TIDMADMF
RNS Number : 9419M
Advance Developing Markets Fund Ltd
26 January 2016
ADVANCE DEVELOPING MARKETS FUND LIMITED
ANNUAL REPORT AND FINANCIAL STATEMENTS
FOR THE YEAR ENDED 31 OCTOBER 2015
INVESTMENT OBJECTIVE
The Company's investment objective is to achieve consistent
returns for Shareholders in excess of the MSCI Emerging Markets Net
Total Return Index in Sterling terms (the "Benchmark")
PERFORMANCE
For the year ended 31 October 2015
Net Asset Value ("NAV") per share(1) -8.1%
Share price - mid market(2) -9.5%
MSCI Emerging Markets Net Total Return Index in
Sterling terms -11.4%
As at 31 October 2015
NAV per share(3) 453.5p
Ordinary share price - mid market 400.4p
Net Assets GBP235.5m
(1) Measured against a closing NAV at 31 October 2014 of
493.5p
(2) Measured against a closing mid-market ordinary share price at 31 October 2014 of 442.3p
(3) See notes to the Financial Statements for basis of
calculation
The Annual Report can be downloaded in electronic format from
the website of the Investment Manager
aberdeen-emerging-capital.com
CHAIRMAN'S STATEMENT
On behalf of the Board, I am pleased to present the annual
financial report of Advance Developing Markets Fund Limited
("ADMF", the "Company" or the "Fund") for the period ended 31
October 2015.
Performance
The reporting period proved to be highly challenging for
investors in emerging markets, with currency weakness a persistent
theme as investors reacted to China's slowdown, the expectation of
rising US interest rates, a sovereign debt crisis in Greece,
geo-political concerns in parts of the Middle East and Ukraine as
well as a home-grown political scandal in Brazil.
Against this backdrop, the twelve months to the end of October
2015 saw the Company's NAV decline by 8.1% compared with an 11.4%
fall in the benchmark MSCI Emerging Markets Index. While I am
disappointed that the Company's net asset value declined in
absolute terms, I take some comfort from the fact that the
Investment Manager's investment approach of investing in a
combination of discounted closed-end funds and best-of-breed
managers of open ended funds outperformed the benchmark by
3.3%.
Discount
Over the course of the year the Company's ordinary shares traded
at an average discount to net asset value of 11.0%. While this
level of discount is not one that I view with any satisfaction, I
note that it is broadly consistent with comparable funds investing
in mainstream emerging market equities, evidencing a general lack
of appetite for emerging market assets.
Acquisition of Investment Manager
On 15 September 2015 it was announced that the Company's
Investment Manager, Aberdeen Emerging Capital Limited which was
formerly named Advance Emerging Capital Limited ("AECL") had
reached an agreement with Aberdeen Asset Management PLC
("Aberdeen") whereby Aberdeen would acquire 100% ownership of AECL.
The transaction received regulatory approval from the UK Financial
Conduct Authority and was completed in December 2015.
The Board of the Company is supportive of the transaction. The
investment management team of AECL will remain unchanged and AECL
is expected to benefit from the significant additional resources
available within Aberdeen.
Proposal to Change the Company's Name
As a consequence of the Aberdeen transaction the Board
considered the merits of changing the Company's name. We believe
that there are benefits that will accrue from Aberdeen's high
profile and good reputation, notably in attracting additional
retail demand for the Company's shares. Therefore we are proposing
that the Company's name be changed to Aberdeen Emerging Markets
Investment Company Limited. This will be proposed at the Company's
forthcoming Annual General Meeting scheduled for 14 April 2016. I
and my fellow directors intend to vote our shareholdings in favour
and I would encourage shareholders to support this change.
Outlook
The last few years have been challenging for investors in
emerging markets with some commentators even questioning whether or
not the concept of emerging markets as an asset class remains
valid. Sentiment is at a low ebb and uncertainty prevails despite
market valuations appearing to be reasonably attractive. The
Investment Manager discusses the issues facing the asset class in
its report and I concur with their conclusion that emerging markets
are still relevant and currently present active managers with many
opportunities to deliver superior returns. Much will depend on how
the Chinese economy fares and the better performance of commodity
prices which affect a large segment of our investment universe.
As always, I would like to thank the Company's shareholders for
their continued support, my fellow directors for their diligence
and professionalism and all our advisers for their advice and
assistance.
Richard Bonsor
Chairman
25 January 2016
INVESTMENT MANAGER'S REPORT
During the financial year the Company's net asset value per
share and share price fell by 8.1% and 9.5% respectively. Both were
comfortably ahead of the benchmark MSCI Emerging Markets Net Total
Return Index which declined by 11.4%.
Looking at the sources of benchmark outperformance, fund
selection was the major contributor, with strong relative returns
from the Company's holdings in China (Neuberger Berman - China
Equity Fund, Fidelity China Special Situations PLC), India (Goldman
Sachs India Equity Portfolio), Korea (KIM Korea Navigator Fund,
Weiss Korea Opportunity Fund Limited) and Thailand (Ton Poh
Thailand Fund - Class C). A positive contribution was achieved
through asset allocation with underweight positions in Brazil,
Colombia, Malaysia and Poland aiding to relative performance.
Discount movements detracted from performance as poor sentiment led
to widening across a number of portfolio holdings, including
Aberdeen Asian Smaller Companies Investment Trust PLC, Edinburgh
Dragon Trust PLC, Korea Fund Inc and Weiss Korea Opportunity Fund
Limited.
Performance attribution for the year ended 31 October 2015
Fund Selection 4.2%
Asia 4.4%
EMEA (0.1%)
Latin America (0.1%)
Asset Allocation 0.6%
Asia (0.4%)
EMEA (0.2%)
Latin America 0.7%
Cash (direct and underlying) 0.5%
Discount Movements (0.3%)
Fees and Expenses (1.2%)
Relative Net Asset Value Performance 3.3%
Market Environment
Emerging markets declined during the period, despite enjoying
several sharp rallies, with sentiment towards the asset class as a
whole largely driven by investors' focus on a handful of high-level
issues. These included the timing and impact of a long-anticipated
increase in US interest rates, the consequences of slowing economic
growth in China and the knock-on effects of this which were felt
around the emerging world. Much of this concern was reflected in
currency weakness with JP Morgan's index of emerging market
currencies declining by almost 18% during the year and the
Brazilian real, Turkish lira, South African rand and Russian ruble
falling to all-time lows against the US dollar. Foreign investors
continued to exit the asset class with Bank of America Merrill
Lynch reporting that emerging market equity funds saw outflows of
USD 62 billion over the first ten months of 2015 compared with USD
25 billion for the whole of 2014.
