TIDMTIC
Registration Number : 48959
TAPESTRY INVESTMENT COMPANY PCC LIMITED (the "Company")
29 April 2010
Statement Re Announcement of Results
For the period from 1 January 2009 to 31 December 2009
The financial information set out in this announcement is the full unedited
Annual Report and Audited Financial Statements of the Company as approved by the
Board of Directors on 28 April 2010. The Annual Report and Audited Financial
Statements will be delivered to Shareholders during May 2010.
This announcement was approved by the Board of Directors on 28 April 2010.
The annual General Meeting of the Company will be held on 12 August 2010.
Contacts for queries:
Tapestry Investment Company PCC Limited
Mel Carvill (Chairman)
01481 727111
Kleinwort Benson (Channel Islands) Fund Services Limited
Company secretary
01481 727111
Collins Stewart Europe Limited
Andrew Zychowski
Lucy Lewis
020 7523 8000
29 April 2010
TAPESTRY INVESTMENT COMPANY PCC LIMITED
TAPESTRY INVESTMENT COMPANY - MULTI-STRATEGY (GBP)
ANNUAL FINANCIAL REPORT
For the year ended 31 December 2009
Contents
Page
Investor
Information
2
Financial
Highlights
4
Chairman's Statement
5
Investment Manager's
Report
6
Directors'
Report
10
Directors'
Responsibilities
17
Independent Auditors'
Report
18
Financial Statements:
Statement of Comprehensive
Income
20
Statement of changes in Net Assets attributable to holders of Cellular
shares 21
Statement of changes in Cellular
shares
21
Statement of Financial
Position
22
Statement of Cash
Flows
23
Top Ten
Investments
24
Notes to the Financial
Statements
25
Notice of Annual General
Meeting
49
Investor Information
General Information
Tapestry Investment Company PCC Limited, a closed-ended Protected Cell Company,
(the "Company") was incorporated on 25 January 2005 in Guernsey, Channel Islands
with the creation of one Cell called Tapestry Investment Company -
Multi-Strategy (GBP) (the "Cell"). The Cell's redeemable participating
preference shares (the "cellular shares") were listed on the Official List of
the UK Listing Authority and commenced trading on the London Stock Exchange on
23 February 2005. The Annual Financial Report covers the year ended 31 December
2009 with comparatives for the year ended 31 December 2008.
Investment Objective
The Cell's original objective was to seek long term capital appreciation with a
target return of 4% to 5% over 3 month Sterling LIBOR over a complete market
cycle (typically 5 years) through a diversified multi-manager, multi-strategy
portfolio.
In accordance with the Circular (the "Circular") to shareholders dated 21 August
2009 and the resolutions passed at the subsequent Extraordinary General Meeting
of the Company on 11 September 2009, the Company is formally in Managed
Wind-down in order to enable Shareholders to realise their investments in the
Company as soon as practicable.
As a result of the resolutions passed at the Extraordinary General Meeting of
the Company on 11 September 2009, the Company is now in Managed Wind-down and
therefore the investment objectives of the Company have changed.
The revised investment policy of the Company is therefore as follows:
The Company will not make any new investment however, this will not preclude the
Company from switching an existing investment to a new share class or new
vehicle should this enhance the prospects of that particular investment's future
realisations.
The Company will seek to realise the Company's existing investment portfolio
with a view to maximising the orderly return of invested capital to
Shareholders.
Any 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 on deposit.
The Company will not have borrowings other than for short-term working capital
purposes.
Foreign Exchange Hedging
The Cell invests in underlying assets which are predominantly US Dollar
denominated and up until 30 October 2009 had adopted a policy of being
substantially fully hedged against currency fluctuations. This ended on 30
October 2009 in accordance with the decision to undertake the Managed Wind-down
of the Company.
Investor
Information
General
Information
(continued)
Directors Registrar
Mel Carvill Capita IRG (CI) Limited
(Chairman)
Patrick 2(nd) Floor, TSB House
Gifford
John Hallam 1 Le Truchot
Michael St Peter Port
Strachan
Guernsey GY1 5BR
Registered Investment Manager
Office
Dorey Court Ramius Fund of Funds Group LLC
Admiral Park 599 Lexington Avenue
St Peter Port 20(th) Floor
Guernsey GY1 New York, NY 10022
3BG
United States of America
Manager, Custodian
Secretary and
Administrator
Kleinwort Kleinwort Benson (Guernsey) Limited
Benson
(Channel Dorey Court, Admiral Park
Islands) Fund
Services
Limited
Dorey Court, St Peter Port,
Admiral Park
St Peter Guernsey GY1 3BG
Port,
Guernsey GY1
3BG
Legal Legal Advisers (Guernsey)
Advisers (UK)
Norton Rose Carey Olsen
3 More London PO Box 98
Riverside
London SE1 Carey House
2AQ
Les Banques
St Peter Port
Guernsey GY1 4BZ
Corporate Auditors
Broker
Collins Deloitte LLP
Stewart
Europe Regency Court
Limited
88 Wood
Street
London EC2 Glategny Esplanade, St Peter Port
7QR
Guernsey GY1 3HW
Financial Highlights
At 31 December 2009 At 31 December 2008
Cellular shares in issue 50,981,904 88,376,840
Total net assets attributable to holders
of Cellular shares
GBP51,809,841 GBP79,013,842
Net asset value per Cellular share 101.62p 89.41p
Return/(loss) per Cellular share 9.38p (29.55)p
First compulsory partial redemption of
redeemable preference shares -
32,594,936 shares redeemed GBP31,470,312 -
Dividends
The Directors are not declaring a dividend for the year ended 31 December 2009
(2008: Nil).
