BlackRock Hedge Selector Ltd

BlackRock Hedge Selector Ltd

BlackRock Hedge Selector Ltd Annual Report 31 December 2010

Annual Report 2010

blackrock.co.uk/BRHS

Summary

Structure BlackRock Hedge Selector Ltd (the “Company”) was incorporated in Jersey on 17 August 2009 under the Companies (Jersey) Law 1991 as a limited liability registered closed-ended investment company. The Company’s two classes of shares, UK Emerging Companies shares and Cash Fund shares, were listed on the London Stock Exchange on 28 September 2009.

Investment Policy The investment policy of the Company is to provide investors with a choice of investment mandates represented by different share classes, each intended to provide a specific investment exposure to an underlying fund managed by BlackRock Investment Managers (UK) Limited and its affiliates. Further, the Company’s policy in respect of each share class is to invest in each underlying fund, including the underlying Cash Fund, on the basis that each underlying fund will be managed so as to spread investment risk. At present the Company only has one class of Feeder Fund shares in issue, the UK Emerging Companies Share Class, which provides investors with exposure to the performance of the BlackRock UK Emerging Companies Hedge Fund Limited, a Cayman Islands domiciled fund managed by BlackRock. In addition, the Company has in issue a class of Cash Fund shares which provide, via investment in BlackRock’s Institutional Sterling Liquidity Fund (a sub-fund of the Institutional Cash Series plc), exposure to a portfolio of short-term money market instruments. The Cash Fund shares are also designed as a conversion option for holders of feeder fund shares who may wish, from time to time, to reduce their exposure to the BlackRock UK Emerging Companies Hedge Fund.

Investment Objective The investment objective of the UK Emerging Companies Hedge Fund is to seek to maximise total returns by investing primarily in mid and small cap UK equities, whilst limiting correlation with the UK equity market. The investment objective of the underlying Cash Fund shares is to maximise current income consistent with preservation of principal and liquidity by the maintenance of a portfolio of high quality short-term “money market” instruments.

A MEMBER OF THE ASSOCIATION OF INVESTMENT COMPANIES

Details about the Company are available at www.blackrock.co.uk/brhs Annual Report and Financial Statements 31 December 2010

1

Contents

Performance Record

3

Chairman’s Statement

4

Investment Manager’s Report

6

Directors

8

Directors’ Report

9

Directors’ Remuneration Report

17

Corporate Governance

19

Statement of Directors’ Responsibilities in respect of the Annual Report and Financial Statements

23

Report of the Independent Auditor

24

Statement of Assets and Liabilities

25

Schedule of Investments

26

Statement of Operations

27

Statement of Changes in Net Assets

28

Statement of Cash Flows

29

Financial Highlights

30

Notes to the Financial Statements

31

Analysis of Ordinary Shareholders

37

Directors, Management & Administration

38

Shareholder Information

39

Notice of Annual General Meeting

41

Glossary

44

2

BlackRock Hedge Selector Ltd

Performance Record

Launch to 31 December 2010* UK Emerging Companies Shares Share Price

124.50p

Net Asset Value per share

123.92p

Premium

+0.5%

Share price performance

+24.5%

NAV performance (after deducting launch costs)

+23.9%

NAV performance (before deducting launch costs)

+24.9%

Underlying hedge fund – NAV performance

+25.7%**

Cash Fund Shares Share Price Net Asset Value per share Discount

99.25p 100.49p (1.2%)

Share price performance

(0.7%)

NAV performance

+0.5%

Underlying cash fund – monthly gross annualised yield**

+0.7%

* Launch 28 September 2009. ** Based on published performance data from 30 September 2009 to 31 December 2010.

Annual Report and Financial Statements 31 December 2010

3

Chairman’s Statement

Performance Over the period from launch on 28 September 2009 to 31 December 2010, the Company’s UK Emerging Companies Share Class NAV performed strongly, up by 24.9% (before deducting launch costs but including all ongoing expenses with a total expense ratio of approximately 0.6% per annum), reflecting the strong underlying performance of the UK Emerging Companies Hedge Fund which returned 25.7% over the same period. This compared favourably with the FTSE Small Cap Index which was up by 13.1%, while the FTSE 100 Index increased by 19.6% over the period and the FTSE 250 Index was up by 30.3%. The recovery of equity markets, which were lacklustre at the time of launch, was reflected in a strong performance from the underlying hedge fund’s long book. The share price rose by 24.5% over the period. Since the period end, the Company’s UK Emerging Companies NAV has increased by 1.1% and the share price has risen by 3.4% resulting in the shares trading at a 2.8% premium to NAV at the time of writing. It is pleasing to note that the UK Emerging Companies Hedge Fund has recently won the best performance prize in its category at the Euro Hedge Fund Awards and also the award for the best 5 year risk adjusted performance across all categories. Additional information on the performance of the UK Emerging Companies Hedge Fund NAV on a month by month basis is given in the Investment Manager’s report on pages 6 and 7. The Cash Fund NAV increased marginally over the period since launch by 0.5%, in comparison with the underlying cash fund average annualised yield for the period of 0.7%. The share price decreased by 0.7% over the period. Since the period end, the Company’s Cash Fund NAV has increased by 0.3% and the share price has fallen by 0.3%. Further information on performance for both share classes is included in the Investment Manager’s Report on pages 6 and 7.

Share issues The Company issued 48,629,200 UK Emerging Companies shares at a price of £1 per share and 70,000 Cash Fund shares at a price of £1 per share on 28 September 2009. Subsequent to the launch the Company has issued a total of 1,300,000 new UK Emerging Companies shares in the period at a premium to NAV. Further details are set out in note 6 on page 34 and in the Directors’ report on page 14. Subsequent to the year end, and as at the date of this report, a further 700,000 UK Emerging Companies shares have been issued at a premium to NAV. Further details are given in note 11 on page 36.

was completed on 8 October 2010 and resulted in the issue of 3,237,154 Cash Fund shares. The deadline for the March 2011 conversion date expired on 19 January 2011 for which no conversion elections were received. The deadline for the June conversion expired on 18 April 2011, and again no conversion elections were received.

Cash exit mechanism and share redemptions The Company’s Articles of Association provide that holders controlling in excess of two-thirds of the issued shares of any class may require the Directors to provide them with the opportunity to dispose of such shares for net asset value less disposal costs. On 18 October 2010, the Company announced that it had received written notice on behalf of Barclays Wealth Multi-manager (“Barclays”) requiring the Company to offer a cash exit to the holders of Cash Fund shares. Barclays was at the time the holder of 3,237,154 Cash Fund shares (which was equal to 97.88 per cent. of the total number of Cash Fund shares in issue as at the date of the announcement). Details of the terms and timetable of the cash exit were set out in an announcement made on 20 October 2010, and on 27 October 2010, the Company announced that redemption requests had been received from shareholders in respect of 3,270,202 Cash Fund shares. The net asset value in respect of the Cash Fund shares at close of business on 27 October 2010 was £1.00378 per share. Redemption proceeds for this amount per share, totalling £3,282,563.36, were paid to Cash Fund shareholders on 29 October 2010 and the Cash Fund shares redemption was completed on this date. Subsequent to the redemption, there remain 36,952 Cash Fund shares in issue.

Share rating The Directors recognise that it is in the long term interests of shareholders that the Company’s shares do not trade at a significant discount to their prevailing NAV. The UK Emerging Companies shares have traded between a premium to NAV of 4.4% and a discount of 7.6% over the period, with the average being a discount of 1.1%. The shares ended the period at a premium of 0.5% but at the date of publication of this report the rating had improved to a premium of 2.8%. The Board is mindful of the Company’s share rating and will continue to focus on maintaining a narrow margin between the share price and the NAV. The UK Emerging Companies NAV performance over the period has been strong and the Board believes that the shares remain an attractive investment opportunity, giving access to the UK Emerging Companies Hedge Fund which is otherwise capacity constrained.

Share conversions The Company’s Articles of Association incorporate provisions enabling holders of the UK Emerging Companies shares to convert all or part of their holding into Cash Fund shares on a quarterly basis, with a valuation point of 31 March, 30 June, 30 September and 31 December each year. Holders of Cash Fund shares have the right to convert all or part of their holding into UK Emerging Companies shares annually with a valuation point of 30 September. The only conversion elections made in the period were in respect of the 30 September 2010 conversion date. Elections were received to convert 2,807,200 UK Emerging Companies shares into Cash Fund shares. The conversion 4

BlackRock Hedge Selector Ltd

The Cash Fund shares have traded between a premium of 1.5% and a discount of 2.2% over the period, with the average discount being 0.8%. The shares ended the period at a discount of 1.2% and at the date of this report the shares were trading at a discount to NAV of 1.8%.

Share classes

Outlook

As set out in the Company’s Prospectus, the Company was designed to be able to issue a range of classes of feeder fund shares, each providing investors with exposure to the performance of an investment fund managed by BlackRock. The Board are mindful of this and continue to pursue ideas for suitable additional share classes subject to identification of market demand.

The UK economy remains fragile, with the spectre of high inflation, rising taxation and further public sector job cuts on the horizon. However we believe there remain good opportunities for the UK Emerging Companies Hedge Fund to purchase stocks at attractive valuations, particularly those with exposure to higher growth in the international markets. The uncertainty over prospects for UK and global markets and economies means that the attributes of hedge fund investing remain attractive to investors. We expect demand for the award winning UK Emerging Companies Hedge Fund to remain strong, and this, combined with the fact that this fund is capacity constrained, should enhance demand for the Company’s UK Emerging Companies shares.

Dividends It is the Directors’ intention to distribute all net income received by it in respect of the assets attributable to the Cash Fund shares. For the period since launch to 31 December 2010, the Cash Fund shares have generated net revenue of 0.49p per share which, owing to the de minimis value, will be rolled forward and paid out at a future distribution date.

EU Alternative Investment Fund Managers Directive

Howard Myles Chairman 21 April 2011

The EU Alternative Investment Fund Managers Directive (the “Directive”) is expected to be implemented into national EU member states laws by Q2 2013. Listed investment companies will constitute “alternative investment funds” for the purposes of the Directive, which will regulate, inter alia, the management of the Company by the Manager and marketing of the Company’s securities. Requirements of the Directive include revised transparency and disclosure obligations on the Company, ensuring that the Company has an appropriately authorised institution acting as its “depositary”, the requirement to have independent portfolio valuations and ensuring that any delegate of the Manager is notified to a competent regulatory authority. Whilst certain provisions of the Directive may benefit the Company (such as the possibility of an increased ability to market the Company’s securities to professional investors throughout the EU from 2015), some of these changes may have significant consequences for the Company (and all similar investment companies) and might materially increase compliance and regulatory costs. Furthermore, service providers of the Company, such as custodians, may become subject to increased regulatory standards and statutory liability under the Directive.

Annual General Meeting (“AGM”) The AGM will be held at 10.00 a.m. on Tuesday 5 July 2011 at the offices of BlackRock (Channel Islands) Limited, Forum House, Grenville Street, St. Helier, Jersey JE1 0BR.

Annual Report and Financial Statements 31 December 2010

5

Investment Manager’s Report

Performance A commentary on the performance of the Company’s UK Emerging Companies shares and Cash Fund shares is set out below.

UK Emerging Companies Shares Over the period from launch to 31 December 2010, the Company’s UK Emerging Companies NAV performed strongly, up by 24.9% (before deducting launch costs and incorporating a total expense ratio of 0.6%), reflecting the strong underlying performance of the UK Emerging Companies Hedge Fund (the “Hedge Fund”) which returned 25.7% over the same period (all performance calculations are net of expenses). This compared favourably with UK indices, with the FTSE 100 Index increasing by 19.6% over the period, the FTSE 250 Index up by 30.3% and the FTSE Small Cap Index up by 13.1% (all index performance calculations are on a gross basis). The performance of the Hedge Fund is analysed below.

than expected GDP growth, a significant downturn in the housing market or the existing sovereign risks in Europe escalating once again. Against this backdrop, the Hedge Fund intends to maintain its focus on the long book on high quality, well financed companies that are reasonably expected to outperform as market participants envisage further flows into equities in the year ahead. The short book remains focused on companies which are likely to be more structurally challenged as the governments of the developed world take action to reduce their budget deficits.

UK Emerging Companies Hedge Fund Market Capitalisation Breakdown (£) 0-0.1bn 0.1-0.25bn

Performance summary From 30 September 2009 to 31 December 2010, the UK Emerging Companies Hedge Fund Limited delivered net returns of 25.7% in the Sterling share class. The Hedge Fund achieved a positive return in eleven of the fifteen months since the launch of the Company in September 2009. May was the worst performing month returning –1.10% whilst September was the best performing month adding 5.82%. In comparison the Hoare Govett Smaller Companies plus AIM (ex investment companies) increased by 29.5% over the same period. The Hedge Fund’s gross exposure varied between 130% and 150% throughout the year and averaged 147% over the period. The net exposure was also predominantly above 30% ending the year at 40%. For 2010 the volatility of the Hedge Fund was 7.75% (6.53% since inception). As at 31st December 2010, the Hedge Fund had a Beta of 0.15 in comparison with the Hoare Govett Smaller Companies (ex investment companies) Index (HGSC), a correlation coefficient of 0.35 vs. the HGSC and a Sharpe Ratio of 2.16 since inception (May 2004).

0.25-0.5bn 0.5-1.0bn 1.0-2.5bn 2.5bn + Index -50%

0%

50% Long

Short

Source: BlackRock.

Sector Breakdown UK equities saw another strong positive annual return in the year to 31 December 2010. This was largely down to a supportive technical backdrop in place evidenced by increasingly healthy corporate earnings and balance sheets and economic data of a more positive than negative flavour materialising as the year progressed. Downside risk was clearly visible however. This arose initially from the newly established Coalition Government and its primary target of reducing the UK’s significant budget deficit but also in the guise of significant bouts of sovereign debt concern in peripheral Europe, particularly in the middle of the year. An increasingly positive risk sentiment across the globe however, led by further Quantitative Easing (QE2) particularly in the US, overrode these concerns with the FTSE All Share posting double digit returns of 14.5%.

Basic materials Consumer goods Consumer services Financials Health care Index Industrials Oil & gas Technology Telecoms

Outlook Following on from successive years of good returns in the UK equity market, there is a general consensus for a preference for equities ahead of bonds into 2011. This propensity for risk assets does also recognise the existence of potential risk factors in the form of lower

6

BlackRock Hedge Selector Ltd

-40%

0%

40% Long

Source: BlackRock.

