Final Results

BlackRock Frontiers Investment Trust plc Investment Objective The Company's investment objective is to achieve long term capital growth from investment in companies listed or operating in Frontier Markets (defined as any country which is not in either the MSCI Emerging Markets Index or the MSCI Developed Markets Index). Summary Investment Policy The Company will seek to maximise total return by investing in the securities of companies domiciled or listed in, or exercising the predominant part of their economic activity in, Frontier Markets. Performance Record Financial Highlights Launch September (17 December Attributable to ordinary shareholders* 2011 2010) Change % Assets US $* Net assets (000's) 115,629 143,652 (19.5) Net asset value per share 122.01c 151.59c (19.5) Ordinary share price 116.84c 154.68c (24.5) (Discount)/premium to net asset value (4.2%) 2.0% MSCI Frontier Markets Index - - (15.6) MSCI Emerging Markets Index - - (19.3) MSCI World Developed Markets Index - - (10.6) Sterling £ Net assets (000's) 74,226 92,871 (20.1) Net asset value per share 78.32p 98.00p (20.1) Ordinary share price 75.00p 100.00p (25.0) (Discount)/premium to net asset value (4.2%) 2.0% MSCI Frontier Markets Index - - (16.2) MSCI Emerging Markets Index - - (19.9) MSCI World Developed Markets Index - - (11.2) All performance calculations are given on a total return basis, with net income reinvested. Period from launch (17 December 2010) to 30 September 2011 Revenue Net revenue after taxation (000's) $3,323 Revenue return per ordinary share 3.51c Total return per ordinary share (29.57c) Dividend per ordinary share 3.00c Total expense ratio including operating expenses and excluding taxation 1.3% Total expense ratio including operating expenses and taxation 1.7% *Based on an exchange rate of 1.5578 at 30 September 2011 and 1.5468 at 17 December 2010. Chairman's Statement for the period from 15 October 2010 (date of incorporation) to 30 September 2011 I am pleased to present the first annual report to shareholders of the BlackRock Frontiers Investment Trust plc for the period ended 30 September 2011. Overview This was a challenging time for investors. The Company's net asset value ("NAV") over the period from launch on 17 December 2010 to 30 September 2011 fell by 20.1%, compared with a fall of 16.2% in the MSCI Frontier Markets Index (all calculations on a sterling basis with net income reinvested). The Company's share price fell by 25%. Performance suffered from exposure to stocks which, despite having their operations based in Frontier Markets, were listed in Developed Markets and consequently were more affected by the crisis in global markets. In the meantime, the Manager is focused on careful stock selection in companies with attractive valuations and good growth prospects. Positive contributions to performance came from overweight positions in Qatar, Saudi Arabia and Croatia where markets remained resilient to the global sell off. The Company also benefited from avoiding exposure to troubled markets such as Argentina, Bangladesh and Kenya. The Company's ability to take short positions also contributed positively to performance in the period. In particular, the Company benefited from a short position in a Syrian oil exploration company (on the back of the deteriorating security situation in Syria) and an African iron ore company (following the announcement of worse than anticipated results). In a global context, Frontier Markets have outperformed both Emerging Markets and Developed Markets over the last six months, and we are confident that over time, Frontier Markets will continue to demonstrate low correlations with global markets, whilst offering exposure to the fastest growing markets and the highest yielding stocks across the emerging markets universe. Since the period end, the Company's NAV has increased by 1.0% and the share price has fallen by 3.0% (both on a sterling basis with net income reinvested). Directors The Board were pleased to welcome Mr Sarmad Zok to the Board in February 2011 and Mr John Murray in July 2011. Mr. Zok is Chairman and Chief Executive Officer of Kingdom Hotel Investments (KHI) (a Dubai based company) and a Director of Kingdom Holding Company (KHC) with responsibility for KHC's global hotel portfolio. Mr. Murray is chairman and one of the founders of Ecofin Limited, a London based investment firm which specialises in the global utilities, infrastructure, renewable energy and energy sectors and he is also a director of a number of other listed companies. Mr Murray was previously a Director of Blackrock New Energy Investment Trust plc and held senior corporate finance positions at Swiss Bank Corporation in London and at Morgan Stanley Group, Inc., in New York, London and Australia. Both Mr Zok and Mr Murray will serve as a members of the Company's Audit and Management Engagement Committee. Revenue return and dividends The Company's revenue return per share for the period amounted to 3.51 cents. The Directors are recommending a final dividend of 3.00 cents per share. The dividend is payable on 24 February 2012 to shareholders on the Company's register on 27 January 2012. Share capital At launch, on 17 December 2010, the Company issued 94,766,267 shares at £1 per share. There were no further share allotments or any share buybacks in the period. Share rating and share buy backs The Directors recognise the importance to investors of ensuring that the Company's share price is as close to its underlying NAV as possible. Accordingly, the Directors monitor the share rating closely and will consider share repurchases in the market if the discount to NAV widens significantly. In addition, before the Company's fifth annual general meeting the Board will provide Shareholders with an opportunity to realise the value of their Ordinary Shares at Net Asset Value per Share less costs. For the period since launch to 30 September 2011, the Company's shares have traded at an average premium to NAV of 1.5%, and were trading at a discount of 8.1% at the date of this report. The Directors have the authority to buy back up to 14.99% of the Company's issued share capital. This authority, which has not so far been utilised, expires on the conclusion of the 2012 AGM, when a resolution will be put to shareholders to renew it. It is pleasing to note that the Company was promoted to the FTSE All-Share index with effect from 17 June 2011 which has helped to enhance liquidity and generate demand for the Company's shares and to maintain the share price at close to NAV. Outlook Economic data continues to weaken in continental Europe, and forecasts for corporate earnings growth have been reduced but still in many cases fail to reflect the extent of the global slowdown. The ability of governments in developed markets to stimulate their economies is severely constrained. However, Frontier Markets are generally in a much better position, with stronger growth and lower levels of debt; we expect therefore the impact of the worsening global economic crisis is likely to be less than in the developed world. Frontier Markets also offer strong relative attractions. The companies in which we invest are less dependent on developed world growth, are generally faster growing and