UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-CSRS
CERTIFIED SHAREHOLDER REPORT OF REGISTERED MANAGEMENT
INVESTMENT COMPANIES
Investment Company Act file number 811-21537
Name of Fund: BlackRock Multi-Strategy Hedge Opportunities LLC
Fund Address: P.O. Box 9011
Princeton, NJ 08543-9011
Name and address of agent for service: Robert C. Doll, Jr., Chief Executive
Officer, BlackRock Multi-Strategy Hedge Opportunities LLC, 800 Scudders
Mill Road, Plainsboro, NJ 08536. Mailing address: P.O. Box 9011,
Princeton, NJ 08543-9011
Registrant's telephone number, including area code: (609) 282-2800
Date of fiscal year end: 03/31/07
Date of reporting period: 04/01/06 - 09/30/06
Item 1 - Report to Stockholders
ALTERNATIVES BLACKROCK SOLUTIONS EQUITIES
FIXED INCOME LIQUIDITY REAL ESTATE
BlackRock Multi-Strategy BLACKROCK
Hedge Opportunities LLC
SEMI-ANNUAL REPORT | SEPTEMBER 30, 2006
NOT FDIC INSURED
MAY LOSE VALUE
NO BANK GUARANTEE
BlackRock Multi-Strategy Hedge Opportunities LLC
Portfolio Information as of September 30, 2006
Percent of Total
Ten Largest Holdings Investments
- --------------------------------------------------------------------------------
Glenview Institutional Partners LP ................................... 7.3%
Canyon Value Realization Fund LP ..................................... 6.0
LibertyView Credit Opportunities Fund II LLC ......................... 5.8
Golden Tree Credit Opportunities LP .................................. 5.8
Kinetics Partners LP ................................................. 5.5
Litespeed Partners LP ................................................ 5.3
Context Advantage Fund LP ............................................ 5.1
North Sound Legacy Institutional Fund LLC ............................ 4.7
Trivium Institutional Onshore Fund LP ................................ 4.3
Maverick Levered Partners LP ......................................... 4.2
- --------------------------------------------------------------------------------
Percent of
Investments by Strategy Net Assets
- --------------------------------------------------------------------------------
Equity Opportunistic ................................................. 38.8%
Event Driven ......................................................... 23.0
Directional .......................................................... 21.6
Convertible Arbitrage ................................................ 6.8
Equity Neutral ....................................................... 5.3
Multi-Strategy ....................................................... 2.9
Fixed Income ......................................................... 2.1
Other* ............................................................... (0.5)
- --------------------------------------------------------------------------------
* Includes liabilities in excess of other assets.
Change in Portfolio Management
Effective October 2, 2006, the BlackRock Fund of Funds Team assumed
responsibility for managing the Fund's investments. Howard P. Berkowitz, Anson
H. Beard, Christine Jurinich and Edward Rzeszowski are the portfolio managers
responsible for investing the Fund's assets. Mr. Berkowitz, a Managing Director
of BlackRock, Inc. and a member of the firm's Management Committee, has more
than 35 years' experience running private investment funds and funds of hedge
funds. Prior to joining BlackRock in 2003, Mr. Berkowitz was the founder and
managing partner of HPB Associates, which he formed in 1979 as a traditional
equity hedge fund. Mr. Berkowitz co-founded and managed Steinhardt, Fine,
Berkowitz & Co., one of the earliest entrants into the hedge fund industry, in
1967. Mr. Beard is a Managing Director of BlackRock. Prior to joining the firm
in 2004, he was the founder, managing partner and portfolio manager of
Archimedes Capital Partners, LLC, a long/short equity hedge fund. From 1996 to
2000, Mr. Beard was an associate at Tiger Management LLC. Ms. Jurinich is a
Managing Director of BlackRock. Prior to joining the firm in 2002, Ms. Jurinich
was responsible for investor relations and hedge fund research at Victus Capital
LLC. From 2000 to 2001, she was employed with Alpha Investment Management LLC
and spent the prior year with Arista Group. Ms. Jurinich began her career in
1993 with Allied Capital Asset Management. Mr. Rzeszowski, a Director with
BlackRock, joined the firm in 2006 from Merrill Lynch Investment Managers, L.P.,
where he had been a Director since 2003. He joined MLIM in 2000 from Merrill
Lynch Investment Partners, a group responsible for creating single manager and
fund of fund products within the managed futures and hedge fund space.
2 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
A Letter to Shareholders
Dear Shareholder
It is my pleasure to welcome you to BlackRock.
On September 29, 2006, BlackRock, Inc. ("BlackRock") and Merrill Lynch
Investment Managers, L.P. ("MLIM") united to form one of the largest asset
management firms in the world. Now with more than $1 trillion in assets under
management, over 4,000 employees in 18 countries and representation in key
markets worldwide, BlackRock's global presence means greater depth and scale to
serve you.
The new BlackRock unites some of the finest money managers in the industry. Our
ranks include more than 500 investment professionals globally -- portfolio
managers, research analysts, risk management professionals and traders. With
offices strategically located around the world, our investment professionals
have in-depth local knowledge and the ability to leverage our global presence
and robust infrastructure to deliver focused investment solutions. BlackRock's
professional investors are supported by disciplined investment processes and
best-in-class technology, ensuring that our portfolio managers are well equipped
to research, uncover and capitalize on the opportunities the world's markets
have to offer.
The BlackRock culture emphasizes excellence, teamwork and integrity in the
management of a variety of equity, fixed income, cash management, alternative
investment and real estate products. Our firm's core philosophy is grounded in
the belief that experienced investment and risk professionals using disciplined
investment processes and sophisticated analytical tools can consistently add
value to client portfolios.
As you probably are aware, most former MLIM investment products now carry the
"BlackRock" name. This is reflected in newspapers and online fund reporting
resources. Your account statements, as of the October month-end reporting
period, also reflect the BlackRock name. Unless otherwise communicated to you,
your funds maintain the same investment objectives that they did prior to the
combination of MLIM and BlackRock. Importantly, this union does not affect your
brokerage account or your relationship with your financial advisor. Clients of
Merrill Lynch remain clients of Merrill Lynch.
We view this combination of asset management leaders as a complementary union
that reinforces our commitment to shareholders. Individually, each firm made
investment performance its single most important mission. Together, we are even
better prepared to capitalize on market opportunities on behalf of our
shareholders. Our focus on investment excellence is accompanied by an unwavering
commitment to service, enabling us to assist clients, in cooperation with their
financial professionals, in working toward their investment goals. We thank you
for allowing us the opportunity, and we look forward to serving your investment
needs in the months and years ahead as the new BlackRock.
Sincerely,
/s/ Robert C. Doll, Jr.
Robert C. Doll, Jr.
Vice Chairman
BlackRock, Inc.
Data, including assets under management, are as of June 30, 2006.
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 3
A Discussion With Your Fund's Portfolio Managers
We continued to seek high total returns through investment in hedge funds
and other investment vehicles that pursue alternative investment strategies.
How did the Fund perform during the six-month period?
For the six-month period ended September 30, 2006, the Common Stock of
Multi-Strategy Hedge Opportunities LLC provided a total net investment return of
+1.45% (not including a maximum sales charge of 3%), based on a change in per
unit net asset value from $1.0693 to $1.0848, and assuming reinvestment of all
distributions. For the same period, the Hedge Fund Research Inc. (HFRI) Fund of
Funds Composite Index* returned -0.14%, while the broader-market Standard &
Poor's (S&P) 500 Index returned +4.14%.
Describe the market environment and how the various alternative investment
strategies fared under these conditions.
The onset of the semi-annual period saw a continuation of the benign equity
market that investors had embraced since October 2005. However, the market
reversed sharply in mid-May. Weaker economic growth indicators,
higher-than-expected inflationary data and hawkish comments from several Federal
Open Market Committee (FOMC) members all reduced investor appetite for risk. The
market subsequently rebounded in mid-July as investors seemingly shrugged off
macro concerns and took comfort in better-than-expected earnings reports. In
fact, the second quarter of 2006 represented the 14th consecutive quarter that
S&P 500 companies collectively reported double-digit earnings growth. While
overseas markets experienced significant weakness during the tumultuous stretch
from mid-May to mid-July, most foreign stock exchanges finished higher during
the period, with the TOPIX a notable exception. Implied equity volatility, which
briefly spiked when investors sought protection from further declines in May and
June, retreated toward multi-year lows.
In the Treasury market, the Federal Reserve Board (the Fed) ended its string of
17 consecutive interest rate hikes by remaining on hold in both August and
September. After rising steadily, 10-year yields reversed course in late June
after the FOMC statement emphasized that further interest rate hikes would be
data-dependent and not necessarily a foregone conclusion. Credit spreads, as
measured by the S&P indexes, widened marginally during the period. While recent
growth indicators paint the picture of a slowing economy, default rates remain
low and companies continue to generate strong free cash flow.
The U.S. dollar finished the period roughly unchanged versus the Japanese yen,
but weaker versus the Euro and British pound. Interest rate differentials appear
to be moving against the dollar, and investors are starting to focus on the
outsized current account deficit. Oil prices enjoyed a roller-coaster ride,
retreating sharply after July highs to finish lower for the period. Rising
stockpiles combined with softer economic growth statistics prompted investors to
reduce their positions.
Our equity long/short managers collectively generated positive performance
during the period. Divergence among managers was relatively high with those who
reduced gross and net exposures during the market turbulence generally
underperforming, unable to participate in the subsequent rebound. Our managers
with international exposure generally finished higher during the period,
overcoming the rough two-month stretch starting in mid-May. However, exposure to
the Japanese market detracted from performance given its violent intra-month
moves, which proved difficult to navigate.