Short

UK Emerging Companies Hedge Fund Monthly Performance Summary since inception

%

2010 2009 2008 2007 2006 2005 2004

Jan

Feb

March

April

May

June

July

August

Sept

Oct

Nov

Dec

1.93 1.40 0.74 1.09 4.89 1.13 –

–1.10 –1.01 5.82 1.65 1.87 1.02 –

0.26 –1.76 1.72 0.47 1.12 0.59 –

1.76 0.60 2.25 1.50 2.12 1.12 –

–1.10 0.31 4.18 1.27 –3.26 0.50 3.22

0.26 –0.48 5.62 0.55 –0.67 1.98 4.07

4.56 1.98 1.39 0.35 0.03 3.03 5.79

0.04 2.65 –1.69 1.19 1.06 1.83 2.53

5.82 1.96 –2.40 2.33 1.44 2.59 1.20

1.26 –0.46 –1.42 1.17 3.06 –2.45 2.48

1.52 –0.76 1.79 0.19 2.33 3.17 1.25

4.23 1.57 0.29 0.77 2.69 2.36 2.31

YTD

FTSE 100 Total Return Index

FTSE 250 Total Return Index

FTSE Small Cap Total Return Index

25.32 19.6 30.3 15.6 6.05 27.33 50.64 54.27 19.44 –28.33 –38.15 –43.91 13.25 7.36 –2.46 –10.55 17.73 14.43 30.21 20.59 18.09 20.78 30.23 22.40 26.30 10.52 16.50 11.46

Cash Fund Shares

Outlook

Performance summary

Over the period since launch the Liquidity Fund has returned an annualised yield consistently ahead of its benchmark of 7 day LIBID and is expected to continue to meet its stated investment objective which is to maximise current income consistent with preservation of principal and liquidity by the maintenance of a portfolio of high quality short-term “money market” instruments.

The Cash Fund NAV performance was up marginally over the period since launch by 0.5%, in comparison with the Institutional Sterling Liquidity Fund (the “Liquidity Fund”) average annualised yield for the period of 0.7%. The share price decreased by 0.7% over the period. The Liquidity Fund seeks to maximise current income consistent with the preservation of principal and liquidity through the maintenance of a portfolio of high quality short-term “money market” instruments, and returned an average annualised yield for the period from launch to 31 December 2010 of 0.7% against a benchmark return (7 day £ LIBID) of 0.4%.

Institutional Sterling Liquidity Fund Maturity distribution 35% 30%

The portfolio invests exclusively in first-tier securities, which include commercial paper, certificates of deposit, floating rate notes, time deposits and fully collateralised repurchase agreements. The Liquidity Fund must maintain 50% of its holdings with a short term rating of A1+/P1 with the remainder in A1/P1.

25% 20% 15% 10% 5% 0% 1-7

8-30

31-90

91-180

Days

Source: BlackRock.

Institutional Sterling Liquidity Fund Portfolio Composition

Monthly gross annualised yield 0.9% 0.8% 0.7% 0.6% 0.5% 0.4% 0.3% 0.2% 0.1% 0.0%

Certificates of Deposit 44%

Oct 09

Asset Backed Commercial Paper 5% Financial Company Commercial Paper 11%

Dec 09

Yield

Feb 10

Apr 10

Jun 10

Aug 10

Oct 10

Dec 10

Benchmark

Source: BlackRock.

FRNs 32% Government Agency Repo 8% Source: BlackRock.

Annual Report and Financial Statements 31 December 2010

BlackRock Investment Management (UK) Limited 21 April 2011 7

Directors

Howard Myles*

Jonathan Ruck Keene

Chairman (British) (appointed 9 September 2009), is a resident of France. He was a partner in Ernst & Young from 2001 until June 2007 and was responsible for the Investment Funds Corporate Advisory team. He was previously with UBS Warburg from 1987 to 2001. Mr Myles began his career in stockbroking in 1971 as an equity salesman and joined Touche Ross in 1975 where he qualified as a chartered accountant. In 1978 he joined W. Greenwell & Co. in the corporate broking team and in 1987 moved to SG Warburg Securities where he was involved in a wide range of commercial and industrial transactions in addition to leading Warburg’s corporate finance function for investment funds. He is a fellow of the Institute of Chartered Accountants in England & Wales and holds a number of non-executive directorships in the financial sector.

(British) (appointed 31 December 2009), is a UK resident and is a managing director of BlackRock Investment Management (UK) Limited with over 30 years’ experience in the financial sector. He joined the BlackRock group in 1986 through one of its predecessor companies, Mercury Asset Management, where he was a fund manager until 1997. Following senior management roles in communications and marketing, he was appointed to his current position as Head of Investment Companies in 2004. Mr Ruck Keene is also a director of BlackRock Commodities Income Investment Trust plc, BlackRock Absolute Return Strategies Ltd and The Great Turk Fund.

Gregor Allan* (British) (appointed 31 December 2009) is a Jersey resident. He is a qualified chartered accountant with a B.A. in Business Studies, and worked in the accountancy profession in the UK before moving to Bermuda in 1982 where he focused on mutual funds work. He moved to Jersey in 1984 and was managing director of Save & Prosper (rebranded as Flemings) and established the Flemings Jersey bank. Early in 1997 Gregor was invited to establish Schroder’s Jersey office, setting up their investment, banking and property businesses, and was a managing director from 1997 to 2003. He joined Rathbones in early 2004 and project led the change programme for Rathbone Trust International and its relocation to a modern state of the art head office in Jersey. He continues to act as a non-executive chairman to Schroder Property Managers (Jersey) Limited and holds a number of non-executive directorships in the financial services sector.

Frank Le Feuvre (British) (appointed 9 September 2009), is a Jersey resident and has been with the BlackRock Group (formerly the Merrill Lynch Investment Managers group and the Mercury Asset Management group) for over 38 years and managed SG Warburg & Co. (Jersey) Ltd’s banking business in Jersey for many years. He became a director of BlackRock (Channel Islands) Limited (formerly Merrill Lynch Investment Managers (Channel Islands) Limited and Mercury Asset Management Channel Islands Ltd) in 1987 and Managing Director of the Merrill Lynch Channel Islands business in 1997. His directorships include BlackRock Global Funds, BlackRock Absolute Return Strategies Ltd and a number of BlackRock managed hedge funds including the BlackRock UK Emerging Companies Hedge Fund Limited.

*Member of the Audit & Management Engagement Committee. 8

BlackRock Hedge Selector Ltd

Angus Spencer-Nairn* Chairman of the Audit & Management Engagement Committee (British) (appointed 9 September 2009), is a resident of Jersey. He qualified as a Chartered Accountant in 1970 and is a member of the Institute of Chartered Accountants of Scotland. He was the senior partner of Rawlinson & Hunter, Jersey and specialised in the management of offshore trusts, companies and funds. He joined Rawlinson & Hunter, Jersey in 1975 becoming a partner in 1976 and the senior partner in 1980, before retiring in 2009. He holds a number of non-executive directorships within the financial services sector.

All the Directors are non-executive and are independent of the Manager with the exception of Mr Le Feuvre and Mr Ruck Keene.

Directors’ Report

The Directors present the first annual report and financial statements of the Company for the period from 17 August 2009 (the date of incorporation) to 31 December 2010.

derivative investments which may be exchange-traded or over-thecounter. The UK Emerging Companies Hedge Fund takes both long and short positions and also retains cash or cash equivalents for use as collateral or pending reinvestment.

Business Review Incorporation and principal activity The Company was incorporated in Jersey on 17 August 2009 under the Companies (Jersey) Law 1991 as a limited liability registered closedended investment company. The Company’s two classes of shares, UK Emerging Companies Shares and Cash Fund Shares, were listed on the London Stock Exchange on 28 September 2009. Investment policy The investment policy of the Company is to provide investors with a choice of investment mandates represented by different share classes, each intended to provide a specific investment exposure to an underlying fund managed by BlackRock Investment Managers (UK) Limited and its affiliates. Furthermore, the Company’s policy in respect of each share class is to invest in each underlying fund, including the Liquidity Fund, on the basis that each underlying fund will be managed so as to spread investment risk. At present the Company only has one class of feeder fund shares in issue, the UK Emerging Companies Share Class, which provides investors with exposure to the performance of the UK Emerging Companies Hedge Fund Limited, a Cayman Islands domiciled fund managed by BlackRock. In addition, the Company has in issue a class of Cash Fund shares which provide, via investment in BlackRock’s Institutional Sterling Liquidity Fund (a sub-fund of the Institutional Cash Series plc), exposure to a portfolio of short term money market instruments. The Cash Fund shares are also designed as a conversion option for holders of feeder fund shares who may wish, from time to time, to reduce their exposure to the UK Emerging Companies Hedge Fund. Investment Objective The investment objective of the UK Emerging Companies Hedge Fund is to seek to maximise total returns by investing primarily in mid and small cap UK equities, whilst limiting correlation with the UK equity market. The investment objective of the underlying Cash Fund shares is to maximise current income consistent with preservation of principal and liquidity by the maintenance of a portfolio of high quality shortterm “money market” instruments.

UK Emerging Companies Shares Asset allocation The Company’s UK Emerging Companies shares are fully invested in the UK Emerging Companies Hedge Fund Limited, which seeks to achieve its investment objective primarily by investing primarily in mid and small cap UK equities and equity-related securities. It also has the flexibility to invest in a wide range of instruments, including unlisted equities, debt securities, exchange-traded funds, warrants and other derivative instruments including, but not limited to, equity swaps, other contracts for differences, futures and options contracts and other Annual Report and Financial Statements 31 December 2010

The policy of the UK Emerging Companies Hedge Fund is to maintain a diversified portfolio so as to spread investment risk. The UK Emerging Companies Hedge Fund may invest up to 100 per cent. of its gross assets in equities issued by, and equity-related securities relating to, UK issuers falling outside the FTSE 100 index and, in normal circumstances, no more than 20 per cent. of its gross assets will be invested in equities issued by, and equity-related securities relating to, UK issuers within the FTSE 100 Index. A minimum of 80 per cent. of the UK Emerging Companies Hedge Fund’s gross long investment exposure, and of 80 per cent. of its gross short investment exposure (excluding cash and cash equivalents), is normally to UK equities and equity related securities. Investment exposure to equities and equity-related securities is generally confined to companies whose shares are listed or traded on a Recognised Exchange (as at 31 December 2010, 100 per cent. of the UK Emerging Companies Hedge Fund’s gross exposure was to such companies). Although individual position sizes are determined through the assessment of relative risk and reward, the UK Emerging Companies Hedge Fund targets a maximum gross long investment exposure to a single issuer of approximately two per cent. and a maximum gross short investment exposure of approximately one per cent. Gearing The UK Emerging Companies Hedge Fund is leveraged including, without limitation, through borrowing cash, securities and other instruments and entering into derivative transactions that have the effect of leveraging the portfolio. Leverage is limited to 300 per cent. of the net asset value of the UK Emerging Companies Hedge Fund although no assurance can be given that this limit may not be exceeded on a short-term basis. Investment restrictions and maximum exposures The UK Emerging Companies Hedge Fund will not invest more than 20 per cent. of the value of its gross assets (at the time of investment) in the securities of any one issuer or take or seek to take legal or management control of any issue in which it invests. The UK Emerging Companies Hedge Fund is listed on the Irish Stock Exchange and must comply with certain investment restrictions which are compulsory for listed investment funds. Details of these investment restrictions are set out in paragraph 3 headed “Investment restrictions” in Part 6 of the Securities Note.

Portfolio analysis An analysis of the portfolio composition by sector and market capitalisation of the UK Emerging Companies Hedge Fund has been provided on page 6.

9

Directors’ Report continued

Cash Fund Shares The Company’s Cash Fund shares are fully invested in the Institutional Sterling Liquidity Fund. The Liquidity Fund may invest in a broad range of transferable securities (which will generally be traded or listed on eligible stock exchanges or regulated markets) such as securities, instruments and obligations that may be available in the relevant markets (both within and outside the UK) for instruments denominated in Sterling including securities, instruments and obligations issued or guaranteed by the UK Government or other sovereign governments or their agencies and securities, instruments and obligations issued or guaranteed by supranational or public international bodies, banks, corporate or other commercial issuers. These types of securities, instruments and obligations shall include those set out in the Company’s prospectus on pages 44 to 45 of the Securities Note and may be issued by both UK and non-UK issuers, but shall be denominated in Sterling. The list is not exhaustive and such other securities, instruments and obligations (which will generally be traded or listed on eligible stock exchanges or regulated markets) as may from time to time be consistent with its investment objectives and policies may be used. In practice the Liquidity Fund may invest only in securities with a maturity at issuance or residual term to maturity of 397 days or less or securities that undergo regular yield adjustments at least every 397 days and will also maintain a weighted average maturity of 60 days or less. Portfolio analysis An analysis of the portfolio composition by maturity distribution and asset type of the Institutional Sterling Liquidity Fund has been provided on page 7. Performance During the period to 31 December 2010, the NAV of the Company’s UK Emerging Companies shares increased by 23.9% (24.9% with launch costs excluded) and the share price by 24.5%. The NAV of the Cash Fund shares rose by 0.5% and the share price fell by 0.7%. The Investment Manager’s report on page 6 includes a review of the main developments during the period, together with information on fund and direct Investment activity for the UK Emerging Companies Hedge Fund. A similar analysis is provided on page 7 for the Institutional Sterling Liquidity Fund. Results and dividends The results for the Company are set out in the Statement of Operations on page 27. The increase in net assets resulting from operations for the period amounted to £11,419,575. The Directors do not propose the payment of any dividends in respect of the UK Emerging Companies shares. The Directors do not propose the payment of any dividends for the period ended 31 December 2010 in respect of the Cash Fund shares as distributable income is de minimis. Key performance indicators At each Board meeting, the Directors consider a number of performance measures to assess the Company’s success in achieving 10

BlackRock Hedge Selector Ltd

its objectives. The key performance indicators (“KPIs”) used to measure the progress and performance of the Company over time are set out in the table on this page.