trade on lower valuations than their counterparts in the developed world. Frontier Markets also offer attractive diversification given their lower correlation to developed equity markets, which have in recent years become much more highly correlated with each other. We believe that the sector represents an attractive opportunity for investors within the broader emerging markets universe. Audley Twiston-Davies 2 December 2011 Principal risks The key risks faced by the Company are set out below. The Board regularly reviews and agrees policies for managing each risk, as summarised below: Performance risk - The Board is responsible for deciding the investment policy to fulfil the Company's objectives and for monitoring the performance of the Company's investment manager ("Investment Manager") and the strategy adopted. An inappropriate policy or strategy may lead to poor performance, dissatisfied Shareholders and a widening discount. The Company's investment policy permits the use of both exchange-traded and over-the-counter derivatives (including contracts for difference). To manage these risks the Board regularly reviews the Company's investment mandate and long term strategy, and has put in place appropriate limits over levels of gearing and the use of derivatives. Levels of portfolio exposure through derivatives, including the extent to which the portfolio is geared in this manner and the value of any short positions, are reported regularly to the Board and monitored. The Board also reviews the controls put in place by the Investment Manager to monitor and to minimise counterparty exposure, which include intra-day monitoring of exposures to ensure these are within set limits. The Investment Manager provides an explanation of significant stock selection decisions, the rationale for the composition of the investment portfolio and movements in the level of gearing. The Board monitors the maintenance of an adequate spread of investments in order to minimise the risks associated with particular countries or factors specific to particular sectors, based on the diversification requirements inherent in the Company's investment policy. Income/dividend risk - The amount of dividends and future dividend growth will depend on the Company's underlying portfolio. Any change in the tax treatment of the dividends or interest received by the Company (including as a result of withholding taxes or exchange controls imposed by jurisdictions in which the Company invests) may reduce the level of dividends received by shareholders. The Board monitors this risk through the receipt of detailed income forecasts and considers the level of income at each meeting. Regulatory risk - The Company operates as an investment trust in accordance with Chapter 4 of Part 24 of the Corporation Tax Act 2010. As such, the Company is exempt from capital gains tax on the profits realised from the sale of its investments. The Investment Manager monitors investment movements, the level and type of forecast income and expenditure and the amount of proposed dividends, if any, to ensure that the provisions of Chapter 4 of Part 24 of the Corporation Tax Act 2010 are not breached and the results are reported to the Board at each meeting. The Board and the Investment Manager also monitor changes in government policy and legislation which may have an impact on the Company. Operational risk - In common with most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager and the Company's other service providers. The security, for example, of the Company's assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements, depend on the effective operation of these systems. These have been regularly tested and monitored and an internal controls report, which includes an assessment of risks together with procedures to mitigate such risks, is prepared by the Investment Manager and reviewed by the Audit Committee at least twice a year. The Investment Manager and the custodian Bank of New York Mellon (International) Limited ("BNYM") also produce a regular SAS 70 report which is reviewed by their reporting accountants and gives assurance regarding the effective operation of controls. The Board also considers succession arrangements for key employees of the Investment Manager and the business continuity arrangements for the Company's key service providers. Market risk - Market risk arises from volatility in the prices of the Company's investments. It represents the potential loss the Company might suffer through realising investments in the face of negative market movements. Frontier and Emerging markets tend to be more volatile than the more established markets and therefore present a higher degree of risk. In addition the securities markets of Frontier Markets are not as large as the more established securities markets and have substantially less trading volume, which may result in a lack of liquidity and higher price volatility. There are a limited number of attractive investment opportunities in Frontier Markets and this may lead to delay in investment and may increase the price at which such investments may be made and reduce potential investment returns for the Company. As a consequence of this and other market factors the Company may invest in a concentrated portfolio of shares and this focus may result in higher risk when compared to a portfolio that has spread or diversified investments more broadly. Corruption also remains a significant issue across Frontier Markets and the effects of corruption could have a material adverse effect on the Company's performance. Accounting, auditing and financial reporting standards and practices and disclosure requirements applicable to many companies in developing countries are less rigorous. As a result there may be less information available publicly to investors in such securities. Such information which is available is often less reliable. The Company also gains exposure to Frontier Markets by investing indirectly through Promissory Notes ("P-Notes") which presents additional risk to the Company as the use of P-Notes is uncollateralised resulting in the Company being subject to full counterparty risk via the P-Note issuer. P-Notes also present liquidity issues as the Company, being a captive client of a P-Note issuer, may only be able to realise its investment through the P-Note issuer and this may have a negative impact on the liquidity of the P-Notes which does not correlate to the liquidity of the underlying security. The Board considers asset allocation, stock selection and levels of gearing on a regular basis and has set investment restrictions and guidelines which are monitored and reported on by the Investment Manager. The Board monitors the implementation and results of the investment process with the Investment Manager. Financial risks - The Company's investment activities expose it to a variety of financial risks which include foreign currency risk and interest rate risk. Further details are disclosed in note 16 of the annual report, together with a summary of the policies for managing these risks. Related party transactions The Investment Manager is regarded as a related party and details of the investment management fees payable are set out in note 17 of the annual