010 % of Fair Company's Primary Value Net Primary Geographic RedemptionsInvestment US$ Assets Disciplines Location* Permitted Citadel 10,190,017 5.23 Relative North QuarterlyKensington Value America, Global Western Strategies Fund Europe, Ltd** Emerging Markets, Developed Asia Other Funds 169,512,588 87.07 Total 179,702,605 92.30

*Refers to the primary geographic locations of the investments held by theinvestee private investment fund.**Investment made through a master fund managed by BlackRock or its affiliatesas discussed in Note 9.30 June 2009 % of Fair Company's Primary Value Net Primary Geographic RedemptionsInvestment US$ Assets Disciplines Location* Permitted Citadel 9,841,316 5.28 Relative North QuarterlyKensington Value America, Global Western Strategies Fund Europe, Ltd** Emerging Markets, Developed Asia Other Funds 156,740,530 84.10 Total 166,581,846 89.38

*Refers to the primary geographic locations of the investments held by theinvestee private investment fund.**Investment made through a master fund managed by BlackRock or its affiliatesas discussed in Note 9.31 December 2009 % of Fair Company's Primary Value Net Primary Geographic RedemptionsInvestment US$ Assets Disciplines Location* Permitted Citadel 11,774,603 5.75 Relative North QuarterlyKensington Value America, Global Western Strategies Fund Europe, Ltd** Emerging Markets, Developed Asia Elliot 10,368,149 5.06 Event North QuarterlyInternational Driven America, Limited** Western Europe, Emerging Markets, Developed Asia Other Funds 164,220,207 80.14 Total 186,362,959 90.95

*Refers to the primary geographic locations of the investments held by theinvestee private investment fund.**Investment made through a master fund managed by BlackRock or its affiliatesas discussed in Note 9.Geographical allocation as a percentage of the Company's net assets at 30 June2010 comprised 59.6% (30 June 2009: 59.1%; 31 December 2009: 59.6%) allocatedto North America, 16.4% (30 June 2009: 13.5%; 31 December 2009: 15.5%) toWestern Europe, 9.0% (30 June 2009: 8.6%; 31 December 2009: 9.1%) to EmergingMarkets, and 7.4% (30 June 2009: 8.2%: 31 December 2009: 6.8%) to DevelopedAsia.The agreements related to investments in private investment funds provide forcompensation to the investment managers or general partners in the form ofmanagement fees generally ranging from 0% to 2% per annum of net assets orpartners' capital and incentive fees or allocations generally ranging from 0%to 20% of net profits earned. The private investment funds' management fees andincentive fees or allocations are reflected in the increase (decrease) in netassets resulting from operations in 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 Topic 946, Investment Companies - FinancialServices. 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 that willnot be lifted in the near term shall be categorised as a Level 3.The Company's investments in private investment funds not otherwise traded on asecurities exchange are classified within level 2 or level 3 of the fair valuehierarchy as the value of these interests are primarily based on the respectivenet asset value reported by management of each underlying private investmentfund rather than actual market transactions and other observable market data.The determination of whether or not such investment will be classified in level2 or level 3 will be based upon the ability to redeem such investment within areasonable period of time (within 90 days of year end). If an investment may beredeemed within 90 days of year end and the fair value of the investment isbased on information provided by the underlying fund management, the investmentis classified as level 2; in all other cases the investment will be classifiedas level 3. The Company's investments in foreign currency exchange contractsare classified within level 2 of the fair value hierarchy.The following tables summarise the valuation of the Company's investments underthe SFAS 157 fair value hierarchy as at 30 June 2010, 30 June 2009 and 31December 2009: 30 June 2010 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Assets Investments in private investment funds* Relative Value - 23,371,696 52,614,410 75,986,106 Fundamental Long/ Short - 28,326,456 20,874,062 49,200,518 Event Driven - 24,205,361 22,693,811 46,899,172 Direct Sourcing - - 7,616,809 7,616,809 ---------- ---------- ----------- -----------Total investments inprivate investment funds - 75,903,513 103,799,092 179,702,605 ---------- ---------- ----------- -----------Derivatives Forward foreign currency exchange contracts - 62,868 - 62,868 ---------- ---------- ----------- ----------- - 75,966,381 103,799,092 179,765,473 ---------- ---------- ----------- -----------Liabilities Derivatives Forward foreign currency exchange contracts - (1,308,256) - (1,308,256) ---------- ---------- ----------- -----------30 June 2009 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Investments in private investment funds* - - 166,581,846 166,581,846 Unrealised loss on forward foreign currency exchange contracts - (110,134) - (110,134) ---------- ---------- ----------- ----------- - (110,134) 166,581,846 166,471,712 ---------- ---------- ----------- -----------31 December 2009 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Assets Investments in private investment funds* - 48,355,088 138,007,871 186,362,959 Unrealised gain onforward foreign currency exchange contracts - 300,591 - 300,591 Unrealised loss on forward foreign currency exchange contracts - (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.The changes in investments measured at fair value using level 3 inputs for thesix months ended 30 June 2010 and 30 June 2009 and the year ended 31 December2009 are reflected below:30 June 2010 Relative Fundamental Event Direct Value Long/Short Driven Sourcing US$ US$ US$ US$ Balance, 1 January 2010 56,713,288 41,696,546 30,608,179 8,989,858 Purchases (sales), net (5,711,602) (5,071,400) (9,531,985) (1,697,363) Realised and unrealised gain (loss), net 1,612,724 2,339,183 1,617,617 324,314 ---------- ---------- ---------- ---------Transfers in to level 3 - - - - Transfers out of level 3 - (18,090,267) - - ---------- ---------- ---------- ---------Balance, 30 June 2010 52,614,410 20,874,062 22,693,811 7,616,809 ---------- ---------- ---------- ---------Changes in unrealised gain (loss) related to the Company's level 3 investments held at 30 June 2010 2,802,213 1,227,785 5,746,541 (575,050) ---------- ---------- ---------- ---------30 June 2009 US$ Balance, 1 January 2009 169,003,326 Purchases (sales), net (19,913,940) Realised and unrealised gain (loss), net 17,492,460 -----------Balance, 30 June 2009 166,581,846 ----------- Change in unrealised gain (loss) related to the Company's level 3 investments held at 30 June 2009 25,129,246 -----------31 December 2009 US$ Balance, 1 January 2009 169,003,326 Purchases (sales), net (24,328,380)

