BlackRock UK Absolute Alpha Fund

Transcription

1 BlackRock UK Absolute Alha Fund About Us BlackRock is a remier rovider of asset management, risk management, and advisory services to institutional, intermediary, and individual clients worldwide. As of 31 December 2012, the firm managed 2.35 trillion across asset classes in searate accounts, mutual funds, other ooled investment vehicles, and the industry-leading ishares exchange-traded funds. Annual Reort 1 January 2012 to 31 December 2012 Through BlackRock Solutions, the firm offers risk management and advisory services that combine caital markets exertise with rorietarily-develoed analytics, systems, and technology. BlackRock Solutions currently rovides risk management and enterrise investment services for 8.47 trillion in assets. BlackRock serves clients in North and South America, Euroe, Asia, Australia, Africa, and the Middle East. Headquartered in New York, the firm maintains offices in 30 countries around the world. For more information Tel blackrock.co.uk

2 About the Fund Managers BlackRock UK Absolute Alha Fund Mark Lyttleton, Managing Director and ortfolio manager, is a member of the UK Equity team in the Fundamental Equity division of BlackRock s Alha Strategies Grou. Mr. Lyttleton manages the UK Dynamic Fund and co-manages the UK Absolute Alha Fund. He also covers the Food & Drug Retailers and Non-Life Insurance sectors. Mr. Lyttleton s service with the firm dates back to 1992, including his years with Merrill Lynch Investment Managers (MLIM), which merged with BlackRock in Mr. Lyttleton qualified with a BSc (Hons) in Chemistry from the University of York in Nick Osborne, CFA, Director and ortfolio manager, is a member of the UK Equity team in the Fundamental Equity division of BlackRock s Alha Strategies Grou. He co-manages the UK Absolute Alha Fund for retail investors and covers the Real Estate and Household Goods sectors. Nick is the head of research for the UK Equity team. Mr. Osborne s service with the firm dates back to 1999, including his years with Merrill Lynch Investment Managers (MLIM), which merged with BlackRock in He began his career with MLIM in 1999 as an investment analyst on the UK and Emerging Market teams. Mr. Osborne earned a BSc in Economics from Bristol University in Investment Objective & Policy BlackRock UK Absolute Alha Fund seeks to achieve a ositive absolute return for investors and, as such, the Fund will not be managed against any UK equity index. The Fund will seek to achieve this investment objective by taking long ositions and using derivatives to take synthetic long and synthetic short investment ositions. The Fund rimarily aims to gain investment exosure to equities and equity-related securities of, or giving exosure to, comanies incororated or listed in the UK. In order to gain this exosure, the Fund invests rimarily in derivatives, equities and equity-related securities and, when determined aroriate, cash and near cash. The Fund may also invest in other transferable securities, ermitted money-market instruments, ermitted deosits and units in collective investment schemes. The Fund will be managed with the aim of delivering absolute (more than zero) returns on a 12 month basis in any market conditions. However, an absolute return is not guaranteed and the Fund may exerience eriods of negative return. The Fund was established on 25 Aril 2005 and was authorised by the FSA on 29 Aril The Fund changed its investment objective and adoted its resent name with effect from 1 Setember This Annual Reort covers the year ended 31 December 2012, the first six months of which were commented on in the Interim Reort to 30 June For a coy, lease contact us. Performance Table Period of Reort One Year to Five Years to Since Launch to The Fund returned: Caital Return A Income Units +0.3% +3.8% +36.3% Total Return (with net income reinvested) A Accumulation Units +0.3% +6.2% +42.7% P Accumulation Units^ +0.5% +5.9% +23.5% D Accumulation Units^ +1.2% N/A +0.6% For comarison uroses:* FTSE All-Share Index# +12.3% +13.2% +68.5% 3 month Sterling LIBOR +0.8% +9.6% +25.0% All Fund figures quoted are based on bid-to-bid dealing rices (the rice at which units are sold). Performance is calculated net of fees. *The Fund is not managed in reference to a benchmark index. For urely reference uroses we are showing the FTSE All-Share Index as a general indicator of the erformance of UK equities and the 3 month Sterling LIBOR as an indicator of the general return on cash investments over the eriod. # Figures from: Morningstar. ^ Fund caital returns not available. Since launch figures are from Since launch figures are from All financial investments involve an element of risk. Therefore, the value of your investment and the income from it will vary and your initial investment amount cannot be guaranteed. Changes in exchange rates may cause the value of an investment to fluctuate. Past erformance is not a guide to future erformance and should not be the sole factor of consideration when selecting a roduct. Annual erformance to most recent quarter end to to to to * to * UK Absolute Alha A Class +0.3% -7.1% +3.6% +8.1% +1.8% UK Absolute Alha P Class +0.5% -6.9% +3.2% +7.9% +1.5% UK Absolute Alha D Class +1.2% -6.1% +3.6% N/A N/A All figures quoted are based on bid-to-bid dealing rices (the rice at which units are sold), with net income reinvested. Performance is calculated net of fees. Performance is shown for comlete 12 month eriods only. * Performance data does not exist for the relevant eriods (for one or more unit classes). Coies of Manager s Reorts and Prosectus are available on request. Dealing and Investor Services: blackrock.co.uk Distributions The Fund recorded a net shortfall after taxation for the year to 31 December Accordingly no distribution was ayable (2011: Nil). 1