report. The Board consists of five non-executive Directors, all of whom are considered to be independent by the Board. None of the Directors has a service contract with the Company. The Chairman receives an annual fee of £28,000, the Chairman of the Audit and Management Engagement Committee receives an annual fee of £ 23,000 and each other Director receives an annual fee of £20,000. Three members of the Board hold ordinary shares in the Company. Audley Twiston-Davies holds 85,000 ordinary shares, Nick Pitts-Tucker holds 75,000 ordinary shares and Lynn Ruddick holds 26,000 ordinary shares. Statement of Directors' responsibilities In accordance with Disclosure and Transparency Rule 4.1.12, the Directors also confirm to the best of their knowledge and belief that: - the financial statements, prepared in accordance with International Financial Reporting Standards as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and net return of the Company; and - the annual report includes a fair review of the development and performance of the business and the position of the Company, together with a description of the principal risks and uncertainties that it faces. For and on behalf of the Board of Directors Audley Twiston-Davies 2 December 2011 Investment Manager's Report Markets The period since launch has been a turbulent period for global equity markets, with Frontier Markets falling 17% over the calendar year to date. The first three months of the year were characterised by uprisings across the Middle East. In Tunisia, initially small demonstrations against the government escalated to sufficient scale to topple the Ben-Ali regime. This encouraged others across the region to mobilise in an attempt to remove their un-elected leaders. The outcome of these movements varied hugely by country. In those countries which lacked social cohesion and where governments had done least to tackle the concerns of the local population, such as Egypt and Tunisia, regime change was seen. However, in Saudi Arabia and Qatar, the combination of increased government spending and the perception of greater political legitimacy ensured that the political status quo was maintained. Over the last six months Frontier Markets have significantly outperformed both Emerging Markets and Developed Markets falling 12% versus Emerging Markets down 23% and Developed Markets down 16%. Globally, opportunities for diversification have declined and correlations have increased, as in 2008, with global equities, debt, oil, copper and inflation rising and falling together. Against this background Frontier Markets have continued to demonstrate a lower correlation with global markets, whilst offering exposure to the faster growing markets and the higher yielding stocks across the emerging markets universe. Qatar was the best performing market over this period, returning 3.5%. Data released by the IMF in September showed that Qatar overtook Luxembourg as the world's richest nation with GDP per capital rising to US$81k in 2010 and projected to rise to US$112k by 2016. As the world's largest exporter of liquefied natural gas, Qatar is in the enviable position of generating both a budget and current account surplus. The government is investing these reserves in diversifying the economy away from the energy sector and investing in much needed local infrastructure upgrades. Some of the weakest performers over the period were Argentina, Kenya and Bangladesh, falling 39%, 37% and 32% respectively. The Company's portfolio had no exposure to any of these markets. In Argentina, markets fell following the election success of Cristina Fernandez de Kirchner. The re-election of de Kirchner reduces the prospect of much needed economic reforms. Weakening soft commodity prices applied further pressure to the Argentinian economy. Kenya's central bank has remained behind the curve in tackling the country's high inflation level and as a result the Kenyan Shilling has depreciated 24% this year. Since the end of September, interest rates have been hiked 4%, indicating a change in policy although significant headwinds remain. Given the severe declines seen in these markets, some attractively priced stocks are beginning to appear. We anticipate that exposure to these markets will increase as we move into 2012. Performance Since inception to 30 September 2011, the Company's NAV has fallen by 20.1% on a sterling basis (19.5% on a US dollar basis), underperforming the MSCI Frontier Markets Index by 3.9% on both a sterling basis and on a US dollar basis. Year to date the NAV of the Company has fallen by 19.7% on a sterling basis (20.1% on a US dollar basis), underperforming the Frontier Markets Index by 3.0%. The BlackRock Frontier Markets Team has extensive experience investing in derivative products and has used this expertise to good effect to gain exposure to a wide range of securities and markets that would otherwise be difficult or impossible for investors to access. We have also taken short positions in the period which has enabled the Company to profit from negative as well as positive views on individual stocks. The Company may only hold up to 20% of its gross assets in derivative instruments for the purposes of gearing (although it may hold up to 100% of the portfolio in these instruments for the purposes of gaining market exposure) and may short up to a limit of 10% of gross assets. As at 30 September 2011, 28.5% of the Company's market exposure was achieved through long CFD positions, 7.4% through short CFD positions, 10.6% through investment in promissory notes and 61.1% of the Company's gross assets were directly invested in equities, giving gross exposure of 107.6% and net exposure of approximately 93%. The composition of the Company's portfolio reflects our convictions and may therefore bear little resemblance to the weighting or constituents of the MSCI Frontier Markets Index. In particular, the Index has a significant weighting towards Kuwaiti financial companies (in excess of 29% at 30 September 2011). These companies have limited long term attractiveness in our view; however they tend to be less sensitive to global market moves and consequently have been insulated from market volatility over the last few months. This contributed to the Company's underperformance of the benchmark in the last quarter of the financial year, but in our view this situation will reverse as markets recover. We will remain focused on identifying Frontier Market stocks with strong growth potential and compelling valuations regardless of the index composition. Whilst the majority of asset allocation decisions taken across the period have benefited the Company, it suffered from too great an exposure to European markets going into the second half of the year. Particularly positions in Ukraine hurt performance as markets became increasingly concerned that the government would have to allow the Hryvna to depreciate from current levels. The Company performance was hurt by positions in stocks which despite having their operations based in Frontier Markets are listed in developed markets. These stocks have a higher correlation to developments in global markets than a typical frontier stock as a result of their wider investor base. The largest stock detractor from