Chart 1. Emerging and developed market performance during the
year to 31 October 2015
See Annual Report for chart
On a regional basis, Asia outperformed despite declining by
4.3%. China was the best performing market in the region,
delivering a return of 3.0%, which masks a hugely volatile and
eventful year for China's stock markets, currency and economy. By
mid-April the MSCI China Index had surged by more than 40% from its
October 2014 level as investors took encouragement from monetary
policy easing measures and the opening up of China's securities
markets following the launch of the Shanghai-Hong Kong Stock
Connect program in November 2014 allowing investors in the Hong
Kong and Shanghai markets to trade eligible shares in either market
using their local brokers and trading accounts. The market then
more than relinquished those prior gains on valuation concerns and
fears over the impact of a clamp-down on margin trading in domestic
A-Shares. The People's Bank of China attempted to stabilise the
market with interest rate and reserve requirement cuts but these
had limited immediate impact. Weak economic data releases through
the summer added to the negativity and the authorities delivered a
surprise currency devaluation in August as well as further
reductions in both interest rates and reserve requirements and
numerous other measures designed to support economic growth, the
stock market and real estate markets.
South Korea's stock market fell by just 2.8% despite an outbreak
of viral respiratory illness MERS contributing to weak summer
domestic consumption and a challenging year for exports. Towards
the end of the period, Samsung Electronics, the largest stock in
the market, announced a large share buyback programme and a
commitment to distribute 30%-50% of free cash flow to shareholders
over the coming years. This positive development, coming from such
a high profile company, is significant given that Korea's low
dividend payout ratio and the reluctance of corporate managements
to return capital to shareholders are often cited as reasons for
the market trading at a discount to its peers.
(MORE TO FOLLOW) Dow Jones Newswires
January 26, 2016 02:00 ET (07:00 GMT)
The Indian market declined by 4.7% as some of the euphoria that
existed post Prime Minister Modi's decisive election victory in May
2014 dissipated, with investors growing impatient over a perceived
lack of progress on key reforms including delays to the
introduction of the Goods and Services Tax.. Lacklustre earnings
and mooted changes to the tax regime for foreign investors were
inconsistent with investors' elevated expectations and also
contributed to profit taking during the period. The Indonesian
market was among the weaker performers in Asia, losing 19.8% with
currency weakness contributing meaningfully to that loss. President
Joko Widodo was slow to gain traction with his reform initiatives
and investors took fright at rising inflation, weak GDP growth and
disappointing corporate earnings. Malaysia delivered the worst
return in Asia, a loss of 27.4% as the ringgit reached lows last
seen during the Asian crisis and an ongoing political and financial
scandal at government-run strategic development company 1MDB
continued to create negative headlines. Weak commodity prices,
especially oil, did nothing to help either Indonesia or
Malaysia.
In Eastern Europe, the Russian index fell by 18.0% and continued
to be affected by the direction of energy prices as well as
geo-political tensions. The Turkish market fell 19.7% in a year of
political uncertainty and rising tensions around its borders.
President Erdogan lost his parliamentary majority in early June but
a coalition government failed to emerge and the election was re-run
on 1 November, the day after the Company's financial year end,
resulting in Erdogan regaining his parliamentary majority. Greek
equities lost 54.4% during what was a volatile period as the
country narrowly avoided default and potential ejection from the
Eurozone.
Qatar and the United Arab Emirates, both recent entrants to the
emerging market universe, saw their stock markets decline by 14.1%
and 18.4% respectively. Sentiment towards the region was impacted
by weak energy prices and Qatar's case was not helped by ongoing
investigations by the US authorities and Swiss prosecutors into
FIFA's award of the World Cup to the country.
South Africa fared better than other markets in the region but
still declined by 10.6%. The country continues to face a
challenging macroeconomic and political outlook, with ongoing
electricity blackouts, a general acceptance that the state energy
utility is bankrupt and the obvious challenges facing the mining
sector.
In Latin America, the Brazilian market lost 44.0%. The economy
is in the middle of a deep recession that is expected to last until
2017. The position of President Rousseff looks increasingly
precarious as a consequence of the "Car Wash" scandal at state
controlled oil company Petrobras. Impeachment may yet await her.
The equity and currency market discounted this bleak picture
aggressively and S&P downgraded Brazil's credit rating to junk
status in September. Mexico fared better, but still lost 15.2% with
currency weakness contributing to that loss despite a relatively
robust economic performance supported by reforms, remittances and
trade with the US.
Chart 2. Market performances during the half year to 31 October
2015
See Annual Report for chart
Portfolio
At the end of the period the portfolio comprised 44 positions
with the top 20 accounting for 76.8% of net assets. As noted in the
Company's half yearly report the early part of the year saw the
addition of Goldman Sachs India Equity Portfolio to the portfolio
as a best-of-breed open ended holding with a manager focused on
identifying long term fundamental value opportunities. In the first
half of the year opportunistic acquisitions of shares in Genesis
Emerging Markets Fund Limited were made on discounts exceeding 13%.
The average discount over the twelve months prior to the Company's
purchase was 7.7%.
In the second half of the year we made several significant
changes to the portfolio. Within South Africa we chose to exit a
longstanding position in Coronation Top 20 South Africa Fund
(Cayman Islands) after a period of rapid growth in assets and
disappointing relative returns. After extensive due diligence on a
number of managers, we initiated a position in Steyn Capital SA
Equity Fund SP. This vehicle is managed by Cape Town based boutique
Steyn Capital Management, with a focus on identifying companies
with high earnings quality and strong fundamental tailwinds while
avoiding those that are suspected of hiding structural weaknesses.
The firm is well resourced, a seasoned investor in South Africa,
manages a reasonable level of assets and we were able to secure
attractive terms for the Company's investment.