Realised and unrealised gain, net 41,688,013

Transfers 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, the Companyrecognised transfers in and out of Level 3 above at 31 December 2009. Forsubsequent periods the Company recognises transfers in and out of level 3 as ofthe last day of the period. Realised and unrealised gains recorded for level 3investments are reported as net realised gain from investments and net changein 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 major category. The table below summarises thefair value and other pertinent liquidity information of the underlyinginvestments by major category as at 30 June 2010 and 31 December 2009:30 June 2010 Redemption Illiquid Notice Fair Value Investments (1) Gates (2) Lock-Ups (3) Redemption PeriodMajor Category US$ US$ US$ US$ Frequency (4) (4) Relative Value (a) 75,986,106 7,773,945 26,560,643 - Monthly, 30-90 days Quarterly, Semi-Annually, Bi-Annually Fundamental Long/Short 49,200,518 3,910,752 12,707,396 2,740,155 Monthly, 30-90 days(b) Quarterly, Annually Event Driven (c) 46,899,172 4,415,053 6,795,132 7,336,115 Monthly, 30-360 Quarterly, days Annually Bi-Annually

Direct Sourcing (d) 7,616,809 3,352,799 -

- Quarterly, 360 days Annually ----------- ---------- ---------- ---------- Total 179,702,605 19,452,549 46,063,171 10,076,270 ----------- ---------- ---------- ----------

(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 30 June 2010,depending on the specific investment and market conditions. This does notinclude private investment funds with gates and lock-ups, which are notedabove.

(2) Represents investor level and fund level gates. The gates have been in place for 9 to 12 months at 30 June 2010, 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 18 months to 24 months at 30 June 2010.