performance was the US listed television company, Central European Media, which is the leading broadcaster across South East Europe. The stock sold off as investors reduced exposure on increasing risk aversion to Europe. We remain convinced that the stock has value at these levels as evidenced by Time Warner, the largest shareholder, having bought shares at significantly higher levels in the past. Since the end of September, the stock has bounced more than 30% from these oversold levels validating our decision to continue to hold the position. Other disappointing stocks included two financials stocks: Nova Kreditna Bank in Slovenia and Halyk Bank in Kazakhstan. Nova Kreditna appeared a good value purchase when the fund was initially launched, trading on 0.8x book value with the Slovenian economy showing signs of recovery. We accept in hindsight that we had underestimated the extent of contagion from the problems in Europe and could have entered this position at a better price given that the stock is now trading on 0.3x book value. Halyk Bank has suffered from a slower than expected recovery in the Kazakhstan banking sector as the much talked about restructuring of problem loans across the sector has failed to come to fruition. We continue to believe that this company is the best positioned within the banking sector and will take market share as the economy continues to recover. Vietnam saw a substantial negative return falling 21% as inflation rose to 23% in August and the Vietnamese Central Bank was forced to implement measures to cool the economy. Despite having taken some actions, we remain concerned that these have been insufficient and there is mounting pressure for currency depreciation. As a result we continue to run profitable short positions in this market. Stocks that contributed positively to performance included Saudi retailer, Al Othaim, which has risen by approximately 30% since the initial purchase date as it continues to roll out stores into an underpenetrated market and take share from the informal retail market. Holdings in Panamanian airline, Copa, benefited the Company as it consistently reported strong traffic figures leading to results which were above analyst expectations. The Company benefited from a number of short positions. These included a position in a Syrian oil exploration company which fell more than 50% as the security situation deteriorated in Syria driving the EU to increase sanctions. We also had a short position in an African iron ore company which announced results showing that its funding position was weaker than investors had expected. The Company remains overweight in Nigeria where we find stocks that are seeing strong earnings growth and have compelling valuations; we hold banks that are trading on forward Price/Earnings ratios of 7-8x. The portfolio is also overweight Kazakhstan where energy and materials stocks trade on a significant discount to global peers while Ukrainian companies demonstrate strong growth but still trade on 7x earnings. In Saudi Arabia, we are confident that the political status quo will be maintained and that this stability will allow the current trends of increased consumer spending and mobilisation of infrastructure projects to continue. In this context current valuations remain compelling. Outlook Recent economic data have been mixed in the US but continued to weaken in continental Europe. Meanwhile forecasts for corporate earnings growth have been reduced but still fail to reflect the extent of the global slowdown. As mentioned previously, the ability of governments in developed markets to stimulate their economies is severely constrained while those in Frontier Markets are in a much better position with stronger growth and lower levels of debt. While Frontier Markets will not be immune to any slowdown, the extent is likely to be less than in developed markets. Sovereign debt levels are lower than in developed markets while the banking sector has strong capital ratios and little or no exposure to peripheral European debt. Frontier Markets offer strong relative attractions compared to other equity markets. The companies we invest in are generally faster growing, trade on lower valuations and have higher dividend yields. Frontier Markets also offer diversification benefits given their significantly lower correlations with developed equity markets which have become highly correlated with each other. Sam Vecht BlackRock Investment Management (UK) Limited 2 December 2011 Ten Largest Investments* 30 September 2011 Qatar Electricity & Water (Qatar; Utilities; 5.3%; www.qewc.com) manages power generation and water desalination plants across Qatar. It started production in 1999 from a single plant and has grown to operate 10 plants. The company continues to expand capacity which will reach 5,249MW this year, an increase of 18% from 2010 levels. Kazmunaigas Exploration Production (Kazakhstan; Energy; 5.1%; www.kmgep.kz) is the second largest Kazakh oil producing company with a proved oil reserve of 1,707 million barrels which gives the company an estimated reserve life of 26 years. Zenith Bank (Nigeria; Financials; 4.9%; www.zenithbank.com) is Nigeria's second largest bank with 350 branches in Nigeria accounting for over 10% of the country's banking assets. Zenith offers a full range of retail and corporate banking services and has subsidiaries in Ghana, The Gambia and Sierra Leone. Hrvatski Telekomunikacise (Croatia; Telecommunications; 4.9%; www.t.ht.hr) is the leading telecommunication operator in Croatia providing voice and data services through a range of wireless, fixed and broadband technologies. Abdullah Al Othaim Markets (Saudi Arabia; Consumer Staples; 4.3%; www.othaimmarkets.com/en) Al Othaim outlets range between hypermarkets, supermarkets, wholesale outlets and corners. These outlets are located across the Kingdom. In 2011, the total branches numbered 7 Hypermarkets, 63 Supermarkets, 8 Wholesale outlets and 26 smaller stores. Commercial Bank of Qatar (Qatar; Financials; 4.2%; www.cbq.com.qa) offers a full range of corporate, retail, Islamic, and investment banking services as well as owning and operating exclusive Diners Club franchises in Qatar and Oman. The Bank's countrywide network includes 34 full service branches and 148 ATMs. Qatar Navigation (Qatar; Industrials; 4.0%; www.qatarnav.com) operates in Qatar's transport, shipping and logistics sectors. The company's key businesses include offshore oil and gas support services, port services, marine transport and industrial equipment. Qatar Navigation also owns 25% of Qatar Gas Transport, the largest LNG vessel owner in the world. MHP (Ukraine; Consumer Staples; 3.4%; www.mhp.com.ua) is Ukraine's largest poultry company accounting for more than 40% of chicken commercially reared in the country. MHP is vertically integrated, producing its own grain. Copa Holdings (Panama; Industrials; 3.4%; www.copaair.com) is a leading Latin American provider of passenger and cargo services operating from its hub in Panama City, Panama. Copa currently offers 144 daily scheduled flights to 45 destinations in 24 countries in North, Central and South America and the Caribbean. Saudi Arabian Amiantit (Saudi Arabia; Industrials; 3.3%; http://www.amiantit.com/) is