Another major new investment during the period was made into the
Korea Value Strategy Fund Ltd - Class B. The fund is managed by an
experienced team at Petra Capital in Seoul. The approach is one of
fundamentally driven deep value investing with a private equity
mind-set. The managers run a concentrated, high-conviction
portfolio. In simple terms, Petra aims to buy shares of great
companies at attractive prices or average companies at give-away
prices. Long-term investments are made in companies with durable
competitive advantages when the market price does not fully reflect
growth potential. Shorter-term investments are focussed on
companies when the market price is significantly discounted to its
intrinsic value and a catalyst for narrowing discounts exists.
Petra's client base is dominated by foundations, endowment funds,
family offices and pension funds with long term investment
horizons. This investment was the culmination of 24 months of due
diligence including several trips to Korea. Funds for this
investment were provided by a full exit from KIM Korea Navigator
Fund where, as a result of strong performance, the valuation of the
underlying portfolio had reached a level we viewed as fully
valued.
Late in the period we added significantly to the Company's
holding in Korean preferred share vehicle Weiss Korea Opportunity
Fund Limited as its discount widened beyond 5%, a level at which
the fund's board and management has indicated they would step in
and use their 40% buyback authority. Preferred shares in Korea are
essentially non-voting ordinary shares with a small extra dividend.
Weiss's underlying portfolio traded at a weighted average discount
to the equivalent ordinary shares of 35.7% at the end of October
2015. There are several reasons to remain optimistic that the
underlying discount can narrow from that level, including gradual
improvements in corporate governance, tax and legislative changes
and the higher dividend yields offered by preferred shares.
Over the course of the year there was a significant rotation
within the Company's closed end fund holdings. New investments or
additions were made in Aberdeen Asian Smaller Companies Investment
Trust PLC, JPMorgan Chinese Investment Trust PLC, JPMorgan Global
Emerging Markets Income Trust PLC, The Mexico Fund Inc, Morgan
Stanley China A Share Fund Inc, BlackRock Emerging Europe PLC,
JPMorgan Asian Investment Trust PLC and Fidelity China Special
Situations PLC on the basis of attractive discounts and/or positive
asset allocation views. As a result, the percentage of the fund
invested in closed end funds increased to 57.7% over the year.
Counterbalancing these were sales of a handful of closed end funds
which were largely made on asset allocation or underlying valuation
grounds including The India Fund Inc, India Capital Growth Fund
Limited, BlackRock World Mining Trust PLC and JPMorgan Russian
Securities PLC. Exposure to market access products was stable, with
these products used for asset allocation purposes and to manage
portfolio liquidity.
The composition of the portfolio by fund structure as at 31
October 2015 was as follows:
October 2014 October 2015
Closed ended investment
funds 56.9% 57.7%
Open ended investment
funds 36.5% 36.5%
Market access products 5.9% 4.8%
Cash and other net
assets 0.7% 1.0%
The Fund's geographic allocation is shown on page 6 of the
Annual Report and Accounts. The period saw the allocation in Asia
increase by 8.2% to 68.6% as a result of the relative
outperformance of Asian markets and net additions to China and
India. In Eastern Europe the size of the overweight positioning in
Russia was reduced as a consequence of sales of JP Morgan Russian
Securities PLC from March to May as the Russian market recovered
strongly. The allocation to Turkey was increased in the first half
of the year on valuation grounds to double that of the benchmark.
South Africa saw a net decrease as we chose not to reinvest the
entire proceeds of the redemption from Coronation Top 20 South
Africa Fund (Cayman Islands) back into Steyn Capital SA Equity Fund
SP given a challenging top down outlook. The Fund's allocation to
Brazil more than halved over the course of the year but was mainly
a result of that market's underperformance.
Market Outlook
In the Company's annual report published a year ago, we stated
our belief that "positive surprises in terms of growth, reform or
political change" would be required to prompt a turnaround in the
performance of emerging market assets. Sadly, what occurred instead
in 2015 was continued deterioration in most of these factors, with
the trend for weaker currencies, energy and commodity prices
prevailing and further political and governance issues generating
volatility and weighing negatively on sentiment. Investors
responded by withdrawing a record USD 73 billion from dedicated
emerging market funds over the year according to EPFR data.
With emerging markets experiencing a third successive year of
both absolute declines and underperformance of developed markets,
some commentators have called into question the traditional
aggregation of such a diverse group of markets into a single asset
class. We disagree and see reasons for selective optimism in
2016.
(MORE TO FOLLOW) Dow Jones Newswires
January 26, 2016 02:00 ET (07:00 GMT)
Sentiment towards emerging markets is as negative as we can
recall, even during the depths of the global financial crisis,
which we view as a strong contrary indicator. Valuations are very
reasonable, both compared to history, developed markets and in
absolute terms. In China, while one may question the authorities'
methods, we believe a soft landing is being managed. Those same
authorities have significant levers they can still pull to avert a
crisis, which cannot be said of other emerging markets including
Brazil and South Africa, where a turnaround seems dependent on
reform or a strong pick-up in global demand and thus export prices.
The Chinese market itself is set to grow within an emerging market
context, as an increasing number of companies are included in
Chinese indices over the coming years. In markets such as India and
Mexico, the macroeconomic outlook is robust, although valuations in
those markets are commensurately higher. In Eastern Europe, highly
attractive valuations, moderate growth and the potential for
further stimulus point to better times ahead for investors.
At a bottom up level, discount widening and market volatility
have thrown up opportunities for nimble investors in the short
term, as well as for the patient ones over the longer term. We are
actively taking advantage of such opportunities. The same type of
inefficiency at a stock specific level is what has enabled many of
our underlying managers to perform admirably in what has been a
challenging environment, and we are confident that they will
continue to do so.
Aberdeen Acquisition Update
As a consequence of Aberdeen's acquisition of us, the investment
team has relocated to Aberdeen's London office and is in the
process of being integrated into Aberdeen's Alternatives business.