Chairman's Statement
I am pleased to present shareholders with the Annual Report and Accounts of
Tapestry Investment Company PCC Limited (the "Company") for the year ended 31
December 2009.
2009 saw a slow but steady improvement in sentiment towards listed hedge funds
and fund of funds. The sector discount narrowed as Boards addressed oversupply
by executing tenders and share buy backs, and corporate activity reduced the
number of companies operating in the market. Your Board was no exception and
took action to narrow the discount by buying in a total of 4,800,000 shares
between 1 January and 30 April 2009. Thereafter, following consultations with
the Company's major shareholders, the Company published a circular on 21 August
2009 to put forward proposals for a Managed Wind-down of the Company in order
that shareholders could realise their investments in the Company in an orderly
manner. The resolutions were duly passed and the Company is now in the process
of a Managed Wind-down. To date, the Company has returned a total of
GBP55,320,315 to shareholders by way of two compulsory partial redemptions of
shares in November 2009 and after the year end in February 2010. Following
these redemptions, a total of 66p per share has been returned to shareholders
(calculated with reference to the Company's issued share capital of 83,576,840
as at the date of approval of the Managed Wind-down). A further compulsory
partial redemption of shares is expected to be made in May 2010.
As part of the Managed Wind-down, the currency hedge was removed at the end of
October 2009. Shareholders should note that as a result of the managed
wind-down, the Company's portfolio will become more concentrated on fewer
holdings and that a number of such holdings will have suspended redemptions,
created side pockets or be in liquidation. As a result, performance is likely
to be more volatile. That said, I am pleased to report that your Company has
performed well during 2009 and has made up some of the ground lost in 2008. NAV
performance has increased by 13.7% from 89.41p on 31 December 2008 to 101.62p on
31 December 2009.
Your Board will continue to seek to maximise value for shareholders in a timely
and cost efficient manner.
M Carvill
Chairman
29 April 2010
Investment Manager's Report
Update on Current Status
On the following pages we provide an overview of the environment that impacted
the global financial markets in 2009 and specifically each of the strategies in
which the Company can invest. However, please note that since the Company's
shareholders approved a Managed Wind-down in September 2009, the portfolio's
strategy allocation and manager allocations have not been actively managed by
Ramius. This is consistent with the new investment objective implemented upon
approval of the Managed Wind-down which seeks to realise the existing investment
portfolio with a view to maximising the orderly return of invested capital to
Shareholders.
2009 Performance
The net performance of the Company for 2009 is 13.29% (vs. 3 month Sterling
LIBOR performance of 1.14%) and 0.71% annualised (vs. annualised 3 month
Sterling LIBOR performance of 4.41%) since launch in March 2005[1].
To put 2009 into the proper perspective requires one to also consider the nature
and path of the financial storm of 2008. The significant reduction in risk
capital and leverage multiplier that together supported trillions of dollars in
assets resulted in clearing prices of assets at liquidation levels where the
unlevered, often cross over buyer, would step in. Not only was a directional
exposure to such assets punished but also a hedged approach as a result of the
significant unpredictability of asset price correlations with liquidation
pressure and short squeezes as opposed to any fundamental rationale driving
asset prices.
The first quarter of 2009 took all of this information and priced it into
equities which moved lower as future earnings estimates adjusted to the new
world order. Credit markets however, often portrayed as the 'sacrificial lamb'
of the deleveraging process, had time to catch its breath as investors gauged
whether the liquidation pressure of 2008 appropriately or excessively priced the
deteriorating fundamentals into these securities. Global financial products of
rates and currencies became more and more the tools and toys of policy makers as
the drive to put a floor under economies and stake a claim to the shrinking pool
of global demand.
The second quarter took its lead from the turn in equity markets that took place
on March the 9th after Vikram Pandit, CEO of Citigroup commented that Citigroup
was having its best quarter since 2007. Interestingly it was the same day that
the American Association of Individual Investors admitted that their most recent
survey had the highest ever bearish view since they began collecting data in
1987. The second quarter continued to be influenced (sometimes overly so) by
the release of each economic data point, corporate profit announcement and
government programs designed to stimulate or socialise potential economic black
holes.
The third and fourth quarter was characterised by the realisation that the
depression-like contraction of global inventory levels was creating a mini
cyclical boom being reflected in data such as industrial output, business and
consumer confidence. The other part of the story was the growing belief that
central banks and governments would support asset prices, especially for any
society that is in debt. The view that inflation is the better of two evils and
asset values are key to any type of credit extension into the economy became
consensus. Policies pointed to asset re-inflation, if not bubble creation, at a
time where acceptable yield became no longer available in traditional money
market assets. The push to into risk assets and away from the curse of cash
became almost mandatory.
Because of this, the ongoing scenario of further asset price momentum is as
likely as any other path. With that said, the current market environment is
characterised by diverging economic data between the U.S., Europe, Japan and
emerging economies as well as sovereign solvency issues such as those
experienced by Dubai World and Greece. A common thread across the world is the
sustainable level of global economic growth. The recovery in economic activity
is currently well in place and recent data generally is ahead of expectations.
Investment Manager's Report (continued)
2009 Performance (continued)
However, questions on the durability of this remain unanswered for two reasons:
first, it is not clear where the sustainable levels of economic activity will
settle once shorter term cyclical influences (such as the current positive
inventory cycle) and government spending recede; second, global growth would
suffer a damaging blow if, the excessive growth and highly accommodative
monetary conditions in China force inflation higher and potentially result in a
hard landing as policy makers look to intervene and overshoot. The world is
likely to be flat and dispersion less relevant if either of these outcomes is
materially worse than currently discounted.