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

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

(a) Investment strategies within this category seek to profit from themispricing of related financial instruments. This discipline utilisesquantitative and qualitative analysis to identify securities or spreads betweensecurities that deviate from their theoretical fair value and/or historicalreturns. The fair values of the investments in this category have beenestimated based on the net asset value provided by management of the underlyingfund.(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 assetvalue provided by management of the underlying fund.(c) Investment strategies within this category concentrate on companies thatare or may be subject to extraordinary corporate events such as restructurings,takeovers, mergers, liquidations, bankruptcies or other corporate events. Thefair values of the investments in this category have been estimated based onthe net asset value provided by management of the underlying fund.(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 based onthe net asset value provided by management of the underlying fund.31 December 2009 Redemption Illiquid Notice Fair Value Investments (1) Gates (2) Lock-Ups (3) Redemption PeriodMajor Category US$ US$ US$ US$ Frequency (4) (4) Relative Value (a) 74,488,110 8,098,990 33,084,026 6,331,027 Monthly, 30-90 days Quarterly, Semi-Annually Fundamental Long/Short 52,538,708 4,431,284 4,248,915 6,321,234 Monthly, 30-90 days(b) Quarterly, Annually Event Driven (c) 50,346,284 4,367,969 - 17,135,755 Monthly, 30-150 Quarterly, days Annually Direct Sourcing (d) 8,989,857 3,290,353 - - Quarterly, 90-120 Annually 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 31 December 2009,depending on the specific investment and market conditions. This does notinclude private investment funds with gates and lock-ups, which are notedabove.

(2) Represents investor level and fund level gates. The gates have been in place for 9 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 themispricing of related financial instruments. This discipline utilisesquantitative and qualitative analysis to identify securities or spreads betweensecurities that deviate from their theoretical fair value and/or historicalreturns. The fair values of the investments in this category have beenestimated based on the net asset value provided by management of the underlyingfund.(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 assetvalue provided by management of the underlying fund.(c) Investment strategies within this category concentrate on companies thatare or may be subject to extraordinary corporate events such as restructurings,takeovers, mergers, liquidations, bankruptcies or other corporate events. Thefair values of the investments in this category have been estimated based onthe net asset value provided by management of the underlying fund.(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 based onthe net asset value provided by management of the underlying fund.

4. Financial instruments with off-balance sheet risk

The Company's investments in private investment funds involve varying degreesof interest rate risk, credit and counterparty risk, and market, industry orgeographic concentration risks for the Company. While BAA monitors these risks,the varying degrees of transparency into and potential liquidity of thesecurities in the private investment funds may hinder BAA's ability to manageand mitigate these risks effectively.

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 related to the private investment funds is limited to amountsincluded in the Company's investments in private investment funds recorded asassets in the statement of assets and liabilities.

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

Credit and counterparty risk

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

The Company is indirectly subject to certain credit risks arising from theinvestments made by the private investment funds. Credit risk is the amount ofaccounting loss that the private investment funds would incur if a counterpartyfailed to perform its obligations under contractual terms. The Company is alsosubject to the credit risk that the private investment funds fail to performunder their respective agreements.The Company may be directly subject to credit risks arising from OTC derivativefinancial instrument transactions. The Company's direct exposure to credit riskat any point in time is limited to amounts included in the Company's unrealisedgain on derivative financial instruments recorded as assets or liabilities onthe statement of assets and liabilities. The Company enters into OTC derivativefinancial instruments transactions only with major commercial and investmentbanks in an effort to limit its OTC risk.

Liquidity risk

The private investment funds invest in securities and investments with variousdegrees of liquidity and as such the Company is subject to certain redemption/withdrawal provisions, in accordance with the private investment funds'offering agreements.Certain of the Company's private investment funds have the ability to suspendredemptions/withdrawals, and restrict redemptions/withdrawals through thecreation of side pockets. At 30 June 2010, 2.53% (30 June 2009: 9.49%; 31December 2009: 3.23%) of the Company's net assets were subject to privateinvestment funds that had suspended redemptions/withdrawals (including thoseprivate investment funds undergoing liquidation); and 7.22% (30 June 2009:4.35%; 31 December 2009: 6.62%) of the Company's net assets were investeddirectly in side pockets maintained by private investment funds. The Company'sability to liquidate its investment in a private investment fund that hasimposed such provisions may be adversely impacted. In such cases, until theCompany is permitted to liquidate its interest in a private investment fund,the Company's residual interest remains subject to continued exposure tochanges in valuations.The Company may also invest in closed-end investments that may not permitredemptions/withdrawals or in private investment funds that impose an initial"lock-up" period before a redemption/withdrawal can be made. In addition,certain of the Company's private investment funds have the ability to imposeredemption gates, and in so doing, may reduce the Company's requestedredemption/withdrawal below the requested amount. At 30 June 2010, 5.18% (30June 2009: 19.69%; 31 December 2009: 14.54%) of the Company's net assets weresubject to private investment funds that had imposed initial lock-up periods onredemptions/withdrawals and 23.66% (30 June 2009: 15.58%; 31 December 2009:18.22%) of the Company's net assets were subject to private investment fundsthat had imposed redemption/withdrawal gates.