the largest local manufacturer of water pipes in Saudi, servicing both municipal and industrial projects. *As a % of gross market exposure. Portfolio Analysis Country Allocation: Absolute Weights (% of Net Assets) Long positions Short positions % % Other 3.4 -5.4 Romania 1.7 Pan Africa 2 Pakistan 2 Oman 2.5 Panama 3.4 Jordan 3.5 Iraq 4 Croatia 4.9 Kuwait 6 UAE 7 -1.0 Ukraine 8.7 Kazakhstan 10.5 Saudi Arabia 10.6 Nigeria 14.3 Qatar 16.2 -1.0 Source: BlackRock. Country Allocation Relative to MSCI Frontiers Index (%) % Saudi Arabia 10.6 Nigeria 8.2 Ukraine 8.1 Kazakhstan 7.2 Qatar 6.4 Iraq 4.0 Panama 3.4 Jordan 2.6 Croatia 2.2 Romania 0.7 Oman -0.5 Slovenia -0.7 Kenya -1.8 Vietnam -2.0 Pakistan -2.3 UAE -2.4 Sri Lanka -2.5 Bangladesh -4.9 Argentina -6.2 Kuwait -23.4 Source: BlackRock. Sector Allocation: Absolute Weights (% of Net Assets) Long positions Short positions % % Healthcare 3.0 Consumer Discretionary 4.6 Utilities 5.3 Materials 7.3 -2.2 Telecom 8.0 Energy 10.6 -1.6 Consumer Staples 13.6 Industrials 20.5 -1.1 Financials 27.8 -2.5 Source: BlackRock. Sector Allocation Relative to the MSCI Frontiers Index (%) % Industrials 11.9 Consumer Staples 8.2 Materials 1.6 Utilities 3.6 Consumer Discretionary 4.1 Healthcare 1.7 Energy -1.5 Telecom -9.5 Financials -26.8 Source: BlackRock. Investments as at 30 September 2011 Market exposure Principal Fair value as a % country and market of of exposure* gross Company operation Sector $'000 assets Equity portfolio Bank Muscat Oman Financials 1,591 1.4 Central European Consumer Media Romania Discretionary 1,935 1.7 Commercial Bank of Qatar Qatar Financials 4,831 4.2 Copa Holdings Panama Industrials 3,965 3.4 DNO International Iraq Energy 2,308 2.0 Doha Bank Qatar Financials 1,221 1.1 Dragon-Ukrainian Properties Ukraine Financials 1,723 1.5 Eurasian Natural Resources Kazakhstan Materials 2,475 2.1 Firestone Diamonds Botswana Materials 1,302 1.1 Galfar Engineering & Contracts Oman Industrials 1,273 1.1 Gulf Keystone Petroleum Iraq Energy 2,256 2.0 Halyk Savings Bank Kazakhstan Financials 3,794 3.3 Hrvatski Telekomunikacije Croatia Telecommunications 5,693 4.9 Industries of Qatar Qatar Industrials 2,017 1.7 JKX Oil & Gas Ukraine Energy 1,884 1.6 Kazmunaigas Exploration Production Kazakhstan Energy 5,868 5.1 Kernel Holdings Ukraine Consumer Staples 2,489 2.2 Kuwait Foods Consumer (Americana) Kuwait Discretionary 3,366 2.9 MHP Ukraine Consumer Staples 3,984 3.4 National Mobile Telecommunications Qatar Telecommunications 3,597 3.1 Qatar Electricity & Water Qatar Utilities 6,098 5.3 Qatar Navigation Qatar Industrials 4,588 4.0 Shikun & Binui Pan Africa Industrials 2,319 2.0 ------ ---- Equity investments 70,577 61.1 Investment in BlackRock Cash Fund 8,900 7.7 Total Equity ------ ---- Investments 79,477 68.8 ------ ---- P-Notes Al Mouwasat Medical Serv Saudi P-Note 09/10/12 Arabia Industrials 3,471 3.0 Abdullah Al Othaim Mrkts P-Note 24/08 Saudi /11 Arabia Health Care 671 0.6 Abdullah Al Othaim Mrkts P-Note 13/08 Saudi /14 Arabia Health Care 4,322 3.7 Saudi Arabian Amiantit P-Note 03 Saudi /09/12 Arabia Consumer Staples 3,846 3.3 ------ ---- Total P-Notes 12,310 10.6 ------ ---- Total investments excluding CFDs 91,787 79.4 ====== ==== CFD Portfolio Market exposure Principal as a % country Market of of Fair value* exposure** gross Company operation Sector $'000 $'000 assets*** Long positions: Nova Kreditna Banka Maribor Slovenia Financials 1,920 1.7 United Arab Air Arabia Emirates Industrials 3,487 3.0 Arab Bank Jordan Financials 1,217 1.1 Arab Potash Jordan Materials 461 0.4 United Arab Technical Arab Con Emirates Industrials 2,204 1.9 Lucky Cement Pakistan Materials 1,856 1.6 MCB Bank Pakistan Financials 495 0.4 Ecobank Transnational Nigeria Financials 2,807 2.4 First Bank of Nigeria Nigeria Financials 3,769 3.3 United First Gulf Arab Bank Emirates Financials 2,407 2.1 Guiness Consumer Nigeria Nigeria Staples 2,253 1.9 Jordan Phosphate Mines Jordan Materials 2,373 2.1 SIF 2 Moldova Romania Financials 46 0.0 Unilever Consumer Nigeria Nigeria Staples 1,962 1.7 Zenith Bank Nigeria Financials 5,721 4.9 ------ ------ ---- Total long CFD positions (8,905) 32,978 28.5 ------ ------ ---- Total short CFD positions 218 (8,563) (7.4) ------ ------ ---- Total CFD portfolio (8,687) 24,415 21.1 ------ ------ ---- Credit Default Swap Bulgarian Government Debt 650 650 0.6 ------ ------- ----- Equity investments and P-Notes 91,787 91,787 79.4 ------ ------- ----- Total investments including CFDs 83,750 116,852 101.5 ------ ------- ----- Cash and cash equivalents representing the difference between cost of direct investment and cost of investing via a CFD contract (see note 10) 33,102 ------- Total 116,852 ------- Net current liabilities (1,223) (1,223) (1.1) ------ ------- ----- Total assets 115,629 115,629 100.0 ======= ======= ===== * Fair value is determined as follows: - Listed and AIM quoted investments are valued at bid prices where available, otherwise at published price quotations. The sum of the fair value column for the CFD contracts totalling negative $8,687,000 represents the fair valuation of all the CFD contracts, which is determined based on the difference between the purchase price and the value of the underlying shares in the contract (in effect the unrealised gains/ (losses) on the exposed positions). The cost of purchasing the securities held through long CFD positions directly in the market would have amounted to $41,883,000 at the time of purchase, and subsequent market falls in prices have resulted in unrealised losses on the CFD contracts of $8,905,000, resulting in the value of the total market exposure to the underlying securities falling to $32,978,000 as at 30 September 2011. The cost of acquiring the securities to which exposure was gained via the short CFD positions would have been $8,781,000 at the time of entering into the contract, and subsequent price falls have resulted in unrealised profits on the short CFD positions of $218,000 and the value of the market exposure of these investments decreasing to $8,563,000 at 30 September 2011. If the short positions had been closed on 30 September 2011 this would have resulted in a profit of $218,000 for the Company. - The Credit Default Swap is valued based on daily broker prices. - P-Notes are valued based on the quoted bid price of the underlying equity security to which they relate. ** Market exposure in the case of equity and P-Note investments is the same as Fair Value. In the case of CFDs it is the market value of the underlying shares to which the portfolio is exposed via the contract. *** % based on the total market exposure. Statement of Comprehensive Income for the period from 15 October 2010 (date of incorporation) to 30 September 2011 Revenue Capital Total 2011 2011 2011 Notes US$'000 US$'000 US$'000 Losses on investments held at fair value through profit or loss - (20,122) (20,122) Losses on foreign exchange - (267) (267) Net profits/(losses) from contracts for difference 3 2,791 (10,381) (7,590) Profit on credit default swap - 128 128 Income from investments held at fair value through profit or loss 3 2,066 - 2,066 Other Income 3 9 - 9 ----- ------ ------- Total revenue 4,866 (30,642) (25,776) ----- ------ ------- Expenses Investment management and performance