Under the directional category, macro managers collectively produced positive
returns during the period, mainly due to a strong April. One of our managers
generated significant profits in April through short exposure to German Bunds
and long exposure to base metals. While emerging market exposure hurt many
global macro managers in May and June, our managers had few positions in those
regions. Currencies continued to provide a source of frustration due to their
range-bound action. Managed futures exposure marginally detracted from the
Fund's performance during the period. Short positions in global fixed income
generated losses as yields declined during the latter half of the period on
global growth concerns. Exposure to currencies and energy, especially natural
gas, also proved troublesome for long-term trend followers.
Event-driven strategies -- broadly consisting of high yield and distressed,
corporate restructurings, reorganizations, spin-offs, special situations, and
capital structure arbitrage -- generated solid profits during the period. Merger
arbitrage continued to produce positive returns amidst the vibrant deal
environment. Furthermore, savvy managers have been able to correctly anticipate
potential merger candidates and subsequently receive elevated bids from private
equity
* The HFRI Fund of Funds Composite Index replaces the Fund's previous
benchmark, the S&P Hedge Fund Index, which was discontinued as of June 30,
2006.
4 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
firms. In addition, some of our managers reaped gains from exposure to selected
credits.
Convertible arbitrage managers continued their recent solid performance and
generated positive returns in every month during the period. As equity
volatility spiked several times during the two-month stretch beginning in
mid-May, managers captured significant gamma trading profits and benefited from
the widespread richening of the market.
Our multi-strategy exposure provided gains during the period. The manager
extracted profits from several equity relative value and event-driven
opportunities in Europe and the emerging markets. The manager's volatility
arbitrage strategy, which encompasses convertible arbitrage, statistical
arbitrage and reinsurance, also generated positive performance.
Fixed income arbitrage produced steady, albeit slight, positive returns during
the period. One of our managers proved adept at trading bonds in Mexico, Brazil
and Iceland. Another manager reaped gains primarily by trading commercial
mortgage-backed and asset-backed securities versus duration-matched swaps. It
should be noted that the yield curve (10-year minus two-year) remained inverted,
signaling a slowdown, or even a recession, according to some market observers.
Our equity market neutral manager generated strong returns during the period.
The manager's statistical arbitrage program produced positive returns in each of
the geographic zones in which it trades: the United States, the United Kingdom
and Europe, and Asia. Gains came from all sectors, with the financials,
communications and technology sectors particularly profitable.
What changes were made to the portfolio during the period?
The portfolio's assets under management grew from $125.5 million at March 31,
2006, to approximately $127.2 million at September 30, 2006. During the period,
there were no significant changes made to the portfolio.
At September 30, 2006, the Fund was comprised of 28 underlying managers and its
market exposure was broken down as follows: equity opportunities, 38.8%; event
driven, 23.0%; directional, 21.6%; convertible arbitrage, 6.8%; equity neutral,
5.3%; multi-strategy, 2.9%; fixed income, 2.1%; and other, (0.5%).
How would you characterize the Fund's position at the close of the period?
In the United States, we are cognizant of the fact that we are in the latter
stages of an economic cycle and as such, we attempt to invest with domestic
equity long/short managers that can successfully navigate through more difficult
market environments. We are bullish on global-oriented managers because we feel
that secular profit opportunities exist in Europe, Japan and the rest of Asia.
Furthermore, we feel that our macro and commodity-trading advisor managers are
well-positioned to generate profits in an environment in which the Fed remains
on hold. We are less positive on the outlook for distressed credit managers as
spreads and default rates are at or near cyclical lows, while companies have
begun to lever up their balance sheets to the detriment of debtholders.
Fabio Savoldelli
Vice President and Co-Portfolio Manager
Hideaki Yamagishi, CFA
Vice President and Co-Portfolio Manager
October 30, 2006
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 5
Disclosure of Expenses
Members of this Fund may incur the following charges: (a) expenses related to
transactions, including sales charges, and (b) operating expenses, including
advisory fees, member services fees and other Fund expenses. The following
example (which is based on a hypothetical investment of $1,000 invested on April
1, 2006 and held through September 30, 2006) is intended to assist members both
in calculating expenses based on an investment in the Fund and in comparing
these expenses with similar costs of investing in other mutual funds.
The first table below provides information about actual account values and
actual expenses. In order to estimate the expenses a member paid during the
period covered by this report, members can divide their account value by $1,000
and then multiply the result by the number in the first line under the heading
entitled "Expenses Paid During the Period."
The second table below provides information about hypothetical account values
and hypothetical expenses based on the Fund's actual expense ratio and an
assumed rate of return of 5% per year before expenses. In order to assist
members in comparing the ongoing expenses of investing in this Fund and other
funds, compare the 5% hypothetical example with the 5% hypothetical examples
that appear in other funds' member reports.
The expenses shown in the table are intended to highlight members' ongoing costs
only and do not reflect any transactional expenses, such as sales charges.
Therefore, the second table is useful in comparing ongoing expenses only, and
will not help members determine the relative total expenses of owning different
funds. If these transactional expenses were included, member expenses would have
been higher.
Expenses Paid
Beginning Ending During the Period*
Account Value Account Value April 1, 2006 to
April 1, 2006 September 30, 2006 September 30, 2006
===========================================================================================================================
Actual
===========================================================================================================================
BlackRock Multi-Strategy Hedge Opportunities LLC $1,000 $1,015 $12.29
===========================================================================================================================
Hypothetical (5% annual return before expenses)**
===========================================================================================================================
BlackRock Multi-Strategy Hedge Opportunities LLC $1,000 $1,013 $12.28
===========================================================================================================================
* Expenses are equal to the annualized expense ratio of 2.43%, multiplied by
the average account value over the period, multiplied by 183/365 (to
reflect the one-half year period shown).
** Hypothetical 5% annual return before expenses is calculated by pro-rating
the number of days in the most recent fiscal six months divided by 365.
Average Annual Total Return
Return Without Return With
Sales Charge Sales Charge*
================================================================================
One Year Ended 9/30/06 5.58% 2.41%
- --------------------------------------------------------------------------------
Inception (1/03/05)
through 9/30/06 4.79 2.97
- --------------------------------------------------------------------------------
* Maximum sales charge is 3%.
Past results shown should not be considered a representation of future
performance.
6 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
Schedule of Investments (in U.S. dollars)
Strategy Portfolio Funds Value
==============================================================================================================
Convertible Arbitrage--6.8% Aristeia Partners LP $ 2,215,154
Context Advantage Fund LP 6,484,166
------------
8,699,320
==============================================================================================================
Directional--21.6% CRG Partners LP 4,381,568
Cornerstone International Value Fund LLC 3,161,631
Denali Partners LP 1,461,727
FORT Global Contrarian LP 1,874,924
FX Concepts Global Funds Master Trust 4,071,703
Grinham Diversified Fund (U.S.) LP 3,837,581
Grossman Currency Fund LP 3,151,841
Kottke Arbitrage Opportunity Fund LLC 3,550,276
Salem Futures Fund LP 1,939,877
------------
27,431,128
==============================================================================================================
Equity Neutral--5.3% Ventus US$Double Leverage Fund 4,507,591
Zaxis Equity Neutral LP 2,270,850
------------
6,778,441
==============================================================================================================
Equity Opportunistic--38.8% Glenview Institutional Partners LP 9,371,241
Hayground Cove Institutional Partners LP 4,466,208
Kinetics Partners LP 7,032,094
Martin Currie Absolute Return Funds Ltd Daijiro 4,160,102
Maverick Levered Partners LP 5,407,776
Neon Liberty Emerging Markets Fund LP 2,596,669
North Sound Legacy Institutional Fund LLC 5,972,201
SR Phoenicia 4,821,500
Trivium Institutional Onshore Fund LP 5,493,340
------------
49,321,131
==============================================================================================================
Event Driven--23.0% Canyon Value Realization Fund LP 7,613,125
Golden Tree Credit Opportunities LP 7,362,439
LibertyView Credit Opportunities Fund II LLC 7,463,978
Litespeed Partners LP 6,833,087
------------
29,272,629
==============================================================================================================
Fixed Income--2.1% Smith Breeden Mortgage Partners LP 2,605,619
==============================================================================================================
Multi-Strategy--2.9% Double Black Diamond LP 3,701,891
==============================================================================================================
Total Investments** (Cost--$114,333,340*)--100.5% 127,810,159
Liabilities in Excess of Other Assets--(0.5%) (578,082)
------------
Net Assets--100.0% $127,232,077
============
* The cost and unrealized appreciation (depreciation) of investments as of
September 30, 2006, as computed for federal income tax purposes, were as
follows:
Aggregate cost ............................................ $116,914,323
============
Gross unrealized appreciation ............................. $ 12,839,456
Gross unrealized depreciation ............................. (1,943,620)
------------
Net unrealized appreciation ............................... $ 10,895,836
============
** Non-income producing securities.
See Notes to Financial Statements.
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 7
Statement of Assets and Liabilities
For the Six Months Ended September 30, 2006
===================================================================================================================================
Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Investments in Portfolio Funds,* at value (identified cost--$114,333,340) ........... $ 127,810,159
Cash ................................................................................ 8,513,700
Investments sold receivable ......................................................... 325,846
Interest receivable ................................................................. 28,355
Prepaid expenses and other assets ................................................... 5,545
-------------
Total assets ........................................................................ 136,683,605
-------------
===================================================================================================================================
Liabilities
- -----------------------------------------------------------------------------------------------------------------------------------
Payables:
Investment adviser ............................................................... $ 488,067
Service agents ................................................................... 81,434 569,501
-------------
Redemptions payable ................................................................. 6,600,769
Subscriptions received in advance ................................................... 1,734,590
Accrued expenses and other liabilities .............................................. 546,668
-------------
Total liabilities ................................................................... 9,451,528
-------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Net assets .......................................................................... $ 127,232,077
=============
===================================================================================================================================
Net Assets Consist of
- -----------------------------------------------------------------------------------------------------------------------------------
Members' capital .................................................................... $ 117,234,254
Unrealized appreciation on investments--net ......................................... 13,476,819
Realized gain on investments--net ................................................... 1,193,793
Accumulated investment loss--net .................................................... (4,672,789)
-------------
Net Assets .......................................................................... $ 127,232,077
=============
Units outstanding ................................................................... 117,284,660
=============
Net asset value per unit ............................................................ $ 1.0848
=============
* Non-income producing securities.