Lastly, the nature, pace and purpose of government policy has forced itself onto
the stage. The difference between announcements and laws will obviously be
significant but markets will move more on announcements than final laws and with
this in mind we should expect to see greater uncertainty and volatility
introduced in the upcoming political season in the U.S. and U.K.
Event-Driven (January 2010 allocation of 26.67%): The strategy generated 3.74%
for the Company during the year.
Event driven strategies were positive for the year with the HFRI Event Driven
Index +21.7% lead by stressed/distressed corporate credit and directional equity
strategies such as deep value, catalyst orientated investments. Merger arbitrage
underperformed other strategies but was positive over the year. The HFRI Merger
Arbitrage Index returned +8.6%, the HFRI Distressed/Restructuring Index gained
+22.5% and the HFRX Activist Index appreciated +44.1%.
In merger arbitrage, the largest and most widely held deals were the two
pharmaceutical acquisitions, Pfizer/Wyeth ($67bn) and Merck/Schering ($42bn).
These were announced in the 1st quarter of 2009 and made up the bulk of manager
allocations to merger arbitrage throughout the year due to the high annualised
returns (greater than 20%) available in both of these deals.
In distressed investing, technical tailwinds were strong and loan retirement
through new extended maturity bond issues was a major theme. By the end of
2009, only 0.8% of the market was trading at levels traditionally defined as
distressed (<50% of par) and the projected default rate is expected to decrease
to just 4% in 2010. This sharp reversal from the outlook a year earlier was
driven by the steadily increasing availability of credit throughout 2009
allowing many firms with maturing debt to refinance. This will likely lead to a
more modest distressed opportunity set in the short-term but will allow for a
more consistently attractive investment landscape over the next several years as
close to $1 trillion in high yield debt and bank loans are due to mature between
2012-2015.
Activist strategies benefitted from the tailwind of strong equity market
performance coupled with a number of stock specific events which helped
performance. However, many managers are now focusing on friendly activist or
more passive, deep value investments versus a hostile, public approach due to
the significant resources in terms of time and energy required to properly
execute the strategy.
Credit-Based (January 2010 allocation of 12.41%): The strategy generated 21.08%
for the Company during the year.
The credit markets had a tremendous rally in 2009 due to the massive influx of
liquidity by central banks globally which led to sharply lower interest rates
and strong market technicals as institutional and retail investors allocated
their low yielding cash to all parts of the credit markets- especially high
yield and leveraged loans. Additionally, a receptive new issuance market and
government sponsored programs designed to foster demand for securitised assets
proved beneficial. These considerations brought risk premiums in the credit
indices to levels below where they were trading prior to the calamitous events
of September 2008.
The rally was led by lower quality, higher risk companies and as a result the
market is now pricing in much less differentiation across the credit quality
spectrum.
Investment Manager's Report (continued)
2009 Performance (continued)
Hedged Equity (January 2010 allocation of 12.41%): The strategy generated
27.00% for the Company during the year.
Global equity markets rallied markedly in 2009. Similar to the situation in the
credit markets, the strong performance was influenced by extraordinary
government initiatives which led to improving economic results but also to
historically low interest rates. These low rates encouraged investors to move
away from the safety of low yielding instruments and toward riskier assets.
Equity long/short managers recognised this development in early spring,
referring to cash as the "crowded trade," which was captured by a measured
increase in both gross and net exposures. The pace of balance sheet deployment,
however, did not meaningfully accelerate until the last half of the year, when
the simultaneous decline in realised equity volatility and an overall reduction
in correlation between stocks and sectors fostered increased risk taking by
managers.
The declining correlations and increased dispersion the last few months of the
year, however, suggests that stock picking will play an increasingly important
role in manager performance going forward. Earnings momentum, rather than
multiple expansion, will be crucial in supporting valuations. We expect that
stocks undeserving of their multiples from a fundamental standpoint will likely
be re-rated over the course of the year. At the same time many high quality
businesses with strong balance sheets and free cash flows, many of which have
fallen behind in the beta-led rally, will likely benefit from increased investor
appreciation.
Tapestry Investment Company
Strategy Contribution in Basis Points (2009)
+------------------------+-------+-------+-------+-------+ +--------+
| |Q1 2009|Q2 2009|Q3 2009|Q4 2009| | YTD |
+------------------------+-------+-------+-------+-------+-+--------+
|Multi Strategy * |101.42 |208.21 |137.39 |125.92 | | 606.84 |
+------------------------+-------+-------+-------+-------+-+--------+
|Credit Based * | 36.72 |152.52 | 61.63 | 27.91 | | 296.93 |
+------------------------+-------+-------+-------+-------+-+--------+
|Event Driven * |-72.17 | 71.39 |-28.59 | 99.98 | | 64.44 |
+------------------------+-------+-------+-------+-------+-+--------+
|Fixed Income Arbitrage *| 47.81 | 29.71 | 4.02 | 6.33 | | 96.91 |
+------------------------+-------+-------+-------+-------+-+--------+
Hedged Equity * | 65.55 |180.96 |147.07 | 40.36 | | 461.15
+------------------------+-------+-------+-------+-------+-+--------+
|Global Macro * | 6.51 | 21.15 | 32.82 | 42.58 | | 106.61 |
+------------------------+-------+-------+-------+-------+-+--------+
| | | | | |
+------------------------+-------+-------+-------+-------+-+--------+
|Total Portfolio * |185.84 |663.95 |354.34 |343.08 | |1,632.87|
+------------------------+-------+-------+-------+-------+ +--------+
*Strategy and total portfolio contribution are calculated gross of management,
incentive and any other fees and expenses and impact of foreign exchange
movements. Please refer to the performance disclosure at the end of this
document.
