TIDMABR
RNS Number : 9581I
Absolute Return Trust Limited
10 July 2013
YEARLY REPORT
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the year ended 31st March 2013. The
Report will shortly be available from the Company's website
www.absolute-funds.com.
SUMMARY INFORMATION
Structure
Absolute Return Trust Limited (the "Company") was incorporated
in Guernsey on 21st January 2005 as a closed-ended investment
company. The Company's Redeemable Participating Preference Shares
were listed on the London Stock Exchange on 23rd February 2005 when
it commenced business.
Since incorporation up to 31st March 2013 the Company has raised
the following capital:
Sterling Euro
Shares Shares
GBP EUR
Capital raised at launch
of the Company 66,000,000 -
Capital raised since launch of the Company
to 31st March 2013 198,511,731 20,912,654
Total capital raised by the Company to 31st
March 2013 264,511,731 20,912,654
On 7th September 2012, an orderly wind-down was approved by the
Shareholders at an Extraordinary General Meeting ("EGM"). As a
result, the Company has made the following capital returns:
Number of Amount Number of Amount
Sterling NAV per Share
Shares GBP Euro Shares EUR Date
Date
21st December
2012 (73.8 31st October
per cent.*) 113,045,363 148,056,179 6,944,230 6,590,344 2012
24th May 2013
(16.0 per cent.*) 24,566,484 32,979,099 1,509,089 1,463,193 31st March 2013
* With reference to the 31st October 2012 NAV.
Shares in issue
31st March 2013 9th July 2013
Number of Shares Number of Shares
- Sterling Redeemable Participating
Preference Shares 40,174,321 15,607,837
- Euro Redeemable Participating
Preference Shares 2,467,858 958,769
Investment Objective and Policy
The Company's investment objective is to realise all remaining
assets in the portfolio with a view to returning invested capital
to Shareholders in an orderly manner.
Manager and Investment Advisor
The Manager of the Company is Jubilee Asset Management Limited
(the "Manager"), formerly Fauchier Partners Management Limited, and
the Investment Advisor is Permal Investment Management Services
Limited (from the 1st July 2013) (the "Investment Advisor")
formerly Jubilee Advisers LLP (formerly Fauchier Partners LLP). On
13th March 2013, Fauchier Partners was acquired by Legg Mason and
merged with Permal Group, its global asset management firm.
Immediately thereafter, Fauchier Partner's investment team formed
the Jubilee Portfolio Management Group.
Financial Highlights
31.3.2013 31.3.2013 31.3.2012 31.3.2012
Sterling Euro Sterling Euro
Shares Shares Shares Shares
Total Net Assets GBP53,929,839 EUR2,392,821 GBP204,581,863 EUR9,038,283
Net Asset Value per Share 134.2p 97.0c 132.4p 96.4c
Increase/Decrease in Net
Asset Value 1.4% 0.6% (3.4%) (4.3%)
Mid-Market Share Price 115.5p 85.0c 109.0p 83.0c
Discount to Net Asset Value (13.8%) (12.4%) (17.6%) (13.9%)
Ongoing Charges
In accordance with the recommended methodology set out by the
AIC above, the Ongoing Charges ratio of the Company for the year
ended 31st March 2013 was 1.37 per cent. (31st March 2012: 1.34 per
cent. including the performance fee payable to the Manager and 1.34
per cent. excluding this performance fee). No performance fees were
charged by the Manager during the year ended 31st March 2013, and
the Manager has agreed that such performance fees will not be
charged after the NAV date immediately following the EGM.
CHAIRMAN'S STATEMENT
Introduction
During the course of the year to 31st March 2013, the Board
resolved, after extensive shareholder consultation, not to seek
continuation of the Company, and a proposal to put the Company into
an orderly wind-down was approved by Shareholders at the
Extraordinary General Meeting held on 7th September 2012. At the
time of writing, approximately 90 per cent. of the NAV of the
Company as at 31st October 2012 has been returned to Shareholders,
reflecting the liquidity of the Company's portfolio prior to the
decision to commence the wind-down process.
Results
Over the twelve months to 31st March 2013, the NAV of the
Company's Sterling shares rose from 132.4p per Share at 31st March
2012 to 134.2p per Share at 31st March 2013, representing an
increase of 1.4 per cent. The NAV of the Company's Euro Shares rose
from 96.4c per Share to 97.0c per Share, representing an increase
of 0.6 per cent. The growth in the NAV of the Company's Sterling
Share Class since its inception in March 2005 has been 3.9 per
cent. per annum, and the volatility of the Company's NAV has been
5.2 per cent. per annum over the same period.
Winding down process
The Company made a first distribution of capital to Shareholders
on 21st December 2012, amounting to 73.8 per cent. of the 31st
October 2012 NAV. A second distribution was made on 24th May 2013,
which was equivalent to approximately 16.0 per cent. of the 31st
October 2012 NAV, and approximately 90 per cent. of the NAV of the
Company as at 31st October 2012 has therefore now been returned to
Shareholders.
Further distributions will be made in the course of this year as
redemption proceeds are received from underlying funds.
Currency hedging
Since its inception, the Company has hedged its currency
exposure against the US Dollar for both the Sterling and Euro share
classes, and it continued to do so until 8th May 2013. Subsequent
to that date, it was no longer possible to maintain a currency
hedge and the Company's portfolio is no longer hedged against
currency movements.
Liquidity
At 31st March 2013, the Company's portfolio held significant
liquidity in preparation for the second distribution. Following
this distribution, approximately 22% of the remaining portfolio is
represented by restricted holdings, including side-pockets, and the
liquidity of these assets is uncertain. The Board will review the
most appropriate course of action with regard to these assets over
the coming months.
Board and Manager Review
Following the decision to wind down the Company's portfolio, the
Board did not undertake a formal review of the Manager, but it did
receive regular presentations from the Manager over the year, which
included evidence that the Manager remained appropriately resourced
to execute its duties. The Board also noted the Manager's change of
ownership and subsequent change of name in the course of the year,
and is satisfied that the new ownership arrangements have been
positive from the Company's perspective.
The Board also reviewed its own composition and performance.
This review concluded that the Board is operating effectively, and
that its members have an appropriate range of skills and
experience.
Andrew Sykes
Chairman
9th July 2013
INVESTMENT ADVISOR'S REPORT
Performance
For the year to 31st March 2013 the Company produced a return in
Sterling of 1.4 per cent. net of fees (0.6 per cent. in Euro).
Since the Company first invested in a portfolio of hedge funds on
1st March 2005, it has achieved an average annual compound return
of 3.9 per cent. for its Sterling Share Class. Over the same period
the Company's Sterling Share Class annualised volatility has been
some 5.2 per cent. and its "beta", namely the extent to which its
returns are driven by a particular market or index, to the FTSE All
Share Index has been approximately 0.23 and to the Citigroup UK
Gilt Index, -0.20, both of which are low.
The table below gives details of the Company's Sterling Share
Class monthly Net Asset Value performance since 1st March 2005 (the
launch date):
Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2013 1.60% 0.57% 0.63% 2.83%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2012 1.16% 0.80% 0.36% -0.06% -1.55% -0.74% 0.21% 0.32% 0.57% 0.20% -0.14% -0.18% 0.93%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2011 0.02% 0.61% -0.11% 0.33% -0.58% -0.80% -0.49% -1.98% -1.67% 1.06% -0.71% -0.95% -5.18%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2010 -0.14% 0.36% 1.56% 0.71% -2.34% -1.65% 0.55% -0.11% 1.21% 1.09% 0.43% 1.40% 3.05%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2009 1.71% -0.83% 0.67% 1.85% 3.73% 0.01% 2.30% 1.57% 1.79% 0.37% 0.61% 0.04% 14.63%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2008 -0.77% 1.83% -2.38% 1.20% 2.13% 1.53% -1.67% -1.01% -5.50% -6.37% -0.80% -1.68% -13.04%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2007 1.11% 1.98% 0.83% 1.32% 1.86% 1.06% 2.28% -0.27% 1.54% 3.46% 0.52% 1.15% 18.14%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2006 2.08% -0.10% 1.34% 1.53% -0.87% -0.54% 0.26% 0.27% 0.00% 1.09% 1.39% 0.82% 7.46%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
2005 - - -0.04% -1.25% 0.32% 1.62% 1.65% 0.97% 1.96% -1.31% 1.11% 1.21% 6.34%
------ ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ ------ -------
The Portfolio
At the Extraordinary General Meeting held on 7th September 2012,
Shareholders approved the special resolutions put forward to amend
the Company's investment objective to a managed wind-down strategy.
As a result the portfolio is in the advanced stages of liquidation.
The first distribution of capital (c. 73.8 per cent.) occurred on
21st December 2012 with reference to the 31st October NAV, followed
by a second distribution (c. 61.2 per cent.) on 24th May 2013 with
reference to the 31st March 2013 NAV. Since the September EGM
therefore, approximately 90.2 per cent. of the NAV of the Company
as at 31st October 2012 has been returned to Shareholders.
As at 31st March 2013 the Company had holdings in 12* Hedge
Funds across six different strategies.
* Refers to holdings greater than 10 basis points of assets
under management.
Market Review>
At the start of the fiscal year Eurozone concerns continued to
dominate sentiment and were compounded by weak economic data from
the US and China. Markets nose-dived around the time of the Greek
elections in May, but staged something of a comeback largely thanks
to the actions of central bankers on both sides of the Atlantic. In
the United States, Chairman Bernanke sent a clear message that the
Fed would "provide additional policy accommodation as needed" in
order to bolster the economy; while in Europe, ECB President Draghi
promised to do "whatever it takes" to protect the Eurozone.
> Source: Bloomberg
In the second half of the year, risk assets rallied despite
periods of tension created by the US election and the brinkmanship
over the looming fiscal cliff. The Eurozone crisis rumbled on,
although the fallout from Italy's inconclusive election and Cyprus'
banking crisis was largely localized. Central bank stimuli
continued to underwrite markets, notably in Japan where the newly
elected Abe government promised significantly looser monetary
policy to reflate the economy. The momentum in markets continued
towards year end as encouraging housing and employment data in the
US raised conviction in the recovery.
During the year, global equities rallied with the MSCI World
index rising 12.5 per cent. Japanese stocks performed best with the
Nikkei 225 soaring 23 per cent. compared to the S&P 500 which
rose 11.4 per cent. European markets were more subdued but
nonetheless up, with the Eurostoxx 50 gaining 5.9 per cent. By
contrast the slowdown in China's GDP growth weighed on the Shanghai
Composite which declined 1.2 per cent.
Central banks continued to drive sovereign yields lower. The
benchmark 10-year US Treasury yield declined 35 to 185 basis
points, while the Japanese and German equivalents decreased towards
record lows of 55 and 129 basis points respectively. In credit
markets, high-yield bonds generally outperformed investment grade
securities, with the Citigroup High Yield Bond Index rising 12.6
per cent. compared to the Global Investment Grade Index which
gained only 3.6 per cent.
The US dollar appreciated against most major currencies, notably
gaining 14.3 per cent. against the Japanese Yen, but was generally
weaker against emerging market currencies.
Hedge Fund Strategies
The managed wind-down of the portfolio in accordance with the
revised investment objectives is now well under way. As a result of
serving redemption notices on all the underlying funds, the
majority of the hedge fund investments were redeemed during the
year to 31st March 2013.
Pre 1st Capital Return 1st April 2012 - 31st October 2012
Macro managers were down in aggregate. Some maintained a
predominantly bearish stance on Europe and were caught by the
reversal in sentiment in June. For one, short equity positions were
the main detractors when Spanish, Italian and French bourses
rallied sharply while another manager lost money largely due to
bearish euro currency positions. On the positive side, another
manager made money having successfully adopted a more pro-risk
stance. Currency positions performed well but the greatest
contribution came from interest rate trading in Europe and Latin
America, with long positions in Spanish bonds generating the
most.
The Equity Long Biased managers lost money. One manager's long
book was particularly hard hit in the sell-off period as
economically sensitive sectors such as Chemicals and Energy
declined more than the general market. Some respite came from long
airline positions which gained slightly, as well as short
positions, notably oil and gas names and commodity hedges. For
another manager, idiosyncratic losses such as from a US inland
barge operating business, which was adversely effected by the
drought that had made parts of the Mississippi river un-navigable,
dampened overall performance.
The Equity Hedged strategy also made a loss with managers'
returns displaying a wide degree of dispersion. A turnaround
specialist saw several positions outperform, including a speciality
pharmaceutical company and a cable TV business on the long side, as
well as one of his largest short positions, in a rapidly expanding
US fast food chain, which plummeted around 25 per cent. By
contrast, a Technology specialist was on the wrong side of a
software sector sell-off when disappointing earnings announcements
by two industry bellwethers prompted a bout of indiscriminate
selling. The biggest detractor was a value orientated manager whose
losses stemmed primarily from Financials and Industrials names.
Short Bias managers profited from the weak equity markets at the
start of the period and showed encouraging signs of alpha
generation in the subsequent rally to end up for the period
overall. Chinese and European Financials and Real Estate related
stocks made some of the greatest contributions.
The Event Driven strategy was down slightly. Most of the
managers eked out modest gains but one of the activist managers
ended down as gains in a North American railroad company were
offset by losses in a major US retailer. Other managers made money,
with certain distressed situations working well as significant
steps towards settlement were made during the period.
The Specialist Credit strategy made gains as managers benefitted
from the generally buoyant credit markets as well as from
idiosyncratic sources. One manager for example made money in the
securities of a private equity/asset management business that
rallied sharply as investors started to appreciate the consistent
performance of its underlying portfolio. Distressed Latin American
sovereign debt also performed well, as did the bonds and bank debt
of a liquidating US Financials firm.
The volatile market conditions made tough going for our
remaining Volatility Trading manager who generated some losses from
less liquid positions that are in the process of being worked
out.
Multiple Strategy managers made broad-based gains across equity,
credit and convertibles. For an Asian-focussed manager equities
produced the greatest contribution principally from Technology
names, while convertible arbitrage also proved profitable. Another
Asian manager made money primarily in credit strategies with the
greatest contributions coming from distressed debt and bridge
financing positions. A European manager benefitted from his
decision to rotate the holdings in his corporate credit book
towards certain Financials names. His structured credit positions
also performed well, helped by the general market upturn and
further boosted by certain senior RMBS and consumer ABS which were
paid down at higher-than-expected rates.