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 the disclosurerequirements of SFAS No. 133, Accounting for Derivative Instruments and HedgingActivities. SFAS 161 is intended to improve financial reporting aboutderivative instruments and hedging activities by requiring enhanced disclosuresto enable investors to understand better how those instruments and activitiesare accounted for, how and why they are used, and their effects on an entity'sfinancial 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 share class.The contractual amounts of these instruments represent the exposure the Companyhas to the respective currencies associated with these financial instruments.The measurement of the risks associated with forward foreign currency exchangecontracts is meaningful only when all related and offsetting transactions areconsidered.

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

30 June 2010 Asset derivatives Liability derivatives Fair Value Fair ValueDerivatives Location US$ Location US$ Forward foreign Unrealised 62,868 Unrealised (1,308,256)currency gain on loss on exchange forward forward contracts foreign foreign currency currency exchange exchange contracts contracts 30 June 2009 Asset derivatives Liability derivatives Fair Value Fair ValueDerivatives Location US$ Location US$ Forward foreign Unrealised - Unrealised (110,134)currency gain on loss on exchange forward forward contracts foreign foreign currency currency exchange exchange contracts contracts

31 December 2009 Asset derivatives Liability derivatives

Fair Value Fair ValueDerivatives Location US$ Location US$ Forward foreign Unrealised 300,591 Unrealised (19,729)currency gain on loss on exchange forward forward contracts foreign foreign currency currency exchange exchange contracts contracts The following tables present the effect of derivative instruments on theCompany's financial performance and the location on the statement ofoperations:30 June 2010 Derivatives Location Gain (loss) on derivatives US$ Forward foreign Net realised loss on forward (14,594,748)currency foreign currency exchange exchange contracts contracts Forward foreign Net change in unrealised gain (1,526,250)currency (loss) on forward foreign currency exchange exchange contracts contracts 30 June 2009 Derivatives Location Gain (loss) on derivatives US$ Forward foreign Net realised loss on forward (19,879,815)currency foreign currency exchange exchange contracts contracts Forward foreign Net change in unrealised gain 36,387,501currency (loss) on forward foreign currency exchange exchange contracts contracts 31 December 2009 Derivatives Location Gain (loss) on derivatives US$ Forward foreign Net realised loss on forward (22,517,558)currency foreign currency exchange exchange contracts contracts Forward foreign Net change in unrealised gain 36,778,497currency (loss) on forward foreign currency exchange exchange contracts contracts

The obligations under these financial instruments as at 30 June 2010, 30 June 2009 and 31 December 2009 were as follows:

30 June 2010 Settlement Contract to Contract to Currency date deliver receive Fair value € 30 September 2010 $24,949,627 €20,430,000 $62,868£ 30 September 2010 $150,269,195 £99,680,000 $(1,308,256)30 June 2009 Settlement Contract to Contract to Currency date deliver receive Fair value € 2 October 2009 $26,222,984 €18,680,000 $(14,548)£ 2 October 2009 $151,710,814 £92,140,000 $(95,586)31 December 2009 Settlement Contract to Contract to Currency date deliver receive Fair value € 1 April 2010 $29,598,161 €20,650,000 $(19,729)£ 1 April 2010 $151,254,101 £93,760,000 $300,591 It 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 currency exchangecontracts with the same settlement date.The Company's unrealised gain (loss) relating to forward foreign currencyexchange contract obligations at 31 December 2009 was US$280,862, resulting ina net change in unrealised gain (loss) of US$(1,526,250) for the period ended30 June 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 30 June 2010, 30 June 2009 and 31 December 2009 all open forward foreign currency exchange contracts are with a single counterparty.