Foreign Exchange Risks
As the client assets are invested into the Company in Pound Sterling and the
underlying manager investments are based in US Dollars, there is significant
foreign exchange risk in holding shares of the Company following the suspension
of currency hedging activities on 30 October 2009 pursuant to the Shareholder
Circular.
Investment Manager's Report (continued)
2009 Diversification of Risks[2]
Below we include information explaining how the Company has invested its assets
with a view to spreading investment risk in accordance with its published
investment policy. Specifically, we include:
1. A table of diversification by strategy allocation, including allocation in
GBP, allocation in %, and by number of managers in each strategy.
2. A table of diversification by fund domicile, including allocation in GBP,
allocation in %, and by number of managers in each domicile.
Ramius HVB Partners, LLC
29 April 2010
Directors' Report
For the year ended 31 December 2009
The Directors have pleasure in submitting their Annual Financial Report for the
year ended 31 December 2009 with comparatives for the year ended 31 December
2008.
Principal activities
The Company is a Guernsey registered closed-ended Protected Cell Company
established with one Cell known as Tapestry Investment Company - Multi-Strategy
(GBP) (the "Cell" or the "Fund"). The Cell's redeemable participating preference
shares are listed on the London Stock Exchange. The Cell's objective has been to
seek long term capital appreciation with a target return of 4% to 5% over 3
month sterling LIBOR over a complete market cycle (typically 5 years) through a
diversified multi-manager, multi-strategy portfolio.
In accordance with the Circular (the "Circular") to shareholders dated 21 August
2009 and the resolutions passed at the subsequent Extraordinary General Meeting
of the Company on 11 September 2009, the Company is formally in Managed
Wind-down in order to enable Shareholders to realise their investments in the
Company as soon as practicable.
Revenue and dividends
The statement of comprehensive income set out on page 20 shows a loss for the
year amounting to GBP2,188,231 (2008: loss of GBP2,193,222) which has been
transferred to revenue reserves. The Directors have not paid an interim
dividend and do not recommend the payment of a final dividend for the year.
Assets
At the year end the net assets attributable to the redeemable preference shares
were GBP51,809,841 (2008: GBP79,013,842). Based on this figure the net asset value
of a redeemable preference share in the Fund was 101.62p (2008: 89.41p).
Share capital
Throughout the year the Company purchased a total of 4,800,000 redeemable
preference shares at a cost of GBP3,281,000 and cancelled 10,018,010 redeemable
preference shares from Treasury and issue (see the Statement of changes in
Cellular shares for the year ended 31 December 2009 on page 21 for details).
On 18 November 2009, the Company completed the first compulsory partial
redemption of redeemable preference shares, resulting in 32,594,936 shares being
redeemed with GBP31,470,312 being returned to the Shareholders.
There were no other changes in the share capital of the Company for the year
ended 31 December 2009.
Subsequent to the year end on 24 February 2010, the Company completed the second
compulsory partial redemption of redeemable preference shares, resulting in
23,451,676 shares being redeemed with GBP23,850,003 being returned to the
Shareholders.
Substantial shareholdings in the Cell
At 31 March 2010, the following companies held a notifiable interest in the
Company's voting rights:
Shares held
Nominal Percentage held
The Bank of New York Nominees Limited 8,481,591 30.81%
Vidacos Nominees Limited 3,211,555 11.67%
Vidacos Nominees Limited 1,933,414 7.02%
Rock Nominees Limited 1,471,106 5.34%
Nortrust Nominees Limited 1,253,738 4.55%
Goldman Sachs Securities (Nominees) 1,077,138 3.91%
K.B. (C.I.) Nominees Limited 975,637 3.54%
Frank Nominees Limited 973,893 3.54%
At the date of approval of this report, there has been no other notifiable
interest in the Company's voting rights reported to the Company.
Directors' Report (continued)
Crest registration
The Cell trades its shares by way of Crest registration and the shareholders
have the option to hold stock in either certificated or uncertificated form.
Directors
The Directors who served on the Board during the year, together with their
beneficial interests and those of their families at 31 December 2009, were as
follows:
Redeemable
Shares
2002
31.12.09
Mel Carvill (Chairman) 12,200
Patrick Gifford 12,200
John Hallam (Audit Committee Chairman) 12,200
Michael Strachan 12,200
Following the first compulsory partial redemption of shares on 18 November
2009, in which 39 per cent. of the Company's issued share capital was redeemed,
each of the Director's holdings were reduced from 20,000 redeemable shares to
12,200 redeemable shares. On 24 February 2010, following the second compulsory
partial redemption of shares, in which 46 per cent. of the Company's issued
share capital was redeemed, each of the Director's holdings were reduced further
from 12,200 redeemable shares to 6,588 redeemable shares. There have been no
other changes to the Directors beneficial interests in the Company between 1
January 2009 and 19 April 2010.
The Company has no formal service contracts with the Directors and there are no
long term incentive schemes in place.
Corporate Governance
The UK Listing Authority requires all listed companies to disclose how they have
applied the principles and complied with the provisions of the Combined Code on
Corporate Governance ("the Code"). The following statements are, therefore,
included to comply with this Code.
The Financial Services Authority only requires corporate governance disclosures
and compliance with the code by those listed companies incorporated in the
United Kingdom. The Company is not incorporated in the United Kingdom although
the Board of Directors has chosen to adopt where possible the principles of the
Combined Code and the Turnbull guidance and has sought to comply throughout the
year, insofar as the principles can sensibly be applied to a company of this
nature. The following statements are therefore included to comply with those
Codes:-
The Board
The Board meets regularly, normally quarterly, and more frequently if necessary,
and retains full responsibility for the direction and control of the Company.