The Macro managers made small gains largely due to currency
trading. Short Japanese yen and long Chinese Renminbi positions in
particular performed well. A fixed income orientated manager also
made money from long bond positions, notably in European
sovereigns.
There was no remaining exposure to the Equity Long Bias strategy
as both managers were redeemed as at 30th September.
Post 1st Capital Return 1st November 2012 - 31st March 2013
Europe proved fertile ground for the single remaining Equity
Hedged manager, a regional specialist, as lower volatility and less
focus on peripheral sovereign debt concerns presented significant
alpha-generating opportunities. This manager substantially
outperformed despite maintaining a low net exposure, with the
Financials, Consumer Cyclicals and Technology sectors proving to be
the most productive areas.
The Specialist Credit strategy generated modest gains largely
from liquidation and distressed situations, notably a position in a
liquidating subprime mortgage business which received a
distribution from an IRS tax refund.
The Event Driven strategy performed well. One manager made money
in a position in a US regional financial institution which he had
established after the company's share price had declined heavily in
the wake of a regulator-imposed moratorium on dividend payments
earlier in the year. In December the company announced that the
regulatory conditions had been met and the share price responded
swiftly at the prospect of management once again being free to
manage the company's capital structure. In addition Telecom and
Technology-related merger arbitrage positions, as well as special
situation equities in the Energy and Real Estate sectors also
contributed well.
The Multiple Strategy managers made broad-based gains with all
but one manager making a positive contribution. An Asian manager
contributed the lion's share of the gains with Japanese and Chinese
equities performing best, notably Telecoms and Financials, such as
Chinese insurance companies and Japanese exchanges, working well.
Positions in certain distressed Japanese technology component
manufacturers also made money. A European manager made more modest
gains, essentially from structured credit and certain long/short
equity positions.
Portfolio Liquidity*
The table below shows the expected liquidity profile of the
portfolio and cash as at 31st March 2013.
Expected time to cash flow (as at 31st
March 2013) Proportion
Within 3 months 66.9%
3 to 6 months 12.5%
6 to 12 months 9.9%
Greater than 12 months 10.7%
Total 100.0%
-----------
*The Directors of the Company believe that it is more meaningful
to measure the liquidity of the portfolio's underlying funds on a
cash-settled basis rather than a value-date basis. The tables
therefore assumes that (i) redemption notice had been given to all
underlying funds as at the date shown; (ii) a one-month period
elapses before settlement of redemption terms is made by the
underlying funds; (iii) any "audit holdbacks" permitted by an
underlying fund's redemption terms are imposed in full; (iv) any
applicable "soft lock-up" fees of 5 per cent. or under would be
paid by the Company; (v) where there is currently no firm
indication from the underlying manager on the expected timing of
the receipt of redemption proceeds, the relevant amount is included
in the "greater than 12 months" category. Cash and short-term
receivables are included in the "0-3 months" category.
The Directors believe that the table is therefore conservative
because, in practice, settlement periods tend to be shorter and
audit holdbacks are not always imposed. However, it should still be
emphasised both that the information in the table is based on
estimates and also that it may not be an indication of the Company
portfolio's future liquidity.
The expected liquidity profile of the remaining assets after the
second capital return on 24th May 2013 is shown in the table
below.
Expected time to cash flow (as at 31st
March 2013) Proportion
Within 3 months 43.7%
3 to 6 months 20.1%
6 to 12 months 14.5%
Greater than 12 months 21.7%
Total 100.0%
-----------
Permal Investment Management Services Limited
9th July 2013
BOARD MEMBERS
Directors of the Company
The Directors of the Company, all of whom are non-executive, are
listed below.
Andrew Sykes (Chairman), age 55, was a director of Schroders plc
from 1998 to 2004, having joined Schroders in 1978. He was
responsible for Schroders' private banking and alternative
investments businesses, including hedge funds, property, private
equity and structured products. Mr Sykes is Chairman of SVG Capital
plc and Schroder Real Estate Investment Trust Limited and a
non-executive director of Record plc, Smith & Williamson
Holdings Limited, and JPMorgan Asian Investment Trust plc. Mr Sykes
was appointed to the Board on 21st January 2005.
Nicholas Fry,age 66, was a director of S.G. Warburg & Co.
from 1983 to 1995 and of SBC Warburg (now part of UBS AG) from 1995
to 1996, having joined S.G. Warburg & Co. in 1976. Mr Fry was
responsible for a broad range of public takeover, merger and
acquisition, capital markets and general financial advisory work,
mainly for large listed companies in the UK and overseas. He was a
partner of KPMG from 1998 to 2002 and Vice Chairman of KPMG
Corporate Finance until March 2005. He is a Chairman of Blackrock
Smaller Companies Trust Plc and of Pembroke Heritage Fund Limited
and a non-executive director of Pochin's PLC. He is a Chartered
Accountant. Mr Fry was appointed to the Board on 21st January
2005.
Robert King, age 50, is a non-executive director for a variety
of investment funds and companies. He was a director of Cannon
Asset Management Limited and their associated companies, from
October 2007 to February 2011 responsible for company secretarial
and fund services. Prior to this he was a director of Northern
Trust International Fund Administration Services (Guernsey) Limited
(formerly Guernsey International Fund Managers Limited) where he
worked from September 1990 to January 2007. He has been in the
offshore finance industry since 1986 specialising in administration
and structuring of offshore open and closed ended investment funds.
Mr King is a Guernsey resident and was appointed to the Board on
21st January 2005.
Nicholas Moss, age 53, Nicholas Moss is a founding member and
executive director of the Virtus Trust Group, a Guernsey and US
based international fiduciary, corporate services and investment
consulting business established in 2005. He has extensive
experience in the structuring and administering of complex onshore
and offshore structures for corporates and ultra-high net worth
families as well as having been specifically involved in the
selection of investment managers and funds for his clients and
their subsequent evaluation and ongoing monitoring. Previously he
spent 16 years at Rothschild where latterly he was a managing
director within that group's trust division. He holds a number of
non-executive Board appointments including the London listed BACIT
Limited, BH Global Limited and Carador Income Fund PLC. He is a
member of the Institute of Chartered Accountants in England and
Wales and a resident of Guernsey. Mr Moss was appointed to the
Board on 23rd February 2006.
Graham Harrison, age 48, is a founder member and managing
director of Asset Risk Consultants Limited, a Channel Island based
investment consulting services company set up in 1995. Prior to
returning to Guernsey, he worked in London for HSBC in their
corporate finance division between 1987 to 1993, where he
specialised in corporate finance and financial engineering. He is a
non-executive director of a number of listed and unlisted
investment vehicles including the London listed BH Global Limited,
F&C UK Real Estate Investments Limited and Real Estate Credit
Investments Limited. He is Chartered Fellow of the Chartered
Institute for Securities and Investment and a resident of Guernsey.
Mr Harrison was appointed to the Board on 1st January 2012.
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON
RECOGNISED STOCK EXCHANGES
The following summarises the Directors' directorships in other
listed companies:
Company Name Stock Exchange
Andrew Sykes
JP Morgan Asian Investment
Trust plc London
Record plc London
Schroder Real Estate Investment London and Channel
Trust Limited Islands
SVG Capital plc London
Nicholas Fry
Blackrock Smaller Companies
Trust Plc London
Pembroke Heritage Fund Limited Channel Islands
Pochin's PLC London
Robert King
Clarion 1 IC Limited Ireland
Clarion 5 IC Limited Ireland
Golden Prospect Precious Metals
Limited London
Jubilee Absolute Return Fund
PCC Limited Ireland
Jubilee Absolute Return Master
Fund Limited Ireland
Pembroke Heritage Fund Limited Channel Islands
Praetorian Resources
Limited London
Renaissance Russia Infrastructure
Equities Ltd London
Sienna Investment Company
2 Limited Channel Islands
Sienna Investment Company
3 Limited Channel Islands
Sienna Investment Company
4 Limited Channel Islands
Sienna Investment Company
Limited Channel Islands
F&C Alternative Strategies
Limited Channel Islands
F&C Warrior Fund
Limited Channel Islands
F&C Warrior II Fund
Limited Channel Islands
F&C Property Growth & Income
Fund Limited Channel Islands
F&C Directional Opportunities
Fund Limited Ireland
F&C Longstone Fund
Limited Ireland
Nicholas Moss
London, Bermuda
BH Global Limited and Dubai
Carador Income Fund
Plc London
BACIT Limited London
Graham Harrison
London, Bermuda
BH Global Limited and Dubai
F&C UK Real Estate Investments London and Channel
Limited Islands
Real Estate Credit Investments
Limited London
DIRECTORS' REPORT
The Directors present their Annual Report and Audited Financial
Statements for the year ended 31st March 2013 which have been
properly prepared in accordance with The Companies (Guernsey) Law,
2008.
Business Review
Principal activity
Absolute Return Trust Limited (the "Company") is a Guernsey
authorised closed-ended investment company with a premium listing
on the London Stock Exchange (the "LSE"). Trading in the Company's
Redeemable Participating Preference Shares commenced on 23rd
February 2005.
The Company operates a Share Conversion Scheme which allows
Shareholders of any one class of Shares to convert all or part of
their holdings into any other class of Share. Following the
Company's placement into orderly wind-down share conversion
opportunities have been suspended.
The table below shows the shares converted at the request of
existing Shareholders during the year, the Net Asset Value per
share date used for the conversion and the date the shares were
listed on the LSE.
Number
Number of of
Sterling NAV per share Date listed on
Date Shares Euro Shares date LSE
1st April
2012 (23,777) 39,159 31st March 2012 8th May 2012
1st July
2012 (23,550) 40,091 30th June 2012 13th August 2012
1st October 30th September
2012 23,109 (40,016) 2012 1st November 2012
The Company operated a Share Buyback Programme whereby it could
purchase, subject to various terms as set out in its Articles and
in accordance with The Companies (Guernsey) Law, 2008, up to 14.99
per cent. of its existing Share Capital following the admission of
the Shares to trading on the LSE's market for listed
securities.
During the year to 31st March 2013, the Company repurchased
1,306,000 Sterling Shares under the Share buyback Programme
representing 0.86 per cent. of the issued Share Capital. No Euro
Shares were repurchased during the year.
On 7th September 2012, an orderly wind-down was approved by the
Shareholders at the Extraordinary General Meeting ("EGM"). As a
result, the Company has made the following capital returns:
Number Number
of Amount of Amount
Sterling NAV per Share
Shares GBP Euro Shares EUR Date
Date
21st December
2012 (73.8 per 31st October
cent.*) 113,045,363 148,056,179 6,944,230 6,590,344 2012
24th May 2013
(16.0 per cent.*) 24,566,484 32,979,099 1,509,089 1,463,193 31st March 2013
* With reference to the 31st October 2012 NAV.
Investment Objective and Policy
Following the approval of the Company's orderly wind-down, the
investment objective and policy has significantly changed and is
now geared towards realising all remaining assets in the portfolio
with a view to returning invested capital to Shareholders in an
orderly manner.
Discount/Premium to Net Asset Value
The Board monitors the level of the share price discount/premium
to NAV and has a number of discount control mechanisms at its
disposal. After extensive consultation with the Shareholders the
Board proposed the Company's orderly wind-down, which was approved
by the Shareholders and the EGM held on 7th September 2012.
Shareholder Information
The Company announces its unaudited Net Asset Value on a monthly
basis and estimated Net Asset Values are also provided by the
Manager weekly. A monthly report on investment performance is
published on the Company's website www.absolute-funds.com.
Principal Risks and Uncertainties
With the assistance of the Administrator and the Manager the
Board has drawn up a risk matrix, which identifies the key risks to
the Company. These fall into the following broad categories:
-- Investment Risks: The Company is exposed to the risk that its
investments may be realised with significant liquidity discounts.
The Board reviews reports from the Manager at each quarterly Board
meeting, paying particular attention to the liquidity of the
portfolio which may affect the Company's capital return to
shareholders.
-- Operational Risks: The Company is exposed to the risks
arising from any failure of systems and controls in the operations
of the Manager or the Administrator. The Board receives reports
annually from the Manager and Administrator on their internal
controls and reviews pricing reports covering the valuations of
underlying investments at each quarterly Board meeting.
-- Accounting, Legal and Regulatory Risks: The Company is
exposed to risk if it fails to comply with the regulations of the
UK Listing Authority or if it fails to maintain accurate accounting
records. The Administrator provides the Board with regular reports
on changes in regulations and accounting requirements.
-- Financial Risks: The financial risks, including market,
credit and liquidity risk faced by the Company are set out in Note
22. These risks and the controls in place to mitigate them are
reviewed at each quarterly Board meeting.
Going Concern
The discount control provisions established when the Company was
launched require a continuation vote to be proposed to Shareholders
at the Company's Annual General Meeting when the Company's discount
has exceeded 5.0 per cent. at each month end during the year to
31st March, and such vote requires not less than 50 per cent. of
the total voting rights cast on the resolution to be in favour in
order for the company to continue in its current format. If the
resolution is not passed, the Directors are required to formulate
proposals to be put to Shareholders within six months of such
resolution being defeated for the winding up or other
reorganisation or reconstruction of the Company. After extensive
shareholder consultation, the Board resolved not to seek
continuation of the Company and proposed to Shareholders that the
Company enter into an orderly wind-down. This proposal was approved
at the EGM held on 7th September 2012.
The Financial Statements have been prepared on a non going
concern basis reflecting the resolution approved by the
Shareholders to wind-down the Company. Accordingly, the going
concern basis of accounting is no longer considered appropriate.
All assets and liabilities are carried at the expected net
realisable values. The Board recognises that the liquidity of the
restricted holdings is uncertain. The Board will review the most
appropriate course of action with regard to these assets over the
coming months. A provision for winding up costs has been included
in these Financial Statements as set out in Note 10.
Results
The results for the year are set out in the Statement of
Comprehensive Income. The Directors do not propose an income
distribution for the year (31st March 2012: nil).
Manager and Investment Advisor
The Manager is entitled to a management fee of 1.0 per cent. per
annum calculated monthly on the gross assets of the Company. In
addition, the Manager will also be entitled to a performance fee if
the Net Asset Value per Share for each Share Class at the end of a
performance period (31st March each year) exceeds certain
conditions as set out in Note 7.