See Notes to Financial Statements.
8 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
Statement of Operations
For the Six Months Ended September 30, 2006
===================================================================================================================================
Investment Income
- -----------------------------------------------------------------------------------------------------------------------------------
Interest ............................................................................ $ 203,984
-------------
===================================================================================================================================
Expenses
- -----------------------------------------------------------------------------------------------------------------------------------
Investment advisory fees ............................................................ $ 981,547
Service agent fees .................................................................. 163,698
Accounting and administration services .............................................. 149,555
Professional fees ................................................................... 70,804
Printing and member reports ......................................................... 57,240
Directors' fees and expenses ........................................................ 17,000
Offering costs ...................................................................... 10,975
Custodian fees ...................................................................... 4,250
Other ............................................................................... 132,388
-------------
Total expenses ...................................................................... 1,587,457
-------------
Investment loss--net ................................................................ (1,383,473)
-------------
===================================================================================================================================
Unrealized/Realized Gain
- -----------------------------------------------------------------------------------------------------------------------------------
Change in unrealized appreciation on investments--net ............................... 2,894,407
Realized gain on investments--net ................................................... 339,542
-------------
Total unrealized/realized gain--net ................................................. 3,233,949
-------------
Net Increase in Net Assets Resulting from Operations ................................ $ 1,850,476
=============
See Notes to Financial Statements.
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 9
Statements of Changes in Net Assets
For the Six For the
Months Ended Year Ended
September 30, March 31,
Increase in Net Assets 2006 2006
===================================================================================================================================
Operations
- -----------------------------------------------------------------------------------------------------------------------------------
Investment loss--net ................................................................ $ (1,383,473) $ (2,840,091)
Change in unrealized appreciation on investments--net ............................... 2,894,407 10,271,129
Realized gain on investments--net ................................................... 339,542 854,251
------------------------------
Net increase in net assets resulting from operations ................................ 1,850,476 8,285,289
------------------------------
===================================================================================================================================
Capital Transactions
- -----------------------------------------------------------------------------------------------------------------------------------
Proceeds from issuance of Units ..................................................... 14,946,965 51,113,201
Fair value of Units tendered ........................................................ (15,015,859) (9,295,455)
------------------------------
Net increase (decrease) in net assets derived from capital transactions ............. (68,894) 41,817,746
------------------------------
===================================================================================================================================
Net Assets
- -----------------------------------------------------------------------------------------------------------------------------------
Total increase in net assets ........................................................ 1,781,582 50,103,035
Beginning of period ................................................................. 125,450,495 75,347,460
------------------------------
End of period* ...................................................................... $ 127,232,077 $ 125,450,495
==============================
* Accumulated investment loss--net ................................................. $ (4,672,789) $ (3,289,316)
==============================
See Notes to Financial Statements.
10 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
Statement of Cash Flows
For the Six Months Ended September 30, 2006
===================================================================================================================================
Cash Used for Operating Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in net assets resulting from operations ................................................. $ 1,850,476
-------------
Adjustments to reconcile net increase in net assets resulting from operations to net cash used for
operating activities:
Decrease in investments paid in advance ............................................................ 1,500,000
Decrease in receivables and other assets ........................................................... 975,700
Increase in liabilities ............................................................................ 50,906
Change in unrealized gain on investments--net ...................................................... (2,894,407)
Realized gain on investments--net .................................................................. (339,542)
Purchases of long-term securities .................................................................... (6,249,735)
Sales of long-term securities ........................................................................ 11,497,016
-------------
Net cash used for investing activities ............................................................... 6,390,414
-------------
===================================================================================================================================
Cash Provided by Financing Activities
- -----------------------------------------------------------------------------------------------------------------------------------
Cash receipts from issuance of Units (including subscriptions received in advance of $1,734,590) ..... 13,952,665
Cash payments for tender of Units .................................................................... (13,640,244)
-------------
Net cash provided by financing activities ............................................................ 312,421
-------------
===================================================================================================================================
Cash
- -----------------------------------------------------------------------------------------------------------------------------------
Net increase in cash ................................................................................. 6,702,835
Cash at beginning of period .......................................................................... 1,810,865
-------------
Cash at end of period ................................................................................ $ 8,513,700
=============
See Notes to Financial Statements.
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 11
Financial Highlights
For the Six For the For the Period
Months Ended Year Ended January 3, 2005+
The following ratios have been derived from September 30, March 31, to March 31,
information provided in the financial statements. 2006 2006 2005
====================================================================================================================================
Per Unit Operating Performance
- ------------------------------------------------------------------------------------------------------------------------------------
Net asset value, beginning of period ................................. $ 1.0693 $ .9979 $ 1.0000
Investment loss--net ................................................. (.0114) (.0266) (.0070)
Unrealized/realized gain on investments--net ......................... .0269 .0980 .0049
-----------------------------------------------
Total from investment operations ..................................... .0155 .0714 (.0021)
-----------------------------------------------
Net asset value, end of period ....................................... $ 1.0848 $ 1.0693 $ .9979
===============================================
====================================================================================================================================
Total Investment Return
- ------------------------------------------------------------------------------------------------------------------------------------
Total investment return .............................................. 1.45%@ 7.16% (.21%)@
===============================================
====================================================================================================================================
Ratios to Average Net Assets
- ------------------------------------------------------------------------------------------------------------------------------------
Expenses ............................................................. 2.43%* 2.84% 3.28%*
===============================================
Expenses net of reimbursement ........................................ 2.43%* 2.78% 2.96%*
===============================================
Investment loss--net ................................................. (2.12%)* (2.65%) (2.83%)*
===============================================
====================================================================================================================================
Supplemental Data
- ------------------------------------------------------------------------------------------------------------------------------------
Net assets, end of period (in thousands) ............................. $ 127,232 $ 125,450 $ 75,347
===============================================
Portfolio turnover ................................................... (4%) (19%) 0%
===============================================
* Annualized.
+ Commencement of operations.
@ Aggregate total investment return.
See Notes to Financial Statements.
12 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
Notes to Financial Statements
1. Significant Accounting Policies:
BlackRock Multi-Strategy Hedge Opportunities LLC (the "Company") is registered
under the Investment Company Act of 1940, as amended, as a closed-end,
non-diversified management investment company. The Company's financial
statements are prepared in conformity with U.S. generally accepted accounting
principles, which may require the use of management accruals and estimates.
Actual results may differ from these estimates. The Company offers one class of
units, which may be sold with a front-end sales charge. The following is a
summary of significant accounting policies followed by the Company.
(a) Valuation of investments in Portfolio Funds -- The Company values its
investments in Portfolio Funds at fair value in accordance with procedures
established by the Board of Directors. The valuations reported by the Portfolio
Fund Managers of the Portfolio Funds, upon which the Company calculates its
month-end net asset value and net asset value per Unit, may be subject to later
adjustment, based upon information reasonably available at that time. The
Company will pay repurchase proceeds, as well as calculate management fees, on
the basis of net asset valuations determined using the best information
available as of the valuation date. In the event a Portfolio Fund subsequently
corrects, revises or adjusts a valuation after the Company has determined a net
asset value, the Company will generally not make any retroactive adjustment to
such net asset value, or to any amounts paid based on such net asset value, to
reflect a revised valuation.
(b) Income taxes -- The Company is classified as a partnership for federal
income tax purposes. As such, each investor in the Company is treated as owner
of its proportionate share of the net assets, income, expenses and realized and
unrealized gains and losses of the Company. Therefore, no federal income tax
provision is required.
(c) Security transactions and investment income -- Portfolio Fund transactions
are recorded on the effective dates of the transactions. Realized gains and
losses on Portfolio Fund transactions are determined on the average cost basis.
Interest income is recognized on the accrual basis.
(d) Cash balances -- The Company maintains cash in the PNC Money Market account,
which, at times, may exceed federally insured limits. The Company has not
experienced any losses in such accounts and does not believe it is exposed to
any significant credit risk on such bank deposits.
(e) Offering costs -- Direct costs related to the initial public offering of the
Company's Units were deferred and amortized over the 12-month period beginning
with the commencement of operations. Offering costs associated with the ongoing
sale of the Company's Units are expensed as incurred.
2. Investment Advisory Agreement and Transactions with Affiliates:
On September 29, 2006, Merrill Lynch and BlackRock, Inc. merged the asset
management business of Merrill Lynch Investment Managers, LLC ("MLIM") and
BlackRock, Inc. to create a new independent asset management company.
On September 22, 2006, shareholders of the Company approved a new Investment
Advisory Agreement with BlackRock Advisors, Inc. (the "Manager"), a wholly owned
subsidiary of BlackRock, Inc. BlackRock Advisors, Inc. was reorganized into
BlackRock Advisors, LLC ("BlackRock"). The new advisory agreement was effective
on September 29, 2006 and the investment advisory fee is unchanged. In addition,
the Manager has entered into a sub-advisory agreement with BlackRock Investment
Management, LLC, an affiliate of the Manager, under which the Manager pays the
Sub-Adviser for services it provides, a fee equal to 74% of the management fee
paid to the Manager.
Prior to December 1, 2005, the Company had entered into an Investment Advisory
Agreement with MLIM. MLIM is an indirect, wholly owned subsidiary of Merrill
Lynch & Co., Inc. ("ML & Co."). Effective December 1, 2005 and continuing
through September 29, 2006, Merrill Lynch Alternative Investments LLC ("MLAI"),
an indirect, wholly owned subsidiary of ML & Co., became the advisor of the
Company.