Aberdeen is an investment house we have immense respect for, and
with which we share a similar investment philosophy and
appreciation of the benefits of the closed end fund structure. We
are therefore delighted to have joined them and we look forward to
continuing to implement our current strategy and process with
significant additional support provided by Aberdeen's Closed End
Funds team and the operational infrastructure that comes with being
part of a FTSE 100 company. Sitting within Aberdeen's rapidly
growing Alternatives business will, we believe, enable us to share
ideas and best practice to the benefit of the Company's
shareholders
Aberdeen Emerging Capital Limited (formerly Advance Emerging
Capital Limited)
25 January 2016
PRINCIPAL RISKS AND UNCERTAINTIES
Together with the issues discussed in the Chairman's Statement
and the Investment Manager's Report, the Board considers that the
main risks and uncertainties faced by the Company fall into the
following categories:
(i) General market risks associated with the Company's
investments
Changes in economic conditions, interest rates, foreign exchange
rates and inflationary pressures, industry conditions, competition,
political and diplomatic events, tax, environmental and other laws
and other factors can substantially and either adversely or
favourably affect the value of the securities in which the Company
invests and, therefore, the Company's performance and
prospects.
The Company's investments are subject to normal market
fluctuations and the risks inherent in the purchase, holding or
selling of securities, and there can be no assurance that
appreciation in the value of those investments will occur. There
can be no guarantee that any realisation of an investment will be
on a basis which necessarily reflects the Company's valuation of
that investment for the purposes of calculating the net asset
value.
The Company's investments, although not made into developed
economies, are not entirely sheltered from the negative impact of
economic slowdowns, decreasing consumer demands and credit
shortages in such developed economies which, amongst other things,
affects the demand for the products and services offered by the
companies in which the Company directly or indirectly invests.
A proportion of the Company's portfolio may be held in cash or
cash equivalent investments from time to time. Such proportion of
the Company's assets will be out of the market and will not benefit
from positive stock market movements, but may give some protection
against negative stock market movements.
(ii) Developing markets
The funds selected by the Investment Manager invest in
developing markets. Investing in developing markets involves
certain risks and special considerations not typically associated
with investing in other more established economies or securities
markets. In particular there may be: (a) the risk of
nationalisation or expropriation of assets or confiscatory
taxation; (b) social, economic and political uncertainty including
war and revolution; (c) dependence on exports and the corresponding
importance of international trade and commodities prices; (d) less
liquidity of securities markets; (e) currency exchange rate
fluctuations; (f) potentially higher rates of inflation (including
hyper-inflation); (g) controls on foreign investment and
limitations on repatriation of invested capital and a fund
manager's ability to exchange local currencies for pounds Sterling;
(h) a higher degree of governmental involvement and control over
the economies; (i) government decisions to discontinue support for
economic reform programmes and imposition of centrally planned
economies; (j) differences in auditing and financial reporting
standards which may result in the unavailability of material
information about economies and issuers; (k) less extensive
regulatory oversight of securities markets; (l) longer settlement
periods for securities transactions; (m) less stringent laws
regarding the fiduciary duties of officers and directors and
protection of investors; and (n) certain consequences regarding the
maintenance of portfolio securities and cash with sub-custodians
and securities depositories in developing markets.
(iii) Other portfolio specific risks
(a) Small cap stocks
The underlying investee funds selected by the Investment Manager
may have significant investments in smaller to medium sized
companies of a less seasoned nature whose securities are traded in
an "over-the-counter" market. These "secondary" securities often
involve significantly greater risks than the securities of larger,
better-known companies, due to shorter operating histories,
potentially lower credit ratings and, if they are not listed
companies, a potential lack of liquidity in their securities. As a
result of lower liquidity and greater share price volatility of
these "secondary" securities, there may be a disproportionate
effect on the value of the investee funds and, indirectly, on the
value of the Company's portfolio.
(b) Liquidity of the portfolio
The fact that a share is traded does not guarantee its liquidity
and the Company's investments may be less liquid than other listed
and publicly traded securities. The Company may invest in
securities that are not readily tradable or may accumulate
investment positions that represent a significant multiple of the
normal trading volumes of an investment, which may make it
difficult for the Company to sell its investments. Investors should
not expect that the Company will necessarily be able to realise its
investments, within a period which they would otherwise regard as
reasonable, and any such realisations that may be achieved may be
at a considerably lower price than prevailing indicative market
prices. The Company has an overdraft facility in place which may be
utilised to assist in the management of liquidity. The borrowing
facility is described later in this Directors' Report.
Liquidity of the portfolio is further discussed in note 16 to
the financial statements.
(c) Foreign exchange risks
It is not the Company's present policy to engage in currency
hedging. Accordingly, the movement of exchange rates between
Sterling and the other currencies in which the Company's
investments are denominated or its borrowings are drawn down may
have a material effect, unfavourable or favourable, on the returns
otherwise experienced on the investments made by the Company.
Movements in the foreign exchange rate between Sterling and the
currency applicable to a particular shareholder may have an impact
upon that shareholder's returns in their own currency of
account.
Management or mitigation of the above risks
Risk Management or mitigation of risk
General market risks These risks are largely a consequence
associated with the Company's of the Company's investment strategy
investments but the Investment Manager attempts
to mitigate such risks by maintaining
an appropriately diversified portfolio
by number of holdings, fund structure,
geographic focus, investment style and
market capitalisation focus.
Liquidity, risk and exposure measures
are produced on a monthly basis by the
Investment Manager's Compliance Consultant
and monitored against internal limits.
--------------------------------------------
Developing markets
--------------------------------------------
Other portfolio specific
risks
(a) Small cap risks
(b) Liquidity of the
portfolio
(c) Foreign exchange
risks
--------------------------------------------
(MORE TO FOLLOW) Dow Jones Newswires
January 26, 2016 02:00 ET (07:00 GMT)
The investment management of the Company has been delegated to
the Company's Investment Manager. The Investment Manager's
investment process takes into account the material risks associated
with the Company's portfolio and the markets and holdings in which
the Company is invested. The Board monitors the portfolio and the
performance of the Investment Manager at regular Board
meetings.
(iv) Internal risks
Poor allocation of the Company's assets to both markets and
investee funds by the Investment Manager, poor governance,
compliance or administration, could result in shareholders not
making acceptable returns on their investment in the Company.