The Company is led and controlled by a Board comprising non-executive Directors,
all of whom have wide experience and are considered to be independent. The Board
believes that it is in the shareholders' best interests for the Chairman to be
the point of contact for all matters relating to the governance of the Company
and as such has not appointed a senior independent non-executive Director for
the purpose of the Codes. The appointment of Directors is considered by the
Board who are the Nominations Committee. The Articles of Association stipulate
that one third or the number nearest to but not exceeding one third, of the
Directors shall retire and offer themselves for re-appointment at each
subsequent annual general meeting.
Directors' Report (continued)
Corporate Governance (continued)
The Board (continued)
The Board met regularly during the year to review its performance and
composition, and was satisfied on both subjects. In addition, following the
informal evaluation of the performance of the Board, its committees and
individual Directors, it is considered that the performance of all Directors
continues to be effective and that they have demonstrated commitment to their
roles.
The Board has established a separate Audit Committee chaired by John Hallam. The
Board convenes meetings in that capacity when necessary, but at least twice a
year, with the auditors of the Company with a view to providing further
assurance of the quality and reliability of, inter alia, the financial
information used by the Board in these financial statements. Where non-audit
services are provided by the auditors, these engagements are pre-approved by the
audit committee to ensure that the auditors' independence and objectivity is not
breached.
The Administrator, who also acts as Manager, has contractually delegated to
Ramius HVB Partners, LLP the investment management of the Fund's investments.
The safe custody of the Fund's investments is managed by Kleinwort Benson
(Guernsey) Limited. Kleinwort Benson (Channel Islands) Fund Services Limited
are contracted to provide the Company's administration, secretarial and
accounting functions and Capita IRG (CI) Limited its registration function. The
Board reviews regularly the performance of the services provided by these
companies.
The Company maintains Directors' and Officers' liability insurance which
provides insurance cover for Directors against certain personal liabilities
which they may incur by reason of their duties as Directors.
The Company has a procedure whereby the Board is entitled to obtain independent
advice where relevant.
All Directors of the Company are non-executive and Directors' fees are
recommended by the full Board.
The emoluments of the Directors for the year were as follows:
2009 2008
GBP GBP
Mel Carvill (Chairman) 30,000 30,000
Patrick Gifford 25,000 25,000
John Hallam (Audit Committee Chairman) 25,000 25,000
Michael Strachan 27,000 27,000
--------------------
107,000 107,000
In accordance with the Circular to Shareholders dated 21 August 2009, the
Directors received a one-off fee of GBP5,000 each during the year for the
additional work involved in relation to the proposals set out in the
Circular.
The Directors received no other remuneration or benefits from the Company other
than the fees stated above.
There were 9 board meetings and 2 audit committee meetings held during the year.
The attendance of the Directors for the year was as follows:
Mel Carvill Patrick John Hallam Michael
Gifford Strachan
Total
Quarterly Board 4 4 4 3 4
Meetings
Other Board 5 5 4 4 5
Meetings
Audit Committee 2 2 2 2 2
Meetings
Directors' Report (continued)
Corporate Governance (continued)
Relations with shareholders
In conjunction with the Board, the Investment Manager and the Corporate Broker
keep under review the register of members of the Cell.
All shareholders are encouraged to participate in the Company's annual general
meeting. The Directors will attend the annual general meeting, at which
shareholders have the opportunity to ask questions and discuss matters with the
Directors, The Manager and the Investment Manager.
Accountability and audit
a) Directors' responsibilities in relation to the financial statements
The Directors have responsibility for ensuring that the Company keeps accounting
records which disclose with reasonable accuracy at any time the financial
position of the Company and which enable them to ensure that the financial
statements comply with the Companies (Guernsey) Law, 2008. They have general
responsibility for taking such steps as is reasonably open to them to safeguard
the assets of the Company and to prevent and detect fraud and other
irregularities.
b) Available resources
At the Extraordinary General Meeting of the Company on 11 September 2009, the
Company's shareholders voted in favour of the Managed Wind-down of the Company.
Since this date the Company has been managed in such a way so as to realise the
investments held in the Company's portfolio and return capital to the
shareholders in a controlled and timely manner.
After making enquiries, the Directors have formed a judgement at the time of
approving the financial statements that there is a reasonable expectation of the
Company having adequate resources to meet all of its continuing obligations in a
timely manner and to return capital to the shareholders in accordance with the
Circular and therefore continue in operational existence for the foreseeable
future.
c) Internal control
The Directors acknowledge that they are responsible for establishing and
maintaining the Company's system of internal control and reviewing its
effectiveness. Internal control systems are designed to manage rather than
eliminate the failure to achieve business objectives and can only provide
reasonable and not absolute assurance against material misstatement or loss.
They have therefore established an ongoing process designed to meet the
particular needs of the Company in managing the risks to which it is exposed,
consistent with the guidance provided by the Turnbull Committee. Such review
procedures have been in place throughout the full financial year and up to the
date of the approval of the financial statements the Board is satisfied with the
effectiveness.
This process involves a review by the Board of the Company's internal control
report and review of the control environment within the Company's service
providers to ensure that the Company's requirements are met.
The Company, in common with other funds, does not have an internal audit
function. The Board has considered the need for an internal audit function but
has decided to place reliance on the Administrator's, Manager's, Investment
Manager's and Custodian's systems and internal audit procedures.