Following the approval of the Company's orderly wind-down,
notice of termination of the Management Agreement was given at the
EGM held on 7th September 2012. The Manager has also agreed that
performance fees will not be charged after the NAV date immediately
following the EGM.
Directors
The Directors of the Company during the year and at the date of
this Report are set out on the Management and Administration
summary.
Directors' and Other Interests
As at 31st March 2013, Directors of the Company held the
following numbers of Redeemable Participating Preference Shares
beneficially:
Directors Shares Shares
31.3.2013 31.3.2012
Andrew Sykes 45,830 174,790
Nicholas Fry 49,818 190,000
Robert King 10,003 38,150
Nicholas Moss Nil Nil
Graham Harrison 2,622 10,000
Robin Rumboll (Retired 26th September
2012) N/A 200,000
Corporate Governance
The Company is a member of The Association of Investment
Companies ("AIC") and reports against the Principles and
recommendations set out in the AIC Code of Corporate Governance
("AIC Code").
Currently, the UK Listing Authority requires all overseas
companies with a "Premium listing" (which includes the Company) to
"comply or explain" against the UK Corporate Governance Code.
The Board of the Company has considered the principles and
recommendations of the AIC by reference to the AIC Corporate
Governance Guide for Investment Companies ("AIC Guide"). The AIC
Code, as explained by the AIC Guide, addresses all the principles
set out in the UK Corporate Governance Code, as well as setting out
additional principles and recommendations on issues that are of
specific relevance to the Company.
The Board considers that reporting against the principles and
recommendations of the AIC Code, and by reference to the AIC Guide
(which incorporates the UK Corporate Governance Code), will provide
better information to Shareholders.
The Company has complied with the recommendations of the AIC
Code and the relevant provisions of the UK Corporate Governance
Code, except for the following:
The UK Corporate Governance Code includes provisions relating
to:
-- the role of the chief executive
-- executive directors' remuneration
-- the need for an internal audit function
For the reasons set out in the AIC Guide, and as explained in
the UK Corporate Governance Code, the Board considers these
provisions are not relevant to the position of the Company, being
an externally managed investment company. The Company has therefore
not reported further in respect of these provisions.
Details of compliance are noted in the succeeding pages. There
have been no instances of non-compliance, other than those noted
above.
On 30th September 2011 the Guernsey Financial Services
Commission ("GFSC") issued a new Code of Corporate Governance (the
"GFSC Code") which came into effect on 1st January 2012. The GFSC
Code replaces the existing GFSC Guidance on Corporate Governance in
the Finance Sector ("GFSC Guide"). The GFSC Code provides a
framework that applies to all entities licensed by the GFSC or
which are registered or authorised as a collective investment
scheme. Companies reporting against the UK Corporate Governance
Code or the AIC Code are deemed to comply with the GFSC Code.
The UK Financial Reporting Council issued a revised Corporate
Governance Code in September 2012, for reporting periods beginning
on or after 1st October 2012. In February 2013, the AIC updated the
AIC Code of Corporate Governance (including the Jersey and Guernsey
editions) and its Guide to Corporate Governance to reflect the
relevant changes to the FRC document. The updates published by the
AIC are consistent with the Corporate Governance Code issued by the
UK Financial Reporting Council. The Directors confirm compliance
with the AIC Code prior to the February 2013 update that will be
applicable for the accounting year ending 31st March 2014 without
exception.
Composition and Independence of the Board
The Board currently consists of five non-executive Directors,
all of whom are independent of the Manager with the exception of
Robert King. Under the AIC Code, Robert King is not considered to
be independent by reason of his appointment as Director of other
companies with the same Manager. However the Board takes the view
that he is independent in judgement and character. The Chairman of
the Board is Andrew Sykes. In considering the independence of the
Chairman, the Board has taken note of the provisions of the AIC
Code relating to independence and has determined that Mr Sykes is
an Independent Director. The Board has designated Nicholas Fry as
the Senior Independent Director.
The Company has no employees and therefore there is no
requirement for a chief executive.
The Board is responsible for the appointment and monitoring of
all service providers to the Company. Between formal meetings there
is regular contact with the Manager and the Investment Advisor.
The Directors are kept fully informed of investment and
financial controls and other matters that are relevant to the
business of the Company and should be brought to the attention of
the Directors. The Directors also have access to the Secretary and,
where necessary in the furtherance of their duties, to independent
professional advice at the expense of the Company.
The Board holds quarterly Board meetings and the Audit Committee
meets at least twice a year. In addition, there were a number of ad
hoc meetings of the Board to review specific items between the
regular scheduled quarterly meetings.
Attendance at the Board and Audit Committee meetings during the
year was as follows:
Number of
Meetings Andrew Nicholas Robert Nicholas Robin Graham
held Sykes Fry King Moss Rumboll * Harrison
Board Meetings 5 4 4 5 5 3 4
Audit Committee
Meetings 3 3 3 3 3 1 3
*Retired 26th September 2012.
At the Board meetings the Directors review the management of the
Company's assets and all other significant matters so as to ensure
that the Directors maintain overall control and supervision of the
Company's affairs. During the year there were also six ad-hoc
meetings held.
The Board has a breadth of experience relevant to the Company
and the Directors believe that any changes to the Board's
composition can be managed without undue disruption. With any new
director appointment to the Board consideration will be given as to
whether an induction process is appropriate.
Board Performance
The Company conducts a review of the effectiveness of the Board
using an independent advisor. The review made in the previous year
concluded that the members of the Board complemented each other and
functioned effectively as a Board.
Retirement by Rotation
In accordance with Article 75 of the Company's Articles of
Association, at each Annual General Meeting one-third of the
Directors shall retire from office via rotation and it is also the
Board's policy that directors offer themselves for re-election
after no more than three years in office. Those Directors who are
deemed not to be independent under the terms of the AIC Code offer
themselves for re-election on an annual basis. Accordingly on 26th
September 2012 at the 7th Annual General Meeting of the Company,
Nicholas Moss and Robert King retired as a Director of the Company
and being eligible had offered themselves for re-election and each
was re-elected as a Director of the Company by the Shareholders.
Robin Rumboll permanently retired as a director of the Company.
The Board believes that long serving Directors should not be
prevented from forming part of an independent majority of the Board
and propose that upon reaching nine years of service the Board will
document continuing independence discussions in relation to such
Directors as part of the annual Board self-evaluation and will
disclose its conclusions in future Directors' Reports.
Management Committee
The Board has not deemed it necessary to appoint a management
committee as a result of being comprised wholly of non-executive
Directors. The Board is responsible for the review of the terms of
the Investment Management Agreement between the Company and the
Manager, and to ensure that the terms are competitive, fair and
reasonable for the Shareholders. This includes the review of
performance of the Investment Manager relative to the agreed
benchmark, performance of key service providers, the level of
effectiveness of any marketing support provided and any other
topics referred to it by the Board.
The Board has reviewed the performance and capabilities of the
Manager and is satisfied that the continued appointment of Jubilee
Asset Management Limited and Permal Investment Management Services
Limited as Manager and Investment Advisor respectively, is in the
interest of Shareholders.
Audit Committee
An audit committee has been established consisting of all
Directors with Nicholas Fry appointed as Chairman. The terms of
reference of the audit committee provide that the committee shall
be responsible, amongst other things, for reviewing the Interim and
Annual Financial Statements, considering the appointment and
independence of external auditors, discussing with the external
auditors the scope of the audit and reviewing the Company's
compliance with the AIC Code. The Board is satisfied that the audit
committee contains members with sufficient recent and relevant
financial reporting experience. Other expenses disclosed in the
Statement of Comprehensive Income includes fees for annual audit
services amounting to GBP16,073 and interim review fees (audit
related services) amounting to GBP7,244. There were no other
non-audit fees incurred during the year.
Nomination Committee
The Board has not deemed it necessary to appoint a nomination
committee as a result of being comprised wholly of non-executive
Directors. The Board as a whole fulfils the function of a
nomination committee. Any proposal for a new Director will be
discussed and approved by the Board.
Remuneration Committee
As all the Directors are non-executive, the Board has resolved
that it is not appropriate to form a remuneration committee and
remuneration is reviewed and discussed by the Board as a whole with
independent advice. Directors' remuneration is considered on an
annual basis.
Directors' and Officers' liability insurance cover is maintained
by the Company on behalf of the Directors.
Internal Controls
The Board is ultimately responsible for the Company's system of
internal control and for reviewing its effectiveness. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the Company.
This process has been in place for the period under review and up
to the date of approval of this Annual Report and Audited Financial
Statements and is reviewed by the Board and accords with The AIC
Code. The AIC Code requires Directors to conduct at least annually
a review of the Company's system of internal control, covering all
controls, including financial, operational, compliance and risk
management.
The Board has reviewed the effectiveness of the systems of
internal control. In particular, it has reviewed and updated the
process for identifying and evaluating the significant risks
affecting the Company and the policies by which these risks are
managed. The Board also considers whether the appointment of an
internal auditor is required and has determined that there is no
requirement for a direct internal audit function. The internal
control systems are designed to meet the Company's particular needs
and the risks to which it is exposed. Accordingly, the internal
control systems are designed to manage rather than eliminate the
risk of failure to achieve business objectives and by their nature
can only provide reasonable and not absolute assurance against
misstatement and loss.
Significant Shareholdings
Shareholders with holdings of more than 3.0 per cent. of the
Sterling and Euro Redeemable Participating Preference Shares of the
Company at 8th July 2013 were as follows:
Percentage of
Number of Issued
Sterling Sterling Share
Shares Capital
BNP Paribas Arbitrage Snc - a/c #
2890000 4,069,319 26.07
The Bank Of New York (Nominees) Limited 3,156,914 20.23
The Bank Of New York (Nominees) Limited
- a/c # 141498 1,478,124 9.47
Nortrust Nominees Limited -
GSYA 936,533 6.00
Lynchwood Nominees Limited - a/c #
2006420 689,903 4.42
Percentage of
Number of Issued
Euro Shares Euro Share Capital
Securities Services Nominees Limited
- a/c # 2060000 794,189 82.83
J.P. Morgan Securities Limited - JPCREPON 55,809 5.82
The Bank Of New York (Nominees) Limited
- BIL 48,724 5.08
The Bank Of New York (Nominees) Limited
- a/c # 055404 33,223 3.47
Those invested directly or indirectly in 3.0 per cent. or more
of the issued share capital of the Company will not have different
voting rights from other holders of Shares.
In addition to the above, the Company has received formal
notifications from underlying beneficial owners regarding their
ownership in the Company's shares. For further information on these
notifications, refer to RNS announcements released by the Company
to the London Stock Exchange at www.londonstockexchange.com.
Relations with Shareholders
The Investment Advisor maintains a regular dialogue with
institutional Shareholders, the feedback from which is reported to
the Board and the Chairman has also met with a number of major
Shareholders in the course of the year. In addition, Board members
will be available to respond to Shareholders' questions at the
Annual General Meeting.
Alternative Investment Fund Managers Directive
On 1st July 2011, the European Commission published the
Alternative Investment Fund Managers Directive (the "AIFM
Directive"), designed to regulate managers of private equity, hedge
and other funds. The AIFM Directive may have significant
consequences for the Company and may materially increase
compliance, regulatory, operational and administrative costs of the
Company and its investments. The deadline for transposition into
the national law of each EU member state of the AIFM Directive is
22nd July 2013. The AIFM Directive may materially affect the
Company as it is established in Guernsey (which is not part of the
EU) and the full implications of the AIFM Directive will only
become clearer once such legislation is adopted, and the Company
will continue to monitor its progress and likely implications.
Foreign Account Tax Compliance Act
The Foreign Account Tax Compliance Act ("FATCA") became
effective on 1st January 2013. The legislation is aimed at
determining the ownership of US assets in foreign accounts and
improving US tax compliance with respect to those assets. However,
the States of Guernsey has recently announced that it has decided
to enter into an intergovernmental agreement ("IGA") with US
Treasury in order to facilitate the requirements under FATCA and is
currently in negotiations with regards to how this is to be
implemented and as a result, the impact this will have on the
Company remains unknown. The Board is in the process of ensuring
the Company complies with FATCA's requirements.
Andrew Sykes Nicholas Fry
9th July 2013 9th July 2013
STATEMENT OF DIRECTORS' RESPONSIBILITY IN RESPECT OF THE ANNUAL
AUDITED FINANCIAL STATEMENTS
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Directors'
Report and the Financial Statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare Financial
Statements for each financial year. Under that law they have
elected to prepare the Financial Statements in conformity with
International Financial Reporting Standards ("IFRS") as adopted by
the EU and applicable law.
The Financial Statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that period.
In preparing these Financial Statements the Directors are
required to:
- select suitable accounting policies and then apply them
consistently;
- make judgements and estimates that are reasonable and
prudent;
- state whether applicable accounting standards have been
followed subject to any material departures disclosed and explained
in the Financial Statements; and
- prepare the Financial Statements on a going concern basis
unless it is inappropriate to presume that the Company will
continue in business. As explained in note 1, the Directors do not
believe that it is appropriate to prepare these financial
statements on a going concern basis.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the Financial Statements comply with The Companies (Guernsey) Law,
2008. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Directors' Responsibility Statement
We confirm to the best of our knowledge that:
- these Financial Statements have been prepared in conformity
with IFRS and give a true and fair view of the assets, liabilities
and loss of the Company; and
- these Financial Statements include information detailed in the
Chairman's Statement, the Directors' Report, the Investment
Advisor's Report and the notes to the Financial Statements, which
provides a fair view of the information required by:
(a) DTR 4.1.8 of the Disclosure and Transparency Rules, being a
fair review of the Company business and a description of the
principal risks and uncertainties facing the Company; and
(b) DTR 4.1.11 of the Disclosure and Transparency Rules, being
an indication of important events that have occurred since the end
of the financial year and the likely future development of the
Company.
Disclosure of Information to the Auditor
So far as each of the Directors is aware, there is no relevant
audit information of which the Company's Auditor is unaware, and
each has taken all the steps he ought to have taken as a Director
to make himself aware of any relevant information and to establish
that the Company's Auditor is aware of that information.
Signed on behalf of the Board by:
Andrew Sykes Nicholas Fry
9th July 2013 9th July 2013
DIRECTORS' REMUNERATION REPORT
Introduction
An ordinary resolution for the approval of the annual
remuneration report will be put to the Shareholders at the annual
general meeting to be held in 2013.