Management or mitigation of internal risks
The Board monitors the performance of the Investment Manager and
the other key service providers at regular Board meetings. The
Investment Manager provides reports to the Board on compliance
matters and the Administrator provides reports to the Board on
compliance and other administrative matters. The Board has
established various committees to ensure that relevant governance
matters are addressed by the Board.
The management or mitigation of internal risks is described in
detail in the corporate governance statement on pages 14 to 18 of
the Annual Report and Accounts.
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 accordance with
International Financial Reporting Standards as issued by the
International Accounting Standards Board ("IASB") 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 the going concern basis
unless it is inappropriate to presume that the company will
continue in business.
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.
Disclosure of information to auditor
The directors who held office at the date of approval of this
directors' report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor is unaware; and each director has taken all the steps that
they ought to have taken as a director to make themselves aware of
any relevant audit information and to establish that the Company's
auditor is aware of that information.
The maintenance and integrity of the Aberdeen Emerging Capital
Limited (formerly named Advance Emerging Capital Limited) website
is the responsibility of their directors; the work carried out by
the auditors does not involve consideration of these matters and,
accordingly, the auditors accept no responsibility for any changes
that may have occurred to the financial statements or audit report
since they were initially presented on the website.
Legislation in Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Directors' responsibility statement in respect of the annual
report and financial statements
The directors confirm that to the best of their knowledge and
belief the Annual Report and Financial Statements taken as a whole,
is fair, balanced and understandable and provides the information
necessary to assess the Company's performance, business model and
strategy. During the course of this assessment, the directors have
received input from the Audit Committee, the Investment Manager,
the Company Secretary and the UK Administration Agent.
Directors' responsibility statement under the disclosure and
transparency rules 4.1.12
The directors confirm that to the best of their knowledge and
belief;
(a) the financial statements, prepared in accordance with
International Financial Reporting Standards as issued by the IASB,
give a true and fair view of the assets, liabilities, financial
position and profit or loss of the Company; and
(b) the management report (comprising the Chairman's Statement,
the Investment Manager's Report and the Directors' Report) includes
a fair review of the development and performance of the business
and the position of the Company together with a description of the
principal risks and uncertainties that the Company faces.
John Hawkins - Director
William Collins - Director
25 January 2016
STATEMENT OF COMPREHENSIVE INCOME
For the year ended 31 October 2015
2015 2014
Revenue Total Revenue Total
Capital Capital
--------- ---------
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
---------- --------- --------- ---------- --------- --------
Losses on investments designated
as fair value through profit
or loss - (19,622) (19,622) - (2,525) (2,525)
Capital losses on currency
movements - (140) (140) - (176) (176)
---------- --------- --------- ---------- --------- --------
Net investment losses - (19,762) (19,762) - (2,701) (2,701)
Investment income 2,243 - 2,243 2,608 - 2,608
---------- --------- --------- ---------- --------- --------
2,243 (19,762) (17,519) 2,608 (2,701) (93)
Investment management fees (2,252) - (2,252) (2,315) - (2,315)
Other expenses (745) - (745) (665) - (665)
---------- --------- --------- ---------- --------- --------
Operating loss before finance
costs and taxation (754) (19,762) (20,516) (372) (2,701) (3,073)
Finance costs (41) - (41) (19) - (19)
---------- --------- --------- ---------- --------- --------
Operating loss before taxation (795) (19,762) (20,557) (391) (2,701) (3,092)
Withholding tax expense (188) - (188) (271) - (271)
---------- --------- --------- ---------- --------- --------
Total comprehensive income
for the year (983) (19,762) (20,745) (662) (2,701) (3,363)
---------- --------- --------- ---------- --------- --------
Earnings per ordinary share
- Basic and diluted (1.89p) (38.06p) (39.95p) (1.17p) (4.80p) (5.97p)
The Company does not have any income or expenses that are not
included in the loss for the year and therefore the loss for the
year" is also the "Total comprehensive income for the year", as
defined in International Accounting Standard 1 (revised).
The total column of this statement represents the Company's
Statement of Comprehensive Income, prepared under IFRS. The revenue
and capital columns, including the revenue and capital earnings per
share data, are supplementary information prepared under guidance
published by the Association of Investment Companies.
All revenue and capital items in the above statement derive from
continuing operations. No operations were acquired or discontinued
during the year.
STATEMENT OF FINANCIAL POSITION
At 31 October 2015
2015 2014
GBP'000 GBP'000
Non-current assets
Investments designated as fair value through
profit or loss 233,110 254,386
Current assets
Cash and cash equivalents 1,996 2,018
Sales for future settlement 573 -
Other receivables 116 148
----------- -----------
2,685 2,166
----------- -----------
Total assets 235,795 256,552
Current liabilities
Purchases for future settlement 53 -
Other payables 243 308
Total liabilities 296 308
----------- -----------
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Net assets 235,499 256,244
----------- -----------
Equity
Share capital 187,725 187,725
Capital reserve 54,245 74,007
Revenue reserve (6,471) (5,488)
Total equity 235,499 256,244
----------- -----------
Net assets per ordinary share 453.53p 493.48p
Number of ordinary shares in issue (excluding
shares held in treasury) 51,926,229 51,926,229
Approved by the Board of Directors on 25 January 2016 and signed
on their behalf by:
John Hawkins - Director
William Collins - Director
STATEMENT OF CHANGES IN EQUITY
For the year ended 31 October 2015
Share capital Capital Revenue Total
account reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 187,725 74,007 (5,488) 256,244
Loss for the year - (19,762) (983) (20,745)
-------------- --------- --------- ---------
Balance at 31 October
2015 187,725 54,245 (6,471) 235,499
-------------- --------- --------- ---------
For the year ended 31 October 2014
Share capital Capital Revenue Total
account reserve reserve
GBP'000 GBP'000 GBP'000 GBP'000
Opening equity 245,381 76,708 (4,826) 317,263
Tender offer (57,576) - - (57,576)
Other share buy backs (80) - - (80)
Loss for the year - (2,701) (662) (3,363)
-------------- --------- --------- ---------
Balance at 31 October
2014 187,725 74,007 (5,488) 256,244
-------------- --------- --------- ---------
STATEMENT OF CASH FLOW
For the year ended 31 October 2015
2015 2014
GBP'000 GBP'000
Cash flows from operating activities
Cash inflow from investment income
and bank interest 2,238 2,559
Cash outflow from management expenses (3,027) (2,903)
Cash inflow from disposal of investments 98,887 119,981
Cash outflow from purchase of investments (97,754) (64,911)
Cash outflow from taxation (188) (271)
--------- ---------
Net cash flow from operating activities 156 54,455
--------- ---------
Cash flows from financing activities
Borrowing commitment fee and interest
charges (41) (19)
Share buy backs/Tender offer - (57,656)
--------- ---------
Net cash flow used in financing
activities (41) (57,675)
--------- ---------
Net increase/(decrease) in cash
and cash equivalents 115 (3,220)
--------- ---------
Opening balance 2,018 5,413
Cash flow 115 (3,220)
Effect of foreign exchange (137) (175)
--------- ---------
Balance at 31 October 1,996 2,018
--------- ---------
NOTES
1. REPORTING ENTITY
Advance Developing Markets Fund Limited (the "Company") is a
closed-ended investment company, registered in Guernsey on 16
September 2009. The Company's registered office is 11 New Street,
St Peter Port, Guernsey GY1 2PF. The Company's ordinary shares hold
a premium listing on the London Stock Exchange. The financial
statements of the Company are presented for the year ended 31
October 2015.