These systems are designed to ensure effectiveness and efficient operations,
internal control and compliance with laws and regulations. In establishing the
systems of internal control regard is paid to the materiality of relevant risks;
the likelihood of costs being incurred and costs of control. It follows
therefore that the systems of internal control can only provide reasonable but
not absolute assurance against the risk of material misstatement or loss.
Directors' Report (continued)
Corporate Governance (continued)
Accountability and audit (continued)
c) Internal control (continued)
The effectiveness of the internal control systems is reviewed annually by the
Board and the Audit Committee. The Audit Committee has a discussion annually
with the auditor to ensure that there are no issues of concern in relation to
the audit opinion on the accounts and, if necessary, representatives of the
investment manager would be excluded from that discussion. The Board has decided
not to establish a Remuneration and Management Engagement Committee as these
items are dealt with by the Board. This includes whether the contracts with the
Manager and the Investment Manager are in the best interests of shareholders
Statements of compliance
The Directors believe that the Company has complied with the provisions of the
Code where appropriate, and that it has complied throughout the year with the
provisions where the requirements are of a continuing nature, except that a
Remuneration Committee and a Management Engagement Committee have not been
established, and a senior independent director has not been appointed given that
all Directors are independent.
Financial risk profile
The Cell's financial instruments comprise investments, cash and various items
such as receivables etc that arise directly from the Company's operations. The
main purpose of these instruments is the investment of shareholders' funds.
The risks described below are the main risks to which the Company is exposed.
The exposure to and management of these risks is detailed in note 17 to the
financial statements.
Market price risk
The main risk arising from the Cell's financial instruments is market price
risk. The Company does not hedge against its exposure to market price risk. At
present it is the intention to hold investments that remain in the portfolio for
the longer term in order to optimise the value of these investments, however the
Board in conjunction with the Investment Manager may determine that the
redemption of underlying investments should take place at the earliest
opportunity in order to return capital to the shareholders in a timely and
efficient manner. Sales of underlying assets at the earliest opportunity would
involve selling at a discount and therefore careful consideration will be given
to the realisable value of the investments compared to the ongoing cost of
managing the investments and the administration of the Company.
Foreign currency risk
Foreign currency risk is the risk that a financial instrument will fluctuate
because of changes in foreign exchange rates.
As the Company's shares are denominated in Sterling, the US Dollar exposure up
to 30 October 2009 had been hedged through forward sales of US Dollars into
Sterling pursuant to the Foreign Exchange Agreement (see note 8).
Cash flow and liquidity risk
Cash flow and liquidity risk is the risk that the Cell may not be able to meet
its continuing commitments and the compulsory redemption commitments under the
Managed-Wind Down. To manage this risk the compulsory redemptions are purely at
the Director's discretion and therefore the Company will only proceed with
compulsory redemptions once a detailed cash flow forecast has been completed and
sufficient funds are in place to meet the redemption payments and other
liquidity requirements. The Company also has a revolving credit facility which
it may utilise to provide liquidity (see note 17).
Directors' Report (continued)
Going Concern
At the Extraordinary General Meeting of the Company on 11 September 2009, the
Company's shareholders voted in favour of the Managed Wind-down of the Company.
Since this date the Company has been managed in such a way so as to realise the
investments held in the Company's portfolio and return capital to the
shareholders in a controlled and timely manner.
In accordance with the Circular dated 21 August 2009, shareholders should expect
that, under the terms of the Managed Wind-down, the Board and the Investment
Manager are committed to distributing as much of the available cash as quickly
as reasonably practicable having regard to cost efficiency and retaining
sufficient cash for the purposes of funding ongoing management and
administrative expenses incurred by the Company. Accordingly, it is expected
that, in order to minimise the administrative burden, distributions will be
made, at the discretion of the Board, at regular intervals for a period of 18 to
24 months following the commencement of the Managed Wind-down and thereafter as
the Board thinks appropriate.
In the opinion of the Directors, there is a reasonable expectation that the
Company has adequate resources to continue in operational existence for the
foreseeable future. For this reason the financial statements have been prepared
using the going concern basis.
The Directors have arrived at this opinion by considering, inter alia, the
following factors:
· the Company has sufficient liquidity to meet all on-going expenses;
· the Company holds investments and receivables (Market value
GBP20,569,119) which are redeemable and receivable within one to three months at
the reporting date and therefore will have sufficient resources to meet future
compulsory redemptions and other liquidity requirements;
· the compulsory redemptions are purely at the Directors' discretion and
therefore the Company will only proceed with compulsory redemptions once a
detailed cash flow forecast has been completed and sufficient funds are in place
to meet the redemption payments and other liquidity requirements; and
· the Directors do not intend liquidating the Company in the near
future, and for a minimum of one year after the approval of these financial
statements.
Borrowings
The Company has a Secured Revolving Credit and Liquidity Agreement ("the
Agreement") with Bayerische Hypo-und Vereinsbank ("the Lender") and Ramius HVB
partners, LLC ("the Investment Manager"). Subject to the terms of the
Agreement, the Lender makes available to the Company a 364 day multicurrency
revolving credit facility in an aggregate amount equal to USD 40 million. At 31
December 2009, the Company had repaid the facility in full and there is no
intention to utilise this facility further (see note 18 for details of the
facility).
Auditors
Deloitte LLP have expressed their willingness to continue in office as auditors
and a resolution to re-appoint them will be proposed at the forthcoming Annual
General Meeting.
Annual General Meeting
The notice of the Annual General Meeting convened for 12 August 2010 is to be
found on page 49.