BlackRock is responsible for the management of the Company's portfolio and
provides the necessary personnel, facilities, equipment and certain other
services necessary to the operations of the Company. For such services, the
Company pays a monthly fee at an annual rate of 1.50% of the average month-end
value of the Company's net assets.
The Company has also entered into a Member Services Agreement with FAM
Distributors, Inc. ("FAMD" and the "Service Agent"). FAMD provides or arranges
for provision of ongoing investor and account maintenance services. The Company
pays a monthly fee computed at the annual rate of .25% of the Company's average
month-end assets (the "Service Fee"). The Service Fee will be paid to the
Service Agent to reimburse it for payments made to broker-dealers and financial
advisors that have agreed to provide ongoing investor and account maintenance
services to members of
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 13
Notes to Financial Statements (continued)
the Company and for ongoing investor servicing activities performed by the
Service Agent.
For the six-month period ended September 30, 2006, FAMD received $202,459 in
sales charges on sales of units in the Company.
MLAI had agreed to voluntarily cap the total annual expenses of the Company at
0.25% per month (3.0% per year) until December 31, 2005.
In connection with the closing, the Company's Transfer Agent became PFPC, Inc.,
an affiliate of the Manager. In addition, BlackRock Distributors, Inc., an
affiliate of BlackRock, Inc., became an additional distributor.
Prior to the closing, certain officers and/or directors of the Company were
officers and/or directors of MLAI and/or ML & Co.
Commencing September 29, 2006, certain officers and/or directors of the Company
are officers and/or directors of BlackRock and/or BlackRock, Inc.
3. Investments:
Purchases of investments for the six months ended September 30, 2006 were
$6,249,735.
Sales of investments for the six months ended September 30, 2006 were
$5,304,735.
4. Capital Transactions:
An investor purchases Units in the Company and the Units are offered at their
net asset value. The minimum initial investment for each investor is $25,000
(net of any distribution fees) and the minimum additional investment is $10,000.
An investor's subscription for Units is irrevocable by the investor and will
generally require the investor to maintain its investment in the Company until
such time as the Company offers to repurchase the Units in a tender offering. No
member or other person holding Units acquired from a Member will have the right
to require the Company to redeem the Units. The Company may from time to time
repurchase Units from Members in accordance with written tenders by Members at
those times, in those amounts and on terms and conditions as the Board of
Directors may determine in its sole discretion. The Adviser expects that it will
recommend to the Board of Directors that the Company offer to repurchase Units
from Members quarterly on the last business day of March, June, September and
December.
During the year ended March 31, 2006, the Company modified the classification of
subscriptions received in advance within the statement of cash flows. These
activities are included within the cash flows from financing activities.
Previously these activities were included within cash flows from operating
activities.
Transactions in capital were as follows:
- -------------------------------------------------------------------------------
For the Six Months Ended Dollar
September 30, 2006 Units Amount
- -------------------------------------------------------------------------------
Units sold ................................... 13,901,345 $ 14,946,965
Units tendered ............................... (13,934,677) $(15,015,859)
-----------------------------
Net decrease ................................. (33,332) $ (68,894)
=============================
5. Investments in Portfolio Funds:
The following table lists the Company's investments in Portfolio Funds for the
six months ended September 30, 2006, none of which was a related party. The
agreements related to investments in Portfolio Funds provide for the
compensation in the form of management fees of 0.5% to 3% (per annum) of net
assets and performance incentive fees or allocations of 20% to 25% of net
profits earned.
Information about the underlying investments held by the Portfolio Funds is not
readily available, so it is unknown whether the Portfolio Funds hold any single
investment whereby the Company's proportionate share exceeds 5% of the Company's
net assets at September 30, 2006.
14 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
Notes to Financial Statements (concluded)
- ------------------------------------------------------------------------------------------------------------------------------------
Fees
% of Company's Net Income ------------------------ Redemptions
Investments Total Fair Value Fair Value (Loss) Management Incentive Permitted
- ------------------------------------------------------------------------------------------------------------------------------------
Aristeia Partners 1.7% $ 2,215,154 $ 215,154 1% 20% Quarterly
CRG Partners 3.4 4,381,568 224,234 2 20 Monthly
Canyon Value 6.0 7,613,125 314,175 1.5 20 Monthly
Context Advantage 5.1 6,484,166 301,137 1.5 20 Quarterly
Cornerstone International 2.5 3,161,631 (100,127) 0.5 20 Monthly
Denali Partners 1.1 1,461,727 (38,273) 2 25 Quarterly
Double Black Diamond 2.9 3,701,891 281,314 1 20 Quarterly
FORT Global 1.5 1,874,924 71,885 1 20 Monthly
FX Concepts 3.2 4,071,703 (43,322) 1.5 20 Monthly
Glenview Institutional 7.3 9,371,241 107,432 1 20 Monthly
Golden Tree Credit Opportunities 5.8 7,362,439 502,349 2 20 Semi-Annual
Grinham Diversified 3.0 3,837,581 146,353 1.5 20 Monthly
Grossman Currency 2.5 3,151,841 (419,153) 3 25 Monthly
Hayground Cove Institutional 3.5 4,466,208 161,580 1.5 20 Monthly
Kinetics Partners 5.5 7,032,094 108,202 1 20 Monthly
Kottke Arbitrage 2.8 3,550,276 (69,932) 2 20 Monthly
LibertyView Credit 5.8 7,463,978 760,816 1 20 Quarterly
Litespeed Partners 5.3 6,833,087 97,831 1.5 20 Quarterly
Martin Currie Absolute Return
Funds Ltd. Daijiro 3.3 4,160,102 (448,872) 1.5 20 Monthly
Maverick Levered 4.2 5,407,776 205,578 1 20 Quarterly
Neon Liberty 2.0 2,596,669 29,742 1.5 20 Quarterly
North Sound 4.7 5,972,201 (677,746) 1.5 20 Quarterly
SR Capital --(a) --(a) 300 1 20 Quarterly
SR Phoenicia 3.8 4,821,500 204,208 1 20 Monthly
Salem Futures 1.5 1,939,877 (107,991) 2 20 Quarterly
Smith Breeden 2.0 2,605,619 130,849 1 20 Quarterly
Trivium Institutional 4.3 5,493,340 393,955 1.5 20 Monthly
Ventus US$ 3.5 4,507,591 829,104 2 20 Monthly
Zaxis Equity 1.8 2,270,850 53,167 1 20 Quarterly
------------------------------------------------
Total 100.0% $127,810,159 $3,233,949
================================================
(a) The Company fully redeemed from the Portfolio Fund as of April 30,
2006.
6. Short-Term Borrowings:
The Company is a party to a $50,000,000 credit agreement with Harris Trust and
Savings Bank. The Company may borrow under the credit agreement to fund member
redemptions and for other lawful purposes including leverage. The Company may
borrow up to the maximum amount allowable under the Company's current prospectus
and statement of additional information, subject to various other legal,
regulatory or contractual limits. The Company pays a commitment fee of .375% per
annum based on the unused portion of the Fee Cap (a minimum of $20,000,000) as
defined in the credit agreement. Amounts borrowed under the credit agreement
bear interest at a rate equal to, at the Company's election, the federal funds
rate plus 1.75% or a base rate, as defined in the credit agreement, minus 1%.
The Company did not borrow under the credit agreement during the six months
ended September 30, 2006.
7. Risk Factors:
An investment in the Company involves a high degree of risk, including the risk
that the entire amount invested may be lost. The Company allocates assets to
Portfolio Managers and invests in Portfolio Funds that invest in and actively
trade securities and other financial instruments using a variety of strategies
and investment techniques with significant risk characteristics, including the
risks arising from the volatility of the equity, fixed income, commodity and
currency markets, the risks of borrowings and short sales, the risks arising
from leverage associated with trading in the equities, currencies and
over-the-counter derivatives markets, the illiquidity of derivative instruments
and the risk of loss from counterparty defaults. No guarantee or representation
is made that the investment program will be successful.
8. Subsequent Events:
Throughout the normal course of business on October 1, 2006, there were
additional capital contributions of $1,734,590 to the Company.
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 15
Disclosure of Investment Advisory Agreement
Disclosure of Merrill Lynch Alternative Investments LLC Investment Advisory
Agreement
The Board of Directors met in August 2006 to consider approval of the Company's
investment advisory agreement with Merrill Lynch Alternative Investments LLC
("MLAI"), the Company's investment adviser at that time.
Activities and Composition of the Board of Directors
All but one member of the Board of Directors is an independent Director whose
only affiliation with MLAI or other Merrill Lynch affiliates was as a Director
of the Company and as a trustee or director of certain other funds advised by
MLAI or its affiliates. The Chairman of the Board is an independent Director.
New Director nominees are chosen by a Nominating Committee comprised entirely of
independent Directors. All independent Directors also are members of the Board's
Audit Committee, and the independent Directors meet in executive session at each
in-person Board meeting. The Board and the Audit Committee meet in person for at
least two days each quarter and conduct other in-person and telephone meetings
throughout the year, some of which are formal Board meetings and some of which
are informational meetings. Independent counsel to the independent Directors
attends all in-person Board and Audit Committee meetings and other meetings at
the independent Directors' request.
MLAI Investment Advisory Agreement -- Matters Considered by the Board
Every year, the Board considers approval of the Company's investment advisory
agreement. The Board assesses the nature, scope and quality of the services
provided to the Company by the personnel of the investment adviser and its
affiliates, including administrative services, member services, oversight of
fund accounting, marketing services and assistance in meeting legal and
regulatory requirements. The Board also receives and assesses information
regarding the services provided to the Company by certain unaffiliated service
providers.
At various times throughout the year, the Board also considers a range of
information in connection with its oversight of the services provided by the
investment adviser and its affiliates. Among the matters considered are: (a)
fees (in addition to management fees) paid to the investment adviser and its
affiliates by the Company; (b) Company operating expenses paid to third parties;
(c) the resources devoted to and compliance reports relating to the Company's
investment objective, policies and restrictions, and the Company's compliance
with its Code of Ethics and compliance policies and procedures; and (d) the
nature, cost and character of non-investment management services provided by the
investment adviser and its affiliates.