The Company invests in a portfolio of funds and products which
give diversified exposure to developing and emerging market
economies. The Company's investment objective is to achieve
consistent returns for shareholders in excess of the MSCI Emerging
Markets Net Total Return Index in Sterling terms (Bloomberg ticker:
NDUEEGF Index) (the "Benchmark").
The investment activities of the Company are managed by Aberdeen
Emerging Capital Limited which was formerly named Advance Emerging
Capital Limited ("AECL").
This report will be sent to shareholders and copies will be made
available to the public at the registered office of the Company. It
will also be available in electronic form on the Investment
Manager's website, aberdeen-emerging-capital.com.
2. BASIS OF PREPARATION
(a) Statement of compliance
The financial statements which give a true and fair view have
been prepared in accordance with International Financial Reporting
Standards ("IFRS") issued by the International Accounting Standards
Board ("IASB") and are in compliance with the Companies (Guernsey)
Law, 2008. There were no changes in the accounting policies of the
Company in the year to 31 October 2015.
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for Investment Companies issued by
the Association of Investment Companies ("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
recommendations of the SORP.
The total column of the Statement of Comprehensive Income is the
profit and loss account of the Company. The capital and revenue
columns provide supplementary information.
The financial statements were approved and authorised for issue
by the Board on 25 January 2016.
(b) Going concern
The directors have adopted the going concern basis in preparing
the financial statements. The following is a summary of the
directors' assessment of the going concern status of the
Company.
The directors have a reasonable expectation that the Company has
adequate operational resources to continue in operational existence
for at least twelve months from the date of approval of this
document. In reaching this conclusion, the directors have
considered the liquidity of the Company's portfolio of investments
as well as its cash position, income and expense flows. As at 31
October 2015, the Company held GBP2.0m in cash and GBP233.1m in
investments. It is estimated that approximately 59% of the
investments held at the year end could be realised in one month.
The total operating expenses for the year ended 31 October 2015
were GBP3.0m, which represented approximately 1.2% of average net
assets during the year. The Company therefore has substantial
operating expense cover. The Company's net assets at 31 December
2015 were GBP236.5m.
The directors are satisfied that it is appropriate to adopt the
going concern basis in preparing the financial statements and,
after due consideration, the directors consider that the Company is
able to continue for a period of at least twelve months from the
date of approval of the financial statements.
(c) Basis of measurement
The financial statements have been prepared on the historical
cost basis except for financial instruments at fair value through
profit or loss which are measured at fair value.
(d) Functional and presentation currency
The Company's investments are denominated in multiple
currencies. However, the Company's shares are issued in Sterling
and the majority of its investors are UK based. Therefore the
financial statements are presented in Sterling, which is the
Company's functional currency. All financial information presented
in Sterling has been rounded to the nearest thousand pounds.
(e) Capital reserve
Profits achieved by selling investments and changes in fair
value arising upon the revaluation of investments that remain in
the portfolio are all charged to the capital column of the
Statement of Comprehensive Income and allocated to the capital
reserve.
(f) Revenue reserve
The balance of all items allocated to the revenue column of the
Statement of Comprehensive Income in each year is transferred to
the Company's revenue reserve.
(g) Use of estimates and judgements
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets, liabilities, income and expenses.
Actual results may differ from these estimates.
Estimates and underlying assumptions are reviewed on an on-going
basis. Revisions to accounting estimates are recognised in the
period in which the estimates are revised and in any future periods
affected.
Information about significant areas of estimation uncertainty
and critical judgements in applying accounting policies that have
the most significant effect on the amounts recognised in the
financial statements are described below.
Classification and valuation of investments
Investments are designated as fair value through profit or loss
on initial recognition and are subsequently measured at fair value.
The valuation of such investments requires estimates and
assumptions made by the management of the Company depending on the
nature of the investments as described in notes 3 (a) and 17 and
fair value may not represent actual realisable value for those
investments.
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Allocation of investments to fair value hierarchy
IFRS 13 requires the Company to measure fair value using the
following fair value hierarchy that reflects the significance of
the inputs used in making the measurements. IFRS 13 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 fair value hierarchy under IFRS 13 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);
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 categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. 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 judgement, considering factors
specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement 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.