Directors' responsibility statement
At the date of approval of the financial statements the Directors confirm that:
· so far as the Directors are aware, there is no relevant audit
information of which the Company's auditors are unaware; and
· the Directors have taken all steps they ought to have taken as
Directors to make themselves aware of any relevant audit information and to
establish that the Company's auditors are aware of that information.
This confirmation is given and should be interpreted in accordance with the
provisions of Section 249 of The Companies (Guernsey) Law, 2008.
We also confirm to the best of our knowledge:
* the financial statements, prepared in accordance with International
Financial Reporting Standards, give a true and fair view of the assets,
liabilities, financial position and profit or loss of the company and the
undertakings included in the consolidation taken as a whole; and
* the Investment Manager's report includes a fair review of the development,
performance and position of the Fund, together with a description of the
principal risks and uncertainties faced by the Fund.
By order of the Board.
Mel Carvill Michael Strachan
Director Director
29 April 2010
Directors' Responsibilities
The Directors are responsible for preparing the Annual Report and the financial
statements in accordance with applicable law and regulations.
The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial
statements for each financial year which give a true and fair view of the state
of affairs of the Company as at the end of the financial year and of the profit
or loss for that year. Under that law the Directors have elected to prepare the
financial statements in accordance with International Financial Reporting
Standards (IFRSs).
International Accounting Standard 1, as revised, requires that financial
statements present fairly for each financial year the company's financial
position, financial performance and cash flows. This requires the faithful
representation of the effects of transactions, other events and conditions in
accordance with the definitions and recognition criteria for assets,
liabilities, income and expenses set out in the International Accounting
Standards Board's 'Framework for the preparation and presentation of financial
statements'. In virtually all circumstances, a fair presentation will be
achieved by compliance with all applicable IFRSs. However, the Directors are
also required to:
* properly select and apply accounting policies;
* present information, including accounting policies, in a manner that
provides relevant, reliable, comparable and understandable information;
* provide additional disclosures when compliance with the specific
requirements in IFRSs are insufficient to enable users to understand the
impact of particular transactions, other events and conditions on the
entity's financial position and financial performance;
* make an assessment of the company's ability to continue as a going concern;
and
* prepare the financial statements on a 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 that
disclose with reasonable accuracy at any time the financial position of the
company and enable them to ensure that the financial statements comply with The
Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the
assets of the company and hence for taking reasonable steps for the prevention
and detection of fraud and other irregularities.
The Company's Directors are responsible for the maintenance and integrity of the
corporate and financial information included on the Company's website.
Legislation in the United Kingdom and Guernsey governing the preparation and
dissemination of financial statements may differ from legislation in other
jurisdictions.
By order of the Board.
Mel Carvill Michael Strachan
Director Director
29 April 2010
Independent Auditors' Report
To the members of Tapestry Investment Company PCC Limited
We have audited the financial statements of Tapestry Investment Company PCC
Limited for the year ended 31 December 2009 which comprises the statement of
comprehensive income, the statement of changes in net assets attributable to
holders of Cellular shares, the statement of changes in Cellular shares, the
statement of financial position, the statement of cash flows and the related
notes 1 to 21. These financial statements have been prepared under the
accounting policies set out therein.
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 auditors' 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 Auditors
As described in the statement of Directors' Responsibilities, the Company's
Directors are responsible for the preparation of the financial statements in
accordance with applicable Guernsey law and International Financial Reporting
Standards (IFRSs). Our responsibility is to audit the financial statements in
accordance with relevant legal and regulatory requirements and International
Standards on Auditing (UK and Ireland).
We report to you our opinion as to whether the financial statements give a true
and fair view in accordance with the relevant framework and are properly
prepared in accordance with The Companies (Guernsey) Law, 2008 and The Protected
Cell Companies Ordinance, 1997. We also report to you if, in our opinion, the
Directors' report is not consistent with the financial statements, if the
Company has not kept proper accounting records or if we have not received all
the information and explanations we require for our audit.
We read the Directors' report and the other information contained in the Annual
Report for the above period as described in the contents section and consider
the implications for our report if we become aware of any apparent misstatements
or material inconsistencies with the financial statements.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the financial statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the financial statements and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We are not required to review any Corporate Governance disclosures required by
the Listing Rules of the Financial Services Authority as the Company has availed
itself of an exemption as an overseas company, from the requirement to publish a
statement of compliance with The Combined Code.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion, we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Independent Auditors' Report
To the members of Tapestry Investment Company PCC Limited (continued)
Opinion
In our opinion the financial statements give a true and fair view of the state
of the Company's affairs as at 31 December 2009 and of its return for the year
then ended and have been properly prepared in accordance with The Companies
(Guernsey) Law, 2008, The Protected Cell Companies Ordinance, 1997 and IFRSs.
Emphasis of Matter - Uncertainty in respect of valuation of investments
Without qualifying our opinion, we draw your attention to the disclosures made
in note 3b highlighting the Company's investment into funds which are suspended,
gated, side pocketed or in liquidation. The Directors have estimated the value
of these investments, using the latest available information, but we note that
material uncertainty exists over these valuations and the amounts the Company
will realise on the disposal of these investments could be significantly
different to the amounts included in the financial statements. The effect of
this uncertainty cannot be quantified.
Deloitte LLP
Chartered Accountants
St Peter Port
Guernsey
29 April 2010
The Directors are responsible for the maintenance and integrity of the corporate
and financial information included on the company's website. Legislation in
Guernsey governing the preparation and dissemination of financial information
differs from legislation in other jurisdictions.