UK Emerging Companies Share Class Net Asset Value as at 31 December 2010 Net Asset Value – return since launch Net Asset Value – return since launch (excluding launch costs) Share Price as at 31 December 2010 Share price – return since launch Premium/(discount) to Net Asset Value at 31 December 2010 Total expense ratio – period since launch

Cash Fund Share Class

123.92p

99.25p

23.9%

0.5%

24.9%

0.5%

124.50p 24.5%

99.25p (0.7%)

0.5%

(1.2%)

0.6%

1.6%

The Board monitors the above KPIs at each meeting. Additionally, it regularly reviews the performance of the UK Emerging Companies Hedge Fund in conjunction with a number of indices and ratios in order to understand the impact on the Hedge Fund’s relative performance of the various components such as net and gross equity market exposure, beta adjusted risk, correlation and volatility. The Board also assesses the Hedge Fund’s performance against its peer group of fund of hedge funds with similar investment objectives and relevant market indices. The Directors recognise that it is in the long term interests of shareholders that the Shares do not trade at a significant discount to their prevailing NAV. In the period from launch to 31 December 2010, the UK Emerging Companies shares traded in the range of a discount of 7.6% through to a premium of 4.4% with the average being a discount of 1.1%. The Cash Fund shares traded in the range of a discount of 2.2% through to a premium of 1.5% with the average being a discount of 0.8%. At the period end the UK Emerging Companies shares were trading at a premium of 0.5% to NAV, and the Cash Fund shares at a discount of 1.2%. In order to take action to address any imbalance between the supply of and demand for any class of shares, the Company will seek approval from shareholders on an annual basis to buy back and issue shares. In addition, the Board also intend where they consider it appropriate to implement additional share buy backs, so as to provide further liquidity to the market and with a view to maintaining the rating of the shares at an acceptable level. The Company also operates a discount control mechanism whereby the Directors must convene a Cash Exit Class Meeting if the discount of any share class exceeds 5% on average over the preceding 6 month period, with a view to giving shareholders the opportunity to dispose of

movements may be impaired and it may experience adverse price movements upon liquidation of its investments. Settlement of transactions may be subject to delay and administrative uncertainties. The Hedge Fund also utilises derivative instruments which involve varying degrees of off-balance sheet market risk, and are subject to changes in the level or volatility of interest rates, foreign currency exchange rates, and the market values of the financial instruments or commodities underlying such derivative instruments. This frequently results in changes in the Hedge Fund’s unrealised appreciation/ (depreciation) on such derivative instruments as reflected in the audited Statement of Assets and Liabilities. Securities sold short represent obligations of the Hedge Fund to deliver the specified security thereby creating a liability to repurchase the security in the market at prevailing prices. Accordingly, these securities may result in off-balance sheet risk, as the Hedge Fund’s satisfaction of the obligations may exceed the amount recognised in the audited Statement of Assets and Liabilities. These risks and economic and market conditions of this nature could result in significant losses for the Company, which would have a material adverse effect on the performance of the Company and returns to Shareholders.

their shares at NAV less disposal costs. As the average discount did not exceed 5% at any point in the period since launch, the discount control mechanism has not been invoked. Details of the Shares issued during the period are shown in note 6, on page 34, along with details of the number of shares redeemed in the period (as announced on 27 October 2010 in respect of the Cash Exit in October 2010). Principal risks The key risks faced by the Company are set out below, full details of these risks can be found in the Company’s prospectus dated 16 September 2009. The Board regularly reviews and agrees policies for managing each risk, as summarised below. 

Strategy/performance risk – The Board is responsible for deciding the investment strategy to fulfil the Company’s objectives and monitoring the performance of the Investment Manager. The strategies employed by the Investment Manager may be speculative and involve substantial risk of loss in the event of failure or deterioration. To manage this risk the Investment Manager provides an explanation of its investment management and risk processes together with an in depth review of strategies and investment opportunities in the current market environment. The Board monitors the net and gross equity exposure of the Hedge Fund, the underlying portfolio composition and the processes the Investment Manager has in place to ensure the risks associated with particular investment strategies are minimised, based on the exposure and position limits inherent in the Hedge Fund’s investment policies.



Regulatory risk – The Company is exposed to regulatory risk through changes in laws or regulations, including tax laws, or new interpretations or applications of laws and regulations, that are applicable to the Company’s business.



Market risk – The Company is exposed to market risk through its investment in the underlying UK Emerging Companies Hedge Fund and the Institutional Sterling Liquidity Fund. Market risk is risk associated with changes in, among other things, market prices of securities or commodities or foreign exchange or interest rates and there are certain general market conditions in which any investment strategy is unlikely to be profitable. The Investment Manager has no ability to control or predict such market conditions. General economic and market conditions, such as currency and interest rate fluctuations, availability of credit, inflation rates, economic uncertainty, changes in laws, trade barriers, currency exchange controls and national and international conflicts or political circumstances, as well as natural circumstances, may affect the price level, volatility and liquidity of securities. In some circumstances, investments entered into by the UK Emerging Companies Hedge Fund may be relatively illiquid making it difficult or impossible to acquire, or dispose of them at the prices quoted on the various exchanges, or at the prices which the Investment Manager considers to be their value at that time. Accordingly, the Hedge Fund’s ability to respond to market

Annual Report and Financial Statements 31 December 2010



Operational risk – The Company has no employees and therefore relies upon the services provided by third parties and is dependent on the control systems of the Manager, the Investment Manager, the Sub-Administrator and the Custodian. The security, for example, of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These are regularly tested and monitored and an internal controls report, which includes an assessment of risks together with procedures to mitigate such risks, is prepared by the Manager and reviewed by the Audit and Management Engagement Committee at least twice a year.



Counterparty risk – Fund investments are generally subject to counterparty risk with respect to the brokers, counterparties, clearing houses and exchanges with which they deal. Any default by one of these parties could result in material losses to a fund investment, and therefore the Company. The assets of fund investments held by brokers or counterparties are generally not held in segregated accounts, and accordingly, in the event of any such default a fund investment may only have the rights of a general creditor in the event any broker or counterparty dissolves or files for bankruptcy. In addition, the institutions, including brokerage firms and banks, with which a fund investment trades or invests may encounter financial difficulties that impair the operational capabilities or the capital position of any such fund investment. Neither the Company nor the Investment Manager will have any control over the counterparties or brokers used by the fund investments.



Financial risks – The Company’s investment activities, and the investment activities of the UK Emerging Companies Hedge Fund and the Institutional Sterling Liquidity Fund, expose it to a variety of financial risks that inter alia include liquidity risk, credit risk 11

Directors’ Report continued

and interest rate risk. Further details are disclosed in note 5 on page 34, together with a summary of the policies for managing these risks. Future prospects The Board’s main focus is to maximise total returns for the UK Emerging Companies Share Class through investment in the UK Emerging Companies Hedge Fund which invests primarily in mid and small cap UK equities, whilst limiting correlation with the UK equity market. The investment objective of the Institutional Sterling Liquidity Fund is to maximise current income consistent with preservation of principal and liquidity by the maintenance of a portfolio of high quality short term “money market” instruments. The future of the Company is dependent upon the success of the investment strategy. The outlook for each share class is discussed in the Investment Manager’s Report on pages 6 and 7.

Investment management and administration BlackRock Investment Management (UK) Limited (BIM UK) is the Company’s Investment Manager and the Manager is BlackRock (Channel Islands) Limited (“BCI”). BIM UK is responsible for the Company’s investment management decisions. BIM UK is authorised and regulated by the Financial Services Authority. No investment management or performance fees will be payable directly by the Company to the Manager or the Investment Manager. Holders of each class of shares will indirectly bear the Company’s pro rata share of the fees charged and expenses borne at the level of the relevant underlying fund. The underlying Investment Manager will receive from the UK Emerging Companies Hedge Fund (a) an investment management fee equal to 1/12 of 1.75 per cent per month of the aggregate net asset value of the class of shares in the UK Emerging Companies Hedge Fund held by the Company payable monthly in arrears and (b) subject to a “high watermark”, a performance fee equal to 20 per cent. of the appreciation in the net asset value per share of each share held by the Company in the UK Emerging Companies Hedge Fund during each calendar year. Annual expenses associated with the Liquidity Fund, which include the fees and expenses of the Liquidity Fund Manager and underlying Investment Manager, are limited to 1 per cent. per annum of the aggregate net asset value of the shares of the Liquidity Fund or to such lesser amount as the Liquidity Fund Manager may agree. Currently, the Liquidity Fund Manager has agreed that such annual expenses will be capped at 0.20 per cent. per annum of the aggregate net asset value of the shares of the Liquidity Fund. The Management Agreement between the Company and the Manager may be terminated by the Company or the Manager with not less than 3 months’ written notice. The Manager has also entered into an Investment Management Agreement with the Investment Manager, pursuant to which the Investment Manager was appointed to manage and invest the assets of the Company. The fees of the Investment Manager are paid by the Manager and not the Company, and shall be such amounts as may be 12

BlackRock Hedge Selector Ltd

determined by the Investment Manager and Manager from time to time. The Investment Management Agreement may be terminated by the Manager or the Investment Manager with not less than 3 months’ written notice. In the event that notice of termination is given under the Management Agreement the Company may give notice immediately to terminate the Investment Management Agreement. On 16 September 2009 the Company also entered into an Administration Agreement with the Manager. In accordance with these agreements the Manager has been appointed to provide certain administrative services and such duties as are normally performed by the Company Secretary respectively. The agreement may be terminated upon 60 days’ written notice by either party. Under the terms of a Sub-Administration Agreement dated 16 September 2009, BNY Mellon Investment Servicing (International) Limited (the “Sub- Administrator”) has agreed to perform certain financial, accounting, administrative and other services. The agreement may be terminated upon 60 days’ written notice by either party. In addition the Company has entered into a custody agreement dated 16 September 2009 with BNY Mellon International Bank Limited for the provision of custody services. The agreement may be terminated upon 60 days’ written notice by either party. BIM UK and BCI are each indirect operating subsidiaries of BlackRock, Inc. which is a publicly traded corporation on the New York Stock Exchange operating as an independent firm. The Bank of America Corporation, The PNC Financial Services Group, Inc. and Barclays PLC each has a significant economic interest in BlackRock, Inc. PNC Financial Services Group, Inc. and Bank of America Corporation are both US public companies.

Appointment of the Manager and Investment Manager The Board has concluded that it is in shareholders’ interests as a whole that the appointment of the Manager and Investment Manager should continue on the terms set out in the Management Agreement and Investment Management Agreement both dated 16 September 2009. The Board considers the arrangements for the provision of investment management and other services to the Company on an ongoing basis and a formal review is conducted annually. As part of this review the Board considers the quality and continuity of the personnel assigned to handle the Company’s affairs, the investment process and the results achieved to date. The specialist nature of the Company’s investment remit is, in the Board’s view, very well served by BIM UK, which has an established track record and provides an experienced and historically stable investment team. The principal contents of the agreement with each of the Manager and Investment Manager have been set out in the previous section. Having considered the terms of these agreements, the Board considers that their terms represent an appropriate balance between cost and incentivisation of the Manager and Investment Manager.

Voting policy The exercise of voting rights attached to shares in the Company’s portfolio has been delegated to the Investment Manager, who in turn has delegated all voting decisions to an independent fiduciary. The independent fiduciary makes any voting decisions in accordance with best corporate governance practice. The Investment Manager’s conflicts of interest policy in relation to voting is available on its website at www2.blackrock.com.

31 December 2010 Mr Howard Myles (Chairman) Mr Gregor Allan Mr Frank Le Feuvre Mr Jonathan Ruck Keene Mr Angus Spencer-Nairn

Date of Appointment

– – 100,000 – –

– – – – –

Any amendments to the Company’s Articles of Association must be made by special resolution.

All of the holdings of the Directors and their families are beneficial. No changes to these holdings had been notified up to the date of this report. In addition to the holdings disclosed above, Mr Ruck Keene holds 309.3219 shares in the UK Emerging Companies Hedge Fund directly.

Going concern

Directors’ Indemnity

The Directors are satisfied that the Company has adequate resources to continue in operational existence for the foreseeable future and is financially sound. For this reason, they continue to adopt the going concern basis in preparing the financial statements. The Company is able to meet all of its liabilities from its assets and the ongoing expenses are approximately 0.6% of the net assets.

In addition to Directors’ and Officers’ liability insurance cover, the Company’s Articles of Association provide, subject to the provisions of applicable Jersey legislation, an indemnity for Directors in respect of costs incurred in the defence of any proceedings brought against them by third parties arising out of their positions as Directors, in which they are acquitted or judgement is given in their favour. The Company has entered into Deeds of Indemnity with Directors individually which are available for inspection at the Company’s registered office and will be available at the AGM.

Articles of Association

Directors In accordance with the Company’s Articles of Association, at each annual general meeting: 

any Director who is not an independent director must retire;



any Director, other than a Director who is not an independent Director, who was elected or last re-elected a Director at or before the annual general meeting held in the third calendar year before the current year must retire by rotation; and



such further Directors, if any, must retire by rotation as would bring the number retiring by rotation up to one-third of the number of directors in office at the date of the notice of the meeting.

At the 2011 AGM, as non independent Directors, Mr Le Feuvre and Mr Ruck Keene will retire. In addition, Mr Myles will also retire at the AGM in order that one-third of the number of Directors in office at the date of the notice of the meeting retire by rotation. All three Directors will be seeking re-election. Biographies of the Directors are detailed on page 8.

Directors’ interests Mr Ruck Keene and Mr Le Feuvre, as employees of BlackRock, are deemed to be interested in the Company’s management agreement. There were no other contracts subsisting during or at the end of the year in which a Director of the company is or was materially interested and which is or was significant in relation to the Company’s business except as disclosed in note 9 to the accounts. None of the Directors has a service contract with the Company. No Director is entitled to compensation for loss of office on the takeover of the Company. The Directors of the Company on 31 December 2010 and their interests in the Shares of the Company, are shown in the following table.

The Company has also maintained appropriate Directors’ liability insurance cover throughout the period.

Directors’ Remuneration Report The Directors’ Remuneration Report is set out on pages 17 and 18. An ordinary resolution to approve this report will be put to members at the next AGM. No person’s entitlement to remuneration is conditional upon the resolution being approved.

Substantial share interests As at 14 April 2011, the Company had received notification in accordance with the FSA’s Disclosure and Transparency Rule 5.1.2 R of the following interests in 3% or more of the voting rights attaching to the Company’s issued share capital.

Holder BlackRock, Inc.* Barclays Wealth** Rensburg Sheppards Investment Management Close Asset Management Premier Asset Management Smith & Williamson J O Hambro Investment Management

Total shares held

% of voting rights

13,840,000 5,020,900

29.14 10.57

4,683,935 3,098,840 2,352,200 2,239,471

9.86 6.52 4.95 4.71

2,128,000

4.48

* Including 6,734,516 Shares held by L&G Target Return Trust representing 14.18% of the total voting rights. BlackRock Inc.’s holding represents shareholdings of investment vehicles managed by members of the BlackRock Group and discretionary managed money. ** Includes 1,902,000 shares held by Barclays Bank plc and 3,118,900 shares held by Barclays Wealth Managers Espana.