3 Performance Record Net Asset Value At 31 December Unit Class Units in Issue Net Asset Value of Fund Net Asset Value er Unit 2012 A Income 2,559,019 3,325, A Accumulation 3,797,956 5,168, P Accumulation 471,668, ,496, D Accumulation 50,657,038 61,147, A Income 5,512,192 7,140, A Accumulation 15,010,901 20,365, P Accumulation 936,417,929 1,096,662, D Accumulation 82,967,859 98,839, A Income 16,958,841 23,654, A Accumulation 24,071,591 35,169, P Accumulation 1,330,105,695 1,673,262, D Accumulation 301,430, ,872, Income (Net Distributions/Net Accumulations) Calendar Year A Income Units Per Unit A Accumulation Units Per Unit P Accumulation Units Per Unit D Accumulation Units* Per Unit N/A N/A To 28 February. * D Accumulation class commenced July Caital (Unit Prices) A Income Units A Accumulation Units P Accumulation Units D Accumulation Units* Calendar Year Highest Offer Price Lowest Bid Price Highest Offer Price Lowest Bid Price Highest Offer Price Lowest Bid Price Highest Offer Price Lowest Bid Price N/A N/A N/A N/A To 31 December. * D Accumulation class commenced July Risk and Reward Profile Lower Risk Tyically lower rewards Higher Risk Tyically higher rewards A Income A Accumulation P Accumulation D Accumulation `` The risk indicator was calculated incororating simulated historical data and may not be a reliable indication of the future risk rofile of each unit class. `` The risk category shown is not guaranteed and may change over time. `` The lowest category does not mean risk free. For more information on this, lease see the Fund s Key Investor Information Documents (KIIDs), which are available at Ongoing Charges Detailed in the following table are the charges used to meet the costs of running the Fund, which include the costs of marketing and distribution. These charges reduce the otential growth of your investments. The charges may vary from year to year. The charges exclude ortfolio trade-related costs, excet costs aid to the custodian/trustee and entry/exit charges aid to an underlying collective investment scheme (if any). The ongoing charges figures are based on exenses for the twelve month eriod ended 31 December Unit Class 31 December 2012 A Income 1.93% A Accumulation 1.93% P Accumulation 1.68% D Accumulation 0.93% In addition to the above, the Fund is subject to a erformance fee on its class P Accumulation and class D Accumulation units. No erformance fee was charged during the eriod. The erformance fee is charged at 20% on any outerformance of the 3 month Sterling LIBOR return subject to a high water mark as outlined in the Prosectus. Refer to Note 4 for further details. 2 BlackRock UK Absolute Alha Fund 3

4 Investment Reort The BlackRock UK Absolute Alha Fund roduced a ositive absolute return of 0.5%* for the year to 31 December Whilst this is below what we have delivered historically and what we would hoe to generate in the medium term, it is crucial that we grow asset value. In the Fund s last annual reort we evaluated the disaointing exerience of 2011, when the Fund suffered a fall in asset value, and discussed the changes that we lanned to make to revent this haening again. We decided to reduce the number of holdings across our long and relative exosures in order to increase the roortion of return accounted for by individual stocks rather than market direction. We sought to further emhasise liquidity and reduce our exosure to a number of smaller, relatively immature comanies, where we felt that valuations relative to the broader market were not sufficiently comelling, given the increased risk rofile. Finally, we resolved to materially change our short ositions, relacing index ositions with single stock ositions in order to restore our ability to create alha in this area of the Fund. These changes have now all been imlemented and the Fund s structure has imroved materially. The number of holdings across our long and relative exosures has been reduced by aroximately 20%, significantly imroving the otential to create alha and ensuring strict cometition for the Fund s caital. The allocation to smaller, younger comanies has substantially reduced and those ositions that have been retained are managed with greater intensity. Finally, and otentially most significantly, our short exosure has been significantly reshaed to comrise exclusively single stock ositions. There remains a degree of risk that the US lunges off the fiscal cliff but recent exerience suggests that a comromise can be reached, albeit at the eleventh hour. In our view, equities aear good value comared to history whilst low risk assets such as gilts look relatively exensive, and otentially vulnerable to olicy change. In this context we have recently increased the Fund s market exosure. After a very disaointing erformance in 2011 we reviewed the ortfolio in a thorough and disassionate way. These changes leave the Fund well-ositioned and we are otimistic about otential returns. Finally, we thank our investors once again for their atience and look forward to January 2013 * Performance figures quoted are based on bid-to-bid dealing rices (the rice at which units are sold) and are not the same as the net asset value reorted in the financial statements which is at close of business. Performance is calculated net of fees for the Fund s class P Accumulation Units. We delivered good erformance across our long and relative exosures, whilst our short ositions erformed oorly. The sources of return within our long exosures were broad, with almost 80% of our holdings delivering a ositive contribution. We were articularly leased with the return generated by our core, larger caitalisation holdings, given that we substantially increased allocation to this area over the eriod. We showed even greater disciline in managing our resources holdings this year and were quick to allocate caital dynamically both in anticiation, and on the announcement, of drilling results. The allocation to this area remains modest but delivered an imortant contribution. Our relative strategies also erformed well and the sources of return were leasingly broad. Our holdings in the financials, mining and leisure sectors made articularly imortant ositive contributions. Within financials, our holding in Lloyds Banking Grou erformed articularly strongly, as investors were forced to rearaise its risk rofile and ultimate earnings ower. Within mining, our caution on comanies exosed to the latinum sector was vindicated as weak automotive demand, largely fixed suly and rising roduction costs destroyed rofitability and highlighted balance sheet weakness. However, our short ositions disaointed overall largely due to the relatively strong returns from the FTSE 250 Index in the early art of the year, which we had used to hedge our market exosure. We have relaced this index holding with single stock ositions and there are some encouraging signs of imroved erformance in this art of our Fund. Looking ahead to 2013, we can see some signs that some of the negative factors that led to market volatility in 2011 and 2012 have reduced, including the robability of a disorderly break-u of the euro. Whilst suortive olicy will continue to be required and the imortance of government action must not be underestimated in a world of deleveraging and slower growth, the range of outcomes aears to have narrowed somewhat. 4 BlackRock UK Absolute Alha Fund 5