Remuneration Policy
All Directors are non-executive and a Remuneration Committee has
not been established. The Board as a whole considers matters
relating to the Directors' remuneration with independent
advice.
The Articles of Association provide that unless otherwise
determined by ordinary resolution, the number of the Directors
shall not be less than two and the aggregate remuneration of all
Directors in any twelve month period or pro rata for any lesser
period shall not exceed GBP150,000 or such higher amount as may be
approved by ordinary resolution. Subject to this overall limit, it
is the Board's policy to determine the level of Directors' fees
having regard to the fees payable to non-executive directors in the
industry generally, the role that individual Directors fulfil in
respect of Board and Committee responsibilities and time committed
to the Company's affairs.
The Directors shall also be entitled to be repaid all reasonable
out of pocket expenses properly incurred by them in or with a view
to the performance of their duties or in attending meetings of the
Board or of committees or general meetings.
The Board shall have the power at any time to appoint any person
to be a Director, either to fill a casual vacancy or as an addition
to the existing Directors, but so that the total number of
Directors may not at any time exceed the number fixed pursuant to
the Articles of Association. Any Director so appointed shall hold
office only until the next following annual general meeting and
shall then be eligible for re-election.
Remuneration
Each Director was paid a fee of GBP24,250 (31st March 2012:
GBP24,250) per annum, except for the Chairman who was paid
GBP35,000 (31st March 2012: GBP35,000) and the Audit Committee
Chairman who was paid GBP29,500 (31st March 2012: GBP29,500).
For the years ended 31st March 2013 and 31st March 2012, the
Directors' fees were as follows:
2013 2012
GBP GBP
Andrew Sykes (Chairman) 35,000 33,500
Nicholas Fry (Audit Committee
Chairman) 29,500 28,250
Nicholas Moss 24,250 23,125
Robert King 24,250 23,125
Graham Harrison (Appointed
1st January 2012) 24,250 6,063
Robin Rumboll (Retired 26th
September 2012) 12,125 23,125
Signed on behalf of the Board by:
Andrew Sykes Nicholas Fry
9th July 2013 9th July 2013
INVESTMENT POLICY
As at 31st March 2013
Following the approval of the Company's orderly wind-down at the
EGM held on 7th September 2012, the investment objective and policy
was revised as set out below:
-- The Company will be managed with the intention of realising
all remaining assets in the portfolio with a view to returning
invested capital to the Shareholders in an orderly manner.
-- Any cash retained by the Company as part of the realisation
process, but prior to its distribution to Shareholders, will be
held by the Company as cash on deposit and/or as cash
equivalents.
-- The Company will not undertake new borrowing.
PORTFOLIO STATEMENT
As at 31st March 2013
% of Total % of Total
No. of
shares Fair Value of Value of
Company as Company
Description held on Value at as at
31.3.2013 GBP 31.3.2013 31.3.2012
Hedge Funds
Brevan Howard Fund Ltd 7,693.01 1,590,127 2.84
Claren Road Credit Fund
Ltd 3.00 274,702 0.49
Dabroes Offshore Investment
Fund Ltd 7,140.21 5,127,213 9.16
Drawbridge Global Alpha
V Fund Ltd 123.79 179,724 0.32
Drawbridge Global Macro
Fund Ltd 237.53 119,426 0.21
Empyrean Capital Partners
LP 5,360.41 3,590,841 6.42
Farallon Capital Management
LLC 1.00 731,009 1.31
Harbinger Capital Partners
Offshore Fund I, Ltd 6,387.80 1,419,425 2.54
Myriad Opportunities Offshore
Fund Ltd 12,040.90 9,029,844 16.13
OZ Europe Overseas II Fund,
Ltd 1.00 492,810 0.88
OZ Overseas Fund II, Ltd 1.00 20,799 0.04
Riva Ridge Offshore Fund,
Ltd 2,658.75 1,861,904 3.33
Shepherd Investments International,
Ltd 1,911.94 983,452 1.76
Vicis Capital Fund (International) 14,743.93 1,253,509 2.24
Total investments 26,674,785 47.67 104.22
Other net current assets/(liabilities) 29,278,573 52.33 (4.22)
Total value of Company
(attributable to
Redeemable Participating
Preference Shares) 55,953,358 100.00 100.00
INDEPENDENT AUDITOR'S REPORT
To the Members of Absolute Return Trust Limited
We have audited the Financial Statements of Absolute Return
Trust Limited (the "Company") for the year ended 31st March 2013
which comprise the Statement of Comprehensive Income, Statement of
Changes in Equity, Statement of Financial Position, Statement of
Cash Flows and the related notes. The financial reporting framework
that has been applied in their preparation is applicable law and
International Financial Reporting Standards as adopted by the
European Union. As described in Note 1, the Financial Statements
have been prepared on a non going concern basis.
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the Company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the Company and the Company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities, the directors are responsible for the preparation
of the Financial Statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the Financial Statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
(APB's) Ethical Standards for Auditors.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give
reasonable assurance that the Financial Statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Board of Directors;
and the overall presentation of the Financial Statements. In
addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with the
audited Financial Statements. If we become aware of any apparent
material misstatements or inconsistencies we consider the
implications for our report.
Opinion on Financial Statements
In our opinion the Financial Statements:
-- give a true and fair view of the state of the Company's
affairs as at 31st March 2013 and of its loss for the year then
ended;
-- are in accordance with International Financial Reporting
Standards as adopted by the European Union; and
-- comply with the Companies (Guernsey) Law, 2008.
Matters on which we are required to report by exception
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 requires us to report to
you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the Financial Statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the UK Corporate Governance
Code specified for our review. We have nothing to report with
respect to our review.
Steven D Stormonth
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
9th July 2013
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31st March 2013
1.4.2012 1.4.2011
to to
31.3.2013 31.3.2012
Notes Revenue Capital Total Total
GBP GBP GBP GBP
Investment Income
Bank interest income 12,193 - 12,193 16
Other income - - - 11,042
Total investment
income 12,193 - 12,193 11,058
Net gains/(losses)
on financial assets
at fair value through
1,
profit or loss 4 - 1,641,567 1,641,567 (8,804,486)
Losses on foreign 1,
exchange 5 - (529,660) (529,660) (2,131,969)
Total income/(loss) 12,193 1,111,907 1,124,100 (10,925,397)
Expenses
Management fee 6 (1,565,933) - (1,565,933) (2,562,376)
Performance fee 7 - - - (8,777)
Interest expense (15,461) - (15,461) (31,801)
Other expenses 10 (883,261) - (883,261) (1,174,270)
Total expenses (2,464,655) - (2,464,655) (3,777,224)
(Loss)/gain for
the year(#) (2,452,462) 1,111,907 (1,340,555) (14,702,621)
(Loss)/gain for
the year attributable
to:
Sterling Share Class GBP(2,350,214) GBP1,051,169 GBP(1,299,045) GBP(13,546,426)
Euro Share Class EUR(104,262) EUR52,734 EUR(51,528) EUR(790,172)
Earnings per Participating
Redeemable Preference
Share - basic and
diluted*;
Sterling Share Class (2.42p) 1.08p (1.34p) (7.30p)
Euro Share Class (1.75c) 0.84c (0.91c) (7.61c)
* Earnings per Participating Redeemable Preference Share are
based on the weighted average number of Redeemable Participating
Preference Shares. The weighted average number of Redeemable
Participating Preference Shares for the year for the Sterling Share
Class and the Euro Share Class respectively were 97,197,166 and
5,978,487 (31st March 2012: 185,628,547 and 10,390,317).
The 'Total' column of this statement represents the Company's
Statement of Comprehensive Income, prepared in accordance with
IFRS. The supplementary 'Revenue' and 'Capital' columns are both
prepared under guidance published by the Association of Investment
Companies.
(#) All of the Company's income and expenses are included in the
"Gain/(loss) for the year" and therefore the loss for the year is
also the Company's total comprehensive income for the year, as
defined by IAS 1 (revised).
All items in the above statement derive from continuing
operations.
STATEMENT OF CHANGES IN EQUITY
For the year ended 31st March 2013
Share Realised Unrealised Other
Capital Capital Capital Revenue Distributable
Account Reserve Reserve Reserve Reserve Total
GBP GBP GBP GBP GBP GBP
Balance brought forward
at 31st March 2012 - 22,246,886 24,688,955 (20,549,729) 185,729,018 212,115,130
Total comprehensive
income for
the year - 26,903,461 (25,791,554) (2,452,462) - (1,340,555)
Transactions with Shareholders;
Cancellation of Shares - - - - (1,399,374) (1,399,374)
Redemption of Shares - - - - (153,421,843) (153,421,843)
Balance carried forward
at
at 31st March 2013 - 49,150,347 (1,102,599) (23,002,191) 30,907,801 55,953,358
Net Assets attributable to holders of Redeemable Participating
Preference Shares at the end of the year. 55,953,358
For the year ended 31st March
2012
Share Realised Unrealised Other
Capital Capital Capital Revenue Distributable
Account Reserve Reserve Reserve Reserve Total
GBP GBP GBP GBP GBP GBP
Balance brought
forward
at 31st March
2011 35,053,446 5,719,933 52,152,363 (16,783,563) 219,814,521 295,956,700
Total comprehensive
income for the year - 16,526,953 (27,463,408) (3,766,166) - (14,702,621)
Transactions with Shareholders;
Cancellation of
Shares (9,496,583) - - - (7,232,338) (16,728,921)
Redemption of Shares (26,314,391) - - - (26,095,637) (52,410,028)
Net effect of Shares
conversion 757,528 - - - (757,528) -
------------- ----------- ------------- ------------- -------------- -------------
Balance carried
forward at
at 31st March
2012 - 22,246,886 24,688,955 (20,549,729) 185,729,018 212,115,130
============= =========== ============= ============= ============== =============
Net Assets attributable to holders of Redeemable Participating
Preference Shares at the end of the year 212,115,130
============
STATEMENT OF FINANCIAL POSITION
As at 31st March 2013
31.3.2013 31.3.2012
Notes GBP GBP
ASSETS
Non-current assets
Financial assets at fair value
through profit or loss 1, 12 26,674,785 221,057,521
Current assets
Cash and cash equivalents 11 27,302,494 830,359
Unrealised gains on open forward
foreign
currency contracts 22 55,321 4,038,132
Other receivables 13 2,092,966 7,990,425
Total assets 56,125,566 233,916,437
=========== ============
EQUITY AND LIABILITIES
CURRENT LIABILITIES
Bank overdraft 11 - 9,717,869
Redemptions payable 15 - 11,578,463
Other payables 14 167,156 462,026
Unrealised losses on open forward
foreign
currency contracts 22 5,052 42,949
Total liabilities 172,208 21,801,307
----------- ------------
EQUITY
Share Capital Account 15 - -
Other Distributable Reserve 16 30,907,801 185,729,018
Retained Earnings 25,045,557 26,386,112
Total equity 55,953,358 212,115,130
Total equity and liabilities 56,125,566 233,916,437
Number of Sterling Redeemable Participating
Preference
Shares in issue 17 40,174,321 154,549,902
Number of Euro Redeemable Participating
Preference
Shares in issue 17 2,467,858 9,372,854
Net assets attributable to holders of Sterling
Redeemable
Participating Preference Shares
(per share) 17 134.2p 132.4p
=========== ============
Net assets attributable to holders of Euro
Redeemable
Participating Preference Shares
(per share) 17 97.0c 96.4c
=========== ============
The audited Financial Statements were approved on 9th July 2013
and signed on behalf of the Board of Directors by:
Andrew Sykes Nicholas Fry
STATEMENT OF CASH FLOWS
For the year ended 31st March 2013
1.4.2012 to 1.4.2011 to
Note 31.3.2013 31.3.2012
GBP GBP
Cash flows from operating activities
Loss for the year (1,340,555) (14,702,621)
Adjusted for:
(Gains)/losses on financial assets at
fair value through profit or loss (1,641,567) 8,804,486
Realised and unrealised losses/(gains)
on forward foreign
currency contracts 662,082 (4,362,914)
Exchange (gains)/losses on foreign
currency revaluation (76,731) 6,523,724
Exchange gains on translation (55,691) (28,841)
Operating cash flows before movements
in working capital (2,452,462) (3,766,166)
Decrease in other receivables 6,102 20,637
Decrease in other payables (134,217) (566,422)
Net cash used in operating activities (2,580,577) (4,311,951)
Cash flows from investing activities
Purchase of financial assets at fair value
through profit or loss (3,814,307) (55,425,171)
Net cash movement on receivables
from broker 73,801 (7,137,436)
Sale of financial assets at fair
value through profit or loss 205,656,166 133,945,485
Net receipts on forward currency
contracts 3,338,523 2,326,818
Net cash generated from investing
activities 205,254,183 73,709,696
Cash flows from financing activities
Buyback of Redeemable Participating
Preference Shares (1,560,027) (16,568,268)
Redemption of shares (165,000,306) (40,831,565)
Net cash used in financing activities (166,560,333) (57,399,833)
Net increase in cash and cash equivalents 36,113,273 11,997,912
Cash and cash equivalents at beginning
of year (8,887,510) (14,361,698)
Effects of exchange rate changes 76,731 (6,523,724)
Cash and cash equivalents at end
of year 11 27,302,494 (8,887,510)
Supplementary cash flow information
Cash flows from operating activities
include:
1.4.2012 to 1.4.2011 to
31.3.2013 31.3.2012
GBP GBP
Interest received 12,193 16
Interest paid (15,461) (31,801)
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31st March 2013
1. ACCOUNTING POLICIES
The following accounting policies have been applied consistently
in dealing with items which are considered to be material in
relation to the Company's Financial Statements:
Basis of accounting
The Financial Statements give a true and fair view, are prepared
in accordance with International Financial Reporting Standards
("IFRS") adopted for use in the European Union, which comprise
standards and interpretations approved by the International
Accounting Standards Board (IASB) and are in compliance with The
Companies (Guernsey) Law, 2008. The Financial Statements have been
prepared on a non going concern basis, and the accounting policies,
presentation and methods of computation are consistent with this
basis, as disclosed in the going concern paragraph below.