fees 4 (231) (924) (1,155) Other expenses 5 (505) (19) (524) ----- ------ ------- Total operating expenses (736) (943) (1,679) ----- ------ ------- Net profit/(loss) on ordinary activities before taxation 4,130 (31,585) (27,455) Taxation (807) 239 (568) ----- ------ ------- Net profit/(loss) on ordinary activities after taxation 3,323 (31,346) (28,023) ----- ------ ------- Earnings per ordinary share (cents) 7 3.51 (33.08) (29.57) ===== ===== ===== The total column of this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union. The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies ("AIC"). All items in the above statement derive from continuing operations. No operations were acquired or discontinued during the period. All income is attributable to the equity holders of BlackRock Frontiers Investment Trust plc. There were no minority interests. The net return of the Company for the period was a negative US$28,023,000. The Company does not have any other recognised gains or losses. The net profit/ (loss) for the period disclosed above represents the Company's comprehensive income. Statement of Changes in Equity for the period from 15 October 2010 (date of incorporation) to 30 September 2011 Ordinary Share Share premium Special Capital Revenue capital account reserve reserve reserve Total Note US$'000 US$'000 US$'000 US$'000 US$'000 US$'000 Opening balance - - - - - - Total Comprehensive Income: Net (loss)/ profit for the period - - - (31,346) 3,323 (28,023) Transaction with owners, recorded directly to equity: Shares issued 948 145,636 - - - 146,584 Share issue costs - (2,932) - - - (2,932) Cancellation of share premium account - (142,704) 142,704 - - - --- ------- ------- ------ ----- ------- At 30 September 2011 948 - 142,704 (31,346) 3,323 115,629 === ======= ======= ====== ===== ======= Statement of Financial Position as at 30 September 2011 30 September 2011 Notes US$'000 Non current assets Investments designated as held at fair value through profit or loss 91,787 ------- Current assets Other receivables 887 Derivative financial assets held at fair value through profit or loss 1,770 Cash held on margin deposit with brokers 11,846 Cash and cash equivalents 23,331 ------- 37,834 ------- Current liabilities Other payables (4,166) Derivative financial liabilities held at fair value through profit or loss (9,807) ------- (13,973) ------- Net current assets 23,861 ------- Total assets less current liabilities 115,648 Creditors: amounts falling due after more than one year Preference shares of £1.00 each (one quarter paid) (19) ------- Net assets 115,629 ======= Capital and reserves Ordinary share capital 8 948 Share premium account 9 - Special reserve 9 142,704 Capital reserves 9 (31,346) Revenue reserve 9 3,323 ------- Total equity 115,629 ======= Net asset value per share (cents) 7 122.01 ======= Cash Flow Statement for the period from 15 October 2010 (date of incorporation) to 30 September 2011 30 September 2011 US$'000 Operating activities Loss before taxation (27,455) Losses on investments and CFDs held at fair value through profit or loss (including transaction costs) 29,974 Net movement on foreign exchange 267 Sale of investments held at fair value through profit or loss 69,433 Purchases of investments held at fair value through profit or loss (181,342) Realised losses on closure of CFD contracts (4,570) Gains on realisation of CFDs 3,277 Cost of Credit Default Swap (522) Increase in other receivables (366) Increase in other payables 1,701 Increase in amounts due from brokers (521) Increase in amounts due to brokers 355 Taxation on investment income (85) ------- Net cash outflow from operating activities before financial activities (109,854) ------- Financing activities Proceeds from the issue of preference shares 19 Proceeds from issue of ordinary shares 146,584 Share issue costs paid (1,316) ------- Net cash inflow from financing activities 145,287 ------- Increase in cash and cash equivalents 35,433 Effect of foreign exchange rate changes (256) ------- Change in cash and cash equivalents 35,177 Cash and cash equivalents at start of period - ------- Cash and cash equivalents at end of period 35,177 ------- Comprised of: Cash at bank and money market deposits 35,177 ------- 35,177 ------- Notes to the Financial Statements 1. Principal activity The principal activity of the Company is that of an investment trust company within the meaning of section 1158 of the Corporation Tax Act 2010. The Company was incorporated on 15 October 2010, and this is the first annual report. The Company shares were listed on the London Stock Exchange on 17 December 2010. 2. Accounting policies The principal accounting policies adopted by the Company are set out below. (a) Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the European Union and as applied in accordance with the provisions of the Companies Act 2006. All of the Company's operations are of a continuing nature. The Company's financial statements are presented in US Dollars, which is the currency of the primary economic environment in which the Company operates. All values are rounded to the nearest thousand dollars (US$'000) except where otherwise indicated. Insofar as the Statement of Recommended Practice ("SORP") for investment trust companies and venture capital trusts issued by the AIC, revised in January 2009, is compatible with IFRS, the financial statements have been prepared in accordance with the guidance set out in the SORP. A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2013 and have not been applied in preparing these financial statements. None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the company. However, IFRS 9 "Financial Instruments" issued in November 2009 will change the classification of financial assets, but is not expected to have an impact on the measurement basis of the financial assets since the majority of the Company's financial assets are measured at fair value through profit or loss. IFRS 9 (2009) deals with classification and measurement of financial assets and its requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets. The standard contains two primary measurement categories for financial assets: at amortised cost and fair value. A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset's contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding. All other financial assets would be measured at fair value. The standard eliminates the existing IAS 39 categories of "held to maturity", "available for sale" and "loans" and "receivables". The standard is effective for annual periods beginning on or after 1 January 2013 but is not yet approved by the EU. Earlier application is permitted. The company does not plan to early adopt this standard. (b) Presentation of the Statement of Comprehensive Income In order to reflect better the activities of an investment trust company and in accordance with guidance issued by the AIC, supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and a capital nature has been presented alongside the Statement of Comprehensive Income. In accordance with the Company's status as a UK investment company under section 833 of the Companies Act 2006 and section 1158 of the Corporation Tax Act 2010, net capital returns may not be