5 Portfolio Statement at 31 December 2012 Holding or Market % of Nominal Value Total Value Investment Net Assets EQUITIES 20.68%; % AUSTRALIAN EQUITIES 2.27%; % Oil & Gas Producers 2.27%; % 19,328,712 African Petroleum 14,196, CANADIAN EQUITIES 0.00%; % Oil & Gas Producers 0.00%; % UNITED KINGDOM EQUITIES 16.44%; % Banks 0.00%; % Biotechnology 0.00%; % Chemicals 1.65%; % 2,977,600 AZ Electronic Materials 10,323, Equity Investment Instruments 1.67%; % 6,971,815 Better Caital 10,422, General Financial 0.00%; % Health Care Equiment and Services 0.53%; % 5,049,436 Circle Health 3,282, Household Goods & Home Construction 0.00%; % Industrials 0.83%; % 370,005 Oxford Instruments 5,217, Media 0.24%; % 2,993,494 Phorm 1,496, Mining 0.80%; % 1,579,946 African Minerals 5,016, Oil Equiment & Services 1.76%; % 2,853,042 Kentz 10,975, Oil & Gas Producers 2.77%; % 5,063,348 Bowleven 3,316, ,148,355 Providence Resources 7,062, ,205,538 Rockhoer Exloration 3,385, ,322 Tullow Oil 3,545, ,310, Real Estate 5.20%; % 1,929,838 Caital & Counties Proerties 4,670, ,204,380 Dolhin Caital Investors 1,613, ,223 Dolhin Caital Investors Warrants 31/12/2015 Holding or Market % of Nominal Value Total Value Investment Net Assets 13,233,868 Hansteen Holdings 10,587, ,540,803 LXB Retail Proerty 15,707, ,577, Suort Services 0.99%; % 770,854 APR Energy 6,189, UNITED STATES EQUITIES 1.97%; % Travel & Leisure 1.97%; % 1,216,325 Burger King Worldwide 12,309, STERLING DENOMINATED BONDS 65.60%; % Sterling Denominated ECP Bonds 19.44%; % 5,000,000 ABN Amro 0% 11/2/2013 4,997, ,000,000 Banque Federative du Credit Mutuel 0% 22/1/ ,996, ,000,000 Barclays 0% 31/1/2013 3,998, ,000,000 Barclays 0% 4/3/ ,975, ,000,000 Nordea 0% 25/1/2013 9,996, ,000,000 Nordea 0% 7/5/ ,974, ,000,000 Pohjola 0% 28/2/2013 1,998, ,000,000 Pohjola 0% 23/4/ ,976, ,000,000 Rhein-Main Securitisation 0% 22/1/2013 9,997, ,642,000 Sheffield 0% 17/1/ ,637, ,549, Sterling Denominated Fixed Rate Cororate Bonds 1.46%; % 9,105,000 Kreditanstalt Fur Wiederaufbau 4.875% Medium Term Notes 15/1/2013 9,113, Sterling Denominated Fixed Rate Government Bonds 0.00%; % Sterling Denominated Variable Rate Cororate Bonds 44.70%; % 4,000,000 Commonwealth Bank Floating Rate Notes 7/1/2014 3,984, ,000,000 FMS WertManagement Floating Rate Notes 14/3/ ,976, ,400,000 FMS WertManagement Floating Rate Notes 23/3/ ,379, ,500,000 HSBC Bank Floating Rate Notes 4/5/ ,478, ,000,000 Kommuninvest Floating Rate Notes 16/4/2013 4,998, ,000,000 National Australia Bank Floating Rate Notes 4/12/2013 9,983, ,000,000 Rabobank Nederland Floating Rate Notes 3/5/ ,011, ,550,000 Rabobank Nederland Floating Rate Notes 22/5/ ,613, ,000,000 Westack Floating Rate Notes 29/11/ ,984, ,410, BlackRock UK Absolute Alha Fund 7

6 Portfolio Statement continued Holding or Notional Market % of Nominal Value Value Total Value Investment Net Assets Certificate of Deosits 6.00%; % 10,000,000 ABN Amro 0% 19/2/2013 9,992, ,000,000 Bank of Tokyo-Mitsubishi 0% 8/2/ ,989, ,500,000 Mitsubishi 0% 8/2/2013 4,497, ,000,000 Mizuho 0.5% 1/2/2013 4,999, ,478, UNITED KINGDOM DERIVATIVES 1.18%; 2011 (2.21)% CONTRACTS FOR DIFFERENCES (CFDs) SHORT (2.35)%; % Banks 0.00%; % Beverages 0.00%; 2011 (0.24)% Chemicals (0.03)%; % (133,000) Croda (2,954,241) (205,971) (0.03) Construction & Materials (0.06)%; 2011 (0.15)% (1,165,497) Balfour Beatty (3,335,275) 141, (598,117) CRH (6,980,025) (477,226) (0.08) (10,315,300) (335,394) (0.06) Electricity (0.01)%; 2011 (0.32)% (433,098) Scottish & Southern Energy (6,054,710) (83,181) (0.01) Electronic & Electrical Equiment (0.04)%; % (815,355) Halma (3,488,089) (246,422) (0.04) Financial Services (0.50)%; % (372,389) Hargreaves Lansdown (2,839,680) 306, (1,360,056) HSBC (8,707,079) (89,161) (0.01) (3,695,000) Legal & General (4,289,959) (1,091,033) (0.17) (2,005,000) Standard Life (4,356,862) (2,297,948) (0.37) (20,193,580) (3,172,056) (0.50) Fixed Line Telecommunications 0.07%; % (5,477,361) Cable & Wireless (2,391,575) 451, Food & Drug Retailers 0.02%; 2011 (0.03)% (4,832,774) Ocado Grou (4,312,744) 141, (1,649,000) Sainsbury (J) (5,718,732) 30,715 (10,031,476) 172, Holding or Notional Market % of Nominal Value Value Total Value Investment Net Assets Food Producers (0.12)%; 2011 (0.05)% (260,000) Associated British Foods (3,540,091) (523,184) (0.08) (830,000) Britvic (3,191,195) (180,103) (0.03) (280,000) Sabmiller (7,830,752) (72,933) (0.01) (14,562,038) (776,220) (0.12) Gas, Water & Multiutilities 0.00%; 2011 (0.31)% (706,673) National Grid (4,939,644) (25,474) General Financial 0.00%; % General Retailers (0.63)%; % (310,000) Caretright (2,146,535) 40, (5,410,618) Home Retail (4,260,862) (2,620,675) (0.42) (3,009,424) Marks & Sencer (10,112,813) (1,399,416) (0.22) (16,520,210) (3,979,786) (0.63) General Industrials (0.19)%; % (817,768) Smiths Grou (8,535,060) (1,186,594) (0.19) Healthcare Equiment and Services 0.01%; % (128,061) Nobel Biocare (724,567) 62, (34,000) Straumann (2,544,436) 3,822 (3,269,003) 66, Household Goods & Home Construction 0.00%; 2011 (0.05)% Index (0.24)%; 2011 (0.22)% (1,450) FTSE 250 Index (16,474,030) (1,469,677) (0.24) Industrials (0.18)%; 2011 (0.05)% (460,541) Bunzl (4,863,994) 220, (1,116,440) Carillion (3,375,303) (154,458) (0.02) (570,000) Exerian (5,582,579) (988) (318,369) IMI (3,104,961) (380,667) (0.06) (1,249,772) Meggitt (4,912,854) 137, (185,000) Metso (4,312,362) (441,601) (0.07) (80,000) Siemens (4,893,180) (555,511) (0.09) (31,045,233) (1,175,357) (0.18) Materials (0.07)%; % (379,067) Mondi (2,084,869) (449,616) (0.07) Media 0.03%; 2011 (0.27)% (320,000) Pearson (3,996,800) 194, BlackRock UK Absolute Alha Fund 9