The Board noted its view of MLAI and certain affiliates as comprising one of the
most experienced global asset management firms and considered the overall
services provided by MLAI to be of high quality. The Board also noted its view
of MLAI as financially sound and well managed and noted MLAI's affiliation with
one of America's largest financial firms. The Board works closely with the
investment adviser in overseeing the investment adviser's efforts to achieve
good performance. As part of this effort, the Board discusses portfolio manager
effectiveness and, when performance is not satisfactory, discusses with the
investment adviser taking steps such as changing investment personnel.
Annual Consideration of Approval by the Board of Directors
In the period prior to the Board meeting to consider renewal of the investment
advisory agreement, the Board requests and receives materials specifically
relating to the investment advisory agreement. These materials include (a)
information compiled by Lipper Inc. ("Lipper") on the fees and expenses of the
Company as compared to a comparable group of funds as classified by Lipper; (b)
information concerning the Company's investment performance; (c) a discussion by
the Company's portfolio management team of investment strategies used by the
Company during its most recent fiscal year; (d) information on the profitability
to the investment adviser and its affiliates of the investment advisory
agreement and certain other relationships with the Company; and (e) information
provided by the investment adviser concerning investment advisory fees charged
to other clients under a similar investment mandate. The Board also considers
other matters it deems important to the approval process, such as payments made
to the investment adviser or its affiliates in connection with services related
to the valuation and pricing of Company portfolio holdings, the Company's
portfolio turnover statistics, and direct and indirect benefits to the
investment adviser and its affiliates from their relationship with the Company.
The Board did not identify any particular information as controlling, and each
member of the Board attributed different weights to the various items
considered.
16 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
Certain Specific Renewal Data
In connection with the most recent renewal of the investment advisory agreement
between the Company and MLAI (the "MLAI Investment Advisory Agreement") in
August 2006, the independent Directors' and the Board's review included the
following:
Services Provided by the Investment Adviser -- The Board reviewed the nature,
extent and quality of services provided by MLAI, including the investment
advisory services and the resulting performance of the Company. The Board
focused primarily on MLAI's investment advisory services and the Company's
investment performance. The Board compared Company performance to the
performance of a relevant index. While the Board reviews performance data at
least quarterly, consistent with the investment adviser's investment goals, the
Board attaches more importance to performance over relatively long periods of
time, typically three to five years, or a shorter period in the case of a fund
that has been in existence less than five years. The Board concluded that the
Company's performance was consistent with the Company's investment objective and
its benchmark index. The Board concluded that the nature and quality of the
services provided and the Company's performance supported the continuation of
the MLAI Investment Advisory Agreement.
MLAI's Personnel and Investment Process -- The Board reviews at least annually
the Company's investment objectives and strategies. The Board discusses with the
investment adviser's senior management responsible for investment operations and
the senior management of the investment adviser's fund of hedge funds investing
group the strategies being used to achieve the stated objectives. Among other
things, the Board considered the size, education and experience of MLAI's
investment staff, its use of technology, and MLAI's approach to training and
retaining portfolio managers and other research, advisory and management
personnel. The Board also reviewed MLAI's compensation policies and practices
with respect to the Company's portfolio managers. The Board also considered the
experience of Mr. Savoldelli and Mr. Yamagishi, the Company's portfolio managers
at that time. The Board considered the extensive experience of MLAI and its
investment staff in analyzing and managing the types of investments used by the
Company. The Board concluded that the Company benefits from that expertise.
Management Fees and Other Expenses -- The Board reviews the Company's
contractual management fee rate and actual management fee rate as a percentage
of total assets at common asset levels -- the actual rate includes advisory and
administrative service fees and the effects of any fee waivers -- compared to
the other funds in its Lipper category. It also compares the Company's total
expenses to those of other comparable funds. The Board noted that MLAI had
advised the Board that it had no comparable accounts with similar investment
mandates. The Board noted that the Company's contractual management fee rate and
actual management fee rate were slightly lower than the median of contractual
and actual management fees charged by comparable funds as classified by Lipper,
while the Company's total expense rate was very close to the median total
expense rate for such comparable funds. The Board concluded that the Company's
management fee rate and overall expense ratio were reasonable when compared to
those of other comparable funds.
Profitability -- The Board considers the cost of the services provided to the
Company by the investment adviser and the investment adviser's and its
affiliates' profits relating to the management and distribution of the Company
and the funds advised by the investment adviser and its affiliates. As part of
its analysis, the Board reviewed MLAI's methodology in allocating its costs to
the management of the Company and concluded that there was a reasonable basis
for the allocation. The Board concluded that the profits of MLAI and its
affiliates are reasonable in relation to the nature and quality of services
provided and given the level of fees and expenses overall.
Economies of Scale -- The Board considered the extent to which economies of
scale might be realized as the assets of the Company increase and whether there
should be changes in the management fee rate or structure in order to enable the
Company to participate in these economies of scale. While there was no evidence
to date that the Company's assets have reached a level where such economies are
effectively available, the Board will continue to seek information relating to
economies of scale. The Board determined that the management fee structure was
reasonable and that no changes were currently necessary.
Conclusion
After the independent directors deliberated in executive session, the entire
Board of the Company, including all of the independent directors, approved the
renewal of the existing MLAI Investment Advisory Agreement, concluding that the
advisory fee was reasonable in relation to the services provided and that a
contract renewal was in the best interests of the shareholders.
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 17
Disclosure of New Investment Advisory Agreement
New BlackRock Investment Advisory Agreement -- Matters Considered by the Board
In connection with the combination of Merrill Lynch's investment advisory
business with that of BlackRock, Inc. ("BlackRock") to create a new independent
company ("New BlackRock") (the "Transaction"), the Company's Board of Directors
considered and approved a new investment advisory agreement (the "BlackRock
Investment Advisory Agreement") between the Company and BlackRock Advisors, LLC
("BlackRock Advisors"). Prior to September 29, 2006, Merrill Lynch Alternative
Investments LLC (the "Previous Investment Adviser") acted as the Company's
investment adviser. The Company's members subsequently approved the BlackRock
Investment Advisory Agreement and it became effective on September 29, 2006,
replacing the investment advisory agreement with the Previous Investment Adviser
(the "Previous Investment Advisory Agreement").
The Board discussed the BlackRock Investment Advisory Agreement at telephonic
and in-person meetings held during April and May 2006. The Board, including the
independent directors, approved the BlackRock Investment Advisory Agreement at
an in-person meeting held on May 10, 2006.
To assist the Board in its consideration of the BlackRock Investment Advisory
Agreement, BlackRock provided materials and information about BlackRock,
including its financial condition and asset management capabilities and
organization, and Merrill Lynch provided materials and information about the
Transaction. The independent directors, through their independent legal counsel,
also requested and received additional information from Merrill Lynch and
BlackRock in connection with their consideration of the BlackRock Investment
Advisory Agreement. The additional information was provided in advance of the
May 10, 2006 meeting. In addition, the independent directors consulted with
their counsel and Company counsel on numerous occasions, discussing, among other
things, the legal standards and certain other considerations relevant to the
directors' deliberations.
At the Board meetings, the directors discussed with Merrill Lynch management and
certain BlackRock representatives the Transaction, its strategic rationale and
BlackRock's general plans and intentions regarding the Company. At these Board
meetings, representatives of Merrill Lynch and BlackRock made presentations to
and responded to questions from the Board. The directors also inquired about the
plans for and anticipated roles and responsibilities of certain employees and
officers of the Previous Investment Adviser, and of its affiliates, to be
transferred to BlackRock in connection with the Transaction. The independent
directors of the Board also conferred separately and with their counsel about
the Transaction and other matters related to the Transaction on a number of
occasions, including in connection with the April and May 2006 meetings. After
the presentations and after reviewing the written materials provided, the
independent directors met in executive sessions with their counsel to consider
the BlackRock Investment Advisory Agreement.
In connection with the Board's review of the BlackRock Investment Advisory
Agreement, Merrill Lynch and/or BlackRock advised the directors about a variety
of matters. The advice included the following, among other matters:
o that there was not expected to be any diminution in the nature, quality
and extent of services provided to the Company and its members by
BlackRock Advisors, including compliance services;
o that operation of New BlackRock as an independent investment management
firm would enhance its ability to attract and retain talented
professionals;
o that the Company was expected to benefit from having access to BlackRock's
state of the art technology and risk management analytic tools, including
investment tools, provided under the BlackRock Solutions(R) brand name;
o that BlackRock had no present intention to alter any applicable expense
waivers or reimbursements that were currently in effect and, while it
reserved the right to do so in the future, it would seek the approval of
the Board before making any changes;
o that in connection with the Transaction, Merrill Lynch and BlackRock had
agreed to conduct, and use reasonable best efforts to cause their
respective affiliates to conduct, their respective businesses in
compliance with the conditions of Section 15(f) of the Investment Company
Act of 1940 (the "1940 Act") in relation to any public funds advised by
BlackRock or the Previous Investment Adviser (or affiliates),
respectively; and
o that Merrill Lynch and BlackRock would derive benefits from the
Transaction and that, as a result, they had a financial interest in the
matters being considered that was different from that of Company members.