6. Share Capital, Voting Rights and Share Conversion

Authorised:

100 Management SharesUnlimited Shares of any class Shares in Shares in Shares in Net issue at issue at issue asset 30 30 at 31 value June June December per 2010 2009 2009 share Management Shares 2 2 2 - US Dollar denominated Shares 2,206,732 2,418,382 2,330,129 $9.59 Euro denominatedShares 2,189,040 2,169,070 2,308,345 €9.30 Sterling

denominated Shares 11,011,349** 10,884,020* 10,820,044** £9.31 *including 175,750 shares held in treasury**including 330,750 shares held in treasury

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 Company's intention to pay dividends, however the Directors have the discretion 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 during the period as a result of currency calculation dates between December 2009 and June 2010:

Currency Number of shares Date of Number of sharesconversion date converted issue of issued US$ € £ new shares US$ € £ 31 December 2009 75,723 - 72,601 28 January 2010 112,416 1,034 48,285 31 March 2010 160,090 243,036 653 30 April 2010 - 122,697 216,274 30 June 2010 - 122,697 - 30 July 2010 870 - 99,763Reverse Auction Tender OfferAs a result of the operation of the reverse auction tender offer 165,505 USDollar denominated Shares, 164,178 Euro denominated Shares and 801,045 Sterlingdenominated Shares, will be repurchased on or before 7 September 2010. AllShares purchased pursuant to the reverse auction tender offer will be held intreasury.

The reverse auction tender offer was over subscribed and valid requests tendering 10.96% of the Company's US Dollar denominated Shares, 15.61% of the Company's Euro denominated Shares and 41.86% of the Company's Sterling denominated Shares were received.

The discount level to the published NAV per Share of the US Dollar Shares, EuroShares and Sterling Shares as at 30 June 2010, the strike discount, at whichthe successfully tendered shares will be repurchased is 9.0%, 11.0% and 14.0%.The minimum discount level was 9%.

The strike price per US Dollar denominated Share is US$8.62, per Euro denominated Share €8.18 and per Sterling denominated Share £7.91. The consideration will be settled on or before 7 September 2010.

2010 2009 Number of Number ofUS Dollar denominated Shares shares shares Number of shares in issue on 1 January 2,330,129 2,612,701 Number of shares converted / redeemed during the period (235,813) (196,084) Number of shares issued during theperiod 112,416 1,765 --------- ---------Number of shares in issue on 30 June 2,206,732 2,418,382 --------- ---------

On 30 July 2010, a further 870 US Dollar denominated Shares were issued as a result of the June 2010 currency conversion calculation date.

On or before 7 September 2010, 165,505 US Dollar denominated Shares will be repurchased as a result of the reverse auction tender offer.

2010 2009 Number of Number ofEuro denominated Shares shares shares Number of shares in issue on 1 January 2,308,345 2,330,704 Number of shares converted /redeemed during the period (243,036) (175,870) Number of shares issued during theperiod 123,731 14,236 --------- ---------Number of shares in issue on 30 June 2,189,040 2,169,070 --------- ---------

On 30 July 2010, 122,697 Euro denominated Shares were converted as a result of the June 2010 currency conversion calculation date.

On or before 7 September 2010, 164,178 Euro denominated Shares will be repurchased as a result of the reverse auction tender offer.

2010 2009 Number of Number ofSterling denominated Shares shares shares Number of shares in issue on 1 January 10,489,294* 11,780,876 Number of shares converted / redeemed during the period (73,254) (908,186) Number of shares issued duringthe period 264,559 11,330 Number of shares purchased and placed in treasury in the period - (175,750) ---------- ----------Number of shares in issue on 30 June 10,680,599* 10,708,270 ---------- ----------

*excluding treasury shares

On 30 July 2010, a further 99,763 Sterling denominated Shares were issued as a result of the June 2010 currency conversion calculation date.

On or before 7 September 2010, 801,045 Sterling denominated Shares will be repurchased as a result of the reverse auction tender offer.

Voting rights

With effect from 1 January 2010, the voting rights of both the Euro andSterling denominated Shares were recalculated in accordance with the provisionsof the Articles of Association of the Company and the voting rights of theSterling denominated shares changed to 1.6 per share. The voting rights of theEuro denominated Shares remained as 1.4 per share.As at 30 June 2010, the issued share capital and share voting rights were asfollows: 30 June 2010 30 June 2009 Number Votes Voting rights Number Votes of per Voting of per Voting shares share rights shares share rightsShare Class ManagementShares 2 - - 2 - - US Dollar denominated Shares 2,206,732 1.0 2,206,732 2,418,382 1.0 2,418,382 Euro denominatedShares 2,189,040 1.4 3,064,656 2,169,070 1.4 3,036,698 Sterling denominated Shares (excluding treasury shares) 10,680,599 1.6 17,088,958 10,708,270 1.4 14,991,578 ---------- ---------- 22,360,346 20,446,658 ---------- ----------