Going concern
The discount control provisions established when the Company was
launched required a continuation vote to be proposed to
Shareholders at the Company's Annual General Meeting when the
Company's discount has exceeded 5.0 per cent. at each month end
during the year to 31st March, and such vote requires not less than
50 per cent. of the total voting rights cast on the resolution to
be in favour in order for the company to continue in its current
format. If the resolution is not passed, the Directors are required
to formulate proposals to be put to Shareholders within six months
of such resolution being defeated for the winding up or other
reorganisation or reconstruction of the Company.
After extensive shareholder consultation, the Board resolved not
to seek continuation of the Company and proposed to Shareholders
that the Company enter into a managed wind-down. This proposal was
approved at an Extraordinary General Meeting ("EGM") held on 7th
September 2012.
The Financial Statements have been prepared on a non going
concern basis reflecting the orderly wind-down of the Company.
Accordingly, the going concern basis of accounting is no longer
considered appropriate. All assets and liabilities are carried at
the expected net realisable values. The Board recognises that the
liquidity of the restricted holdings is uncertain. The Board will
review the most appropriate course of action with regard to these
assets over the coming months. A provision for winding up costs has
been included in the Financial Statements. Refer to note 10 for
details.
Presentation of information
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for Investment Trust Companies issued
by the Association of Investments ("AIC") in January 2009 is
consistent with the requirements of IFRS, the Directors have sought
to prepare the Financial Statements on a basis compliant with the
SORP. Supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented within the Statement of Comprehensive
Income.
Standards, amendments and interpretations not yet effective
At the date of approval of these Financial Statements, the
following standards and interpretations, which have not applied in
these Financial Statements, were in issue but not yet
effective:
The Board anticipates that the adoption of these standards in a
future period will not have a material impact on the financial
statements of the Company. IFRS 9, 'Financial Instruments was
issued in December 2009 and addresses the classification and
measurement of financial assets and is likely to affect the
Company's accounting for financial assets. The standard is not
applicable until 1 January 2015 but it is available for early
adoption. The Company is currently in the process of evaluating the
potential effect of this standard. The standard is not expected to
have a significant impact on the financial statements since the
majority of the Company's financial assets are designated at fair
value through profit or loss.
IFRS 10 - Consolidated Financial Statements, IAS 27 Separate
Financial Statements and IFRS 12 - Disclosure of Interests in Other
Entities - are effective for periods beginning on or after 1
January 2013 but has not been adopted by the EU. IFRS 10 will be
endorsed in the EU for periods after 1 January 2014, except for the
section on investment entities. The Board is currently assessing
the impact of these changes on the financial statements of the
Company.
Under IFRS 11, the structure of the joint arrangement, although
still an important consideration, is no longer the main factor in
determining the type of joint arrangement and therefore the
subsequent accounting.
-- The Company's interest in a joint operation, which is an
arrangement in which the parties have rights to the assets and
obligations for the liabilities, will be accounted for on the basis
of the Group's interest in those assets and liabilities.
-- The Company's interest in a joint venture, which is an
arrangement in which the parties have rights to the net assets,
will be equity-accounted.
IFRS 12 brings together into a single standard all the
disclosure requirements about an entity's interests in
subsidiaries, joint arrangements, associates and unconsolidated
structured entities. The Group is currently assessing the
disclosure requirements for interests in subsidiaries, interests in
joint arrangements and associates and unconsolidated structured
entities in comparison with the existing disclosures. IFRS 12
requires the disclosure of information about the nature, risks and
financial effects of these interests.
IFRS 11 and IFRS 12 are effective for annual periods beginning
on or after 1 January 2013 with early adoption permitted. The Board
does not believe this standard will have significant impact on the
financial statements of the Company.
IFRS 13 - Fair Value Measurement is effective for periods
beginning on or after 1 January 2013 and endorsed by the EU for the
same period. IFRS 13 establishes a singles source of guidance under
IFRS for all fair value measurements. IFRS 13 does not change when
an entity is required to use fair value, but rather provides
guidance on how to measure fair value under IFRS when fair value is
required or permitted. The Company is currently assessing the
impact that this standard will have on the financial position and
performance, but based on the preliminary analyses, no material
impact is expected.
The amendments to IAS 32 alter the application guidance in IAS
32 and clarify some of the requirements for offsetting financial
assets and liabilities on the Statement of Financial Position. The
amendment is effective from 1st January 2014 and has not been early
adopted.
Annual improvements to IFRS's were issued by the IASB on June
2011 and contain minor amendments to standards for periods
beginning on or after 1st January 2013. No material changes to
accounting policies are expected as a result of these changes.
Financial instruments
Financial assets and financial liabilities are recognised on the
Company's Statement of Financial Position when the Company becomes
a party to the contractual provisions of the instrument. Financial
assets and liabilities have been written down to net realisable
values, which represent the fair value as at the year end.
Financial assets at fair value through profit or loss
("investments")
Purchases and sales of investments are recognised on the trade
date (the date on which the Company commits to purchase or sell the
investment). Investments purchased are initially recorded at fair
value, being the consideration given and excluding transaction or
other dealing costs associated with the investment. Gains and
losses on investments sold are shown in Note 4 and recognised in
capital in the Statement of Comprehensive Income in the period in
which they arise. The investments are managed and their performance
is evaluated on a fair value basis which is consistent with the
Company's documented investment strategies. The information
regarding the Company's portfolio is also provided on that basis to
the Board.
Forward foreign currency contracts
Forward foreign currency contracts are derivative contracts and
as such are recognised at fair value on the date on which they are
entered into and subsequently remeasured at their fair value. Fair
value is determined by rates in active currency markets. All
derivatives are carried as assets when fair value is positive and
as liabilities when fair value is negative.
Other Financial Instruments
For other financial instruments, including other receivables and
other payables, the carrying amounts as shown in the Statement of
Financial Position are approximate to fair values due to the short
term nature of these financial instruments.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the
net amount reported in the Statement of Financial Position, if and
only if, there is a currently enforceable legal right to offset the
recognised amounts and there is an intention to settle on a net
basis, or to realise assets and settle the liabilities
simultaneously.
Fair value
Investments of the Company consist of shares or units in hedge
funds and these are valued at the latest estimate of Net Asset
Value from the administrator of the respective hedge fund i.e. most
recent price is the best estimate of the amount for which holdings
could have been disposed of at the statement of financial position
date. These values may be unaudited or may themselves be estimates.
In addition, these entities or their administrators may not provide
values at all or in a timely manner and to the extent that values
are not available, those investments will be valued by the Board
using valuation techniques appropriate for those investments. In
determining fair value, the Board takes into consideration, where
applicable, the impact of suspensions, redemptions, liquidation
proceedings, investments in side pockets and other significant
factors. Actual results may differ from these estimates.
Gains and losses arising from changes in the fair value of
financial assets are shown as net gains or losses on financial
assets through profit or loss in Note 4 and recognised in capital
in the Statement of Comprehensive Income in the period in which
they arise.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to
receive cash flows from the financial asset have expired, (b) the
Company retains the right to receive cash flows from the financial
asset, but has assumed an obligation to pay them in full without
material delay to a third party under a "pass through arrangement";
or (c) the Company has transferred substantially all the risks and
rewards of the financial asset, or has neither transferred nor
retained substantially all the risks and rewards of the financial
asset, but has transferred control of the financial asset.
A financial liability is derecognised when the contractual
obligation under the liability is discharged, cancelled or
expired.
Significant accounting judgements, estimates and assumptions
The preparation of the Company's Financial Statements requires
the Directors to make judgements, estimates and assumptions that
affect the reported amounts of income, expenses, assets and
liabilities at the reporting date. However, uncertainties about
these assumptions and estimates could result in outcomes that
require a material adjustment to the carrying amount of the assets
or liabilities affected in future periods. Although some of the
Company's underlying investments have imposed restrictions on
redemptions the Directors believe it remains appropriate to
estimate their fair values based on Net Asset Values as reported by
the Administrators of the relevant investments. The Directors
believe that such Net Asset Values represent fair value because
subscriptions and redemptions in the underlying investments occur
at these prices at the statement of financial position date.
Information about assumptions and estimation uncertainties that
have significant risk of resulting in a material adjustment within
the next financial year, as well as critical judgements in applying
accounting policies that have the most significant effect on the
amounts recognised in the financial statements are included in note
22.
Income
All income is accounted for on an accruals basis and is
recognised in the Statement of Comprehensive Income. Interest
income is recognised on a time-proportionate basis using the
effective interest rate method.
Expenses
Expenses are accounted for on an accruals basis. Expenses
incurred on the acquisition of investments at fair value through
profit or loss are charged to the Statement of Comprehensive Income
in capital. All other expenses are charged to the Statement of
Comprehensive Income in revenue.
Share issue expenses
Share issue expenses are fully written off against the Share
Capital Account in the period of the share issue.
Cash and cash equivalents
Cash and cash equivalents comprise cash at bank and demand
deposits. Cash equivalents are short-term, highly liquid
investments that are readily convertible to known amounts of cash
and which are subject to insignificant changes in value.
Capital reserves
Gains and losses recorded on the realisation of investments and
realised exchange differences of a capital nature are transferred
to the realised capital reserve. Unrealised gains and losses
recorded on the revaluation of investments held at period end and
unrealised exchange differences of a capital nature are transferred
to the unrealised capital reserve.
Translation of foreign currency
Items included in the Company's Financial Statements are
measured using the currency of the primary economic environment in
which it operates (the "functional currency"). The majority of the
Company's Shares are denominated in Sterling (a small number are
denominated in Euros) and its operating expenses are incurred in
Sterling. While the Company's investments are denominated in US
Dollars all exposure to these currencies was, until 8th May 2013,
hedged by forward foreign currency contracts. Accordingly the
Directors regard Sterling as the functional currency. The Company
has also adopted Sterling as its presentation currency.
The assets and liabilities of the Company that are denominated
in a currency other than the functional currency are translated
using the exchange rate as at the statement of financial position
date. The Statement of Changes in Equity is translated into
Sterling for aggregation purposes using an average rate of exchange
for the period, with the exception of the Share Capital Account
which is translated at the rate ruling at the date of the
transaction and the unrealised gains on investments which are
translated at the rates ruling as at the statement of financial
position date. Exchange differences arising on aggregation are
taken to equity and subsequently transferred to net assets
attributable to Redeemable Participating Preference Shares.
Translation differences on financial assets held at fair value
through profit or loss are reported as part of net gains on
financial assets at fair value through profit or loss in the
Statement of Comprehensive Income under capital.
2. TAXATION
During the year, the Company was exempt from taxation in
Guernsey under the provisions of The Income Tax (Exempt Bodies)
(Guernsey) Ordinance 1989 and has paid an annual exemption fee of
GBP600 (31st March 2012: GBP600).
3. DISTRIBUTION TO SHAREHOLDERS
Following the Company's placement into orderly wind-down, no
distributions will be made to Shareholders other than the
compulsory share redemptions.
4. NET GAINS/(LOSSES) ON FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
1.4.2011
1.4.2012 to to
31.3.2013 31.3.2012
GBP GBP
Net gains/(losses) on financial assets
at fair value through profit or loss
during the year
comprise:
Gains realised on investments sold
during the year 25,148,217 20,771,290
Movement in unrealised
losses arising from changes
in fair value during the
year (23,506,650) (29,575,776)
Net gains/(losses) on financial
assets at
fair value through profit
or loss 1,641,567 (8,804,486)
5. LOSSES ON FOREIGN EXCHANGE
1.4.2011
1.4.2012 to to
31.3.2013 31.3.2012
GBP GBP
Realised gains on forward foreign currency
contracts 3,282,831 2,297,977
Unrealised (losses)/gains on forward foreign
currency contracts (3,944,913) 2,064,937
Exchange gains/(losses) on foreign currency
revaluation 76,731 (6,523,724)
Exchange gains on translation 55,691 28,841
(529,660) (2,131,969)
The Company's investment portfolio is denominated in US Dollars
and the currency risk was, until 8th May 2013, hedged with forward
foreign currency contracts.
6. MANAGEMENT FEE
The Company's manager is Jubilee Asset Management Limited (the
"Manager"), formerly Fauchier Partners Management Limited. On 13th
March 2013, Fauchier Partners was acquired by Legg Mason and merged
with Permal Group, its global asset management firm. Immediately
thereafter, Fauchier Partner's investment team formed the Jubilee
Portfolio Management Group.
The Manager is entitled to an annual management fee, calculated
monthly and payable monthly in arrears, at the rate of 1.0 per
cent. of the monthly gross assets of the Company. The Manager is
also entitled to reimbursement of certain expenses incurred by it
in connection with its duties. The Company's investment advisor is
Permal Investment Managmenet Services Limited (the "Investment
Advisor"). The Manager will be responsible for discharging all fees
of the Investment Advisor out of its management fee.
During the year ended 31st March 2013 management fees of
GBP1,565,933 were charged to the Company (31st March 2012:
GBP2,562,376) and GBP90,267 was payable at the year end (31st March
2012: GBP189,677).
Following the approval of the Company's orderly wind-down,
notice of termination of the Management Agreement was given at the
EGM held on 7th September 2012.
7. PERFORMANCE FEE
The Manager is also entitled to a performance fee if the Net
Asset Value per Share for each class of Share at the end of the
Performance Period (31st March each year and after adjustments for
share issues/redemptions/ repurchases);
a) Exceeds the Net Asset Value per Share at the start of the
Performance Period by more than the Performance Hurdle; and
b) Exceeds the highest previously recorded Net Asset Value of
the relevant class of Share as at the end of a Performance Period
in respect of which a performance fee was last paid;
The Performance Hurdle applicable in respect of a Performance
Period is 110.0 per cent. of three month Sterling LIBOR or EURIBOR,
as applicable, compounded quarterly and is pro-rated where the
Performance Period is greater or shorter than one year.
If the Performance Hurdle for a Performance Period is met, then
a performance fee will be calculated and payable to the Manager
equal to 10.0 per cent. of the total increase in the Net Asset
Value per Share on all share classes in issue at the end of the
relevant Performance Period over the Net Asset Value per Share at
the start of the relevant Performance Period multiplied by the
aggregate number of shares in issue for each share class (having
made adjustment for any issue and/or redemption and/or repurchase
of shares of each class or other distributions made in respect
thereof) at the end of the relevant Performance Period.
Following the approval of the Company's orderly wind-down , the
Manager has agreed that Performance Fees will not be charged after
the NAV date immediately following the EGM.