No other shareholder had notified an interest of 3% or more in the Company’s Shares as at 14 April 2011. Annual Report and Financial Statements 31 December 2010

13

Directors’ Report continued

Donations The Company made no political or charitable donations during the period.

Payment of suppliers It is the policy of the Company to settle all investment transactions in accordance with the terms and conditions of the relevant market in which it operates. Suppliers of goods and services are generally paid within 30 days of the date of any invoice. The Company has no trade creditors.

Share capital and share issues Full details of the Company’s authorised and issued share capital are given in note 6 on page 34 together with the details of the Shares redeemed during the period. The Directors consider that it is in the interests of shareholders as a whole that the price of the ordinary shares reflects, as closely as possible, the NAV per share. The Directors will consider the issue at a premium or repurchase at a discount of ordinary shares to correct any supply/demand imbalance in the market. Any such issues or repurchases will enhance the net asset value for continuing shareholders. At the year end the Company’s share capital consisted of 47,122,000 UK Emerging Company shares and 36,952 Cash Fund shares. Of these, 48,629,200 UK Emerging Company shares and 70,000 Cash Fund shares were issued at launch on 28 September 2009 for proceeds of £1. Subsequently, under authorities granted by shareholders, there were three separate issues of UK Emerging Company shares during the period from 17 August 2009 to 31 December 2010 and 1,300,000 shares were issued to Cenkos Securities for a total consideration of £1,587,025 (price range of 120.00p to 123.50p) and at an average premium to NAV of 0.12 per cent. Full details of the Company’s authorised and issued share capital are given in note 6 on page 34. Since the year end a further 700,000 shares have been issued for total net consideration of £881,859.

Voting rights During the period ended 31 December 2010 the voting rights of both the UK Emerging Companies and Cash Fund shares were 1 voting right per share. On 1 January 2011, the voting rights were re-calculated in accordance with the provisions of the Articles of Association of the Company and the UK Emerging Companies shares’ Voting Rights changed to 1.2 voting rights per share. The Cash Fund shares continue to have 1 vote per share.

disposal and any other deductions that the Directors consider appropriate) (a “Cash Exit”). On 18 October 2010, the Company announced that it had received written notice on behalf of Barclays Wealth Multi-manager (“Barclays”) requiring the Company to offer a Cash Exit to the holders of Cash Fund shares. Barclays was at the time the holder of 3,237,154 Cash Fund shares (which was equal to 97.88 per cent. of the total number of Cash Fund shares in issue as at the date of the announcement). Details of the terms and timetable of the Cash Exit were set out in an announcement made on 20 October 2010, and on 27 October 2010, the Company announced that redemption requests had been received from shareholders in respect of 3,270,202 Cash Fund shares. The net asset value in respect of the Cash Fund shares at close of business on 27 October 2010 was £1.00378 per share. Redemption proceeds for this amount per share, totalling £3,282,563.36, were paid to Cash Fund shareholders on 29 October 2010 and the Cash Fund shares redemption was completed on this date.

Buy backs and treasury shares Under Article 58A of the Companies (Jersey) Law 1991, as amended, the Company is, subject to shareholder approval, permitted to hold shares acquired by market purchase as treasury shares, rather than having to cancel them. The Manager will only repurchase Shares at prices below the prevailing NAV per share and otherwise in accordance with guidelines established from time to time by the Board. Issued Shares of the Company which are bought back may be held in treasury and may be subsequently cancelled or sold for cash in the market. Treasury shares will only be reissued at prices at or above the prevailing NAV per share thereby giving the Company the ability to reissue Shares quickly and cost effectively, thereby improving liquidity and providing the Company with additional flexibility in the management of its capital base. It also ensures a positive overall effect on shareholders when Shares are bought back at a discount and then sold at a price at or above the NAV per share. The Directors also have general shareholder authority to purchase in the market up to 14.99 per cent of each class of shares in issue (excluding treasury shares). No shares were repurchased under this authority in the period. The main objective of any buy back is to enhance the NAV per share of the remaining shares and to reduce the absolute level and volatility of any discount to NAV at which the shares may trade. Although the Manager initiates the buybacks, the policy and parameters are set by the Board and reviewed at regular intervals. The Company intends to raise the cash needed to finance the purchase of shares either by redeeming Fund and/or Direct Investments or by short term borrowing.

Cash Exit Mechanism and share redemptions The Company’s Articles of Association provide that holders of the issued shares of any class may, with the consent in writing of the holders of two-thirds of the issued shares of that class, require the Directors to provide holders of the shares of that class with the opportunity to dispose of such shares for a cash amount equal to the proceeds of realising the net assets of the Company attributable to such shares (less the costs of implementing such 14

BlackRock Hedge Selector Ltd

The Directors are proposing that the authority to buy back shares to be held in treasury, or for cancellation, be renewed at the forthcoming AGM. Both the repurchase of shares and the use of treasury shares should assist the Manager in the objective of providing a discount management mechanism and enhancing the NAV of the Company’s shares.

Annual General Meeting

Special Business

The following information to be discussed at the forthcoming AGM to be held on 5 July 2011 is important and requires your immediate attention. If you are in any doubt about the action you should take, you should seek advice from your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 (as amended). If you have sold or transferred all of your shares in the Company you should pass this document, together with any other accompanying documents including the form of proxy, at once to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee.

Resolution 9 Authority to buy back shares The special resolution to be proposed will seek to renew the authority granted to Directors enabling the Company to make market purchases. Under the Listing Rules of the Financial Services Authority, the maximum price which can be paid is the higher of 105% of the average of the market values of the shares for the five business days before the purchase is made, the price of the last independent trade, and the highest current independent bid. In addition, shares will only be purchased at prices below the NAV per Share, which should have the effect of increasing the NAV per share for the remaining shareholders. The Directors will only consider repurchasing shares in the market if they believe it to be in shareholders’ interests and as a means of correcting any imbalance between supply and demand for shares. In making purchases, the Company will deal only with member firms of the London Stock Exchange.

Resolutions relating to the following items of ordinary and special business will be proposed at the forthcoming AGM. The Board seeks your approval to the resolutions, which may be found on pages 41 and 42.

The Directors are seeking authority to purchase up to:

Ordinary Business Resolution 1 This ordinary resolution seeks to receive the report of the Directors and the financial statements for the period ended 31 December 2010 and the Auditors’ Report. Resolution 2 This ordinary resolution seeks to approve the Directors’ Remuneration Report and reports of the Company for the period ended 31 December 2010. Resolutions 3, 4 and 5 These ordinary resolutions seek to re-elect Messrs Le Feuvre, Myles and Ruck Keene as Directors. Resolutions 6 and 7 These ordinary resolutions seek to reappoint Deloitte LLP as the Company’s auditors and to authorise the Directors to determine the auditors’ remuneration. Resolution 8 Authority to allot Shares This ordinary resolution empowers the Directors to allot shares, up to: 

2,391,099 UK Emerging Companies shares of no par value



1,847 Cash Fund shares of no par value

each being 5 per cent. of the relevant class of shares or such other number of Shares that is equal to 5 per cent. of the issued share capital (excluding treasury shares) of each of the share classes of the Company on 5 July 2011. The Directors will use this authority when in their opinion it is in the best interests of the Company to issue shares for cash. This authority will expire on the earlier of the conclusion of the AGM of the Company in 2012 and 31 December 2012.

Annual Report and Financial Statements 31 December 2010



7,168,517 UK Emerging Companies shares of no par value



5,539 Cash Fund shares of no par value

each being 14.99 per cent. of the relevant class of shares or such other number of Shares that is equal to 14.99 per cent. of the issued share capital (excluding treasury shares) of each of the share classes of the Company on 5 July 2011. This authority will expire on the earlier of the conclusion of the AGM of the Company in 2012 and 31 December 2012. All shares purchased pursuant to the above authority shall be either: (a) cancelled immediately on completion of the purchase; or (b) held as treasury shares pursuant to Article 58A of the Companies (Jersey) law 1991 as amended. Resolution 10 Authority to disapply pre-exemption rights The Directors require specific authority from shareholders before allotting new shares for cash (or selling shares out of treasury for cash) without first offering them to existing shareholders in proportion to their holdings. Resolution 10 is a resolution which can only be passed by a majority representing not less than three quarters of the votes cast by shareholders present at the AGM in person or by proxy, empowers the Directors to allot new shares for cash or to sell shares held by the Company in treasury for cash, otherwise than to existing shareholders on a pro-rata basis, up to: 

2,391,099 UK Emerging Companies shares of no par value



1,847 Cash Fund shares of no par value

each being 5 per cent. of the relevant class shares of or such other number of Shares that is equal to 5 per cent. of the issued share capital (excluding treasury shares) of each of the share classes of the Company on 5 July 2011.

15

Directors’ Report continued

This authority will expire on the earlier of the conclusion of the AGM of the Company in 2012 and 31 December 2012.

Recommendation The Board considers that each of the resolutions is likely to promote the success of the Company and is in the best interests of the Company and its shareholders as a whole. The Directors unanimously recommend that you vote in favour of the resolutions as they intend to do in respect of their own beneficial holdings. Each member of the Board who holds shares intends to vote in favour of the resolutions to be proposed at the AGM. In aggregate, the number of shares held by the Board are 100,000 UK Emerging Companies shares.

Corporate governance Full details are given in the Corporate Governance Statement on pages 19 to 22. The Corporate Governance Statement forms part of this Directors’ Report.

Audit information The Directors in office at the date of this report each confirm that, so far as they are aware, there is no relevant information of which the Company’s auditors are unaware and each Director has taken all the steps that they ought to have taken as a Director to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information.

Auditors The auditors, Deloitte LLP, have indicated their willingness to continue in office and resolutions proposing their reappointment and authorising the Directors to determine their remuneration for the ensuing year will be submitted at the AGM.

By order of the Board BlackRock (Channel Islands) Limited Secretary 21 April 2011

16

BlackRock Hedge Selector Ltd

Directors’ Remuneration Report

The Board presents the Directors’ Remuneration Report for the period ended 31 December 2010. An ordinary resolution for the approval of this report will be put to members at the forthcoming AGM. Certain of the disclosures in this report are subject to audit and where disclosures have been audited, they are indicated as such. The auditors’ opinion is included in their report on page 24.

Remuneration Committee The Board as a whole fulfils the function of the Remuneration Committee, which meets when necessary to consider any change in Directors’ remuneration policy. The Board is of the opinion that a separate Remuneration Committee is not appropriate for a Company of this size and nature and a separate Committee has therefore not been established. The Company has no employees other than its Directors, all of whom are non-executive and, with the exception of Mr Le Feuvre and Mr Ruck Keene, are independent of the Manager.

Remuneration/Service Contract The maximum remuneration of the Directors is determined within the aggregate limit set out in the Company’s Articles of Association which currently amounts to £150,000 per annum. No element of the Directors’ remuneration is performance related. The Company has not awarded any share options or long term performance incentive to any of the Directors. None of the Directors has a service contract with the Company or receives any non cash benefits or pension entitlements. The terms of their appointment are detailed in a letter sent to them when they joined the Board. These letters are available for inspection at the registered office of the Company. As disclosed on page 19 and in note 9 on page 36, Mr Spencer-Nairn held a directorship of Computershare Investor Services (Jersey) Limited during the period, which provides services to the Company. He resigned from this position with effect from 8 May 2010.

Directors’ remuneration Period from date of appointment to 31 December 2010.

The Board’s policy is that the remuneration of the Directors needs to be sufficient to attract and retain Directors with suitable knowledge and experience and should be fair and reasonable in relation to the duties and responsibilities involved. It is intended that this policy will continue for the forthcoming year.

Remuneration Policy The Secretary provides a comparison of the Directors’ remuneration with other closed-ended investment companies of a similar size and/or mandate, as well as taking into account any data published by the Association of Investment Companies. This comparison, together with consideration of any alteration in non-executive Directors’ responsibilities, is used to review whether any change in remuneration is necessary.

Performance The first graph below compares the Company’s NAV and share price performance for the UK Emerging Companies Share Class with the performance of an equivalent investment in the FTSE Mid 250 and the FTSE Small Cap indices. These indices are deemed to be the most appropriate as this Share Class is fully invested in the UK Emerging Companies Hedge Fund, which primarily invests in mid and small cap UK equities and equity-related securities. The second graph compares the Company’s NAV and share price performance for the Cash Fund Share Class with the London Inter Bank Intra Day rate (LIBID) which is deemed to be an appropriate comparison as this Share Class is fully invested in the Sterling class of the Institutional Sterling Liquidity Fund which invests in high quality short-term “money market” instruments.

Amount £ Howard Myles (Chairman) Gregor Allan2 Frank Le Feuvre1 Jonathan Ruck Keene2 Angus Spencer-Nairn1

32,500 20,000 – – 27,5003

1

80,000 1. Appointed 9 September 2009. 2. Appointed 31 December 2009. Fees are paid to Allan Consultants Ltd. 3. including a fee of £2,500 as chairman of the Audit and Management Engagement Committee.

The information in the table above and the paragraph below has been audited. For the period ended 31 December 2010, the annual remuneration of the Chairman was £26,000, the Chairman of the Audit and Management Engagement Committee £22,000 and the other Directors £20,000. Mr Ruck Keene and Mr Le Feuvre waived the entitlement to their fees.

UK Emerging Companies Share Class – Performance from launch to 31 December 2010 140 130 120 110 100 90 80 28 Sep 09

31 Dec 09

31 Mar 10

NAV FTSE 250

30 Jun 10

30 Sep 10

31 Dec 10

Share price FTSE Small Cap

Source: BlackRock.

Annual Report and Financial Statements 31 December 2010

17

Directors’ Remuneration Report continued

Cash Fund Share Class – Performance from launch to 31 December 2010 105 103 101 99 97 95 28 Sep 09

31 Dec 09

NAV

31 Mar 10

Share price

30 Jun 10

30 Sep 10

31 Dec 10

7 day LIBID

Source: BlackRock.

Compensation for loss of office No Director has been compensated for loss of office.

Retirement of Directors All of the Company’s Directors are subject to retirement by rotation in accordance with the Company’s Articles of Association.