7. Management and performance fees

The Company has entered into a Management Agreement with BCI to provide certaininvestment management services to the Company. Under this agreement, BCI earnsa quarterly investment management fee equal to one quarter of 1.5% of the NAVand an annual performance fee equal to 10% of the amount by which the NAVexceeds the NAV at the date of the launch of the Company. As provided in theregistration document, the amount of fees paid to BCI is determined based onthe net assets and the performance of the Company for the respectivecalculation period. For the year ended 31 December 2009 and the periods ended30 June 2009 and 30 June 2010, the management fees under this agreement were: Year ended Period ended Period ended 31 December 30 June 2010 30 June 2009 2009Share class

US Dollar denominated Shares 159,846 154,531 309,353 Euro denominated Shares 212,301 181,784 396,407 Sterling denominated Shares 1,115,522 998,963 2,107,472

--------- --------- --------- 1,487,669 1,335,278 2,813,232 --------- --------- ---------As at 30 June 2010, an amount of $718,075 (30 June 2009: $682,884; 31 December2009: $746,257) was payable in respect of the management fee. There were noperformance fees earned for the period ended 30 June 2010 or the year ended 31December 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 period ended30 June 2010, $52,331 (period ended 30 June 2009: $47,026; year ended 31December 2009: $98,331) was incurred for the Sub-Administrator's services inaccordance with the Administration Agreement.

9. Other related party transactions

During the periods ended 30 June 2010 and 30 June 2009 and the year ended 31December 2009, there were investment transactions with other entities managedby BFM. The consideration paid and received in connection with each of thesetransactions was based on the prevailing net asset value of the investment atthe date of the transaction. None of these transactions had a material impacton the performance of the Company.The Company may invest in one or more master funds through which the Companyand other funds or accounts managed by BFM or its affiliates may invest for theprimary purpose of consolidating investments by these funds and accounts into asingle investment in one or more private investment funds.The Directors of the Company consider that all transactions with 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$109,374 for the period ended 30 June 2010 (periodended 30 June 2009: US$84,404; year ended 31 December 2009: US$169,168). Thisamount includes fees for Directors services, reimbursement for travel and otherout-of-pocket expenses relating to attendance at meetings and other matters,including any such expenses relating to the performance of due diligence forthe benefit of the Company.

Certain Directors of the Company have shareholdings in the Company.

Through its investment in a master fund managed by BlackRock or its affiliates,the Company is invested in R3 Capital Partners (C), Ltd. (the "R3 Fund"), afund vehicle previously managed by R3 Capital Partners ("R3"). Effective 30April 2009, BlackRock assumed responsibilities for the management of the R3Fund and a number of R3 employees are now employed by BlackRock. In connectionwith this arrangement, the Company's investment advisory fee calculation wasmodified 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. Advancesunder the Facility Agreement are secured by all of the Company's investments inprivate investment funds. Under the Facility Agreement, the Company ispermitted to borrow at a rate based on the UBS base rate. The borrowing rate on30 June 2010 was 1.56% (30 June 2009: 1.53%; 31 December 2009: 1.42%). As at 30June 2010, 30 June 2009 and 31 December 2009, the Company had no outstandingbalance under the Facility Agreement.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 2010. The borrowing rate on the CommittedFacility is based on the UBS base rate and on 30 June 2010 the borrowing ratewas 1.56% (30 June 2009: 1.53%; 31 December 2009: 1.42%). There has been noborrowing on the Committed Facility.

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 August 2010, thedate that these financial statements were available to be issued, anddetermined that no subsequent events occurred that would require recognition oradditional disclosure in these financial statements.

13. Reports

Copies of the half yearly financial report will be posted to shareholders assoon as practicable. Copies will also be available to the public from theCompany's registered office at Forum House, Grenville Street, St Helier, JerseyJE1 OBR, and on the Company's website at www.blackrockinternational.com/bars/Library/Literature.20 August 2010Forum HouseGrenville StreetSt HelierJerseyJE1 OBR

For further information please contact: Ian Webster, Director - 01534 600800 BlackRock (Channel Islands) Limited

Or William Clutterbuck The Maitland Consultancy - 020 7379 5151 END

vendor

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