During the year ended 31st March 2013 performance fees of GBPNil
were charged to the Company (31st March 2012: GBP8,777) and GBPNil
was payable at the year end (31st March 2012: GBP802).
8. ADMINISTRATION FEE
The Company's administrator is Northern Trust International Fund
Administration Services (Guernsey) Limited (the "Administrator").
The Administrator is entitled to receive an annual fee, equal to
0.125 per cent. per annum on the first GBP50.0 million, 0.10 per
cent. per annum on the next GBP50.0 million and 0.075 per cent. per
annum thereafter of the Net Asset Value of the Company, calculated
monthly and payable monthly in arrears, subject to a minimum fee of
GBP48,000 per annum. In addition, the Administrator and any of its
delegates will also be entitled to reimbursement of certain
expenses incurred by them in connection with their duties. During
the year ended 31st March 2013 administration fees of GBP158,444
(31st March 2012: GBP234,300) were charged to the Company and
GBP13,339 was payable at the year end (31st March 2012:
GBP34,444).
With effect from 1st October 2012, the Company and the
Administrator agreed to amend the terms of the Administration
Agreement whereby the annual minimum fee increased from GBP48,000
per annum to GBP80,000. Such minimum fee will be further amended to
GBP40,000 per annum effective after the delisting of the Company
from the London Stock Exchange following the Company's orderly
wind-down.
9. CUSTODIAN FEE
The Company's custodian is Northern Trust (Guernsey) Limited
(the "Custodian"). The Custodian is entitled to receive an annual
fee equal to 0.075 per cent. per annum of the Net Asset Value of
the Company, calculated monthly and payable monthly in arrears,
subject to a minimum fee of GBP24,000 per annum. In addition, the
Custodian will receive GBP100 per transaction executed. During the
year ended 31st March 2013 custodian fees of GBP117,443 (31st March
2012: GBP192,179) were charged to the Company and GBP6,770 was
payable as at the year end (31st March 2012: GBP27,662).
10. OTHER EXPENSES
1.4.2012 1.4.2011
to to
31.3.2013 31.3.2012
GBP GBP
Administration
fee (Note 8) 158,444 234,300
Custodian fee (Note
9) 117,443 192,179
Liquidation costs 152,331 -
Commitment fee in respect
of credit facility 132,083 285,417
General expenses 157,512 299,916
Directors' fees
(Note 19) 149,375 137,188
Audit fee 16,073 25,270
883,261 1,174,270
Liquidation costs include legal fees, financial adviser fees and
other fees relating to the orderly wind-down.
11. CASH AND CASH EQUIVALENTS
31.3.2013 31.3.2012
GBP GBP
Current deposits
with banks 27,302,494 830,359
Bank overdraft - (9,717,869)
27,302,494 (8,887,510)
All cash balances attract interest at variable rates.
A committed credit facility covering borrowings and spot and
forward foreign exchange was made available to the Company by its
bankers. Prior to 7th September 2012, the aggregate amount
outstanding under this facility should not exceed the lower of 20.0
per cent. of the Net Asset Value of the Company or GBP60.0 million
(or the currency equivalent thereof).
The Company was charged a commitment fee of 0.5 per cent. per
annum of the committed facility and interest of 1 per cent. above
the base rate on any overdrawn balance. The facility was terminated
effective 7th September 2012 following the approval of the
Company's orderly wind-down.
12. FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS
31.3.2013 31.3.2012
GBP GBP
Cost of investments at end
of year 32,841,425 203,717,512
Cumulative net unrealised
(loss)/gain (6,166,640) 17,340,009
Fair value at end
of the year 26,674,785 221,057,521
13. OTHER RECEIVABLES
31.3.2013 31.3.2012
GBP GBP
Sale of investments awaiting
settlement 2,092,966 2,166,767
Payment in advance for purchase
of investments - 5,817,556
Other receivables - 6,102
2,092,966 7,990,425
The Directors consider that the carrying amount of the other
receivables approximates their fair value.
14. OTHER PAYABLES
31.3.2013 31.3.2012
GBP GBP
Performance fee
payable - 802
Management fee
payable 90,267 189,677
Share buybacks
payable - 160,653
Other creditors 76,889 110,894
167,156 462,026
The Directors consider that the carrying amount of the other
payables approximates their fair value.
15. SHARE CAPITAL ACCOUNT
31.3.2013 31.3.2012
Unclassified Unclassified
Shares Shares
Authorised Share
Capital
Unclassified Shares at no
par value Unlimited Unlimited
The Company is a closed-ended investment company with an
unlimited life. The Redeemable Participating Preference Shares are
not puttable instruments because redemption is conditional upon
certain market conditions and/or Board approval. As such they are
not required to be classified as debt under IAS 32 - Financial
Instruments: Disclosure and Presentation.
As defined in the Articles of Association, redemption of
Redeemable Participating Preference Shares is at the sole
discretion of the Directors, therefore the Redeemable Participating
Preference Shares have been classified as equity.
The discount control provisions established when the Company was
launched requires a continuation vote to be proposed to
Shareholders at the Company's Annual General Meeting when the
Company's discount has exceeded 5.0 per cent. at each month end
during the year to 31st March, and such vote requires not less than
50 per cent. of the total voting rights cast on the resolution to
be in favour in order for the company to continue in its current
format. If the resolution is not passed, the Directors are required
to formulate proposals to be put to Shareholders within six months
of such resolution being defeated for the winding up or other
reorganisation or reconstruction of the Company. After extensive
shareholder consultation, the Board resolved not to seek
continuation of the Company and proposed to Shareholders that the
Company enter into an orderly wind-down. This proposal was approved
at the EGM held on 7th September 2012.
The Board also has the discretion to operate the Redemption
Facility, offering Shareholders the possibility of redeeming part
of their shareholding at the Net Asset Value, if it appears
appropriate to do so.
1.4.2012 1.4.2011
to to
31.3.2013 31.3.2012
Company Company
Total Total
Sterling Euro Number Sterling Euro Number
Issued Share
Capital Shares Shares of shares Shares Shares of shares
Equity Shares
Balance at start
of the
year 154,549,902 9,372,854 163,922,756 207,761,831 12,385,490 220,147,321
Redemption of
shares
during the year (113,045,363) (6,944,230) (119,989,593) (39,063,458) (1,985,215) (41,048,673)
Net effect of
conversion
during the year (24,218) 39,234 15,016 554,029 (847,421) (293,392)
Bought back and
cancelled during
the year (1,306,000) - (1,306,000) (14,702,500) (180,000) (14,882,500)
Balance at end
of the
year 40,174,321 2,467,858 42,642,179 154,549,902 9,372,854 163,922,756
1.4.2012 1.4.2011
to to
31.3.2013 31.3.2012
Sterling Euro Total Share Sterling Euro Total Share
Shares Shares Capital Shares Shares Capital
Issued Share Capital GBP EUR GBP GBP EUR GBP
Equity Shares
Balance at start
of the
year - - - 35,053,446 - 35,053,446
Redemption of shares
during the year - - - (26,314,391) - (26,314,391)
Net effect of conversion
during the year
* - - - 757,528 - 757,528
Bought back and
cancelled
during the year - - - (9,496,583) - (9,496,583)
Balance at end of
the year - - - - - -
*During the previous financial year, the Share Capital Account
for the Sterling Share Class was reduced to nil and any further
cancellation of Sterling Shares was taken from Other Distributable
Reserves.
The Company operates a Share Conversion Scheme which allows
Shareholders of any one class of Shares to convert all or part of
their holdings into any other class of Share.
Pursuant to the amended Memorandum and Articles, the Directors
may, at their absolute discretion, direct that the Company
compulsorily convert all or any portion of the Shares of any class
(the "Compulsory Conversion Class") into Shares of another class
(the "Resulting Class"). The number of Shares of the Resulting
Class arising on conversion shall be determined by reference to the
last reported NAV per Share of the Compulsory Class and of the
Resulting Class as at the date of the compulsory conversion.
During the year at the request of existing Shareholders, the
Company converted 47,327 Sterling Redeemable Participating
Preference Shares to 79,250 Euro Redeemable Participating
Preference Shares. The Company also converted 40,016 Euro
Redeemable Participating Shares to 23,109 Sterling Redeemable
Participating Preference Shares during the year.
The right of conversion may be suspended from time to time at
the sole discretion of the Directors. Following the placing of the
Company into orderly wind-down, the share conversion opportunities
have been suspended.
During the year under the Share Buyback Programme, the Company
purchased and cancelled the following of its own shares:
Number Average Percentage of
Price Per
of Shares Share Issued Share Capital
Sterling Shares 1,306,000 1.07 0.86%
Redemption Facility
There were no redemptions made during the period in respect of
the redemption facility (31st March 2012: GBP52,410,028) and total
accruals amounted to GBPNil (31st March 2012: GBP11,578,463) as at
31st March 2013. No redemption facility fees in respect of the
redemptions were paid during the year (31st March 2012:
GBP258,031).
Pursuant to the Memorandum and Articles amended on 7th September
2012, the Directors may compulsorily redeem all or any number of
shares of each class through a Compulsory Redemption Announcement
made at least 10 business days before the Compulsory Redemption
Date. The redemption monies payable to Shareholders will be paid in
the currency in which their shares are denominated or as otherwise
determined by the Directors. The table below shows details of the
compulsory redemptions made during the year:
Number
of Amount
Shares GBP Payment date
Sterling 113,045,363 148,056,179 21st December 2012
Euro 6,944,230 5,365,664 21st December 2012
16. REVENUE RESERVES AND OTHER DISTRIBUTABLE RESERVES
Revenue reserves
The revenue reserve is a distributable reserve account and
income and expenses from transactions are transferred to this
account. This account can be used for among other things the
payment of dividends, if any.
Other distributable reserves
Other distributable reserves account includes transfers from the
previous Share Premium Account due to Guernsey legislation. Other
distributable reserves can be used to cancel the nominal shares of
the Company when they are redeemed or for share buy backs.
17. NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE
PARTICIPATING PREFERENCE SHARES
31.3.2013
Sterling Euro Company
Shares Shares Total
GBP EUR GBP
Total assets less liabilities 53,929,839 2,392,821 55,953,358
Amount attributable
to Redeemable
Participating Preference
Shares 53,929,839 2,392,821 55,953,358
Number of shares outstanding 40,174,321 2,467,858
Net Assets attributable to holders
of Redeemable
Participating Preference Shares (per
Share) 134.2p 97.0c
31.3.2012
Sterling Euro Company
Shares Shares Total
GBP EUR GBP
Total assets less liabilities 204,581,863 9,038,283 212,115,130
Amount attributable
to Redeemable
Participating Preference
Shares 204,581,863 9,038,283 212,115,130
Number of shares outstanding 154,549,902 9,372,854
Net Assets attributable to holders
of Redeemable
Participating Preference Shares (per
Share) 132.4p 96.4c
18. CONTINGENT LIABILITIES
There were no contingent liabilities as at the statement of
financial position date (31st March 2012: Nil).
19. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the
ability to control the other party or exercise significant
influence over the other party in making financial or operational
decisions.
The Directors are responsible for the determination of the
investment policy of the Company and have overall responsibility
for the Company's activities. The Company's investment portfolio is
managed by Jubilee Asset Management Limited (formerly Fauchier
Partners Management Limited). On 13th March 2013, Fauchier Partners
was acquired by Legg Mason and merged with Permal Group, its global
asset management firm.
The Company and the Manager have entered into a Management
Agreement dated 24th January 2005 under which the Manager has been
given responsibility for the day-to-day discretionary management of
the Company's assets (including uninvested cash) in accordance with
the Company's investment objectives and policies, subject to the
overall supervision of the Directors and in accordance with the
investment restrictions in the Management Agreement and the
Articles of Association. The Management Agreement may be terminated
by the Company or the Manager giving to the other not less than 12
month's written notice. Notice to terminate the Management
Agreement was served on 7th September 2012. Details of the
management and performance fees to which the Manager is entitled
are in Notes 6 and 7.
The Company has five non-executive directors.
Each Director is entitled to a fee of GBP24,250 (31st March
2012: GBP24,250) per annum, except for the Chairman who is entitled
to a fee of GBP35,000 (31st March 2012: GBP35,000) and GBP29,500
for the Audit Committee Chairman (31st March 2012: GBP29,500).
Total Directors' fees for the year, including outstanding
Directors' fees at the end of the year, are set out below.
31.3.2013 31.3.2012
GBP GBP
Directors' fees
for the year 149,375 137,188
Payable at end of
year - -
As at 31st March 2013 and 31st March 2012, Directors of the
Company held the following numbers of shares beneficially:
Directors Shares Shares
31.3.2013 31.3.2012
Andrew Sykes 45,830 174,790
Nicholas Fry 49,818 190,000
Robert King 10,003 38,150
Nicholas Moss Nil Nil
Graham Harrison 2,622 10,000
Robin Rumboll (Retired 26th September
2012) N/A 200,000
Effective 26th September 2012, Robin Rumboll retired as a
Director of the Company.
20. OPERATING SEGMENTS
Information on realised gains and losses derived from sales of
investments are disclosed in Note 4.
The Board has considered the requirements of IFRS 8 'Operating
Segments', and is of the view that the Company's activities form a
single segment under the standard, being investments in a
diversified portfolio of Hedge Funds. From a geographical
perspective, the Company's investments are managed on a global
basis. The Board, as a whole, has been determined as constituting
the chief operating decision maker of the Company. The key measure
of performance used by the Board to assess the Company's
performance and to allocate resources is the total return based on
the NAV per share, as calculated under IFRS. Therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in the Annual Audited
Financial Statements.
The Company is domiciled in Guernsey. Entity wide disclosures
are necessary as the Company is engaged in a single segment of
business, investing in Hedge Funds. In presenting information on
the basis of geographical segments, segment investments and
derivative financial instruments and the corresponding segment
total income/(expense) income arising thereon are determined based
on the domicile countries of the respective investment entities and
derivative counterparties.