distributed by way of dividend. (c) Segmental reporting The Directors are of the opinion that the Company is engaged in a single segment of business being investment business. (d) Income Dividends receivable on equity shares are recognised as revenue for the period on an ex-dividend basis. Where no ex-dividend date is available dividends receivable on or before the period end are treated as revenue for the period. Provision is made for any dividends not expected to be received. Special dividends, if any, are treated as a capital or a revenue receipt depending on the facts or circumstances of each particular case. The return on a debt security is recognised on a time apportionment basis so as to reflect the effective yield on the debt security. Interest income and expenses are accounted for on an accruals basis. (e) Expenses All expenses, including finance costs, are accounted for on an accruals basis. Expenses have been charged wholly to the revenue column of the Statement of Comprehensive Income, except as follows: - expenses which are incidental to the acquisition of an investment are included within the cost of the investment. Details of transaction costs on the purchases and sales of investments are disclosed within note 9 of the annual report; - expenses are treated as capital where a connnection with the maintenance or enhancement of the value of the investments can be demonstrated; - the investment management fees and finance costs of borrowing borne by the Company have been allocated 80% to the capital column and 20% to the revenue column of the Statement of Comprehensive Income in line with the Board's expectations of the long term split of returns, in the form of capital gains and income, respectively, from the investment portfolio; - performance fees, if any, are allocated 100% to the capital column of the Statement of Comprehensive Income as fees are generated in connection with enhancing the value of the investment portfolio. (f) Taxation Deferred taxation is recognised in respect of all temporary differences that have originated but not reversed at the financial reporting date, where transactions or events that result in an obligation to pay more tax in the future or right to pay less tax in the future have occurred at the financial reporting date. This is subject to deferred tax assets only being recognised if it is considered more likely than not that there will be suitable profits from which the future reversal of the temporary differences can be deducted. Deferred tax assets and liabilities are measured at the rates applicable to the legal jurisdictions in which they arise. (g) Investments held at fair value through profit or loss The Company's investments are classified as held at fair value through profit or loss in accordance with IAS 39 - Financial Instruments: Recognition and Measurement and are managed and evaluated on a fair value basis in accordance with its investment strategy. All investments are initially recognised as held at fair value through profit or loss. Purchases of investments are recognised on a trade date basis. The sale of investments are recognised at the trade date of the disposal. Proceeds are measured at fair value, which is regarded as the proceeds of sale less any transaction costs. The fair value of the financial investments is based on their quoted bid price, or as otherwise stated at the financial reporting date, without deduction for the estimated selling costs. This policy applies to all current and non current asset investments held by the Company. The fair value of the Promissory Note is based on the quoted bid price of the underlying equity to which it relates. Changes in the value of investments held at fair value through profit or loss and gains and losses on disposal are recognised in the Statement of Comprehensive Income as "Gains or losses on investments held at fair value through profit or loss". Also included within the heading are transaction costs in relation to the purchase or sale of investments. Fair values for unquoted investments, or investments for which the market is inactive, are established by using various valuation techniques. These may include recent arm's length market transactions or the current fair value of another instrument which is substantially the same. Where no reliable fair value can be estimated for such instruments, they are carried at cost subject to any provision for impairment. The Company held no unquoted investments at 30 September 2011. (h) Derivatives Derivatives are held at fair value based on the bid prices of the underlying securities the Company is exposed to through the CFD contracts. Credit Default Swaps are valued based on broker prices quotes received daily. Gains and losses on derivative transactions are recognised in the Statement of Comprehensive Income. They are recognised as capital and are shown in the capital column of the Statement of Comprehensive Income if they are of a capital nature and are recognised as revenue and shown in the revenue column of the Statement of Comprehensive Income if they are of a revenue nature. To the extent that any gains or losses are of a mixed revenue and capital nature, they are apportioned between revenue and capital accordingly. (i) Other receivables and other payables Other receivables and other payables do not carry any interest and are short term in nature and are accordingly stated at their nominal value. (j) Dividends payable Under IFRS interim dividends are recognised when paid to shareholders. Final dividends, if any, are only recognised after they have been approved by shareholders. (k) Foreign currency translation Transactions involving foreign currencies are converted at the rate ruling at the date of the transaction. Foreign currency monetary assets and liabilities are translated into US Dollars at the rate ruling on the financial reporting date. Foreign exchange differences arising on translation are recognised in the Statement of Comprehensive Income as a revenue or capital item depending on the income or expense to which they relate. (l) Cash and cash equivalents Cash comprises cash in hand and on demand deposits. Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash and that are subject to an insignificant risk of changes in value. (m) Bank borrowings Bank overdrafts are recorded as the proceeds received. Finance charges are accounted for on an accruals basis in the Statement of Comprehensive Income using the effective interest rate method and are added to the carrying amount of the instruments to the extent that they are not settled in the period in which they arise. 