18 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
The directors considered the information provided by Merrill Lynch and BlackRock
above, and, among other factors, the following:
o the potential benefits to Company members from being part of a combined
fund family with BlackRock-sponsored funds, including possible economies
of scale and access to investment opportunities;
o the reputation, financial strength and resources of BlackRock and its
investment advisory subsidiaries and the anticipated financial strength
and resources of New BlackRock;
o the compliance policies and procedures of BlackRock Advisors;
o the terms and conditions of the BlackRock Investment Advisory Agreement,
including the fact that the schedule of the Company's total advisory fees
would not increase under the BlackRock Investment Advisory Agreement, but
would remain the same;
o that in August 2004, the Board had performed an initial review of the
Previous Investment Advisory Agreement, as required by the 1940 Act, and
had determined that the Previous Investment Adviser had the capabilities,
resources and personnel necessary to provide the advisory and
administrative services that were then being provided to the Company; and
that the advisory and/or management fees paid by the Company, taking into
account any applicable agreed-upon fee waivers and breakpoints, had
represented reasonable compensation to the Previous Investment Adviser in
light of the services provided, the costs to the Previous Investment
Adviser of providing those services, economies of scale, the fees and
other expenses paid by similar funds (including information provided by
Lipper Inc. ["Lipper"]), and such other matters as the directors had
considered relevant in the exercise of their reasonable judgment; and
o that Merrill Lynch had agreed to pay all expenses of the Company in
connection with the Board's consideration of the BlackRock Investment
Advisory Agreement and related agreements and all costs of member approval
of the BlackRock Investment Advisory Agreement and as a result the Company
would bear no costs in obtaining member approval of the BlackRock
Investment Advisory Agreement.
Certain of these considerations are discussed in more detail below.
In its review of the BlackRock Investment Advisory Agreement, the Board assessed
the nature, quality and scope of the services to be provided to the Company by
the personnel of BlackRock Advisors and its affiliates, including administrative
services, member services, oversight of fund accounting and assistance in
meeting legal and regulatory requirements. In its review of the BlackRock
Investment Advisory Agreement, the Board also considered a range of information
in connection with its oversight of the services to be provided by BlackRock
Advisors and its affiliates. Among the matters considered were: (a) fees (in
addition to management fees) to be paid to BlackRock Advisors and its affiliates
by the Company; (b) Company operating expenses paid to third parties; (c) the
resources devoted to and compliance reports relating to the Company's investment
objective, policies and restrictions, and its compliance with its Code of Ethics
and BlackRock Advisors' compliance policies and procedures; and (d) the nature,
cost and character of non-investment management services to be provided by
BlackRock Advisors and its affiliates.
In August 2004, prior to the commencement of operations of the Company, the
Board had requested and received materials specifically relating to the Previous
Investment Advisory Agreement in connection with the Board's initial
consideration of the agreement. These materials included (a) information
concerning the services to be rendered to the Company by the Previous Investment
Adviser and its affiliates and the fees to be paid by the Company to the
Previous Investment Adviser and its affiliates; and (b) information compiled by
Lipper on the fee rate of the Company for advisory and administrative services
as compared to a comparable group of funds as classified by Lipper. The Board
also discussed with representatives of the Previous Investment Adviser the
investment strategies to be used by the Company.
In their deliberations, the directors considered information received in
connection with their initial approval of the Previous Investment Advisory
Agreement, in addition to information provided by BlackRock and BlackRock
Advisors in connection with their evaluation of the terms and conditions of the
BlackRock Investment Advisory Agreement. The directors did not identify any
particular information that was all-important or controlling, and each director
attributed different weights to the various factors. The directors, including a
majority of the independent directors, concluded that the terms of the BlackRock
Investment Advisory Agreement
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 19
Disclosure of New Investment Advisory Agreement (continued)
are appropriate, that the fees to be paid are reasonable in light of the
services to be provided to the Company, and that the BlackRock Investment
Advisory Agreement should be approved and recommended to Company members.
Nature, Quality and Extent of Services Provided -- The Board reviewed the
nature, quality and extent of services provided by the Previous Investment
Adviser, including the investment advisory services and the resulting
performance of the Company, as well as the nature, quality and extent of
services expected to be provided by BlackRock Advisors. The Board focused
primarily on the Previous Investment Adviser's investment advisory services and
the Company's investment performance, but also considered certain areas in which
both the Previous Investment Adviser and the Company received services as part
of the Merrill Lynch complex. While the Board reviews performance data at least
quarterly, consistent with the Previous Investment Adviser's investment goals,
the Board attaches more importance to performance over relatively long periods
of time, typically three to five years, or a shorter period in the case of a
fund that has been in existence less than five years.
In evaluating the nature, quality and extent of the services to be provided by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered, among other things, the expected impact of the Transaction
on the operations, facilities, organization and personnel of BlackRock Advisors
and how it would affect the Company; the ability of BlackRock Advisors to
perform its duties after the Transaction; and any anticipated changes to the
current investment and other practices of the Company.
The directors were given information with respect to the potential benefits to
the Company and its members from having access to BlackRock's state of the art
technology and risk management analytic tools, including the investment tools
provided under the BlackRock Solutions brand name.
The directors were advised that, as a result of Merrill Lynch's equity interest
in BlackRock after the Transaction, the Company would continue to be subject to
restrictions concerning certain transactions involving Merrill Lynch affiliates
(for example, transactions with a Merrill Lynch broker-dealer acting as
principal) absent revised or new regulatory relief. The directors were advised
that a revision of existing regulatory relief with respect to these restrictions
was being sought from the Securities and Exchange Commission and were advised of
the possibility of receipt of such revised regulatory relief.
Based on their review of the materials provided and the assurances they had
received from the management of Merrill Lynch and of BlackRock, the directors
determined that the nature and quality of services to be provided to the Company
under the BlackRock Investment Advisory Agreement were expected to be as good as
or better than that provided under the Previous Investment Advisory Agreement.
The directors were advised that BlackRock Advisors did not plan to change the
Company's portfolio management team upon the closing of the Transaction. It was
noted, however, that other changes in personnel were expected to follow the
Transaction and the combination of the operations of the Previous Investment
Adviser and its affiliates with those of BlackRock. The directors noted that if
portfolio managers or other personnel were to cease to be available prior to the
closing of the Transaction, the Board would consider all available options,
including seeking the investment advisory or other services of BlackRock
affiliates. Accordingly, the directors concluded that, overall, they were
satisfied at the present time with assurances from BlackRock and BlackRock
Advisors as to the expected nature, quality and extent of the services to be
provided to the Company under the BlackRock Investment Advisory Agreement.
Costs of Services Provided and Profitability -- It was noted that, in
conjunction with their initial review of the Previous Investment Advisory
Agreement, the directors had received, among other things, a report from Lipper
comparing the Company's fee rate for advisory and other services to those of a
peer group selected by Lipper. The Board reviewed the Company's contractual
management fee rate and actual management fee rate as a percentage of total
assets at common asset levels -- the actual rate includes advisory fees and the
effects of any fee waivers -- compared to the other funds in its Lipper
category. The information showed that the Company had fee rates within the range
of fee rates of comparable funds. The Board concluded that the Company's
management fee and fee rate and overall expense ratio are reasonable compared to
those of other comparable funds.
In evaluating the costs of the services to be provided by BlackRock Advisors
under the BlackRock Investment Advisory Agreement, the directors considered,
among other things, whether advisory fees or other expenses would change as a
result of the Transaction. Based on their review of the materials provided and
the fact that the BlackRock Investment Advisory Agreement is substantially
similar to the Previous Investment Advisory Agreement in all material respects,
including the rate of compensation, the directors determined that the
Transaction should not increase the total fees
20 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
payable, including any fee waivers and expense reimbursements, for advisory and
administrative services. The directors noted that it was not possible to predict
with certainty New BlackRock's profitability from its relationship with the
Company.
The directors discussed with BlackRock Advisors its general methodology to be
used in determining its profitability with respect to its relationship with the
Company. The directors noted that they expect to receive profitability
information from BlackRock Advisors on at least an annual basis and thus be in a
position to evaluate whether any adjustments in Company fees and/or fee
breakpoints would be appropriate.
Fees and Economies of Scale -- The Board considered the extent to which
economies of scale might be realized as the assets of the Company increase and
whether there should be changes in the management fee rate or structure in order
to enable the Company to participate in these economies of scale. The Board
determined that changes were not currently necessary.
In reviewing the Transaction, the directors considered, among other things,
whether advisory fees or other expenses would change as a result of the
Transaction. Based on the fact that the BlackRock Investment Advisory Agreement
is substantially similar to the Previous Investment Advisory Agreement in all
material respects, including the rate of compensation, the directors determined
that as a result of the Transaction, the Company's total advisory fees would be
no higher than the fees under the Previous Investment Advisory Agreement. The
directors noted that in conjunction with their initial deliberations concerning
the Previous Investment Advisory Agreement, they had determined that the total
fees for advisory and administrative services for the Company were reasonable in
light of the services provided. It was also noted that in conjunction with such
initial review of the Previous Investment Advisory Agreement, the directors had
received, among other things, a report from Lipper comparing the Company's fee
rate for advisory and other services to those of a peer group selected by
Lipper. The directors concluded that because the rates for advisory fees for the
Company would be no higher than the fee rates in effect at the time, the
proposed management fee structure, including any fee waivers, was reasonable and
that no additional changes were currently necessary.
Fall-Out Benefits -- In evaluating the fall-out benefits to be received by
BlackRock Advisors under the BlackRock Investment Advisory Agreement, the
directors considered whether BlackRock Advisors would experience such benefits
to the same extent that the Previous Investment Adviser was experiencing such
benefits under the Previous Investment Advisory Agreement. Based on their review
of the materials provided, including materials received in connection with their
most recent approval of the continuance of the Previous Investment Advisory
Agreement, and their discussions with management of the Previous Investment
Adviser and BlackRock, the directors determined that BlackRock Advisors'
fall-out benefits could include increased ability for BlackRock to distribute
shares of its funds and other investment products. The directors noted that any
fall-out benefits were difficult to quantify with certainty at this time, and
indicated that they would continue to evaluate them going forward.