Geographical segments based on country of domicile
Cayman
Bermuda BVI Islands Guernsey Total
GBP GBP GBP GBP GBP
31st March 2013
Financial assets
at fair value
through profit or
loss - 950,818 25,723,967 - 26,674,785
Unrealised gains
on open
forward foreign
currency
contracts - - - 55,321 55,321
Unrealised losses
on open
forward foreign
currency
contracts - - - (5,052) (5,052)
Total income/(expense) 46,814 (10,188) 1,604,941 (529,660) 1,111,907
Cayman
Bermuda BVI Islands Guernsey Total
GBP GBP GBP GBP GBP
31st March 2012
Financial assets
at fair value
through profit or
loss 12,598,075 1,589,298 206,870,148 - 221,057,521
Unrealised gains
on open
forward foreign
currency
contracts - - - 4,038,132 4,038,132
Unrealised losses
on open
forward foreign
currency
contracts - - - (42,949) (42,949)
Total income/(expense) (120,291) 20,757 (8,693,894) (2,131,969) (10,925,397)
Based on the shareholder register as at 31st March 2013, there
were two Sterling and one Euro Shareholder who held more than 10
per cent. of their respective Share Classes. Their holdings were
20.73 per cent. and 20.24 per cent. for the Sterling class and
82.83 per cent. for the Euro class. As at 31st March 2012, there
was one Sterling and one Euro Shareholder who held more than 10 per
cent. of their respective Share Classes. Their holdings were 12.32
per cent. and 81.24 per cent. respectively.
21. FINANCIAL INSTRUMENTS
In accordance with its investment objectives and policies, the
Company holds financial instruments which at any one time may
comprise the following:
-- securities held in accordance with the investment objectives and policies;
-- cash and short-term receivables and payables arising directly from operations;
-- derivative instruments including forward foreign currency contracts; and
The financial instruments held by the Company are comprised
principally of Hedge Fund investments.
Details of the Company's significant accounting policies and
methods adopted, including the criteria for recognition, the basis
of measurement and the basis on which income and expenses are
recognised, in respect of its financial assets and liabilities are
disclosed in Note 1. The following table analyses the carrying
amounts of the financial assets and liabilities by category as
defined in IAS 39 - Financial Instruments: Recognition and
Measurement.
31.3.2013 31.3.2012
Fair Value Fair Value
GBP GBP
Financial assets designated at fair value
through profit or loss
Listed Investments - 8,371,685
Unlisted Investments 26,674,785 212,685,836
Unrealised gains on open forward foreign
currency contracts 55,321 4,038,132
Total financial assets designated at
fair value
through profit or
loss 26,730,106 225,095,653
Other financial
assets 29,395,460 8,820,784
31.3.2013 31.3.2012
Fair Value Fair Value
GBP GBP
Financial liabilities designated at fair value
through profit or loss
Unrealised losses on open forward
currency contracts (5,052) (42,949)
(5,052) (42,949)
Other financial liabilites
Redemptions payable - (11,578,463)
Bank overdraft - (9,717,869)
Other payables (167,156) (462,026)
(167,156) (21,758,358)
22. FINANCIAL RISK MANAGEMENT AND ASSOCIATED RISKS
The Company is exposed to a variety of financial risks as a
result of its activities. These risks include market risk
(including price risk, interest rate risk and foreign currency
risk), credit risk and liquidity risk. These risks, which have been
applied throughout the year and the Manager's policies for managing
them are summarised below.
Market risk
Market risk is the risk that the fair value of a financial
instrument will fluctuate because of changes in market prices. The
Company's activities expose it primarily to the market risks of
changes in market prices, interest rates and foreign currency
exchange rates.
Market price risk
Market price risk arises mainly from the uncertainty about
future prices of the financial instruments held by the underlying
hedge funds. It represents the potential loss the Company may
suffer through holding market positions in the face of price
movements.
Market risk encompasses the potential for both gains and losses
and is affected by three main components: changes in actual market
prices, interest rate and foreign currency movements. Interest rate
and foreign currency movement risks are covered elsewhere in this
note. The overall market risk management strategy of each of the
holdings of the Company is primarily driven by their respective
investment objectives as previously detailed.
The Investment Manager does not use derivative instruments to
hedge the investment portfolios against market risk, as in their
opinion the cost of such a process would result in an unacceptable
reduction in the potential for capital growth.
The maximum risk resulting from financial instruments is
determined by their fair value. The overall market exposure as at
31st March 2013 is shown in the Statement of Financial
Position.
The Investment Manager believes that analysis of value-at-risk
(VaR) to be an inappropriate measure of market risk in a fund of
hedge funds. Instead, the Investment Manager monitors market risk
of the Company's investments via traditional statistical measures,
such as correlation and beta. This is done on a monthly basis.
Beta is an estimate of the Company's response to swings in the
market.
Based on historical analysis, the Company's beta to the FTSE All
Share Index and Citigroup UK Gilt Index as at 31st March 2013 and
31st March 2012 is estimated to be as follows:
Beta to FTSE All Share Index
31.3.2013 31.3.2012
Absolute Return Trust Limited 0.23 0.23
---------- ----------
If the FTSE All Share Index as at 31st March 2013 had increased
by 10 per cent. (31st March 2012: 10 per cent.) with all other
variables held constant, the estimated increase in Net Assets
attributable to holders of Redeemable Participating Preference
Shares would have been US$1,954,135 (31st March 2012:
US$7,794,854).
Conversely, if the FTSE All Share Index as at 31st March 2013
had decreased by 10 per cent. (31st March 2012: 10 per cent.) with
all other variables held constant, the estimated decrease in Net
Assets attributable to holders of Redeemable Participating
Preference Shares would have been US$1,954,135 (31st March 2012:
US$7,794,854).
The FTSE All-Share is used as a proxy for equity market
performance from the perspective of a Sterling-based investor. It
is a market-capitalisation weighted index representing the
performance of all eligible companies listed on the London Stock
Exchange's main market, which pass screening for size and
liquidity. As at 31st March 2013 the FTSE All-Share Index covered
630 constituents with a combined value of nearly GBP1.8 trillion -
approximately 98 per cent. of the UK's market capitalisation.
source: FTSE group
Beta to Citigroup UK Gilt Index
Fund 31.3.2013 31.3.2012
Absolute Return Trust Limited -0.20 -0.19
---------- ----------
If the Citigroup UK Gilt Index at 31st March 2013 had increased
by 10 per cent. (31st March 2012: 10 per cent.) with all other
variables held constant, the estimated decrease in Net Assets
attributable to holders of Redeemable Participating Shares would
have been US$1,699,248 (31st March 2012: US$6,439,227).
Conversely, if the Citigroup UK Gilt Index at 31st March 2013
had decreased by 10 per cent. (31st March 2012: 10 per cent.) with
all other variables held constant, the estimated increase in Net
Assets attributable to holders of Redeemable Participating Shares
would have been US$1,699,248 (31st March 2012: US$6,439,227).
Actual trading results may differ from the above sensitivity
analysis and these differences could be material. The continuing
wind-down process will also have an impact on the Company's beta to
the market.
Foreign currency risk
Foreign currency risk arises from fluctuations in the value of a
foreign currency. It represents the potential loss the Company may
suffer through holding foreign currency assets in the face of
foreign exchange movements. The Company's treatment of currency
transactions is set out in Note 1 to the Financial Statements under
"Translation of foreign currency" and "Forward foreign currency
contracts".
The Company's Shares are denominated in Sterling (a small number
are denominated in Euros) and its operating expenses are incurred
in Sterling, while the Company's investments are denominated in US
Dollars. The Company's presentation currency is Sterling; hence the
Statement of Financial Position may be significantly affected by
movements in the exchange rates between the US Dollar, Euro and
Sterling. The Manager manages exposure to currency movements by
using forward foreign currency and currency option contracts to
hedge total exposure. With effect from 8th May 2013, the Board has
approved the removal of the currency hedging programme (See note
24).
As at 31st March 2013, the Company had four (31st March 2012:
thirty eight) open forward foreign currency contracts.
Mark to
Market Unrealised
Outstanding Equivalent gains
US$ Contracts 31.3.2013 31.3.2013
Two Sterling forward
foreign currency GBP
contracts totalling: (81,378,648) GBP 53,656,795 GBP 53,601,476 55,317
Settlement date 30th
April 2013
Two Euro forward foreign
currency
contracts totalling: (3,038,377) EUR 2,359,736 EUR 2,365,706 (5,048)
Settlement date 30th
April 2013
Total net unrealised gains at
31st March 2013 50,269
====================
Mark to
Market Unrealised
Outstanding Equivalent losses
US$ Contracts 31.3.2012 31.3.2012
Thirty two Sterling forward foreign
currency GBP
contracts totalling: (338,116,429) GBP 215,536,546 GBP 211,657,317 3,879,229
Settlement date 30th
April 2012
Six Euro forward foreign
currency
contracts totalling: (12,162,539) EUR 9,271,101 EUR 9,131,981 115,954
Settlement date 30th
April 2012
Total net Unrealised gains at
31st March 2012 3,995,183
=================
As at 31st March 2013 and 31st March 2012, the Company held the
following assets and liabilities denominated in US Dollars:
31.3.2013 31.3.2012
GBP GBP
Assets 55,804,075 229,047,946
Liabilities - (9,717,869)
Less: Forward foreign exchange contracts
- Sterling (53,601,476) (211,657,317)
Forward foreign exchange contracts
- Euro (2,365,706) (9,131,981)
(163,107) (1,459,221)
Amounts in the above table are based on the carrying value of
monetary assets and liabilities and the underlying principal amount
of forward foreign currency contracts.
Foreign currency sensitivity analysis
The below details the Company's sensitivity to a 5 per cent.
(31st March 2012: 5 per cent.) change in the Sterling exchange rate
against the US Dollar and Euro currencies. The sensitivity analysis
percentages represent the Manager's assessment, based on the
foreign exchange rate movements over the relevant year and of the
reasonably possible change in foreign exchange rates.
31.3.2013 31.3.2012
GBP GBP
Impact on Statement of Comprehensive Income
in response to a
5% increase (2,130) (2,648)
5% decrease 2,347 2,776
Impact on Equity in response
to a
5% increase (2,130) (2,648)
5% decrease 2,347 2,776
Actual trading results may differ from the above sensitivity
analysis and these differences may be material.
Interest rate risk
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest. Interest
receivable on bank deposits or payable on bank overdraft will be
affected by fluctuations in interest rates. All cash balances are
at variable rates. Increases in interest rates will also increase
the borrowing costs of the Company should the committed credit
facility be used. Interest on the committed credit facility was
charged at 1 per cent. above base rate, until its termination.
The Company is not exposed to significant interest rate risk as
the interest income received from bank balances are minimal due to
zero interest rates. Any significant cash balance is held short
term as distributions are made, in accordance with the Company's
mandatory distribution policies.
The Company's continuing position in relation to interest rate
risk is monitored on a monthly basis by the Investment Manager as
part of its review of the monthly Net Asset Value calculations
prepared by the Company's Administrator, Northern Trust
International Fund Administration Services (Guernsey) Limited.
Interest rate sensitivity
Cash and cash equivalents will be affected by movements in
interest rates. However, no material impact on the Statement of
Comprehensive Income or Statement of Financial Position is expected
due to the immateriality of interest rate risk at the year end.
Credit risk
Credit risk is the risk that an issuer or counterparty will be
unable or unwilling to meet a commitment that it has entered into
with the Company. Failure of any relevant counterparty to perform
its obligations in respect of these items may lead to a financial
loss.
The Company is exposed to material credit risk in respect of
cash and cash equivalents and debtors. Credit risk is mitigated by
the Company's policy to transact only with leading commercial and
investment banks. Currently all cash is placed with Northern Trust
(Guernsey) Limited ("NTGL"). NTGL is a wholly owned subsidiary of
The Northern Trust Corporation ("TNTC"). TNTC is publicly traded
and a constituent of the S&P 500. TNTC has a credit rating of
A+ (31st March 2012: A+) from Standard & Poor's and A1 (31st
March 2012: A1) from Moody's. The credit risk associated with
debtors is limited to the unrealised gains on open forward foreign
currency contracts, as detailed above and other receivables. It is
the opinion of the Board of Directors that the carrying amounts of
these financial assets represent the maximum credit risk exposure
as at the statement of financial position date.
Credit risk analysis
The Company's maximum credit exposure is limited to the carrying
amount of financial assets recognised as at the statement of
financial position date, as summarised below:
31.3.2013 31.3.2012
GBP GBP
Cash and cash equivalents 27,302,494 830,359
Net unrealised gains on open forward foreign
currency contracts 55,321 4,038,132
Other receivables 2,092,966 7,990,425
29,450,781 12,858,916
Fair value
IFRS 7 requires the Company to classify fair value hierarchy
that reflects the significance of the inputs used in making the
measurements. It establishes a fair value hierarchy that
prioritises the inputs to valuation techniques used to measure fair
value. The hierarchy gives the highest priority to unadjusted
quoted prices in active markets for identical assets or liabilities
(Level 1 measurements) and the lowest priority to unobservable
inputs (Level 3 measurements). The three levels of the fair value
hierarchy under IFRS 7 are as follows:
Level 1 Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either directly
(that is, as prices) or indirectly (that is, derived from prices);
and
Level 3 Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorized in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement. For this purpose, the significance of an input
is assessed against the fair value measurement. If a fair value
measurement uses observable inputs that require significant
adjustment based on unobservable inputs, that measurement is a
Level 3 measurement. Assessing the significance of a particular
input to the fair value measurement in its entirety requires
judgment, considering factors specific to the asset or
liability.
The determination of what constitutes 'observable' requires
significant judgment by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table presents the Company's financial assets and
liabilities by level within the valuation hierarchy as of 31st
March 2013.
31.3.2013
Level Level Level
1 2 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair value
through profit or loss:
Investments in Hedge Funds - 21,199,930 5,474,855 26,674,785
Unrealised gains on open forward
foreign
currency contracts - 55,321 - 55,321
Total assets - 21,255,251 5,474,855 26,730,106
=========== ===========
Liabilities
Financial assets at fair value through profit
or loss:
Unrealised losses on open forward
foreign
currency contracts - (5,052) - (5,052)
Total liabilities - (5,052) - (5,052)
31.3.2012
Level Level Level
1 2 3 Total
GBP GBP GBP GBP
Assets
Financial assets at fair value
through profit or loss:
Investments in Hedge Funds - 211,834,894 9,222,627 221,057,521
Unrealised gains on open forward
foreign
currency contracts - 4,038,132 - 4,038,132
Total assets - 215,873,026 9,222,627 225,095,653
Liabilities
Financial assets at fair value through
profit or loss:
Unrealised losses on open
forward foreign
currency contracts - (42,949) - (42,949)
Total liabilities - (42,949) - (42,949)
The Hedge Funds held by the Company are not quoted in active
markets.