By order of the Board BlackRock (Channel Islands) Limited Secretary 21 April 2011

18

BlackRock Hedge Selector Ltd

Corporate Governance

Background As a closed ended investment company registered in Jersey there is no published corporate governance regime equivalent to the Combined Code on Corporate Governance issued by the Financial Reporting Council (“the Combined Code”) with which the Company must comply. However, the Company is committed to maintaining high standards of corporate governance and the Company complies with the Combined Code to the extent that the Directors consider appropriate having regard to the Company’s size, stage of development and resources. The Board has also considered the principles and recommendations of the AIC Code of Corporate Governance (“AIC Code”) issued in October 2010 by reference to the AIC Corporate Governance guide for investment Companies (“AIC Guide”). The AIC Code addresses all the principles set out in Section 1 of the Combined Code, and provides a framework of best practice for the governance of investment companies.

Compliance Throughout this accounting period the Board considers that the Company has complied with the recommendations of the AIC Code and the relevant provisions of Section 1 of the Combined Code, except where explained below and the following statement describes how the relevant principles of governance are applied to the Company.

The Board The Board currently consists of five non-executive Directors. With the exception of Mr Le Feuvre and Mr Ruck Keene, who are BlackRock employees, all are considered to be independent of the Company’s Manager and free from any business or other relationship which could interfere materially with the exercise of their independent judgement. The Directors’ biographies, on page 8, demonstrate a breadth of investment knowledge, business and financial experience relevant to the Company’s business, which enables the Board to provide effective strategic leadership and proper governance of the Company. The structure of the Board is such that it is considered unnecessary to identify a Senior Independent Director. The Company’s Articles of Association require that at each AGM: 

any Director who is not an Independent Director must retire;



any Director other than a Director who is not an Independent Director, who was elected or last re-elected a Director at or before the AGM held in the third calendar year before the current year must retire by rotation; and



such further directors, if any, must retire by rotation as would bring the number retiring by rotation up to one-third of the number of Directors in office at the date of the notice of the meeting.

At the next AGM, as non independent directors, Mr Le Feuvre and Mr Ruck Keene will retire. In addition, Mr Myles will also retire such that one third of the directors in office at the date of the notice of the meeting retire and seek re-election. The Board has considered the position of each of the Directors, as part of the evaluation process, Annual Report and Financial Statements 31 December 2010

and believes it would be in the Company’s interest for each of the Directors retiring to be proposed for re-election at the forthcoming AGM, given their material level of contribution and commitment to the Company. None of the Directors has a service contract with the Company. The terms of their appointment are detailed in a letter sent to them when they join the Board. These letters are available for inspection at the registered office of the Company and will be available at each AGM. As disclosed in note 9 on page 36, Mr Spencer-Nairn held a directorship of Computershare Investor Services (Jersey) Limited during the period, which provides services to the Company. He resigned from this position with effect from 8 May 2010. On being appointed to the Board, Directors are provided with all relevant information regarding the Company and their duties and responsibilities. In addition, the Manager provides an induction training programme for newly appointed Directors to enable them to become familiar with the various processes which the Manager considers necessary for the performance of their duties and responsibilities to the Company. Directors are continually updated throughout their term of office in respect of industry and regulatory matters to ensure that they are kept up to date with new regulation, legislation and changing risks. It is also the Company’s policy to encourage Directors to attend training courses on matters which are directly relevant to their involvement with the Company. The Company has maintained appropriate Directors’ and Officers’ liability insurance cover throughout the year in respect of legal action against its Directors.

The Board’s Responsibilities The Board is responsible to shareholders for the overall management of the Company, it determines strategic issues and all operational matters of a material nature. A formal schedule of matters reserved for decision by the Board has been established. The main responsibilities include: 

setting the Company’s objectives and strategy, including the investment strategy and approving any changes thereto;



approving accounting policies;



managing the capital structure;



review of material contracts



approving shareholder communications;



assessing risk; and



reviewing investment performance.

19

Corporate Governance continued

The Board is supplied in a timely manner by the Manager, Investment Manager and Company Secretary with information in a form and of a quality appropriate to enable it to discharge its duties. The Investment Manager prepares cash flow forecasts and management accounts which allow the Board to assess the Company’s activities and review its performance at each Board Meeting. In addition the Company’s broker regularly attends Board meetings and provides the Directors with reports and updates which are relevant and useful in helping the Board to perform its duties.

Management and administration The management and administration of the Company have been delegated to the Manager. The Manager, operating under guidelines determined by the Board, has direct responsibility for the decisions relating to the day to day running of the Company and is accountable to the Board for the investment, financial and operating performance of the Company and has delegated responsibility for these functions to the Investment Manager. Custody and settlement services are provided by the Sub-Administrator.

The Board, the Manager and the Investment Manager have agreed clearly defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are submitted to the Board at each meeting. Board meetings follow a formal agenda.

The Board has delegated the exercise of voting rights attaching to the securities held in the portfolio to the Investment Manager. Details of the Investment Manager’s voting policy are set out on page 13.

The Directors’ Statement of Responsibilities in respect of the Company’s accounting records and financial statements is set out on page 23. The responsibilities of the Independent Auditor are set out on page 24 in the Audit Report. The Directors’ statement that the business is a going concern is set out on page 13. The Directors have access to the advice and services of the Company Secretary, who is responsible for ensuring that Board and Committee procedures are followed and that the Company complies with applicable rules and regulations. Where necessary, in the furtherance of their duties, the Directors may seek independent professional advice at the expense of the Company.

Evaluation of the Board and its Committees The Board reviews its performance formally on an annual basis, together with that of the Audit & Management Engagement Committee. An appraisal system has been agreed by the Board for evaluation of itself, its Committees and its individual Directors, including the Chairman. The annual evaluation for the year ended 31 December 2010 has been carried out. This took the form of questionnaires followed by discussions to identify how the effectiveness of its activities, policies or processes might be further enhanced. The results of the evaluation process were presented to and discussed by the Directors and it was agreed that the current composition of the Board and its Committees reflected a suitable mix of skills and experience, and that the Board, as a whole, and its Committees were functioning effectively. The Board is also pleased to confirm that it considers that each Director’s performance has been effective and that each Director continues to demonstrate commitment to the role of non-executive Director (including where relevant his membership of Board committees).

Delegation of responsibilities The Board has contractually delegated the following areas of responsibility: 20

BlackRock Hedge Selector Ltd

Committees of the Board As the Board is small it fulfils the functions of the Nomination Committee, led by the independent Directors. Should a vacancy occur or the Board decide to recruit new members the Board will meet to select and propose suitable candidates for appointment. When looking for a new Director, the Board will assess the size, balance and profile of the Board as a whole, to identify any areas that need strengthening. The Directors will try to identify suitable individuals from their range of contacts, although other sources, including external search consultants, may also be used as required. A separately chaired Audit and Management Engagement Committee has been established and currently consists of all the Directors of the Company, except Mr Le Feuvre and Mr Ruck Keene. The Committee meets at least twice a year and the Board considers that at least one member of the Audit & Management Engagement Committee has sufficient recent and relevant financial experience for it to discharge its function effectively. The Chairman of the Company is a member of the committee to enable him to be kept fully informed of all issues which may arise. The planned meetings are held prior to the Board meetings to approve the half yearly and annual results. During the period the principal activities of the Audit & Management Engagement Committee included: 

considering and recommending to the Board for approval the contents of the half yearly financial report and reviewing the external Auditor’s report thereon;



reviewing the scope, results, cost effectiveness, independence and objectivity of the external auditors;



reviewing and approving the external auditors’ plan for the following financial year;



reviewing the appropriateness of the Company’s accounting policies;



ensuring the adequacy of the internal controls systems and standards; and



reviewing the Management and Investment Management Agreements and the services provided by the Manager and Investment Manager.

The Committee has also reviewed and accepted the ‘whistleblowing’ policy that has been put in place by the Manager and the Investment Manager under which its staff, in confidence, can raise concerns about possible improprieties in financial reporting or other matters, insofar as they affect the Company. On an annual basis Deloitte LLP review the independence of their relationship with the Manager and the Investment Manager and report to the Board, providing details of any other relevant relationships with the Investment Manager. The Board has concluded that Deloitte LLP are independent of the Company, the Manager and the Investment Manager. The external auditors are invited to attend the Audit & Management Engagement Committee meeting at which the annual accounts are considered. At this meeting they have the opportunity to meet with the Committee without representatives of the Investment Manager being present. Membership of the Audit & Management Engagement Committee Angus Spencer-Nairn (Chairman) Gregor Allan Howard Myles

The terms of reference of this Committee are available on the BlackRock website at www.blackrock.co.uk/brhs under the Literature section, or on request from the Company’s registered office and at each AGM.

Attendance at Board and Committee Meetings The Board meets on a regular basis at least five times a year and additional meetings are arranged as necessary. Between these meetings regular contact is maintained between the Board, the Manager and the Investment Manager. Period ended 31 December 2010 Number of meetings held Number of meetings attended: Howard Myles (Chairman) Gregor Allan Frank Le Feuvre Jonathan Ruck Keene Angus Spencer-Nairn

Audit Committee

6

2 2 2 n/a n/a 2

* Mr Allan and Mr Ruck Keene were appointed to the Board with effect from 31 December 2009 and were only eligible to attend 4 Board meetings.

Internal controls The Board is responsible for ensuring that the Company maintains a sound system of internal controls to safeguard shareholders’ Annual Report and Financial Statements 31 December 2010

Control of the risks identified, covering financial, operational, compliance and risk management, is embedded in the operations of the Manager, Investment Manager and Sub-Administrator. There is a monitoring and reporting process to review these controls, which has been in place throughout the period under review and up to the date of this report. The Manager formally reports to the Company on its review of internal controls, on a semi-annual basis. The Audit & Management Engagement Committee also receives a report from the Sub-Administrator in respect of the internal controls of its custodial operations. The Company does not have an internal audit function; it delegates most of its operations to the Manager and Investment Manager and does not employ any staff. In practice the Board must place reliance on the Manager and Investment Manager to ensure that they operate effective internal audit functions, however this matter is kept under review. The Board also review any relevant reports on controls as carried out by external auditors for the Manager and Investment Manager and any relevant service providers to the Company. The Board recognises that these control systems can only be designed to manage rather than to eliminate the risk of failure to achieve business objectives, and to provide reasonable, but not absolute, assurance against material misstatement or loss, and relies on the operating controls established by the Manager, Investment Manager and Sub-Administrator.

Socially responsible investment

Formal Board

6 4* 6 4* 6

investments and the Company’s assets. The Board reviews the effectiveness of the internal control systems on an ongoing basis to identify, evaluate and manage the Company’s significant risks. As part of that process, there are procedures designed to capture and evaluate any failings or weaknesses and should a matter be categorised by the Board as significant, procedures exist to ensure that necessary action is taken to remedy the failings. The Board is not aware of any significant failings or weaknesses arising in the year under review.

BlackRock Inc., which includes the Investment Manager believes consideration should be given to environmental, social and governance issues. BlackRock has signed and is generally in favour of the United Nations Principles for Responsible Investment (the “Principles”) and the goal to provide a framework through which these issues can be considered.

Shareholder Information The Company announces its NAV on a monthly basis. Estimated NAVs are provided weekly by the Investment Manager. Share price, NAV and performance information can also be found on the Company’s website www.blackrock.co.uk/brhs. However, information on that website does not form part of, nor is it incorporated by reference into this document. All shareholders have the opportunity to attend and vote at the AGM. The Notice of the Annual General Meeting sets out the business of

21

Corporate Governance continued

that Meeting and any item not of an entirely routine nature is explained in the Directors’ Report on pages 15 and 16. The Notice of AGM and related papers are sent to shareholders at least 20 working days before the meeting. Separate resolutions are proposed for substantive issues. In addition, regular updates on performance are available to shareholders. At the AGM, the Directors, including the Chairman of the Board, Howard Myles, and the Chairman of the Audit & Management Engagement Committee, Angus Spencer-Nairn, will be available to answer shareholders’ questions. Proxy voting figures are announced to the shareholders at the AGM. Proxy voting results will also be available on the Company’s website shortly after the Meeting. The Board discusses with the Manager and Investment Manager at each Board meeting any feedback from meetings with shareholders, and it also receives reports from its corporate broker. There is a section within this report entitled “Shareholder Information”, on pages 39 and 40 which provides an overview of useful information available to shareholders. The Company’s accounts are also published on its website, www.blackrock.co.uk/brhs which is maintained by the Manager. The work undertaken by the auditors does not involve consideration of the maintenance and integrity of the website and accordingly, the auditors accept no responsibility for any changes that have occurred to the accounts since they were initially presented on the website. Visitors to the website need to be aware that legislation in Jersey governing the preparation and dissemination of the accounts may differ from legislation in their jurisdiction.

Disclosure and Transparency Rules The following information has been included in the Directors’ Report on pages 9 to 16. 

Changes to the Company’s Articles of Association;



Directors’ shareholdings;



Substantial share interests;



Share capital; and



Share buybacks.

By order of the Board Howard Myles Chairman 21 April 2011

22

BlackRock Hedge Selector Ltd

Statement of Directors’ Responsibilities in respect of the Annual Report and Financial Statements

The Directors are responsible for preparing the Annual Report, the Directors’ Remuneration Report and the financial statements in accordance with applicable Jersey law and regulations. Jersey company law requires the Directors to prepare financial statements for each financial year. Under that law they have prepared the financial statements in accordance with applicable law and accounting principles generally accepted in the United States of America. The Directors are required to ensure that the financial statements give a true and fair view of the state of affairs of the Company as at the end of each financial year and of the profit or loss of the Company for that period. In preparing those financial statements, the Directors are required to: 

select suitable accounting policies and then apply them consistently;



make judgements and estimates that are reasonable and prudent;



state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and



prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

Each of the Directors, whose names are listed on page 8, confirm to the best of their knowledge that: 

the financial statements, prepared in accordance with applicable accounting standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and



the Annual Report includes a fair view of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that the Company faces.