Investment Performance -- The directors considered investment performance for
the Company. While the Board reviews performance data at least quarterly,
consistent with the Previous Investment Adviser's investment goals, the Board
attaches more importance over relatively long periods of time, typically three
to five years, or a shorter period in the case of a fund that has been in
existence less than five years. The directors believed the Company's performance
was satisfactory. Also, the directors took into account the investment
performance of funds advised by BlackRock Advisors. The Board considered
comparative information from Lipper which showed that the performance of the
funds advised by BlackRock Advisors was within the range of performance of
comparable funds over different time periods. The Board noted BlackRock's
considerable investment management experience and capabilities, but was unable
to predict what effect, if any, consummation of the Transaction would have on
the future performance of the Company.
Conclusion -- After the independent directors of the Company deliberated in
executive session, the entire Board, including the independent directors,
approved the BlackRock Investment Advisory Agreement, concluding that the
advisory fee rate was reasonable in relation to the services provided and that
the BlackRock Investment Advisory Agreement was in the best interests of the
members. In approving the BlackRock Investment Advisory Agreement, the Board
noted that it anticipated reviewing the continuance of the agreement in advance
of the expiration of the initial two-year period.
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 21
Disclosure of New Investment Advisory Agreement (concluded)
New BlackRock Sub-Advisory Agreement -- Matters Considered by the Board
At an in-person meeting held on August 24-25, 2006, the Board of Directors,
including the independent directors, discussed and approved the sub-advisory
agreement (the "BlackRock Sub-Advisory Agreement") between BlackRock Advisors
and its affiliate, BlackRock Financial Management, Inc. (the "Sub-Adviser"). The
BlackRock Sub-Advisory Agreement became effective on September 29, 2006, at the
same time the BlackRock Investment Advisory Agreement became effective.
Pursuant to the BlackRock Sub-Advisory Agreement, the Sub-Adviser receives a
monthly fee from BlackRock Advisors equal to 74% of the advisory fee received by
BlackRock Advisors from the Company. BlackRock Advisors pays the Sub-Adviser out
of its own resources, and there is no increase in Company expenses as a result
of the BlackRock Sub-Advisory Agreement.
In approving the BlackRock Sub-Advisory Agreement at the August in-person
meeting, the Board reviewed its considerations in connection with its approval
of BlackRock Investment Advisory Agreement in May 2006. The Board relied on the
same information and considered the same factors as those discussed above in
connection with the approval of the BlackRock Investment Advisory Agreement, and
came to the same conclusions. In reviewing the sub-advisory fee rate provided in
the BlackRock Sub-Advisory Agreement, the Board noted the fact that both
BlackRock Advisors and the Sub-Adviser have significant responsibilities under
their respective advisory agreements. BlackRock Advisors remains responsible for
oversight of the Company's operations and administration, and the Sub-Adviser
provides advisory services to the Company and is responsible for the day-to-day
management of the Company's portfolio under the BlackRock Sub-Advisory
Agreement. The Board also took into account the fact that there is no increase
in total advisory fees paid by the Company as a result of the BlackRock
Sub-Advisory Agreement. Under all of the circumstances, the Board concluded that
it was a reasonable allocation of fees for the Sub-Adviser to receive 74% of the
advisory fee paid by the Company to BlackRock Advisors.
After the independent directors deliberated in executive session, the entire
Board, including the independent directors, approved the BlackRock Sub-Advisory
Agreement, concluding that the sub-advisory fee was reasonable in relation to
the services provided and that the Sub-Advisory Agreement was in the best
interests of members.
Proxy Results
During the six-month period ended September 30, 2006, BlackRock Multi-Strategy
Hedge Opportunities LLC's shareholders voted on the following proposals. On
August 15, 2006 and August 31, 2006, the meetings were adjourned with respect to
Proposals 1 and 3 until September 22, 2006, at which time they passed. A
description of the proposals and number of shares voted were as follows:
- ------------------------------------------------------------------------------------------------------------------------------
Shares Voted Shares Voted Shares Voted
For Against Abstain
- ------------------------------------------------------------------------------------------------------------------------------
1. To approve a new investment advisory agreement
with BlackRock Advisors, Inc. 50 1 1
- ------------------------------------------------------------------------------------------------------------------------------
3. To approve a contingent subadvisory agreement
with BlackRock Advisors, Inc. 50 1 1
- ------------------------------------------------------------------------------------------------------------------------------
Officers and Directors
Robert C. Doll, Jr., President and Director
David O. Beim, Director
James T. Flynn, Director
W. Carl Kester, Director
Karen P. Robards, Director
Donald C. Burke, Vice President and Treasurer
Jeffrey Hiller, Fund Chief Compliance Officer
Alice A. Pellegrino, Secretary
Custodian
PFPC Trust Company
8800 Tinicum Boulevard
3rd Floor, Suite 200
Philadelphia, PA 19153
Administrator & Escrow Agent
PFPC, Inc.
Wilmington, DE 19809
22 BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006
BlackRock Privacy Principles
BlackRock is committed to maintaining the privacy of its current and former fund
investors and individual clients (collectively, "Clients") and to safeguarding
their nonpublic personal information. The following information is provided to
help you understand what personal information BlackRock collects, how we protect
that information and why in certain cases we share such information with select
parties.
If you are located in a jurisdiction where specific laws, rules or regulations
require BlackRock to provide you with additional or different privacy-related
rights beyond what is set forth below, then BlackRock will comply with those
specific laws, rules or regulations.
BlackRock obtains or verifies personal nonpublic information from and about you
from different sources, including the following: (i) information we receive from
you or, if applicable, your financial intermediary, on applications, forms or
other documents; (ii) information about your transactions with us, our
affiliates, or others; (iii) information we receive from a consumer reporting
agency; and (iv) from visits to our Web sites.
BlackRock does not sell or disclose to nonaffiliated third parties any nonpublic
personal information about its Clients, except as permitted by law or as is
necessary to service Client accounts. These nonaffiliated third parties are
required to protect the confidentiality and security of this information and to
use it only for its intended purpose.
We may share information with our affiliates to service your account or to
provide you with information about other BlackRock products or services that may
be of interest to you. In addition, BlackRock restricts access to nonpublic
personal information about its Clients to those BlackRock employees with a
legitimate business need for the information. BlackRock maintains physical,
electronic and procedural safeguards that are designed to protect the nonpublic
personal information of its Clients, including procedures relating to the proper
storage and disposal of such information.
Availability of Quarterly Schedule of Investments
The Fund files its complete schedule of portfolio holdings with the Securities
and Exchange Commission ("SEC") for the first and third quarters of each fiscal
year on Form N-Q. The Fund's Forms N-Q are available on the SEC's Web site at
http://www.sec.gov. The Fund's Forms N-Q may also be reviewed and copied at the
SEC's Public Reference Room in Washington, DC. Information on the operation of
the Public Reference Room may be obtained by calling 1-800-SEC-0330.
Electronic Delivery
Electronic copies of most financial reports and prospectuses are available on
the Fund's Web site. Shareholders can sign up for e-mail notifications of
quarterly statements, annual and semi-annual reports and prospectuses by
enrolling in the Fund's electronic delivery program.
To enroll:
Shareholders Who Hold Accounts with Investment Advisers, Banks or Brokerages:
Please contact your financial adviser. Please note that not all investment
advisers, banks or brokerages may offer this service.
Shareholders Who Hold Accounts Directly with BlackRock:
1) Access the BlackRock Web site at http://www.blackrock.com/edelivery
2) Log into your account
BLACKROCK MULTI-STRATEGY HEDGE OPPORTUNITIES LLC SEPTEMBER 30, 2006 23
BlackRock Multi-Strategy Hedge Opportunities LLC seeks high total return over a
full market cycle through investments in hedge funds and other investment
vehicles pursuing alternative investment strategies.
This report is not authorized for use as an offer of sale or a solicitation of
an offer to buy shares of the Fund unless accompanied or preceded by the Fund's
current prospectus. Past performance results shown in this report should not be
considered a representation of future performance. Statements and other
information herein are as dated and are subject to change.
A description of the policies and procedures that the Fund uses to determine how
to vote proxies relating to portfolio securities is available without charge,
upon request, by calling toll-free 866-878-2987 or on the Securities and
Exchange Commission's Web site at http://www.sec.gov.
BlackRock Multi-Strategy Hedge Opportunities LLC
Box 9011
Princeton, NJ 08543-9011
BLACKROCK
#MHO-9/06
Item 2 - Code of Ethics - Not Applicable to this semi-annual report
Item 3 - Audit Committee Financial Expert - Not Applicable to this semi-annual
report
Item 4 - Principal Accountant Fees and Services - Not Applicable to this
semi-annual report
Item 5 - Audit Committee of Listed Registrants - Not Applicable to this
semi-annual report
Item 6 - Schedule of Investments - Not Applicable
Item 7 - Disclosure of Proxy Voting Policies and Procedures for Closed-End
Management Investment Companies - Not Applicable to this semi-annual
report
Item 8 - Portfolio Managers of Closed-End Management Investment Companies - as
of September 30, 2006
The BlackRock Fund of Funds Team is responsible for managing the Company's
investments. Howard P. Berkowitz, Anson H. Beard, Christine Jurinich and Edward
Rzeszowski are the portfolio managers responsible for investing the Company's
assets. The Company's portfolio managers will consider analyses from various
sources, make the necessary investment decisions, and place orders for
transactions accordingly. Mr. Berkowitz is the head of the team and is
responsible for overseeing the management of the Company's investments. Mr.
Beard is responsible for evaluating potential long/short equity Portfolio Fund
Managers and monitoring existing Portfolio Fund Managers, Ms. Jurinich is
responsible for evaluating potential Portfolio Fund Managers and monitoring
existing Portfolio Fund Managers, and Mr. Rzeszowski is responsible for
evaluating potential Portfolio Fund Managers and monitoring existing Portfolio
Fund Managers with a focus on managed futures, macro funds and statistical
arbitrage.