Assets classified in Level 2 are Hedge Funds fair-valued using
the official month-end Net Asset Value of each fund as reported by
each fund's independent administrator.
Assets classified in Level 3 are portions of eight Hedge Funds
which are held in side pockets or where some kind of liquidity
restriction is currently in place. The fair value of these assets
is also derived from the official month-end Net Asset Values
reported by each fund's independent administrator but is classified
in Level 3 because the assets cannot be redeemed according to the
headline liquidity terms of the funds. The assets classified in
Level 3 represent 9.78 per cent. of the Company's Net Asset Value
at 31st March 2013. The Directors have assessed month-end net asset
values to be a reasonable reflection of the fair value of these
Level 3 positions after consultation with the Investment Adviser
with a view to establishing the probable realisable value of these
investments. The Directors recognise that the liquidity of the
restricted holdings is uncertain, and will review the most
appropriate course of action with regard to these assets over the
coming months.
There were no transfers between levels during the year.
The following table presents the movements in level 3
investments.
31.3.2013 31.3.2012
GBP GBP
Opening balance 9,222,627 14,515,702
Purchases 51,016 3,459,385
Sales (2,824,461) (15,936,732)
(Losses)/gains recognised
in profit and loss (974,327) 7,184,272
Closing balance 5,474,855 9,222,627
Net unrealised loss for the year included
in the Statement of Comprehensive Income
for level 3 Investments held at year
end (3,134,038) (1,707,463)
Liquidity risk
Liquidity risk is the risk that the Company will encounter in
realising assets or otherwise raising funds to meet financial
commitments in a reasonable timeframe or at a reasonable price.
Following the Company's placement into orderly wind-down, the
Company is exposed to the possibility that the realisation of
assets may incur significant liquidity discounts.
The Company is exposed to the possibility of cash redemptions of
Redeemable Participating Preference Shares, subject to the
discretion of the Directors, as described in Note 23. It invests
the majority of its assets in collective Hedge Funds with their own
liquidity conditions. The Company's financial instruments include
investments in other open-ended investment funds which are not
traded in an organised public market and which generally may be
illiquid. As a result, the Company may not be able to liquidate its
investments in these instruments at an amount close to its fair
value in order to meet its liquidity requirements, or to respond in
a timely manner to specific events such as a deterioration in the
credit worthiness of any particular issuer. At times of disrupted
markets, this may include the imposition of "side pockets" and/or
"redemption gates", sometimes at short notice.
The liquidity risk of the Company, which mainly consists of a
possible mismatch of liquidity between the conditions offered at
the Company level and those proposed by each collective investment
fund at the underlying fund level, is carefully monitored by the
Investment Manager on a monthly basis, including lock-ups,
redemption penalties and gating provisions.
The table below details the Company's liquidity analysis for its
financial assets and liabilities. The table has been drawn up based
on the undiscounted net cash flows on the financial assets and
liabilities that settle on a net basis and the undiscounted gross
cash flows on those financial assets and liabilities that require
gross settlement.
Greater
Within
3 than 31.3.2013
Months 3-6 months 6-12 months 12 months Total
GBP GBP GBP GBP GBP
Financial assets at
fair value
through profit or loss* 9,285,837 5,930,213 5,499,494 5,959,241 26,674,785
Cash and cash equivalents 27,302,494 - - - 27,302,494
Unrealised gains on
forward
foreign exchange contract 55,321 - - - 55,321
Sale of investments
awaiting
settlement 2,092,966 - - - 2,092,966
Unrealised loss on
forward
foreign exchange contract (5,052) - - - (5,052)
Management fee payable (90,267) - - - (90,267)
Other creditors (76,889) - - - (76,889)
Total 38,564,410 5,930,213 5,499,494 5,959,241 55,953,358
Greater
Within 3 than 31.3.2012
Months 3-6 months 6-12 months 12 months Total
GBP GBP GBP GBP GBP
Financial assets
at fair value
through profit or loss* 13,540,029 160,641,716 23,870,460 23,005,316 221,057,521
Cash and cash equivalents 830,359 - - - 830,359
Unrealised gains on
forward
foreign exchange contract 4,038,132 - - - 4,038,132
Payment in advance
for
purchase of investments 5,817,556 - - - 5,817,556
Sale of investments
awaiting
settlement 2,166,767 - - - 2,166,767
Other debtors 6,102 - - - 6,102
Redemptions payable (11,578,463) - - - (11,578,463)
Unrealised loss
on forward
foreign exchange
contract (42,949) - - - (42,949)
Bank overdraft (9,717,869) - - - (9,717,869)
Share buybacks payable (160,653) - - - (160,653)
Management fee
payable (189,677) - - - (189,677)
Performance fee
payable (802) - - - (802)
Other creditors (110,894) - - - (110,894)
Total 4,597,638 160,641,716 23,870,460 23,005,316 212,115,130
*The table above reflects the anticipated cash flow assuming
notice was given to all underlying funds as at 31st March 2013 and
31st March 2012. It includes a provision for "audit hold back"
which most hedge funds apply to full redemptions and any other
known restrictions the managers of the underlying funds may have
placed on redemptions. Where there is currently no firm indication
from the underlying manager on the expected timing of the receipt
of redemption proceeds, the relevant amount is included in the
"greater than 12 months" category. The cash flow projections are
therefore conservative, but remain estimates.
23. CAPITAL RISK MANAGEMENT
The Company's objective in managing capital is to ensure its
orderly return to Shareholders.
The Directors terminated the credit facility on 7th September
2012. The Company will not undertake any new borrowing. The Company
does not have any structural gearing. The Company is indirectly
exposed to gearing to the extent that investee funds are themselves
geared. Cash received by the Company as part of the realisation
process, but prior to its distribution to Shareholders, will be
held by the Company as cash in G8 currency-denominated accounts.
The gearing ratio in the succeeding table is calculated as total
liabilities divided by total equity.
31.3.2013 31.3.2012
GBP GBP
Total assets 56,125,566 233,916,437
Less: Redemptions payable - (11,578,463)
Other payables (167,156) (462,026)
Unrealised losses on open forward foreign
currency contracts (5,052) (42,949)
Bank overdraft - (9,717,869)
Total equity 55,953,358 212,115,130
Gearing ratio 0.31% 10.28%
Gearing ratio (excluding redemptions
payable) 0.31% 4.82%
The Board considers this gearing ratio to be adequate since
total liabilities above refer only to bank overdraft, other
payables and unrealised losses on open forward foreign currency
contracts.
Shareholders may liquidate their investments in the Company
half-yearly, on 31st March and/or 30th September of each year (the
"Redemption Day"), subject to certain limitations and the Directors
exercising their discretion to operate the redemption facility.
Shareholders may request the redemption of part of their holdings
of Shares for cash at the prevailing Net Asset Value by giving
notice to the Company not less than 65 days prior to the Redemption
Date.
Pursuant to the amended Memorandum and Articles, the Directors,
in their discretion, may determine to compulsorily redeem some or
all Shares. Compulsory Redemption Announcements will be made not
less than 10 days prior to any Compulsory Redemption Date with the
particulars of such redemption. Refer to Note 15 for Compulsory
Redemptions made during the year.
Redemption on any Redemption Day will be restricted to up to
25.0 per cent. of the Shares in issue (or such lesser amount as the
Directors, in their discretion, may determine), with any excess
redemption requests being scaled back pro rata. Shareholders should
note that the operation of this Redemption Facility is at the sole
discretion of the Directors and they should place no reliance on
the Directors exercising such discretion. Accordingly, Shareholders
should have no expectations that the Directors will exercise their
discretion on these Redemption Days.
24. SUBSEQUENT EVENTS
These Financial Statements were approved for issuance by the
Board on 9th July 2013. Subsequent events have been evaluated until
this date.
On 15th April 2013, the Board approved the second compulsory
share redemption in relation to the Company's orderly wind-down by
reference to the 31st March 2013 NAV. The following are the details
of the redemption:
Date Number of Shares Amount Payment date
Sterling 24,566,484 GBP 32,979,099 24th May 2013
Euro 1,509,089 EUR 1,463,193 24th May 2013
With effect from 8th May 2013, the Board has approved the
removal of the currency hedging programme. As a result, the
remaining hedge fund assets are no longer hedged for movements in
the Sterling and Euro exchange rate against the US Dollar. Any cash
holdings accumulated going forward will be held in US Dollars and
converted into the appropriate currency prior to distribution
through future compulsory share redemptions.
With effect from 1st July 2013, following completion of the
acquisition of Fauchier Partners by Permal in March 2013, Permal
Investment Management Services Limited assumed the role of
investment adviser to the Company, in place of Jubilee Advisers
LLP.
MANAGEMENT AND ADMINISTRATION
DIRECTORS REGISTERED OFFICE
Andrew Sykes (Chairman) PO Box 255,
Nicholas Fry Trafalgar Court,
Robert King Les Banques,
Nicholas Moss St. Peter Port,
Robin Rumboll (Retired 26 Guernsey, GY1 3QL
September 2012)
Graham Harrison
MANAGER INDEPENDENT AUDITOR
Permal Investment Management KPMG Channel Islands Limited
Services Limited (formerly 20 New Street,
Jubilee Asset Management Limited, St Peter Port,
(formerly Fauchier Partners)) Guernsey, GY1 4AN
Management Limited)
Suite A1, Hirzel Court,
Hirzel Street,
St. Peter Port,
Guernsey, GY1 2NN
INVESTMENT ADVISOR CORPORATE BROKER
Jubilee Advisers LLP, (formerly JPMorgan Cazenove Limited,
Fauchier Partners LLP) 20 Moorgate,
12 St. James Square, London, EC2A 6DA
London, SW1Y 4LB
LEGAL ADVISORS (GUERNSEY) LEGAL ADVISORS (UK)
Mourant Ozannes, Herbert Smith,
1 Le Marchant Street, Exchange House,
St. Peter Port, Primrose Street,
Guernsey, GY1 4HP London, EC2A 2HS
ADMINISTRATOR, SECRETARY AND RECEIVING AGENT AND UK PAYING
REGISTRAR AGENT
Northern Trust International Computershare Investor Services
Fund Administration PLC,
Services (Guernsey) Limited, PO Box 859,
PO Box 255 The Pavilions,
Trafalgar Court, Bridgwater Road,
Les Banques, Bristol, BS99 1XZ
St. Peter Port,
Guernsey, GY1 3QL
CUSTODIAN
Northern Trust (Guernsey)
Limited,
Trafalgar Court,
Les Banques,
St. Peter Port,
Guernsey, GY1 3DA
GLOSSARY OF INVESTMENT STRATEGIES
Macro (M) These funds take directional positions based on their
views of macroeconomic and market trends. They primarily use
futures, forwards and options to implement trades in currency, bond
or equity markets. Macro funds have historically delivered a strong
and un-correlated performance, but with considerable volatility;
they can be very attractive in a portfolio context as they tend to
thrive at times of market stress.
Equity Long Bias (ELB) These managers seek to extract returns
from both long and short positions in individual equities. However,
they will have a structurally higher allocation to long positions
than to shorts and will primarily incorporate short positions as a
means of dampening volatility, rather than as a source of alpha.
The Manager expects Equity Long Bias managers to show an average
beta to the MSCI World Equity Index (USD) in excess of 0.5 over a
market cycle.
Equity Hedged High Volatility These managers seek to extract
returns from both long and short positions
(EHH) in individual equities. The Manager does not expect these
funds to show an average beta to the MSCI World Equity index (USD)
of more than 0.5 over a market cycle and they should deliver the
majority of their returns through stock-specific or sector-level
risk. Over a market cycle, the Manager expects these funds to
exhibit at least two-thirds of the volatility of the MSCI World
Equity Index (USD).
Equity Hedged Low Volatility These managers seek to extract
returns from both long and short positions
(EHL) in individual equities. The Manager does not expect these
funds to show an average beta to the MSCI World Equity Index (USD)
of more than 0.5 over a market cycle and they should deliver the
majority of their returns through stock-specific or sector-level
risk. Over a market cycle, the Manager expects these funds to
exhibit less than two-thirds of the volatility of the MSCI World
Equity Index (USD).
Short Bias (SB) A few managers run hedge funds with a consistent
short bias, primarily in equities but also in corporate bonds. They
vary the degree of gross and net exposure according to their
perception of individual opportunities. Unsurprisingly, these funds
deliver performance which tends to be negatively correlated to
markets, Equity Long Bias funds and to a number of other
fundamentally-driven hedge fund strategies. They often perform well
at times of high equity and bond market volatility and are
attractive in a portfolio context as a form of "value added
insurance".
Specialist Credit (SC) These funds generate their returns
through long and short positions in corporate debt. Hedging
instruments can include credit default swaps, equities and equity
options. Managers often specialise in certain areas of the credit
spectrum, ranging from Distressed and High Yield bonds to
Investment Grade issues.
Event Driven (ED) The event driven strategy takes advantage of
either announced corporate actions or other pre-defined events that
provide an estimated rate of return over a defined time period.
Examples of such events include mergers, spin-offs and index
rebalances. Often there is a "spread" between two or more involved
securities or one security and a specified cash level. The
principal risk is that the event does not come to fruition or that
the timeline is underestimated. Generally, only moderate leverage
is employed in this strategy.
Volatility Trading (VT) Managers in this strategy seek to
generate returns by exploiting inefficiencies in the pricing of
implied and realised volatility in a variety of asset classes.
Managers can be sub-classified into those who capture cheap
optionality embedded within convertible bonds ("Convertible Bond
Arbitrage") and those who take stand-alone and relative positions
in options of both individual securities and in indices ("Options
Arbitrage").
Fixed Income (FI) Funds within this strategy trade interest rate
risk on a relative value and/or directional basis. Typically they
express their views through G10 government bond markets, interest
swaps and other OTC and exchange traded derivative contracts. As
government bonds are low volatility instruments, considerable
nominal leverage is often applied.
Multiple Strategy (MS) This group of hedge funds engages in a
combination of the aforementioned strategies, adding value by
dynamically allocating to in-house specialist teams in the areas
which they think are likely to be most rewarding. These funds have
further attractions in that they only charge a performance fee on
the net returns achieved across the various strategies in
aggregate.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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