7 Portfolio Statement continued Holding or Notional Market % of Nominal Value Value Total Value Investment Net Assets Mining (0.11)%; % (1,869,755) Lonmin (5,371,806) 22,204 (241,815) Vedanta (2,136,709) (659,395) (0.11) (7,508,515) (637,191) (0.11) Non-Life Insurance (0.09)%; % (1,693,483) Amlin (5,820,763) (593,099) (0.09) (4,957,315) RSA Insurance Grou (6,199,260) (28,757) (12,020,023) (621,856) (0.09) Oil, Equiment & Services 0.00%; % Oil & Gas Producers 0.14%; 2011 (0.27)% (2,945,607) BP (13,388,455) 878, Pharmaceuticals & Biotechnology 0.03%; % (900,000) GlaxoSmithKline (12,713,398) 705, (555,000) Hikma Pharmaceutical (3,746,537) (480,498) (0.08) (16,459,935) 224, Real Estate 0.02%; % (1,305,352) Caital Shoing Centres (4,712,321) 136, Software & Comuter Services 0.03%; % (415,000) CGI Grou (6,158,275) 184, Suort Services (0.11)%; % (218,500) Intertek (5,886,390) (879,492) (0.14) (1,820,000) Serco (9,929,932) 181, (15,816,322) (698,416) (0.11) Technology, Hardware & Equiment 0.00%; 2011 (0.07)% Telecommunications (0.10)%; % (600,000) Inmarsat (2,896,804) (599,173) (0.10) Travel & Leisure (0.22)%; % (420,097) Betfair (3,031,209) 148, (5,650,000) Marston s (6,009,354) (896,685) (0.14) (190,000) Whitbread (4,026,513) (616,359) (0.10) (13,067,076) (1,364,409) (0.22) CONTRACTS FOR DIFFERENCES (CFDs) LONG 3.53%; 2011 (3.07)% Aerosace & Defence 0.69%; % 1,566,865 Rolls Royce 9,458,553 4,214, ,081,740 Rolls Royce class C shares 119, ,458,553 4,333, Holding or Notional Market % of Nominal Value Value Total Value Investment Net Assets Banks 0.41%; 2011 (0.55)% 24,245,516 Lloyds Banking Grou 9,027,045 2,585, Financials 0.27%; % 603,989 Standard Chartered 7,811,294 1,683, Food Producers 0.15%; % 1,398,369 Tate & Lyle 9,689, , Gas, Water & Multiutilities 0.00%; % General Financial 0.25%; 2011 (0.13)% 5,808,061 3i Grou 11,054,644 1,548, General Industrials 0.00%; 2011 (0.10)% General Retailers 0.90%; 2011 (0.11)% 6,262,119 Carhone Warehouse 8,735,656 4,222, ,000,000 Kingfisher 9,978,746 1,371, ,714,402 5,593, Household Goods & Home Construction 0.00%; 2011 (0.05)% Industrial Engineering (0.10)%; 2011 (0.41)% 4,100,000 Melrose 9,810,520 (636,156) (0.10) Media 0.37%; 2011 (0.08)% 1,820,000 British Sky Broadcasting 12,173,469 1,769, ,784 Phorm 166,227 (57,234) (0.01) 1,987,796 UBM 13,635, , ,975,254 2,351, Mining 0.06%; 2011 (0.54)% 2,120,022 African Minerals 6,367, , Non-Life Insurance 0.10%; % 833,422 Lancashire 5,796, , Oil Equiment & Services 0.00%; 2011 (0.69)% Oil & Gas Producers (0.59)%; 2011 (0.25)% 1,194,613 BG 14,547,061 (2,466,141) (0.39) 434,113 Bowleven 1,508,543 (1,224,507) (0.20) 16,055,604 (3,690,648) (0.59) Personal Goods 0.00%; % Pharmaceuticals & Biotechnology 0.02%; % 775,000 Shire 14,493, , BlackRock UK Absolute Alha Fund 11