3. SIGNIFICANT ACCOUNTING POLICIES
(a) Investments
As the Company's business is investing in financial assets with
a view to profiting from their total return in the form of
increases in fair value, financial assets are designated as fair
value through profit or loss on initial recognition. These
investments are recognised on the trade date of their acquisition
at which the Company becomes a party to the contractual provisions
of the instrument. At this time, the best evidence of the fair
value of the financial assets is the transaction price. Transaction
costs that are directly attributable to the acquisition or issue of
the financial assets are charged to the Statement of Comprehensive
Income as a capital item. Subsequent to initial recognition,
investments designated as fair value through profit or loss are
measured at fair value with changes in their fair value recognised
in the Statement of Comprehensive Income and determined by
reference to:
i) investments quoted or dealt on recognised stock exchanges in
an active market are valued by reference to their market bid
prices;
ii) investments other than those in i) above which are dealt on
a trading facility in an active market are valued by reference to
broker bid price quotations, if available, for those
investments;
iii) investments in underlying funds, which are not quoted or
dealt on a recognised stock exchange or other trading facility or
in an active market, are valued at the net asset values provided by
such entities or their administrators. These values may be
unaudited or may themselves be estimates and may not be produced in
a timely manner. If such information is not provided, or is
insufficiently timely, the Investment Manager uses appropriate
valuation techniques to estimate the value of investments. In
determining fair value of such investments, the Investment Manager
takes into consideration the relevant issues, which may include the
impact of suspension, redemptions, liquidation proceedings and
other significant factors. Any such valuations are assessed and
approved by the directors. The estimates may differ from actual
realisable values;
iv) investments which are in liquidation are valued at the
estimate of their remaining realisable value; and
v) any other investments are valued at the directors' best
estimate of fair value.
Investments are derecognised on the trade date of their
disposal, which is the point where the Company transfers
substantially all the risks and rewards of the ownership of the
financial asset. Gains or losses are recognised in the capital
column of the Statement of Comprehensive Income. The Company uses
the weighted average cost method to determine realised gains and
losses on disposal of investments.
(b) Foreign currency
Transactions in foreign currencies are translated into Sterling
at the exchange rate at the date of the transaction. Monetary
assets and liabilities denominated in foreign currencies at the
reporting date are retranslated into Sterling at the spot exchange
rate at that date. Non-monetary assets and liabilities denominated
in foreign currencies that are measured at fair value through
profit or loss are retranslated into Sterling at the exchange rate
at the date that the fair value was determined. Non-monetary assets
and liabilities that are measured in terms of historical cost in a
foreign currency are translated into Sterling using the exchange
rate at the date of the transaction.
Foreign currency differences arising on retranslation are
recognised in profit or loss and, depending on the nature of the
gain or loss, are allocated to the revenue or capital column of the
Statement of Comprehensive Income. Foreign currency differences on
retranslation of financial instruments designated as fair value
through profit or loss are shown in the "Capital losses on currency
movements" line.
(c) Income from investments
Dividend income is recognised when the right to receive it is
established and is reflected in the Statement of Comprehensive
Income as Investment Income in the revenue column. For quoted
equity securities this is usually on the basis of ex-dividend
dates. For unquoted investments this is usually on the entitlement
date confirmed by the relevant holding. Income from bonds is
accounted for using the effective interest method.
Special dividends and distributions described as capital
distributions are assessed on their individual merits and may be
credited to the capital reserve if considered to be closely linked
to reconstructions of the investee company or other capital
transactions. Bank interest receivable is accounted for on a time
apportionment basis and is based on the prevailing variable
interest rates for the Company's bank accounts.
(d) Treasury shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from equity shareholders' funds
through the Company's reserves. When such shares are subsequently
sold or re-issued to the market any consideration received, net of
any directly attributable incremental transaction costs, is
recognised as an increase in equity shareholders' funds through the
Share capital account. Shares held in treasury are excluded from
calculations when determining NAV per share as detailed in note
13.
(e) Cash and cash equivalents
Cash comprises cash at hand and demand deposits. Cash
equivalents, which include bank overdrafts, are short term, highly
liquid investments that are readily convertible to known amounts of
cash, are subject to insignificant risks of changes in value, and
are held for the purpose of meeting short-term cash commitments
rather than for investment or other purposes.
(f) Investment management fees and finance costs
Investment management fees and finance costs are charged to the
Statement of Comprehensive Income as a revenue item and are accrued
monthly in arrears. Finance costs include interest payable and
direct loan costs. Performance-related fees, if any, are payable
directly by reference to the capital performance of the Company and
are therefore charged to the Statement of Comprehensive Income as a
capital item.
(g) Financial liabilities
Financial liabilities (including bank loans) are classified
according to the substance of the contractual arrangements entered
into. Financial liabilities at fair value through profit or loss
are measured initially at fair value, with transaction costs
recognised in the Statement of Comprehensive Income.
(h) Taxation
The Company applied for exempt status under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an annual
exemption fee. Effective 1 January 2015, the annual exemption fee
is GBP1,200 (2014: GBP600).
Dividend and interest income received by the Company may be
subject to withholding tax imposed in the country of origin. The
tax charges shown in the Statement of Comprehensive Income relate
to overseas withholding tax on dividend income.
(i) Operating segments
The Company has adopted IFRS 8, 'Operating segments'. This
standard requires a 'management approach', under which segment
information is presented on the same basis as that used for
internal reporting purposes. The Board, as a whole, has been
determined as constituting the chief operating decision maker of
the Company. The Board has considered the requirements of the
standard and is of the view that the Company is engaged in a single
segment of business, which is investing in a portfolio of funds and
products which give exposure to developing and emerging market
economies. The key measure of performance used by the Board is the
Net Asset Value of the Company (which is calculated under IFRS).
Therefore no reconciliation is required between the measure of
profit or loss used by the Board and that contained in the
financial statements.
Further information on the Company's operating segment is
provided in note 18.
(j) Offsetting
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Financial assets and liabilities are offset and the net amount
presented in the Statement of Financial Position when, and only
when, the Company has a legal right to set off the recognised
amounts and it intends to either settle on a net basis or to
realise the asset and settle the liability simultaneously.
Income and expenses are only presented on a net basis when
permitted under IFRS.
(k) Structured entities
A structured entity is an entity that has been designed so that
voting or similar rights are not the dominant factor in deciding
who controls the entity, such as when any voting rights relate to
administrative tasks only and the relevant activities are directed
by means of contractual arrangements. A structured entity often has
some or all of the following features or attributes; (a) restricted
activities, (b) a narrow and well-defined objective, such as to
provide investment opportunities for investors by passing on risks
and rewards associated with the assets of the structured entity to
investors, (c) insufficient equity to permit the structured entity
to finance its activities without subordinated financial support
and (d) financing in the form of multiple contractually linked
instruments to investors that create concentrations of credit or
other risks.