Mr. Berkowitz is a Managing Director of BlackRock, Inc. ("BlackRock") and a
member of BlackRock's Management Committee. Mr. Berkowitz has more than 35 years
of experience running private investment funds and funds of hedge funds. He
joined BlackRock in April 2003 and has been the Company's portfolio manager
since 2006. Prior to joining BlackRock, Mr. Berkowitz was the founder and
managing partner of HPB Associates which he initially formed in 1979 as a
traditional equity hedge fund. In 1967, Mr. Berkowitz co-founded and managed
Steinhardt, Fine, Berkowitz & Co., one of the earliest and most highly
successful entrants into the hedge fund industry.
Mr. Beard is a Managing Director of BlackRock and has been a member of the
Company's portfolio management team since 2006. Prior to joining BlackRock in
2004, Mr. Beard was the Founder, Managing Partner, and portfolio manager of
Archimedes Capital Partners, LLC, a long/short equity hedge fund. From 1996 to
2000, Mr. Beard was an associate at Tiger Management LLC, focusing on basic
industrial equities and commodities.
Ms. Jurinich is a Managing Director of BlackRock and has been a member of the
Company's portfolio management team since 2006. Ms. Jurinich has been a
portfolio manager with BlackRock since 2003. Before taking on her current
responsibilities in 2003, Ms. Jurinich was a member of the Account Management
Group where she was responsible for developing and maintaining relationships
with non-U.S. clients and for developing alternative investment products. Prior
to joining BlackRock in 2002, Ms. Jurinich was responsible for investor
relations and hedge fund research at Victus Capital LLC. From 2000 to 2001, she
was responsible for manager research and recommendations relating to relative
value managers at Alpha Investment Management LLC. She spent the prior year with
Arista Group, where her duties included all aspects of due diligence and
performance reporting. Ms. Jurinich began her career in 1993 with Allied Capital
Asset Management.
Mr. Rzeszowski joined BlackRock in 2006 as a member of the Fund of Fund's team
and became part of the Company's portfolio management team at that time. Prior
to joining BlackRock, Mr. Rzeszowski was a Director with the fund of funds team
of MLIM LP. In this role, he was responsible for the selection and analysis of
hedge funds with a focus on managed futures, macro funds and statistical
arbitrage, and served as senior hedge fund analyst and portfolio manager for the
Global Horizons I, L.P. and ML Global Horizons Ltd. Previously, Mr. Rzeszowski
was a Senior Quantitative Analyst for the MLIM LP fund of funds team,
responsible for risk management of the managed futures product line. He has held
various positions in MLIM LP's finance department. His additional previous work
experience includes OMR Systems Corporation (a financial investments service
company), where he was responsible for the consolidation of managed futures
risks.
(a)(2) As of September 30, 2006:
(iii) Number of Other Accounts and
(ii) Number of Other Accounts Managed Assets for Which Advisory Fee is
and Assets by Account Type Performance-Based
Other Other
(i) Name of Registered Other Pooled Registered Other Pooled
Portfolio Investment Investment Other Investment Investment Other
Manager Companies Vehicles Accounts Companies Vehicles Accounts
--------- ---------
Howard P
Berkowitz 1 21 3 0 7 3
$ 53,920,407 $1,405,691,631 $ 69,495,465 $ 0 $ 705,521,165 $ 515,364,102
Anson H. Beard 1 21 3 0 7 3
$ 53,920,407 $1,405,691,631 $ 69,495,465 $ 0 $ 705,521,165 $ 515,364,102
Christine
Jurinich 1 21 3 0 7 3
$ 53,920,407 $1,405,691,631 $ 69,495,465 $ 0 $ 705,521,165 $ 515,364,102
Edward
Rzeszowski 1 21 3 0 7 3
$ 53,920,407 $1,405,691,631 $ 69,495,465 $ 0 $ 705,521,165 $ 515,364,102
(a)(3) As of September 30, 2006:
Portfolio Manager Compensation
BlackRock's financial arrangements with its portfolio managers, its
competitive compensation and its career path emphasis at all levels
reflect the value senior management places on key resources. Compensation
may include a variety of components and may vary from year to year based
on a number of factors. The principal components of compensation include a
base salary, a discretionary bonus, participation in various benefits
programs and one or more of the incentive compensation programs
established by BlackRock such as its Long-Term Retention and Incentive
Plan and Restricted Stock Program.
Base compensation. Generally, portfolio managers receive base compensation
based on their seniority and/or their position with the firm.
Discretionary compensation. In addition to base compensation, portfolio
managers may receive discretionary compensation, which can be a
substantial portion of total compensation. Discretionary compensation can
include a discretionary cash bonus as well as one or more of the
following:
Long-Term Retention and Incentive Plan ("LTIP") --The LTIP is a long-term
incentive plan that seeks to reward certain key employees. The plan
provides for the grant of awards that are expressed as an amount of cash
that, if properly vested and subject to the attainment of certain
performance goals, will be settled in cash and/or in BlackRock, Inc.
common stock.
Deferred Compensation Program --A portion of the compensation paid to each
portfolio manager may be voluntarily deferred by the portfolio manager
into an account that tracks the performance of certain of the firm's
investment products. Each portfolio manager is permitted to allocate his
deferred amounts among various options, including to certain of the firm's
hedge funds and other unregistered products. In addition, prior to 2005, a
portion of the annual compensation of certain senior managers was
mandatorily deferred in a similar manner for a number of years. Beginning
in 2005, a portion of the annual compensation of certain senior managers
is paid in the form of BlackRock, Inc. restricted stock units which vest
ratably over a number of years.
Options and Restricted Stock Awards --While incentive stock options are
not currently being awarded to BlackRock employees, BlackRock, Inc.
previously granted stock options to key employees, including certain
portfolio managers who may still hold unexercised or unvested options.
BlackRock, Inc. also has a restricted stock award program designed to
reward certain key employees as an incentive to contribute to the
long-term success of BlackRock. These awards vest over a period of years.
Incentive Savings Plans --The PNC Financial Services Group, Inc. has
created a variety of incentive savings plans in which BlackRock employees
are eligible to participate, including an Employee Stock Purchase Plan
("ESPP") and a 401(k) plan. The 401(k) plan may involve a company match of
the employee's contribution of up to 6% of the employee's salary. The
company match is made using BlackRock, Inc. common stock. The firm's
401(k) plan offers a range of investment options, including registered
investment companies managed by the firm. Each portfolio manager is
eligible to participate in these plans.
Annual incentive compensation for each portfolio manager is a function of
several components: the performance of BlackRock, Inc., the performance of
the portfolio manager's group within BlackRock, the investment
performance, including risk-adjusted returns, of the firm's assets under
management or supervision by that portfolio manager relative to
predetermined benchmarks, and the individual's teamwork and contribution
to the overall performance of these portfolios and BlackRock. Unlike many
other firms, portfolio managers at BlackRock compete against benchmarks
rather than each other. In most cases, including for the portfolio
managers of the Fund, these benchmarks are the same as the benchmark or
benchmarks against which the performance of the Fund or other accounts are
measured. A group of BlackRock, Inc.'s officers determines the benchmarks
against which to compare the performance of funds and other accounts
managed by each portfolio manager. With respect to the Fund of Funds Team,
such benchmarks include the S&P Hedge Fund Index and HFRI Fund of Funds
Composite Index.
The group of BlackRock, Inc.'s officers then makes a subjective
determination with respect to the portfolio manager's compensation based
on the performance of the funds and other accounts managed by each
portfolio manager relative to the various benchmarks. Senior portfolio
managers who perform additional management functions within BlackRock may
receive additional compensation for serving in these other capacities.
(a)(4) Beneficial Ownership of Securities. As of September 30, 2006, none
of Messrs. Berkowitz, Beard, Rzeszowski and Ms. Jurinich
beneficially owns any stock issued by the Fund.
Item 9 - Purchases of Equity Securities by Closed-End Management Investment
Company and Affiliated Purchasers - Not Applicable
Item 10 - Submission of Matters to a Vote of Security Holders - The registrant's
Nominating Committee will consider nominees to the Board recommended
by shareholders when a vacancy becomes available. Shareholders who
wish to recommend a nominee should send nominations which include
biographical information and sets forth the qualifications of the
proposed nominee to the registrant's Secretary. There have been no
material changes to these procedures.
Item 11 - Controls and Procedures
11(a) - The registrant's certifying officers have reasonably designed such
disclosure controls and procedures to ensure material information
relating to the registrant is made known to us by others particularly
during the period in which this report is being prepared. The
registrant's certifying officers have determined that the registrant's
disclosure controls and procedures are effective based on our evaluation
of these controls and procedures as of a date within 90 days prior to
the filing date of this report.
11(b) - There were no changes in the registrant's internal control over
financial reporting (as defined in Rule 30a-3(d) under the Act (17 CFR
270.30a-3(d)) that occurred during the last fiscal half-year of the
period covered by this report that has materially affected, or is
reasonably likely to materially affect, the registrant's internal
control over financial reporting.
Item 12 - Exhibits attached hereto
12(a)(1) - Code of Ethics - Not Applicable to this semi-annual report
12(a)(2) - Certifications - Attached hereto
12(a)(3) - Not Applicable
12(b) - Certifications - Attached hereto
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, the registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
BlackRock Multi-Strategy Hedge Opportunities LLC
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Multi-Strategy Hedge Opportunities LLC
Date: November 17, 2006
Pursuant to the requirements of the Securities Exchange Act of 1934 and the
Investment Company Act of 1940, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.
By: /s/ Robert C. Doll, Jr.
-----------------------------------
Robert C. Doll, Jr.,
Chief Executive Officer of
BlackRock Multi-Strategy Hedge Opportunities LLC
Date: November 17, 2006
By: /s/ Donald C. Burke
-----------------------------------
Donald C. Burke,
Chief Financial Officer of
BlackRock Multi-Strategy Hedge Opportunities LLC
Date: November 17, 2006