By order of the Board Howard Myles 21 April 2011

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the Companies (Jersey) Law 1991. They are also responsible for safeguarding the assets of the Company and to prevent and detect fraud and other irregularities. The Directors have delegated responsibility to the Investment Manager for the maintenance and the integrity of the Company’s corporate and financial information included on the Investment Manager’s website. Legislation in Jersey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Annual Report and Financial Statements 31 December 2010

23

Report of the Independent Auditor to the Directors and members of BlackRock Hedge Selector Ltd

We have audited the financial statements of BlackRock Hedge Selector Ltd. (the “Company”) for the period from 17 August 2009 to 31 December 2010 which comprise the statements of assets and liabilities, schedule of investments, statement of operations, changes in net assets and cash flows, the financial highlights and the related notes 1 to 12. The financial reporting framework that has been applied in their preparation is applicable Jersey law and accounting principles generally accepted in the United States of America. This report is made solely to the Company’s members, as a body, in accordance with Article 113A of the Companies (Jersey) Law 1991. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members, as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditor As explained more fully in the Statement of Directors’ Responsibilities, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements In our opinion the financial statements: 

give a true and fair view of the state of the financial position of the Company as at 31 December 2010 and the results of its operations and its cash flows for the period then ended;



have been properly prepared in accordance with accounting principles generally accepted in the United States of America; and



have been properly prepared in accordance with the Companies (Jersey) Law 1991.

24

BlackRock Hedge Selector Ltd

Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion: 

proper accounting records have not been kept, or proper returns adequate for our audit have not been received from branches not visited by us; or



the financial statements are not in agreement with the accounting records and returns; or



we have not received all the information and explanations we require for our audit.

Other Matter The Company has asked us to carry out the review of their Corporate Governance disclosures that would have been required by the Listing Rules if the Company were incorporated in the United Kingdom. We have nothing to report in connection with our review of the part of the Corporate Governance Statement relating to the Company’s compliance with the relevant provisions of the June 2008 Combined Code specified for our review. Calum Thomson for and on behalf of Deloitte LLP Chartered Accountants and Recognised Auditors London, UK 21 April 2011

Statement of Assets and Liabilities as at 31 December 2010

Notes

31 December 2010 £

3

58,575,120

Assets Investments in underlying investment funds, at fair value (cost: £46,901,130) Cash and cash equivalents

35,481

Interest receivable on cash

19

Other assets

3,794 58,614,414

Liabilities Sub-administration fees payable

8

29,315

Directors’ fees payable

37,083

Audit fees payable

13,500

Brokerage charges

35,847

Accounts payable and accrued expenses

68,775 184,520

Net assets

58,429,894

31 December 2010 Cash Fund Shares

31 December 2010 UK Emerging Companies Shares

Net asset value

£37,132

£58,392,762

Shares in issue (Note:6)

36,952

47,122,000

100.49p

123.92p

NAV per share

The financial statements on pages 25 to 36 were approved and authorised for issue by the Board of Directors on 21 April 2011 and signed on its behalf by Howard Myles, Chairman.

The notes on pages 31 to 36 form an integral part of these financial statements.

Annual Report and Financial Statements 31 December 2010

25

Schedule of Investments as at 31 December 2010

Investments, at fair value

Fair value £

Percentage of Net Assets %

58,534,777

100.18%

40,343

0.07%

58,575,120

100.25%

Underlying Investment Funds Cayman Islands Open-ended Funds UK Emerging Companies Hedge Fund Limited – Class I60 £ Shares (Cost: £46,860,787) Ireland Open-ended Funds Institutional Sterling Liquidity Fund (Cost: £40,343) Total Underlying Investment Funds (Cost: £46,901,130) Other Assets Other Liabilities Net Assets

The notes on pages 31 to 36 form an integral part of these financial statements.

26

BlackRock Hedge Selector Ltd

39,294

0.06%

(184,520)

(0.31%)

58,429,894

100.00%

Statement of Operations for the period from 17 August 2009 (date of incorporation) to 31 December 2010*

Notes

31 December 2010 £

Income Interest

1,475

Other income

907 2,382

Expenses Directors’ fees Sub-Administration fees

80,000 8

Brokerage charges Audit fees

62,603 61,322

8

13,500

Organisation fees

364,719

Other expenses

156,812

Total expenses

738,956

Net investment loss

(736,574)

Net realised gain on: Underlying investment funds

482,159

Net change in unrealised gain on: Underlying investment funds

11,673,990

Net realised and change in unrealised gain on underlying investment funds

12,156,149

Net increase in net assets resulting from operations

11,419,575

*

The Company commenced operations on 28 September 2009.

The notes on pages 31 to 36 form an integral part of these financial statements.

Annual Report and Financial Statements 31 December 2010

27

Statement of Changes in Net Assets for the period from 17 August 2009 (date of incorporation) to 31 December 2010

31 December 2010 £ Net assets, beginning of period

–

Net increase in net assets: From operations Net investment loss

(736,574)

Net realised gain on underlying investment funds

482,159

Net change in unrealised gain on underlying investment funds

11,673,990 11,419,575

From capital transactions Subscription of Cash Fund shares

3,322,564

Subscription of UK Emerging Companies shares

50,224,200

Redemption of Cash Fund shares

(3,282,563)

Redemption of UK Emerging Companies shares

(3,253,882) 47,010,319

Net assets, end of period

The notes on pages 31 to 36 form an integral part of these financial statements.

28

BlackRock Hedge Selector Ltd

58,429,894

Statement of Cash Flows for the period from 17 August 2009 (date of incorporation) to 31 December 2010

31 December 2010 £ Cash flows from operating activities Net increase in net assets resulting from operations

11,419,575

Adjustments to reconcile increase in net assets resulting from operations to cash used in operating activities: Net realised gain on underlying investment funds

(482,159)

Net change in unrealised gain on underlying investment funds

(11,673,990)

Purchases of investments

(52,962,638)

Sale of investments Increase in interest receivable on cash

6,543,667 (19)

Increase in other assets

(3,794)

Increase in sub-administration fees payable

29,315

Increase in directors’ fees payable

37,083

Increase in audit fees payable

13,500

Increase in brokerage charges payable

35,847

Increase in accounts payable and accrued expenses

68,775

Net cash used in operating activities

(46,974,838)

Cash flows from financing activities Proceeds from issue of shares

53,546,764

Payments for redemption of shares

(6,536,445)

Net cash provided by financing activities

47,010,319

Increase in cash and cash equivalents

35,481

Cash and cash equivalents Beginning of the period End of the period

– 35,481

The notes on pages 31 to 36 form an integral part of these financial statements.

Annual Report and Financial Statements 31 December 2010

29

Financial Highlights for the period from 17 August 2009 (date of incorporation) to 31 December 2010

UK Emerging Companies Shares p

Cash Fund Shares p

100.00

100.00

Per share operating performance: Net asset value, beginning of period* Increase in net assets resulting from operations Net investment loss

(1.53)

(1.13)

Net realised and change in unrealised gain on underlying investment funds

25.45

1.62

Total from investment operations

23.92

0.49

123.92

100.49

23.9%

0.5%

58,392,762

37,132

Ratio of expenses to average net assets***1

1.14%

1.64%

Ratio of net investment gain to average net assets***

1.14%

0.90%

Net asset value, end of period Total return** Ratios/supplemental data: Net assets, end of period

* Net asset value, beginning of period refers to the initial subscription price. ** Total return is not annualised and is calculated for each class of shares for the period ended 31 December 2010. An individual shareholder’s return may vary from this return due to timing of investments. *** Ratios have been annualised. The ratios have been calculated for each class as a whole. 1. Ratio of expenses for the UK Emerging Companies shares includes organisation costs of £364,719 that have been fully charged to the UK Emerging Companies shares in this period and represents 0.71% of this ratio. Please note that the organisation costs are a one off expense and have not been annualised in this calculation.

The notes on pages 31 to 36 form an integral part of these financial statements.

30

BlackRock Hedge Selector Ltd

Notes to the Financial Report

1. The Company BlackRock Hedge Selector Ltd (the “Company”) is a limited liability registered closed ended investment company incorporated in Jersey on 17 August 2009. The Company’s UK Emerging Companies shares and the Cash Fund shares were listed on the London Stock Exchange on 28 September 2009. The Company is assessed as a ‘non-financial services company’ under the Financial Services (Jersey) Law 1998, as amended (the “1998 Law”), it being a Jersey resident company which is neither a ‘utility company’ nor a ‘financial services company’. The Company has been established with an unlimited life and, with the exception of Mr Le Feuvre and Mr Ruck Keene who are employees of BlackRock, its Board of Directors is independent of the Investment Manager. The Company has been designed to enable it to issue a range of classes of Feeder Fund Shares, each of which will provide investors with exposure to the performance of an investment fund managed by BlackRock. As at 31 December 2010 the only Feeder Fund Shares in existence were UK Emerging Companies shares. In addition, at 31 December 2010 the Company has in issue a class of Cash Fund shares which provide, via investment in a BlackRock managed money-market fund, exposure to a portfolio of short-term money market instruments. Feeder Fund shares of a particular class may be converted periodically into Cash Fund shares, and vice versa. The UK Emerging Companies shares invest in the BlackRock UK Emerging Companies Hedge Fund Limited – Class I60 £ Shares (the “Hedge Fund”), a Cayman Islands domiciled hedge fund. The Cash Fund shares invest in the Institutional Sterling Liquidity Fund, (the “Liquidity Fund”), (a sub-fund of “Institutional Cash Series plc”), an umbrella investment company with variable capital incorporated with limited liability in Ireland which has been authorised as a UCITS fund. The investment objective of the Hedge Fund is to seek to maximise total returns by investing primarily in mid and small cap UK equities, whilst limiting correlation with the UK equity market. The investment objective of the Liquidity Fund is to maximise current income consistent with preservation of principal and liquidity by the maintenance of a portfolio of high quality short-term “money market” instruments. BlackRock Investment Management (UK) Limited, is the Company’s Investment Manager and BlackRock (Channel Islands) Limited (“BCI”) is the Manager. BCI is responsible for implementing the Company’s investment policies and objectives as set forth by the Board of Directors. Note 9 gives further details of transactions with these related parties.

2. Significant accounting policies The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”), as discussed in the Directors’ responsibility statement. The financial statements reflect the following significant accounting policies: Cash and cash equivalents

Cash and cash equivalents include investments with an original maturity of three months or less. Cash and cash equivalents include all cash which is not under the direction of any independent investment manager. All cash is held with the Custodian of the Company. Fair value of financial instruments

The fair value of the Company’s assets and liabilities which qualify as financial instruments under Accounting Standards Codification (“ASC”) 825 Financial Instruments, approximates the carrying amounts presented in the statement of assets and liabilities. ASC 820 permits the Company, as a practical expedient to estimate the fair value of the underlying investment funds based on the net asset value per share or its equivalent, if the net asset value of the underlying investment funds are calculated in a manner consistent with the measurement principles of ASC Topic 946, Investment Companies – Financial Services. The Company uses the practical expedient to estimate the fair value of its investments in the underlying investment funds. The underlying investment funds value securities and other financial instruments at fair value. Underlying Investment Funds

The fair value of the underlying investment funds is based on the latest available unaudited net asset value provided by the relevant administrator or fund manager of the underlying investment fund.

Annual Report and Financial Statements 31 December 2010

31

Notes to the Financial Report continued

2. Significant accounting policies continued Foreign currency translation

The Company’s reporting currency is Sterling Pounds. Assets and liabilities originating in non-Sterling Pounds denominated currencies are translated into Sterling Pounds at the appropriate rates of exchange in effect at the date of the financial statements. Income and expense transactions originated in non-Sterling Pounds denominated currencies have been translated into Sterling Pounds at the prevailing exchange rates on the date of the transaction. Use of estimates

The preparation of financial statements in accordance with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Income taxes

The Company has adopted the authoritative guidance for uncertainty in income taxes included in FASB ASC 740 Income Taxes, as amended by Accounting Standards Update (“ASU”) 2009-06, Implementation Guidance on Accounting for Uncertainty in Taxes and Disclosures Amendments for Nonpublic Entities. This guidance requires the Company to determine whether a tax position of the Company is more likely than not to be sustained upon examination by the applicable taxing authority, including the resolution of any related appeals or litigation processes, based on the technical merits of the position. The tax benefit to be recognised is measured as the largest amount of benefit that is greater than fifty percent likely of being realised upon ultimate settlement, which could result in the Company recording a tax liability that would reduce net assets. The Company reviews and evaluates tax positions in its major jurisdictions and determines whether or not there are uncertain tax positions that require financial statement recognition. Based on this review, the Company has determined the major tax jurisdictions as where the Company is organised and where the Company makes investments local and foreign, however no reserves for uncertain tax positions were required to have been recorded as a result of the adoption of such guidance for any of the Company’s open tax years. The Company’s local and foreign tax returns, from the date of incorporation to 31 December 2010, remain open for examination by tax authorities and taxes associated with foreign tax jurisdictions remain subject to examination based on varying statues of limitations. The Company is additionally not aware of any tax positions for which it is reasonably possible that the total amounts of unrecognised tax benefits will change materially in the next twelve months. As a result, no income tax liability or expense has been recorded in the accompanying financial statements.

3. Investments Investments held by the Company as at 31 December 2010 are detailed below:

Investment BlackRock UK Emerging Companies Hedge Fund Limited – Class I60 £ Shares Institutional Sterling Liquidity Fund Total

Fair Value £

% of Company’s Net Assets

Primary Disciplines

Primary Geographic Location

Redemptions Permitted

58,534,777

100.18%

Relative Value

Cayman Islands

15 business days notice

40,343

0.07%

Relative Value

Ireland

On any dealing day

58,575,120

100.25%

In accordance with the authoritative guidance on fair value measurements and disclosures under the FASB Accounting Standards codification, the Company discloses the fair value of its investments in a hierarchal disclosure framework which prioritises and ranks the level of market price observability used in measuring investments at fair value. Market price observability is affected by a number of factors; including the type of investment and the characteristics specific to the investment. Investments with readily available active quoted prices or for which fair value can be measured from actively quoted prices generally will have a higher degree of market price observability and a lesser degree of judgement used in measuring fair value.