The Company holds shares, units or partnership interests in the
funds or investment products held in the Company's portfolio. The
Company does not consider its investments in listed funds to be
structured entities but does consider its investments in unlisted
funds to be investments in structured entities because the voting
rights in such entities are limited to administrative tasks and are
not the dominant factor in deciding who controls those
entities.
Changes in fair value of investments, including structured
entities, are included in the Statement of Comprehensive
Income.
(l) New standards and interpretations effective in the current
financial year
A number of new standards, amendments to standards and
interpretations are effective for annual periods beginning on or
after 1 January 2014.
Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27
(2012)) (the amendments)
The amendments are effective for annual periods beginning on or
after 1 January 2014. The directors have concluded that the Company
meets the definition of an investment entity. The Company has no
subsidiaries; therefore, the adoption of the amendments did not
have an impact on the Company's financial statements.
Offsetting Financial Assets and Financial Liabilities
(Amendments to IAS 32)
The amendments to IAS 32 are effective for annual periods
beginning on or after 1 January 2014. The amendment updates the
application guidance in IAS 32, 'Financial Instruments:
Presentation', to clarify some of the requirements for offsetting
financial assets and financial liabilities on the balance sheet.
The adoption of the amendments to IAS 32 did not have a material
impact on the financial statements of the Company.
(m) New standards and interpretations in issue but not yet
effective
At the date of authorisation of these financial statements, the
following Standards and Interpretations which have not been applied
in these financial statements were in issue but not yet
effective:
IFRS 9 Financial Instruments (2010) and IFRS 9 Financial
Instruments (2009) (together, IFRS 9)
IFRS 9 (2009) introduces new requirements for the classification
and measurement of financial assets. IFRS 9 (2010) introduces
additional disclosures relating to financial liabilities. The IASB
currently has an active project to make limited amendments to the
classification and measurement requirements of IFRS 9 and add new
requirements to address the impairment of financial assets.
IFRS 9 (2010) introduces a new requirement in respect of
financial liabilities designated under the fair value option to
generally present fair value changes that are attributable to the
liability's credit risk in other comprehensive income rather than
in profit or loss. Apart from this change, IFRS 9 (2010) largely
carries forward without substantive amendment the guidance on
classification and measurement of financial liabilities from IAS
39.
The IFRS 9 (2014) requirements represent a significant change
from the existing requirements in IAS 39 in respect of financial
assets. The standard contains two primary measurement categories
for financial assets: amortised cost and fair value. The standard
eliminates the existing IAS 39 categories of held-to-maturity,
available-for-sale and loans and receivables. The standard also
replaces the incurred loss model in IAS 39 with an expected credit
loss model, which means that a loss event will no longer need to
occur before an impairment allowance is recognised.
The mandatory effective date of IFRS 9 is not specified but will
be determined when the outstanding phases are finalised. However,
early application of IFRS 9 is permitted.
Based on the initial assessment, the standard is not expected to
have a material impact on the Company's financial statements.
4. INVESTMENT INCOME
2015 2014
Income from investments: GBP'000 GBP'000
--------- ---------
Dividend income 2,243 2,608
--------- ---------
5. INVESTMENT MANAGEMENT 2015 2014
FEES AND OTHER EXPENSES
Revenue Capital Total Revenue Capital Total
GBP'000 GBP'000 GBP'000 GBP'000 GBP'000 GBP'000
-------- -------- -------- -------- -------- --------
Investment management
fee 2,287 - 2,287 2,365 - 2,365
-management fee rebate (35) - (35) (50) - (50)
2,252 - 2,252 2,315 - 2,315
-------- -------- -------- -------- -------- --------
Administration fees 175 - 175 194 - 194
Depositary and custody
service fees 100 - 100 58 - 58
Registration fees 18 - 18 17 - 17
Directors' fees 173 - 173 120 - 120
Auditor's fees 52 - 52 52 - 52
Marketing fees 31 - 31 32 - 32
Broker fees 40 - 40 40 - 40
Other expenses 156 - 156 152 - 152
-------- -------- -------- -------- -------- --------
Total other expenses 745 - 745 665 - 665
-------- -------- -------- -------- -------- --------
Total expenses 2,997 - 2,997 2,980 - 2,980
-------- -------- -------- -------- -------- --------
Details of the Investment Management fee and agreement are
provided below.
The investment management agreement is terminable by either
party thereto on not less than six months' written notice at any
time, subject to earlier termination in certain circumstances
including certain breaches or the insolvency of either party.
The Investment Manager is entitled to receive from the Company
for its services as Investment Manager a basic fee and, in certain
circumstances, a performance fee. The basic fee is payable monthly
in arrears (and pro rata for part of any month during which the
investment management agreement is in force). This monthly fee is
equivalent to one twelfth of one per cent. of the Company's
Adjusted Market Capitalisation. The investment management agreement
defines the "Company's Adjusted Market Capitalisation" as the
aggregate closing mid-market price of the ordinary shares on the
last business day of the month or part of a month for which the
basic fee is being calculated plus the aggregate amount, if any,
paid by the Company in purchasing its own ordinary shares at a
discount in the twelve month period ending on such business
day.
The Investment Manager may receive, in addition to the basic
fee, a performance fee in respect of each Relevant Period ending 31
October. It is based on the outperformance of NAV per share (before
deducting the performance fee) over the Benchmark NAV per share.
The Benchmark NAV per share is the Base NAV per share for the
Relevant Period, increased or reduced by the percentage, if any, by
which the MSCI Emerging Markets Net Total Return Index in Sterling
terms (Bloomberg ticker: NDUEEGF Index) has increased or reduced
over the Relevant Period.
For the year ended 31 October 2015 the Base NAV per share was
493.48p (2014: 494.73p). The Base NAV is the NAV at the
commencement of business on the first day of such Relevant Period,
adjusted for the number of ordinary shares to be issued during such
Relevant Period pursuant to the exercise of subscription shares
prior to the commencement of such Relevant Period. The performance
fee is 10% of the outperformance of the NAV per share over the
Benchmark NAV per share, provided that the NAV per ordinary share
has increased since the end of the last period in respect a
performance fee was payable, i.e. the High Water Mark of 559.24p
per share (2014: 559.24p). The performance fee calculation is based
on figures taken from the audited financial statements.
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