8 Portfolio Statement continued Holding or Notional Market % of Nominal Value Value Total Value Investment Net Assets Real Estate (0.14)%; 2011 (0.04)% 1,848,387 Caital & Counties Proerties 3,598, , ,428,902 Dolhin Caital Investors 6,619,849 (1,762,962) (0.28) 10,218,658 (885,871) (0.14) Suort Services 0.90%; % 570,000 Ashtead 2,148, , ,087,070 Babcock International 7,960,027 2,528, ,740 Wolseley 6,701,622 2,851, ,810,366 5,653, Technology, Hardware & Equiment 0.11%; 2011 (0.10)% 3,494,885 Sirent Communications 4,584, , Tobacco 0.17%; % 323,388 Imerial Tobacco 6,587,091 1,079, Travel & Leisure (0.04)%; 2011 (1.22)% 8,348,343 Enterrise Inns 8,865,940 (268,236) (0.04) FUTURES 0.00%; % OTHER 6.16%; % Non-Equity Investment Funds 6.16%; % 38,500,000 Institutional Cash Series lc Institutional Sterling Liquidity Fund* 38,500, Portfolio of investments 622,763, Net other assets 2,374, Total net assets 625,137, All equity investments are ordinary shares registered on a recognised stock exchange unless otherwise stated. Note: comarative figures show ercentages for each category of holding at 31 December The Contracts for Differences (CFDs) shown in the ortfolio statement on ages 8-12 are exressed at both their mark-to-market and original notional values, which when added together reresent the current notional value of the CFDs. The current notional value of a CFD reresents the economic interest in the security underlying the CFD, but does not change hands in full between the counterarties. Certain rior year figures have been reclassified to corresond to current year resentation. * Managed by related arty entered into in the normal course of business and on normal commercial terms. Statement of Total Return for the year ended 31 December 2012 Notes Income Net caital gains/(losses) during the year 2 24,179,035 (98,342,812) Revenue 3 3,062,693 14,606,285 Exenses 4 (14,598,746) (26,419,715) Finance costs: Interest 6 (2,332,739) (4,110,701) Net exense before taxation (13,868,792) (15,924,131) Taxation 5 (5,661) Net exense after taxation for the year (13,874,453) (15,924,131) Total return before distributions 10,304,582 (114,266,943) Finance costs: Distributions 6 Change in net assets attributable to unitholders from investment activities 10,304,582 (114,266,943) Statement of Change in Net Assets Attributable to Unitholders for the year ended 31 December 2012 Oening net assets attributable to unitholders 1,223,008,448 2,114,959,846 Amounts received on creation of units 35,967, ,222,033 Amounts aid on cancellation of units (644,266,352) (893,409,827) (608,298,675) (777,187,794) Stam duty reserve tax 123,177 (496,661) Change in net assets attributable to unitholders from investment activities 10,304,582 (114,266,943) Closing net assets attributable to unitholders 625,137,532 1,223,008, BlackRock UK Absolute Alha Fund 13

9 Balance Sheet at 31 December 2012 Notes Assets: Investment assets 647,883,684 1,249,086,583 Debtors 7 12,354,678 3,232,360 Cash and bank balances 8 11,676,379 68,510,429 Total other assets 24,031,057 71,742,789 Total assets 671,914,741 1,320,829,372 Liabilities: Investment liabilities (25,120,533) (90,772,971) Creditors 9 (13,261,283) (7,047,953) Amount held at futures clearing houses and brokers (8,394,017) Bank overdraft (1,376) Total other liabilities (21,656,676) (7,047,953) Total liabilities (46,777,209) (97,820,924) Net assets attributable to unitholders 625,137,532 1,223,008,448 E E Tracey (Director) A J Stenning (Director) BlackRock Fund Managers Limited 18 February 2013 Notes to Financial Statements for the year ended 31 December Accounting and Distribution Policies Accounting Policies (a) The financial statements have been reared in accordance with the Statement of Recommended Practice ( SORP ) for Authorised Funds issued by the Investment Management Association (IMA) in October (b) Dividends on quoted ordinary shares and reference shares are recognised when the securities are quoted ex-dividend. Where such securities are not quoted, dividends are recognised when they are declared. Dividend equivalent values on Long or Short Contracts for Differences (CFDs) are recognised when the underlying securities are quoted ex-dividend. Where such securities are not quoted, dividends are recognised when they are declared. Revenue from fixed income securities is recognised on an effective interest rate basis. Accrued interest urchased and sold on interest bearing securities is excluded from caital cost of these securities and dealt with as art of the revenue of the Fund. All revenue is recognised at a gross amount that includes any withholding taxes but excludes any other taxes such as attributable tax credits. Revenue from securities lending is accounted for net of associated costs and is recognised on an accruals basis. Bank interest is recognised on an accruals basis. (c) Ordinary stock dividends are recognised wholly as revenue and are based on the market value of the shares on the date they are quoted ex-dividend. Where an enhancement is offered, the amount by which the market value of the shares (on the date they are quoted ex-dividend) exceeds the cash dividend is taken to caital. (d) The underlying circumstances behind both secial dividends and share buy backs are reviewed on a case by case basis in determining whether the amount is revenue or caital in nature. Amounts recognised as revenue form art of the distribution. Any tax treatment will follow the accounting treatment of the rincial amount. (e) Underwriting commission is wholly recognised as revenue when the issue takes lace, excet where the Fund is required to take u some or all of the shares underwritten, in which case an aroriate roortion of the commission received is deducted from the cost of those shares. (f) All exenses, excet those relating to the urchase and sale of investments and Stam Duty Reserve Tax are charged against revenue. All exenses are recognised on an accruals basis. (g) Provision for cororation tax is made at the current rate on the excess of taxable revenue over allowable exenses. Provision is made on all material timing differences arising from the different treatment of items for accounting and tax uroses. A deferred tax asset is recognised only to the extent that it is considered more likely than not that there will be taxable rofits in the future against which the asset can be offset. (h) The investments of the Fund have been valued at market values, defined as fair value, which is usually bid value at close of business on the last business day of the accounting eriod. Any unquoted or susended investments are valued at the Manager s valuation. The CFDs held in the ortfolio are valued based on the rice of the underlying security or index which they are urchased to reflect. 14 BlackRock UK Absolute Alha Fund 15