3. Income 2011 US$'000 Investment Income: UK listed dividends 106 Overseas listed dividends 1,960 Income from contracts for difference 2,791 ----- 4,857 Interest receivable and other income: Deposit interest 9 ----- Total income 4,866 ===== 4. Investment management and performance fees 2011 Revenue Capital Total US$'000 US$'000 US$'000 Investment management fee 231 924 1,155 Performance fees - - - --- --- ----- Total 231 924 1,155 === === ===== An investment management fee equivalent to 1.10% per annum of the Company's gross assets is payable to the Manager. In addition, the Manager is also entitled to receive a performance fee at a rate of 10% of any increase in the NAV at the end of a performance period over and above what would have been achieved had the cumulative NAV since launch increased in line with the MSCI Frontiers Markets Index ("the Reference Index"). The performance fee payable in any year is capped at an amount equal to 2.5% or 1% of the gross assets if there is any increase or decrease in the NAV per share at the end of the relevant performance period respectively. Any capped excess outperformance for a period may be carried forward to the next two performance periods, subject to the then applicable annual cap. For the period from launch to 30 September 2011, the Company's NAV had underperformed the MSCI Frontiers Markets Index by 3.9% and there is no performance fee payable. 5. Operating expenses 2011 US$'000 Custody fee 76 Auditors' remuneration: - audit services 40 - other non-audit services 9 Registrar's fee 22 Directors' emoluments 107 Other administration costs 251 --- 505 === The Company's total expense ratio, calculated as a percentage of average net assets and using expenses, excluding interest costs and taxation was 1.3%. After including expenses and taxation this amounted to 1.7%. Non audit services of £6,000 relate to the review of the interim financial statements. In addition, a fee of £95,000 (net of VAT) was paid to Ernst & Young LLP for services provided in relation to the launch of the Company. This has been included within share issue costs of US$2,932,000 debited to the share premium account within the Statement of Changes in Equity. Further information is given in the Corporate Governance & Directors' Responsibilities Report on page 26 of the annual report. Expenses of US$19,000 charged to the capital column of the Statement of Comprehensive Income relate to US$6,000 of transaction costs and US$13,000 of CDS interest charges. 6. Dividends Under IFRS, final dividends are not recognised until they are approved by shareholders, and special and interim dividends are not recognised until they are paid. They are also debited directly to revenue reserves. No dividends were paid during the period to 30 September 2011 so no amounts were recognised. The total dividends payable in respect of the period ended 30 September 2011 which form the basis of section 1158 of the Corporation Tax Act 2010 and section 833 of the Companies Act 2006, and the amounts proposed, meet the relevant requirements as set out in this legislation. 2011 US$'000 Dividends on equity shares: ----- Proposed final ordinary dividend of 3.0 cents 2,843 ===== 7. Earnings and net asset value per ordinary share 2011 (audited) Net revenue profit attributable to ordinary shareholders (US$'000) 3,323 Net capital loss attributable to ordinary shareholders (US$'000) (31,346) ---------- Total loss attributable to ordinary shareholders (US$'000) (28,023) ---------- Total equity attributable to shareholders (US$'000) 115,629 ---------- The weighted average number of ordinary shares in issue during the period, on which the earnings per ordinary share was calculated, was: 94,766,267 ---------- The actual number of ordinary shares in issue at the end of the period, on which the net asset value was calculated, was: 94,766,267 ---------- Revenue earnings per share - (cents) 3.51 Capital loss per share - (cents) (33.08) ---------- Total loss per share - (cents) (29.57) ---------- Net asset value per share basic and diluted - (cents) 122.01 ---------- Share price* - (cents) 116.84 ========== Net asset value per share basic and diluted - (pence) 78.32 ---------- Share price (pence) 75.00 ========== * The Company's share price is quoted in Sterling and the above represents the US Dollar equivalent. Basic and diluted earnings per share and net asset value per share are the same as the Company does not have any dilutive securities outstanding. 8. Share capital Total number Total number Nominal of shares of shares value in issue in issue US$'000 Allotted, called up and fully paid share capital comprised: Ordinary shares of 1 cent each: Allotted, issued and fully paid: Opening balance - - - Shares issued 94,766,267 94,766,267 948 ---------- ---------- ---------- At 17 December 2010 and 30 September 2011 94,766,267 94,766,267 948 ========== ========== ========== On 17 December 2010 the Company issued 94,766,267 ordinary shares at 100p. The total consideration after deduction of issue costs was £92,871,000 (US$143,652,000) based on a conversion rate of 1.5468 at 17 December 2010. 9. Reserves Capital Capital reserve reserve arising on Share arising on revaluation of premium Special investments investments Revenue account reserve sold held reserve US$'000 US$'000 US$'000 US$'000 US$'000 Opening balance - - - - - Movement during the period: Total Comprehensive Income: Gain on realisation of investments - - 61 - - Changes in investment holdings losses - - - (20,183) - Losses on foreign currency transactions - - (267) - - Losses on contracts for differences - - (1,694) (8,687) - Unrealised gain on credit default swaps - - - 128 - Finance costs and investment management fee charged to capital after taxation - - (704) - - Revenue return for the period - - - - 3,323 Transactions with owners, recorded directly to equity: Shares issued 145,636 - - - - Share issue costs (2,932) - - - - Cancellation of share premium account (142,704) 142,704 - - - ------- ------- ----- ------ ----- At 30 September 2011 - 142,704 (2,604) (28,742) 3,323 ======= ======= ===== ====== ===== The Company cancelled its share premium account on 17 June 2011. 10. Publication of non statutory accounts The financial information contained in this announcement does not constitute statutory accounts as defined in the Companies Act 2006. The 2011 annual report and financial statements will be filed with the Registrar of Companies shortly. The report of the Auditor for the period ended 30 September 2011 contains no qualification or statement under section 498(2) or (3) of the Companies Act 2006. This announcement was approved by the Board of Directors on 2 December 2011. 11. Annual Report Copies of the annual report will be sent to members shortly and will be available from the registered office, c/o The Company Secretary, BlackRock Frontiers Investment Trust plc, 12 Throgmorton Avenue, London EC2N 2DL. 12. Annual General Meeting The Annual General Meeting of the Company will be held at 12 Throgmorton Avenue, London EC2N 2DL on Tuesday, 21 February 2012 at 12 noon. ENDS The Annual Report will also be available on the BlackRock Investment Management website at http://www.blackrock.co.uk/content/groups/uksite/documents/ literature. Neither the contents of the Investment Manager's website nor the contents of any website accessible from hyperlinks on the Investment Manager's website (or any other website) is incorporated into, or forms part of, this announcement. For further information, please contact: Jonathan Ruck Keene, Managing Director, Investment Companies, BlackRock Investment Management (UK) Limited Tel: 020 7743 2178 Audley Twiston-Davies - Chairman Tel: 01434 632292 Emma Phillips, Media & Communication, BlackRock Investment Management (UK) Limited Tel: 020 7743 2922 2 December 2011 12 Throgmorton Avenue London EC2N 2DL

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