32

BlackRock Hedge Selector Ltd

Investments measured and reported at fair value are classified and disclosed in one of the following categories: Level 1 – Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities; Level 2 – Quoted prices in markets that are not considered to be active for identical assets or liabilities, quoted prices in active markets for similar assets or liabilities and inputs other than quoted prices that are directly observable or indirectly through corroboration with observable market data. If a reporting entity has the ability to redeem its investment with the securities at the net asset value per share (or its equivalent) at the measurement date or within the near term and there are no other liquidity restrictions, the Company’s investment in the securities shall be categorised as a Level 2; Level 3 – Inputs that are both significant to the fair value measurement and unobservable, including investment specific inputs that are not derived from market data and inputs that cannot be corroborated by market data. The determination of fair value for investments included in the level 3 category requires considerable subjectivity and estimation. Investments in securities that are currently subject to liquidity restrictions that will not be lifted in the near term shall be categorised as a Level 3. The Company’s investments in the underlying investment funds are classified within level 2 of the fair value hierarchy as the value of these interests are primarily based on the respective net asset value reported by management on each underlying investment funds actual market transactions and other observable market data. The determination of whether or not such an investment will be classified in level 2 will be based upon the ability to redeem such an investment within a reasonable period of time (within 90 days of year end). If an investment may be redeemed within 90 days of the year end and the fair value of the investment is based on information provided by the underlying fund management, the investment is classified as level 2. The following table summarises the valuation of the Company’s investments under the fair value hierarchy levels as at 31 December 2010:

Investments in underlying investment funds

Level 1 Fair Value £

Level 2 Fair Value £

Level 3 Fair Value £

Total Fair Value £

–

58,575,120

–

58,575,120

–

58,575,120

–

58,575,120

There were no transfers between level 1 and level 2 during the period ended 31 December 2010. Additionally, there were no level 3 investments during the period ended 31 December 2010.

4. Derivative instruments The Company did not hold any derivative contracts at the period end.

Annual Report and Financial Statements 31 December 2010

33

Notes to the Financial Report continued

5. Financial instruments with off-balance sheet risk The Company’s investments in the underlying investment funds also involves varying degrees of credit and counterparty risk, liquidity and market risk, industry or geographic concentration risks for the Company. While BlackRock Investment Management (UK) Limited monitors these risks, the varying degrees of transparency into and potential liquidity of the securities in the underlying investment funds may hinder their ability to manage and mitigate these risks effectively. Credit and counterparty risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company. Financial assets, which potentially expose the Company to credit risk, consist principally of cash due from brokers and receivables for investments sold. The Company’s cash balances are primarily with high credit quality, well-established financial institutions. The extent of the Company’s exposure to credit risk in respect of these financial assets approximates to their carrying value as recorded in the Company’s statement of assets and liabilities. Liquidity and market risk

In some circumstances, investments may be relatively illiquid making it difficult or impossible to acquire or dispose of them at the prices quoted on the various exchanges or at the prices which the Investment Manager considers to be their value at that time. Accordingly, the Company’s ability to respond to market movements may be impaired and the Company may experience adverse price movements upon liquidation of its investments. Settlement of transactions may be subject to delay and administrative uncertainties.

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

Unlimited shares of any class

31 December 2010 Number of Cash Fund Shares In issue beginning of period Issued at launch on 28 September 2009 at £1 per share Issued during the period, post launch Redeemed during the period In issue end of period

31 December 2010 Number of UK Emerging Companies Shares

–

–

70,000

48,629,200

3,237,154

1,300,000

(3,270,202)

(2,807,200)

36,952

47,122,000

The shares are issued in the form of redeemable participating shares in order to provide flexibility to the Directors in relation to the conversion, repurchase and redemption of the shares. Shareholders have no right to have their shares redeemed. Shares are not redeemable at the option of the holder of such shares. However, the Company may from time to time, in the absolute discretion of the Directors, invite shareholders to request the redemption of the whole or any number of shares comprised in their holdings of shares. The manner in which any such redemption will be conducted and the terms applicable to any such redemption shall be determined by the Directors in their absolute discretion. In addition the Company’s authorised share capital includes 100 management shares of no par value of which 2 management shares have been issued. 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. Dividend policy

The Directors do not expect to declare any dividends in respect of the UK Emerging Companies shares. The Company will distribute all net income received by it in respect of the assets attributable to the Cash Fund shares during the relevant period around 31 March, 30 June, 30 September and 31 December in each year.

34

BlackRock Hedge Selector Ltd

Voting rights

As at 31 December 2010, holders of Cash Fund shares and UK Emerging Companies shares were each, on a vote taken on a show of hands, entitled to one vote per holder each, and, on a poll, were entitled to one vote per Cash Fund share and 1 vote for each UK Emerging Companies share, as applicable. On 1 January 2011, the voting rights were re-calculated in accordance with the provisions of the Articles of Association of the Company and the UK Emerging Companies shares’ voting rights changed to 1.2 voting rights per share. The Cash Fund shares continue to have 1 vote per share. Subject to any special terms as to voting under which any shares may be issued or may for the time being be held, at any general meeting on a show of hands every holder of shares who (being an individual) is present in person or (being a corporation) is present by a duly authorised representative shall have one vote. On a poll every such holder present as aforesaid or by proxy shall have 1.2 votes for every UK Emerging Companies share held and one vote for every Cash Fund share held.

7. Management and performance fees No investment management or performance fees will be payable directly by the Company to the Manager or the Investment Manager. Holders of each class of shares will indirectly bear the Company’s pro rata share of the fees charged and expenses borne at the level of the relevant underlying investment fund. The underlying Investment Manager will receive from the UK Emerging Companies Hedge Fund Limited (a) an investment management fee equal to 1/12 of 1.75 per cent per month of the aggregate net asset value of the class of shares in the UK Emerging Companies Hedge Fund Limited held by the Company payable monthly in arrears and (b) subject to a “high watermark”, a performance fee equal to 20 per cent. of the appreciation in the net asset value per share of each share held by the Company in the UK Emerging Companies Hedge Fund Limited during each calendar year. Annual expenses associated with the Institutional Sterling Liquidity Fund, which include the fees and expenses of the underlying Fund Manager and underlying Investment Manager, are limited to 1 per cent. per annum of the aggregate net asset value of the shares of the Institutional Sterling Liquidity Fund or to such lesser amount as the underlying Fund Manager may agree. Currently, the underlying Fund Manager has agreed that such annual expenses will be capped at 0.20 per cent. per annum of the aggregate net asset value of the shares of Institutional Sterling Liquidity Fund.

8. Fees and expenses Fees payable to the Sub-Administrator, Custodian and other ongoing operational expenses payable by the Company are approximately 0.60 per cent. per annum of the Company’s Net Asset Value (assuming the Net Asset Value of the Company is £50 million) and will comprise items including: (1) fees payable to the Sub-Administrator (in respect of the services of both the Sub-Administrator and the Custodian), estimated to be £50,000 per annum; (2) fees payable to the Auditor, estimated to be £13,500 per annum; and (3) other operational expenses, estimated to be £187,000 per annum.

During the period, the Sub-Administrator charged £62,603 for administration services. As at 31 December 2010, the sub-administration fees payable were £29,315. Holders of each class of shares will indirectly bear the Company’s pro rata share of the fees charged and expenses borne at the level of the relevant underlying investment fund.

Annual Report and Financial Statements 31 December 2010

35

Notes to the Financial Report continued

9. Related party transactions During the period Mr. Frank Le Feuvre purchased 100,000 UK Emerging Companies shares and these are held as at 31 December 2010. Angus Spencer-Nairn held a directorship of Computershare Investor Services (Jersey) Limited during the period which provides services to the Company and charged a fee of £11,645 during the period ended 31 December 2010. He resigned from this position with effect from 8 May 2010. Mr. Frank Le Feuvre and Mr. Jonathan Ruck Keene, Directors of the Company are also Directors of the Investment Manager and Mr. Frank Le Feuvre is also a Director of a number of other BlackRock Funds. Details of fees paid to the Investment Manager are disclosed in Note 7. The Company invests in the UK Emerging Companies Hedge Fund Limited and the Institutional Sterling Liquidity Fund which are also managed by the BlackRock Group.

10. Recent accounting pronouncements In January 2010, the FASB issued Accounting Standards Update No. 2010-06, “Improving Disclosures about Fair Value Measurements” (“ASU”). The ASU amends ASC 820 (SFAS 157) to require a number of additional disclosures regarding fair value measurements. Specifically the ASU requires entities to disclose: (a) the amounts of significant transfers between Level 1 and Level 2 of the fair value hierarchy and the reasons for those transfers, (b) the reasons for any transfer in or out of Level 3 and (c) information in the reconciliation of Level 3 measurements about purchases, sales, issuances and settlements on a gross basis. In addition to these new disclosure requirements, the ASU also amends ASC 820 to clarify certain existing disclosure requirements. For example, the reporting entities are required to provide fair value measurements disclosures for each class of assets and liabilities. Prior to the issuance of ASC 2010-06, the guidance in ASC 820 required separate fair value disclosures for each major category of assets and liabilities. Except for the requirement to disclose information about purchases, sales, issuances and settlements in the reconciliation of Level 3 measurements on a gross basis, all the amendments to ASC 820 made by ASU 2010-06 are effective for annual reporting periods beginning after 15 December 2009. The requirement to separately disclose purchases, sales, issuances and settlements or Level 3 measurements does not become effective until fiscal year beginning after 15 December 2010.

11. Subsequent events Management has evaluated the impact of all subsequent events on the Company up to 21 April 2011, the date the financial statements were issued, and has determined that there were no subsequent events requiring adjustment or disclosure in the financial statements other than as disclosed below. For the period from 1 January 2011 to the date of approval of these financial statements, the Company has issued 700,000 new UK Emerging Companies shares at a premium to the prevailing NAV for total proceeds of £881,859. No shares have been bought back since the period end. On 1 January 2011, the voting rights were re-calculated in accordance with the provisions of the Articles of Association of the Company and the UK Emerging Companies shares’ voting rights changed to 1.2 voting rights per share. The Cash Fund shares continue to have 1 vote per share.

12. Approval of the financial statements These Financial Statements were approved by the Directors on 21 April 2011.

36

BlackRock Hedge Selector Ltd

Analysis of Ordinary Shareholders 31 December 2010

UK Emerging Companies Shares

Individuals Bank or Nominees Other Company Total

Cash Fund Shares

Number of Shares

% of total

Number of holders

% of total

Number of Shares

% of total

Number of holders

% of total

100,800

0.21

2

2.22

–

–

–

–

46,991,200

99.72

87

96.67

36,952

100.00

2

100.00

30,000

0.07

1

1.11

–

–

–

–

47,122,000

100.00

90

100.00

36,952

100.00

2

100.00

% of total

Number of Shares

% of total

Number of holders

% of total

UK Emerging Companies Shares

1-1,000

Number of Shares

% of total

Number of holders

Cash Fund Shares

2,015

0.00

3

3.33

–

–

–

–

48,205

0.10

14

15.56

–

–

–

–

5,001-10,000

145,385

0.31

16

17.78

–

–

–

–

10,001-100,000

822,231

1.74

20

22.22

36,952

100.00

2

100.00

100,001-500,000

5,257,721

11.16

19

21.11

–

–

–

–

500,001-1,000,000

3,594,000

7.63

4

4.44

–

–

–

–

1,000,001 and above.

37,252,443

79.06

14

15.56

–

–

–

–

Total

47,122,000

100.00

90

100.00

36,952

100.00

2

100.00

1,001-5,000

Annual Report and Financial Statements 31 December 2010

37

Directors, Management and Administration

Directors

Administrator

Howard Myles* (Chairman) Angus Spencer-Nairn* Frank Le Feuvre Gregor Allan* Jonathan Ruck Keene

BlackRock (Channel Islands) Limited Forum House Grenville Street, St Helier Jersey Channel Islands JE1 0BR

Registered Office

Sub-Administrator

(Registered in Jersey, No. 103835) Forum House Grenville Street, St Helier Jersey Channel Islands JE1 0BR

BNY Mellon Investment Servicing (International) Limited**** Riverside Two Sir John Rogerson’s Quay Grand Canal Dock Dublin 2

Investment Manager

Custodian

BlackRock Investment Management** (UK) Limited 33 King William Street London EC4A 9AS

BNY Mellon International Bank Limited***** Riverside Two Sir John Rogerson’s Quay Grand Canal Dock Dublin 2

Manager BlackRock (Channel Islands) Limited*** Forum House Grenville Street, St Helier Jersey Channel Islands JE1 0BR

Independent Auditors Deloitte LLP 2 New Street Square London EC2A 3BZ

Broker Legal Advisers to the Company (as to English law) Herbert Smith LLP Exchange House Primrose Street London EC2A 2HS (as to Jersey law) Bedell Cristin 26 New Street St Helier Jersey JE4 8PP

Company Secretary BlackRock (Channel Islands) Limited Forum House Grenville Street, St Helier Jersey Channel Islands JE1 0BR

* ** *** **** ***** 38

Cenkos Securities plc 6 Tokenhouse Yard London EC2R 7AS

CREST Service Provider and Registrar Computershare Investor Services (Jersey) Limited*** Queensway House Hilgrove Street St. Helier Jersey Channel Islands JE1 1ES

Website www.blackrock.co.uk/brhs

Independent Directors Authorised and regulated by the Financial Services Authority. Regulated by the Jersey Financial Services Commission. In July 2010 PNC Global Investment Servicing (Europe) Limited changed its name to BNY Mellon Investment Servicing (International) Limited. In July 2010 PNC International Bank Limited changed its name to BNY Mellon International Bank Limited. BlackRock Hedge Selector Ltd

Shareholder Information

Financial calendar

Electronic proxy voting

The timing of the announcement and publication of the Company’s results may normally be expected in the months as shown below:

CREST members who wish to appoint one or more proxies or give an instruction through the CREST electronic proxy appointment service may do so by using the procedures described in the CREST manual. More details are set out in the notes on the form of proxy and the Notice of Annual General Meeting.

April Results announced and Annual report and financial statements published.

Risk factors July Annual General Meeting. August Half yearly figures announced and half yearly financial report published.

The market price of the shares may fluctuate significantly and potential investors may not be able to resell their shares at or above the price at which they acquired them. Factors that may cause the price of the shares to vary include: 

changes in the Company’s financial performance and prospects or in the financial performance and prospects of companies engaged in businesses that are similar to the Company’s business;



changes in the underlying values and trading volumes of the underlying investment funds and other investments within the Company’s portfolio;



the termination of the Management Agreement or Investment Management Agreement or the departure of some or all of the Investment Manager’s investment professionals or key individuals;



changes in laws or regulations, including tax laws, or new interpretations or applications of laws and regulations, that are applicable to the Company’s business;



sales of shares



general economic trends and other external factors, including those resulting from war, incidents of terrorism or responses to such events;



speculation in the press or investment community regarding the Investment Manager’s business or investments, or



factors or events that may directly or indirectly affect its business or investments;



the loss of a major funding source;



a further issuance of shares; and



lack of timely information concerning the performance of the underlying investment funds and other investments within the Company’s portfolio.

Share price The Company’s mid-market ordinary share price is quoted daily in The Financial Times and The Times under “Investment Companies” and in The Daily Telegraph under “Investment Trusts”. The share price is also available on the Company’s website at www.blackrock.co.uk/BRHS.