10 Notes to Financial Statements continued (i) Any transactions in foreign currencies are translated into Sterling at the rates of exchange ruling on the date of any such transaction. Assets and liabilities in foreign currencies are translated into Sterling at the exchange rates ruling at the close of business on the last business day of the accounting eriod. Revenue items in foreign currencies are translated into Sterling at the exchange rate when the revenue is received. (j) Where aroriate, certain ermitted financial instruments such as futures or forward currency contracts are used for efficient ortfolio management. Where such financial instruments are used to rotect or enhance revenue, the revenue and exenses derived therefrom are included in Revenue or Exenses in the Statement of Total Return. Where such financial instruments are used to rotect or enhance caital, the gains and losses derived therefrom are included in Net caital gains/(losses) during the year in the Statement of Total Return. Distribution Policies (k) The ordinary element of stock dividends is treated as revenue and forms art of the distribution. (l) All of the net revenue available for distribution at the final accounting eriod end will be distributed to unitholders with the balance attributable to accumulation unitholders retained within the Fund. In order to conduct a controlled dividend flow to unitholders, interim distributions may be made at the Manager s discretion, u to a maximum of the distributable revenue available for the eriod. Should exenses and taxation together exceed revenue, there will be no distribution and the shortfall will be met from caital. 2. Net Caital Gains/(Losses) During the Year The net caital gains/(losses) comrise: Gains/(losses) on non-derivative securities 27,719,417 (57,635,649) Losses on derivative contracts (3,472,103) (40,607,101) Currency losses (53,772) (82,140) Custodian transaction costs (14,507) (17,922) Net caital gains/(losses) 24,179,035 (98,342,812) 3. Revenue Interest from money market deosits 54, ,812 Interest from overseas fixed interest securities 2,532,501 1,886,202 Interest from UK bank deosits 166, ,095 Interest from UK fixed interest securities 924,817 8,027,097 Interest received from certificates of deosit 834,602 1,794,220 Net unfranked revenue from Contracts for Differences* (4,013,958) (649,463) Overseas dividends 581, ,071 Revenue from Institutional Cash Series lc Sterling Liquidity Fund 499, ,522 Securities lending revenue 360 UK dividends 1,220,854 1,508,531 UK REIT dividends 652,198 Underwriting commission 261,850 Total revenue 3,062,693 14,606,285 * Constitutes the revenue derived from both long and short ositions. 4. Exenses Payable to the Manager or associates of the Manager: Manager s service charge 12,988,798 23,392,332 Performance fees 61,062 Registrar s fees 1,384,289 2,525,968 14,373,087 25,979,362 Payable to the Trustee or associates of the Trustee:* Trustee s fees ayable to BNY Mellon Trust and Deositary (UK) Limited 39,941 Trustee s fees ayable to The Royal Bank of Scotland lc 113, , , ,751 Other exenses: Audit fee 9,927 10,104 FSA fee 154 (83) Risk Monitoring fees 1,440 Safe custody fees 62, ,141 72, ,602 Total exenses 14,598,746 26,419,715 The erformance fee is accrued at each valuation oint and is charged at 20% of the amount by which the erformance of the alicable unit class exceeds the Hurdle and rovided the current bid rice of the alicable unit class is higher than the High Water Mark (HWM). The Hurdle reresents a level of return that the alicable unit class must achieve before any erformance fee may be alied. The Hurdle will be set quarterly in advance and is based on 3 month Sterling LIBOR (London Inter-Bank Offered Rate). The HWM is a erformance measure that is used to ensure that a erformance fee is only charged where the value of the alicable unit class has increased over the course of the erformance eriod. It is based on the bid rice of the alicable unit class on the last business day of the revious erformance eriod and where a erformance fee was ayable. If no erformance fee is ayable at the end of the erformance eriod the HWM will remain unchanged. * With effect from 23 July 2012, The Royal Bank of Scotland lc retired as trustee and BNY Mellon Trust and Deositary (UK) Limited was aointed as the new trustee of the Fund. 16 BlackRock UK Absolute Alha Fund 17

11 Notes to Financial Statements continued 5. Taxation (a) Analysis of tax charge in the year Overseas tax irrecoverable 5,661 Total current tax charge for the year [see Note 5(b)] 5,661 0 (b) Factors affecting the current tax charge for the year The tax assessed for the eriod is higher than the standard rate of cororation tax in the UK for an authorised unit trust. The differences are exlained below: Net exense before taxation (13,868,792) (15,924,131) Cororation tax at 20% (2011: 20%) (2,773,758) (3,184,826) Effects of: Excess exenses for which no tax relief taken 3,134,259 3,603,546 Franked investment revenue at 20% (244,171) (301,706) Non taxable overseas dividends (116,330) (117,014) Overseas tax irrecoverable 5,661 Total current tax charge for the year [see Note 5(a)] 5,661 0 At 31 December 2012 the Fund had surlus management exenses of 74,145,882 (2011: 58,474,587). It is unlikely that the Fund will generate sufficient taxable rofits in the future to utilise these exenses and therefore a deferred tax asset of 14,829,176 (2011: 11,694,917) has not been recognised. 6. Finance Costs Finance costs: Interest 2,332,739 4,110,701 A net shortfall after taxation arose this year because the exenses and taxation of the Fund exceeded the Fund s revenue. Accordingly, no distributions have been made (lease refer to note 1(l) for further details). 8. Cash and bank balances Amount held at futures clearing houses and brokers 4,293,751 Amounts ledged for contracts for differences 31,716,115 Cash and bank balances 9,497,379 34,563 Money market deosits 2,179,000 32,466,000 Cash and bank balances 11,676,379 68,510, Creditors Accrued Audit fee 9,926 9,899 Accrued FSA fee Accrued interest ayable on CFDs 237 Accrued Manager s service charge 1,537,388 1,529,738 Accrued Performance fees 61,062 Accrued Registrar s fee 161, ,918 Accrued Safe custody fees 30,542 25,712 Accrued Trustee s fee ayable to BNY Mellon Trust and Deositary (UK) Limited 15,421 Accrued Trustee s fee ayable to The Royal Bank of Scotland lc 20,345 Amounts ayable for cancellation of units 4,367,214 2,685,801 Amounts ayable to brokers on CFDs 7,131,873 2,333,195 Bank interest ayable 17 Currency urchases awaiting settlement 214,245 Custodian transaction costs 7,375 5,922 Total creditors 13,261,283 7,047, Debtors Accrued revenue 452, ,248 Amounts receivable for creation of units 2,131,664 48,136 Amounts receivable from brokers on CFDs 9,427, ,813 Collateral receivable 342,540 Currency sales awaiting settlement 215,143 Sales awaiting settlement 1,498,020 Total debtors 12,354,678 3,232, BlackRock UK Absolute Alha Fund 19

12 Notes to Financial Statements continued 10. Derivatives and Other Financial Instruments (a) The Fund s financial instruments comrise securities and other investments, cash balances and debtors and creditors that arise directly from its oerations, for examle, in resect of sales and urchases awaiting settlement, amounts receivable for creations and ayable for cancellation of units, and debtors for accrued revenue. The Manager shall take the risks it deems reasonable to meet the investment objective. These risks include the following: Risk Foreign currency Market rice Liquidity Imact of risk The risk of changes to foreign currency rates materially affecting the Sterling equivalent value of non-sterling denominated assets and liabilities accounted for by the Fund. The Fund is accounted for in Sterling and holds financial assets and financial liabilities denominated in Sterling and other international currencies. To manage the risk, the Fund may enter into forward currency contracts during the year for the uroses of efficient ortfolio management. As at 31 December 2012, the Fund had no oen foreign currency contracts. The valuation of the Fund s investments are calculated with reference to market rices quoted by financial agencies and brokers. Movements to those market rices may materially affect the value of the Fund s investments, which may move down as well as u. To manage the risk, the Manager undertakes research in order to achieve the best rice for any transactions entered into on behalf of the Fund. The risk of low market liquidity, through reduced trading volumes, affecting the ability of the Fund to trade financial instruments at values reviously indicated by financial brokers. All stocks are valued daily. Stocks identified as being illiquid are reviewed for ricing accuracy as the need arises and on a formal monthly basis by the BlackRock Pricing Committee. The BlackRock Pricing Committee will also review significant market events which may imact the liquidity of bonds in the ortfolio. The Fund invests rimarily in UK based comanies, which is tyically considered to be a territory oerating with high levels of liquidity. From time to time, however, market liquidity may be affected by economic events. The underlying assets for contracts for differences are valued daily and any underlying assets identified as being illiquid are reviewed for ricing accuracy as the need arises and on a formal monthly basis by the BlackRock Pricing Committee. To manage the risk, the Investment Manager undertakes research of investment oortunities to select oortunities congruent with the Fund s investment objective. Risk Counterarty Interest rate Imact of risk The risk of entering an arrangement with a counterarty, which is itself subject to financial risks which may affect its ability to trade as a going concern. The Manager maintains a list of aroved counterarties. This list is regularly monitored and revised for changes based on the counterarty s credit-worthiness, market reutation and exectations of future financial erformance. Transactions will only be oened with financial intermediaries on the aroved counterarties list. The Fund s use of Over-the-Counter (OTC) derivatives may also require collateral, normally taking the form of cash held as margin with the counterarty. Collateral is held as security should the counterarty be unable to fulfil their contractual obligations under the terms of the contract constituting the invested instrument. Additionally, the Fund s exosure to any one counterarty in an OTC derivative transaction must not exceed 5 er cent of the value of the Fund s roerty. This limit is raised to 10 er cent where the counterarty is an aroved bank. At 31 December 2012, the value of the OTC contracts held by the Fund was 7,392,757 (2011: (27,693,777)). At 31 December 2012, margin amounts owed to counterarties was 8,394,017 (2011: amount owed from counterarties 4,293,751). The Fund s use of exchange traded derivatives are considered to be free of counterarty risk if the derivative is traded on an exchange where the clearing house is backed by an aroriate erformance guarantee and it is characterised by a daily mark-to-market valuation of the derivative osition and at least daily margining. At 31 December 2012, the value of the exchange traded derivatives held by the Fund was Nil (2011: 528,073). Please refer to note 10(e) for further details on the Fund s use of derivatives. Interest rates are determined by factors such as suly and demand in the international money markets, which are influenced by macroeconomic factors, seculation and central bank and government intervention. Fluctuations in short and long term interest rates on money market and cash deosits may affect the revenue of the Fund. Changes to interest rates may affect the cash inflows and outflows calculated with reference to financial assets and financial liabilities held by the Fund. The Manager undertakes research to minimise the imact of such movements against the Fund s investment objective. At 31 December 2012, the net amount of cash deosits from which the Fund received interest was 3,280,986 (2011: 68,510,429). 20 BlackRock UK Absolute Alha Fund 21

13 Notes to Financial Statements continued Risk Credit Risk Imact of risk The Fund holds bonds issued by comanies in order to achieve its investment objective. The borrower receives from the Fund a rincial amount. The Fund will then receive interest based on the couon rate of the bond and reayment of the initial rincial amount on the bond s maturity date. Any imairment to the borrower s ability to ay amounts due may result in changes to the tradable value of the bond and the amount to be received uon maturity of the bond. The ability of the borrower to reay not only the rincial value but also any interest due on the bond, referred to as the borrower s credit rating, is monitored by the Manager. The Manager may undertake its own research of the borrower s financial osition in order to assess the ability of the borrower to reay amounts due. These risks are monitored by the manager in ursuance of the investment objective and olicy as set out in the Trust Deed. Adherence to investment guidelines and to investment and borrowing owers set out in the Trust Deed, the Prosectus and in the Collective Investment Scheme Sourcebook mitigates the risk of excessive exosure to any articular tye of security or issuer. Further information on the investment ortfolio is set out in the Investment Reort and Portfolio Statement. (b) Currency Exosures A roortion of the net assets of the Fund are denominated in currencies other than Sterling, with the effect that the Balance Sheet and Statement of Total Return can be affected by currency movements. The currency rofile held at 31 December 2012 was: Currency Currency Net Assets/(Liabilities) Monetary exosures Non-monetary exosures Total Australian dollar 82 14,196,857 14,196,939 Canadian dollar 79, , ,099 Euro 9,919 (1,058,268) (1,048,349) Swiss franc (1,376) 66,334 64,958 UK sterling 3,161, ,158, ,320,108 US dollar 31,613 12,309,164 12,340,777 Total 3,280, ,856, ,137,532 The currency rofile held at 31 December 2011 was: Currency Monetary exosures Currency Net Assets Non-monetary exosures Total Australian dollar 82 5,479,815 5,479,897 Canadian dollar 2,197,889 2,197,889 Euro 355, , ,558 UK sterling 68,154,369 1,146,655,735 1,214,810,104 Total 68,510,429 1,154,498,019 1,223,008,448 (c) Interest Rate Risk Profile of Financial Assets and Liabilities The Interest Rate Risk Profile of Financial Assets and Liabilities as at 31 December 2012 was as follows: Currency Floating Rate Financial Assets Fixed Rate Financial Assets Financial Assets not Carrying Interest Total Australian dollar 82 14,196,857 14,196,939 Canadian dollar 79, , ,336 Euro 9, ,103 Swiss franc 66,334 66,334 UK sterling 290,966, ,141, ,929, ,037,252 US dollar 31,613 12,309,164 12,340,777 Total 291,087, ,141, ,686, ,914,741 Currency Floating Rate Financial Liabilities Financial Liabilities not Carrying Interest Total Canadian dollar (237) (237) Euro (1,058,452) (1,058,452) Swiss franc (1,376) (1,376) UK sterling (8,394,017) (37,323,127) (45,717,144) Total (8,395,393) (38,381,816) (46,777,209) Fixed Rate Financial Assets Currency Total Market Value Equivalent Weighted Average Interest Rate % Weighted Average Period for which Rate is Fixed UK Sterling Fixed Rate Bonds 168,141, years This table shows weighted average interest earned on the market value of bonds and will not reflect the yield on the Fund. 22 BlackRock UK Absolute Alha Fund 23