ISIN/SEDOL numbers The ISIN numbers and mnemonic codes for the Company’s Shares are: UK Emerging Companies shares ISIN Code JE00B42J3Y72 Reuters Code BHUE.L EPIC Code BHUE Cash Fund shares ISIN Code JE00B40HG889 Reuters Code BHUEx.L EPIC Code BHCF

Share dealing Investors wishing to purchase more Shares in the Company or sell all or part of their existing holding may do so through a stockbroker. Most banks also offer this service. For existing shareholders the Company’s registrar, Computershare Investor Services (Jersey) Ltd, has a share dealing service available either on the internet at www.computershare.com/sharedealingcentre or by telephone on 0870 707 4040. Please have your shareholder reference number (SRN) to hand when intending to place a deal. The SRN appears on your share certificate.

CREST The Company’s Shares have joined CREST, an electronic system for uncertificated securities trading. Private investors can continue to retain their share certificates and remain outside the CREST system. Private investors are able to buy and sell their holdings in the same way as they did prior to the introduction of CREST, although there may be differences in dealing charges.

Annual Report and Financial Statements 31 December 2010

39

Shareholder Information continued

Nominee code Where shares are held in a nominee company name, the Company undertakes: 

to provide the nominee company with multiple copies of shareholder communications, so long as an indication of quantities has been provided in advance;



to allow investors holding shares through a nominee company to attend general meetings, provided the correct authority from the nominee company is available;

writing at: Computershare Investor Services (Jersey) Limited, Queensway House, Hilgrove Street, St. Helier, Jersey, JE1 1ES. In the case of joint holders all must sign the notification. In the case of a corporation, this notification should be signed by two authorised signatories, whose representative capacities (e.g. Director and Company Secretary) must be stated.

General enquiries

Nominee companies are encouraged to provide the necessary authority to underlying shareholders to attend the Company’s general meetings.

Publication of NAV/portfolio analysis The NAV per share of the Company is announced on a monthly basis. Estimated NAVs are provided weekly by the Investment Manager. The NAVs are released through the London Stock Exchange’s Regulatory News Service and are available on the Company’s website at www.blackrock.co.uk/BRHS and through the Reuters News Service under the code “BLRKINDEX”, on page 8800 on Topic 3 (ICV terminals) and under “BLRK” on Bloomberg (monthly information only).

Internet Other details about the Company are also available on its website at www.blackrock.co.uk/BRHS and shareholders can check details of their holdings on Computershare’s website at www.investorcentre.co.uk/jersey. The financial statements and other literature are published on the Company’s website. Visitors to the website need to be aware that legislation in Jersey governing the preparation and dissemination of the financial statements may differ from legislation in their jurisdiction.

Individual Savings Accounts (“ISA”) ISAs are a tax-efficient method of investment. Investors resident in the United Kingdom are recommended to consult their tax and/or investment advisers in relation to the eligibility of the Company’s Shares for savings schemes (for example ISAs, SIPPs and SSASs).

Shareholder enquiries The Company’s registrar is Computershare Investor Services (Jersey) Limited. Certain details relating to your holding can also be viewed via the internet by registering at the Computershare Investor Centre at www.investorcentre.co.uk/je/contactus. As a security check, specific information needs to be input accurately to gain access to your account. This includes your shareholder reference number (SRN), available from your share certificate. In the event of queries regarding your holding of Shares, please also contact the registrar on 0870 707 4040 or by email at [email protected] Changes of name or address can be updated via the internet by registering at the Computershare Investor Centre at www.investorcentre.co.uk/je or can be notified to the registrar, in 40

BlackRock Hedge Selector Ltd

Enquiries about the Company should be directed to: The Secretary BlackRock (Channel Islands) Limited Forum House Grenville Street St Helier Jersey Channel Islands JE1 0BR

Notice of Annual General Meeting

BlackRock Hedge Selector Ltd

Special Business

Notice is hereby given that the second AGM of BlackRock Hedge Selector Ltd will be held at the offices of BlackRock (Channel Islands) Limited, at Forum House, Grenville Street, St Helier, Jersey JE1 0BR, on Tuesday, 5 July 2011 at 10.00 a.m. to transact the following business:

To consider and, if thought fit, pass the following resolutions as special resolutions:

Ordinary Resolutions To consider and, if thought fit, pass the following resolutions as ordinary resolutions: 1. To receive the report of the Directors and the financial statements for the period ended 31 December 2010, together with the report of the auditors thereon.

9. That, in substitution for the Company’s existing authority pursuant to Article 57 of the Companies (Jersey) Law 1991 as amended, the Company be and is hereby authorised to make market purchases of its own shares, provided that: (a) the maximum number of shares hereby authorised to be purchased is: –

7,168,517 UK Emerging Companies shares of no par value; and

2. To approve the Directors’ Remuneration Report contained in the financial statements and reports of the Company for the period ended 31 December 2010.

–

5,539 Cash Fund shares of no par value

3. To re-elect Mr Frank Le Feuvre as a Director.

or such other number of shares that is equal to 14.99 per cent. of the Issued Share Capital (excluding treasury shares) of each of the share classes of the Company on 5 July 2011.

4. To re-elect Mr Howard Myles as a Director. (b) the minimum price which may be paid: 5. To re-elect Mr Jonathan Ruck Keene as a Director. 6. To re-appoint Deloitte LLP as auditors to the Company to hold office until the conclusion of the next general meeting at which financial statements and reports are laid. 7. To authorise the Directors to determine the auditors’ remuneration. 8. That, in substitution for all existing authorities to the extent unused, the Directors be and they are hereby generally and unconditionally authorised, to exercise all the powers of the Company to allot equity securities (as defined in the Articles of Association of the Company) provided that this power shall be limited to the allotment of equity securities up to a maximum number of: –

2,391,099 UK Emerging Companies shares of no par value

–

1,847 Cash Fund shares of no par value

or such other number of shares that is equal to 5 per cent. of the issued share capital of each of the share classes of the Company on 5 July 2011 provided that this authority shall expire on the earlier of the conclusion of the Annual General Meeting of the Company in 2012 and 31 December 2012, but so that such authority shall allow the Company to make offers or agreements before the expiry of this authority which would or might require equity securities to be allotted after such expiry and the Directors may allot equity securities in pursuance of such offers or agreements as if the power conferred hereby had not expired.

Annual Report and Financial Statements 31 December 2010

–

for a UK Emerging Companies share of no par value shall be £0.01; and

–

for a Cash Fund share of no par value shall be £0.01.

(c) the maximum price (exclusive of expenses which may be paid for a share) shall be the higher of 5 per cent. above the average of the market value of the shares for the five Business Days immediately preceding the date of purchase, the price of the last independent trade and the highest current independent bid on the trading venue where the purchase is carried out; and (d) unless renewed, the authority hereby conferred shall expire on the earlier of the conclusion of the AGM of the Company in 2012 and 31 December 2012 save that the Company may, prior to such expiry, enter into a contract to purchase shares which will or may be completed or executed wholly or partly after such expiry. Shares will only be purchased in the market at prices below the prevailing net asset value per share. All shares purchased pursuant to the above authority shall be either: (a) cancelled immediately on completion of the purchase; or (b) held as treasury shares pursuant to Article 58A of the Companies (Jersey) Law 1991 as amended. Resolution 10 to be passed by a majority representing not less than three quarters of Shareholders present and voting at the AGM in person or by proxy

41

Notice of Annual General Meeting continued

10. That, subject to the passing of Resolution 8 above, and in substitution for all existing authorities to the extent unused, pursuant to Article 3A(7) of the Company’s Articles of Association the Directors of the Company be and are hereby empowered to allot equity securities (as defined in the Company’s Articles of Association) of the Company for cash and to sell equity securities which are held by the Company in treasury for cash as if the preemption provisions contained under Article 3A of the Articles of Association did not apply to any such allotments and sales provided that this power shall be limited to the allotment and sales of equity securities up to an amount of: –

2,391,099 UK Emerging Companies shares of no par value; and

–

1,847 Cash Fund shares of no par value

or such other number of shares that is equal to 5 per cent. of the issued share capital (excluding treasury shares) of each of the share classes of the Company on 5 July 2011 at a price of not less than the net asset value per share as close as practicable to the allotment or sale. Such power shall expire on the earlier of the Annual General Meeting of the Company in 2012 or 31 December 2012, except that the Company may before such expiry make offers or agreements which would or might require equity securities to be allotted or sold after such expiry and notwithstanding such expiry the Directors may allot or sell equity securities in pursuance of such offers or agreements as if the power conferred hereby had not expired.

By Order of the Board BlackRock (Channel Islands) Limited Registered Office: Forum House, Grenville Street, St Helier, Jersey, JE1 0BR 21 April 2011

42

BlackRock Hedge Selector Ltd

Notes: 1. The Company, pursuant to the Companies (Uncertificated Securities) (Jersey) Order 1999, specifies that only those persons entered on the register of members of the Company at close of business on the day which is 48 hours before the time of the Meeting shall be entitled to attend or vote at the meeting in respect of the number of Shares registered in their name at that time. Changes to entries on the register of members subsequent to this deadline shall be disregarded in determining the rights of any person to attend or vote at the meeting. If the meeting is adjourned to a time not more than 48 hours after the specified time applicable to the original meeting, that time will also apply for the purpose of determining the entitlement of members to attend and vote (and for the purposes of determining the number of votes they may cast) at the adjourned meeting. If however, the meeting is adjourned for a longer period then, to be so entitled, members must be entered on the Company’s register of members at 6.00 p.m. on the day two days prior to the adjourned meeting, or, if the Company gives notice of the adjourned meeting, at the time specified in that notice. 2. The following documents will be available for inspection at the Company’s registered office, Forum House, Grenville Street, St Helier, Jersey, JE1 0BR, during normal business hours on weekdays (Saturdays, Sundays and public holidays excluded) and at the place of the Annual General Meeting from 9.00 a.m. on the day of the meeting until its conclusion: (i) copies of all the Directors’ letters of appointment; and (ii) the Memorandum and Articles of the Company. 3. A member entitled to attend and vote at the meeting may appoint a proxy or proxies to attend and, on a poll, to vote in his/her place. A proxy need not be a member of the Company. If a shareholder wants their proxy to speak on their behalf, they must appoint someone other than the Chairman as their proxy. A shareholder may appoint more than one proxy, provided that the total number of such proxies shall not exceed the total number of Shares carrying an entitlement to attend such meeting held by such member. The appointment of a proxy will not preclude members entitled to attend and vote at the meeting (or at any adjournment(s) of the meeting) from doing so in person if they so wish. 4. A vote withheld is not a vote in law, which means that the vote will not be counted in the calculation of votes for or against the resolution. If in your proxy form you either select the “Vote withheld” option or if no voting indication is given, your proxy will vote or abstain from voting at his or her discretion. Your proxy will vote (or abstain from voting) as he or she thinks fit in relation to any other matter which is put before the meeting. 5. Under Jersey Law, corporations may only appoint one corporate representative. Corporations wishing to allocate their votes to more than one person should use the proxy arrangements. 6. Any person to whom this notice is sent who is a person nominated to enjoy information rights (a “Nominated Person”) may, under an agreement between him/her and the shareholder by whom he/she was nominated, have a right to be appointed (or to have someone else appointed) as a proxy for the meeting. If a Nominated Person has no such proxy appointment right or does not wish to exercise it, he/she may, under any such agreement, have a right to give instructions to the shareholder as to the exercise of voting rights. 7. The statement of the rights of Shareholders in relation to the appointment of proxies in paragraph 3 above does not apply to Nominated Persons. The rights described in that paragraph can only be exercised by shareholders of the Company. 8. To be valid, an appointment of proxy must be returned by sending a proxy form (together, if appropriate, with the power of attorney or other written authority under which it is signed or a certified copy of such power or authority) to the office of the Company’s registrars, Computershare Investor Services (Jersey) Limited, Queensway House, Hilgrove Street, St Helier, Jersey, JE1 1ES. CREST members of the UK Emerging Companies Shares only, may also utilise the CREST electronic proxy appointment service. In each case the appointment of proxy (together with any relevant power/authority) must be received (or, in the case of the appointment of a proxy through CREST, retrieved by enquiry to CREST in the manner prescribed by CREST) by the Company’s registrars not later than 48 hours before the time appointed for holding the meeting. 9. CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service in respect of UK Emerging Companies Shares only, may do so for the meeting and any adjournment(s) of the meeting by using the procedures described in the CREST Manual. CREST personal members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a “CREST Proxy Instruction”) in respect of UK Emerging Companies Shares only, must be properly authenticated in accordance with Euroclear’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an amendment to the instruction given to a previously appointed proxy, must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID 3RA50) by the latest time(s) for receipt of proxy appointments specified in note 8 above. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed through CREST should be communicated to the appointee by other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that Euroclear does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his/her CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The Company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Article 34 of the Companies (Uncertificated Securities) (Jersey) Order 1999.

Annual Report and Financial Statements 31 December 2010

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Glossary

Net asset value per share (“NAV”) This is the value of the Company’s assets attributable to one share. It is calculated by dividing net assets by the total number of shares in issue (excluding treasury shares). For example, as at 31 December 2010, net assets were £58,392,762 for the UK Emerging Companies shares and there were 47,122,000 UK Emerging Companies shares in issue, therefore the UK Emerging Companies NAV per share was £1.2392 per share. The net assets for the Cash Fund shares as at this date were 37,132 and there were 36,952 Cash Fund shares in issue, therefore the Cash Fund NAV per share was £1.0049.

Discount The shares of closed ended investment companies may trade at a discount to NAV. This occurs when the share price is less than the NAV. In this circumstance, the price that an investor pays or receives for a share would be less than the value attributable to it by reference to the underlying assets. The discount is the difference between the share price, based on the mid-market price, and the NAV, expressed as a percentage of the NAV. For example, if the share price was 90p and the NAV 100p, the discount would be 10%.

Premium A premium occurs when the share price is more than the NAV and investors would therefore be paying more than the value attributable to the shares by reference to the underlying assets. For example, if the share price was 100p, based on the mid-market price, and the NAV 90p, the premium would be 11.1%. Discounts and premia are mainly the consequence of supply and demand for the shares on the stock market.

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BlackRock Hedge Selector Ltd

BlackRock Hedge Selector Ltd

BlackRock Hedge Selector Ltd Annual Report 31 December 2010

Annual Report 2010

blackrock.co.uk/BRHS