14 Notes to Financial Statements continued The Interest Rate Risk Profile of Financial Assets and Liabilities as at 31 December 2011 was as follows: Currency Floating Rate Financial Assets Fixed Rate Financial Assets Financial Assets not Carrying Interest Total Australian dollar 82 5,479,815 5,479,897 Canadian dollar 2,197,889 2,197,889 Euro 355, , ,154 UK sterling 704,308, ,769, ,494,003 1,312,572,432 Total 704,664, ,769, ,394,883 1,320,829,372 Currency Floating Rate Financial Liabilities Financial Liabilities not Carrying Interest Total Euro (58,596) (58,596) UK sterling (97,762,328) (97,762,328) Total 0 (97,820,924) (97,820,924) Fixed Rate Financial Assets Currency Total Market Value Equivalent Weighted Average Interest Rate % Weighted Average Period for which Rate is Fixed UK Sterling Fixed Rate Bonds 190,769, years The floating rate financial assets and liabilities include: Sterling denominated bank balances which bear interest rates based on 0.25% under the one and two week LIBID rates and overdraft interest based on 3% over the base rate. All overseas deosits and loans bear interest at rates determined by the relevant Authority. (d) Fair Value of Financial Assets and Financial Liabilities There is no material difference between the value of the financial assets and liabilities, as shown in the balance sheet, and their fair value. (e) Use of Derivatives The Fund may oen ositions on Over-the-Counter (OTC) derivatives, which will tyically be forward currency contracts and contracts for differences (CFDs). Of these, the Fund will redominantly use CFDs. CFDs allow the Fund to articiate in the benefits and risk of owning a security without actually ossessing legal title to that security (tyically equities). CFDs settle eriodically, deending on the terms of agreement with the counterarty, for cash amounts calculated as the difference between the current market rice and market rice on the day of oening the CFD osition. Equity CFDs can be held both long and short and are selected by the Investment Manager in ursuit of the investment objective of the Fund. Increases to the value of equities underlying CFDs held long and decreases to the value of equities underlying CFDs held short will be received by the Fund from the counterarty. Decreases to the value of equities underlying CFDs held long and increases to the value of equities underlying CFDs held short will be aid by the Fund to the counterarty. At 31 December 2012, the amounts ledged by brokers for CFDs was 8,394,000. At 31 December 2011, the amounts ledged to brokers for CFDs was 31,716,115. Due to the level of investment in derivatives, the BlackRock UK Absolute Alha Fund is considered to be a sohisticated fund, for this reason further numerical analysis has been rovided in the form of a Value at Risk (VaR) analysis, shown below. VaR is a measure of the otential ortfolio loss over a secific time horizon at a given confidence level under normal market conditions. It is a measure of market risk. The VaR calculations below use the arametric, varience-covarience aroach. A VaR calculation uses two arameters as follows: Time horizon (eriod) to be analysed, which in resect of the Fund is a 1 month eriod. Confidence level which is the robability at which the VaR will not be exceeded by the maximum loss. The Fund uses a confidence level of 99% which is commonly used. VaR is given in a ercentage format. The Fund uses the arametric multi-factor model, which assumes that risk factor returns are joint-normally distributed. Therefore, combinations of those risk factors, including the ortfolio systematic return and idiosyncratic return, will also be normally distributed. The model rovides an estimate for the daily volatility of the ortfolio returns driven by systematic risk factors and idiosyncratic risk factors indeendently. The 1 month 99% VaR is calculated by multilying daily volatility by the Z-score that relates to 99% confidence level and re-scaling to the required 1 month time horizon using the square-root of time rule. It is imortant to note that VaR is calculated on an ex ante basis. This means that the calculations are based on the current ortfolio holdings and not by reference to the volatility of the historical ortfolio returns. For the Fund the 1m 99% VaR as at 31 December 2012 was 2.62% (2011: 2.05%). This means that, given the ortfolio s current holdings and in normal market conditions, we would not exect a loss of greater than 2.62% in 99 months out of Contingent Assets and Liabilities There were no contingent assets or liabilities at the balance sheet date (2011: Nil). 12. Securities Lending There were no securities on loan or collateral outstanding at the balance sheet date (2011: Nil). 13. Investment Management BlackRock Fund Managers Limited (the Manager ) has delegated to its associate, BlackRock (Luxembourg) S.A., resonsibility for investment management of the Fund. BlackRock (Luxembourg) S.A. does not enter into commission sharing agreements. 24 BlackRock UK Absolute Alha Fund 25