Statement of Comprehensive Income
For the year ended 31 December 2009
2009 2008
Notes GBP GBP
Net realised gains/(losses) on financial assets
and liabilities held at fair value through
profit or loss 8c 16,972,370 (28,268,134)
Net change in unrealised
(depreciation)/appreciation on financial assets
and liabilities held at fair value through 8c (8,393,131) 4,499,491
profit or loss
Net foreign exchange gain/(loss) 1,156,303 (948,764)
+-----------+------------+
Income 3d & 5| 26,973| 65,132|
| | |
Expenses:- | | |
| | |
Management fee 6 | (287,852)| (399,133)|
| | |
Investment manager's fee 6 | (431,778)| (598,012)|
| | |
Custodian fee 6 | (40,632)| (51,344)|
| | |
Registrar fees | (21,927)| (15,316)|
| | |
Directors' fees and expenses | (127,776)| (107,722)|
| | |
Legal fees | (731,587)| (49,156)|
| | |
Auditors' remuneration | (31,204)| (16,608)|
| | |
Loan arrangement fees | (104,681)| (391,067)|
| | |
Sundry expenses | (254,464)| (292,994)|
+-----------+------------+
Net loss on ordinary activities before finance (2,004,928) (1,856,220)
costs
Finance costs (183,303) (337,002)
--------------------------
Net loss on ordinary activities after finance (2,188,231) (2,193,222)
costs
--------------------------
--------------------------
Increase/(decrease) in net assets attributable
to holders of cellular shares
7,547,311 (26,910,629)
Return/(loss) per cellular share 15 9.38p (29.55)p
The notes on pages 25 to 48 are an integral part of these financial statements.
Statement of changes in Net Assets attributable to holders of Cellular shares
for the year ended 31 December 2009
2009 2008
GBP GBP
Net Assets attributable to holders of cellular
shares at 1 January
79,013,842 111,394,954
Cost of shares purchased for Treasury (3,281,000) (5,470,483)
Amounts payable on first compulsory partial
redemption of cellular shares
(31,470,312) -
Increase/(decrease) in Net Assets attributable to
holders of cellular shares from operations (see
statement of comprehensive income) 7,547,311 (26,910,629)
--------------------------
Net Assets attributable to holders of cellular
shares at 31 December 51,809,841 79,013,842
Statement of changes in Cellular shares for the year ended 31 December 2009
Redeemable
participating
Own shares held in preference shares Total shares in
Treasury Issue
As at 1 January 5,218,010 88,376,840 93,594,850
2009
Shares Purchased
for Treasury 4,800,000 (4,800,000) -
Shares cancelled
from Treasury (10,018,010) - (10,018,010)
First compulsory
partial redemption
- (32,594,936) (32,594,936)
As at 31 December - 50,981,904 50,981,904
2009
Statement of changes in Cellular shares for the year ended 31 December 2008
Own shares held in Redeemable Total shares in
Treasury participating Issue
preference shares
As at 1 January
2008 - 93,594,850 93,594,850
Shares purchased
for Treasury 5,218,010 (5,218,010)
--------------------------------------------------------------
As at 31 December 5,218,010 88,376,840 93,594,850
2008
The notes on pages 25 to 48 are an integral part of these financial statements.
Statement of Financial Position
At 31 December 2009
2009 2008
Notes GBP GBP
Assets
Financial assets at fair value through profit or
loss 8c 22,478,832 92,519,689
Due from brokers 9 22,428,152 8,322,180
Receivables 9 - 357,172
Cash and cash equivalents 11 7,228,384 81,569
-----------------------
Total assets 52,135,368 101,280,610
-----------------------
Liabilities
Payables 10 283,671 403,500
Due to brokers 10 41,854 -
Unrealised loss on forward foreign exchange
contracts 8d - 3,406,777
Borrowings 18 - 18,456,489
-----------------------
Total liabilities 325,525 22,266,766
-----------------------
-----------------------
Net assets 51,809,843 79,013,842
Represented by:
Net assets attributable to the holders of cellular
shares 14 51,809,841 79,013,842
Management shares 13 2 2
-----------------------
51,809,843 79,013,844
Number of cellular shares in
issue 50,981,904 88,376,840
-----------------------
Net asset value per cellular share 16 101.62p 89.41p
These financial statements were approved by the Board of Directors on 29 April
2010
Signed on behalf of the board
Mel Carvill Michael Strachan
Director Director
The notes on pages 25 to 48 are an integral part of these financial statements.
Statement of Cash Flows
For the year ended 31 December 2009
2009 2008
Notes GBP GBP
Cash flows from operating activities
Net loss after finance costs (2,188,231) (2,193,222)
Purchases of investments (25,391,525) (23,045,396)
Sales of investments 83,561,960 48,197,873
Decrease/(increase) in receivables 357,172 (357,172)
Decrease in payables (119,829) (606,313)
--------------------------
Net cash inflow from operating activities 56,219,547 21,995,770
--------------------------
Cash flows from financing activities
Compulsory redemption of cellular shares 14 (31,470,312) -
Cellular shares purchased for Treasury 14 (3,281,000) (5,470,483)
(Decrease)/increase in borrowings 18 (18,456,489) 17,257,468
--------------------------
Net cash (outflow)/inflow from financing (53,207,801) 11,786,985
activities
--------------------------
Cash flows from investing activities
Net receipt/(payment) on settlement of forward
foreign currency contracts
2,978,766 (31,757,292)
--------------------------
Net cash inflow/(outflow) from investing 2,978,766 (31,757,292)
activities
--------------------------
Net increase in cash and cash equivalents 5,990,512 2,025,463
Cash and cash equivalents at beginning of year 11 81,569 (995,130)
Effect of foreign exchange rate changes 1,156,303 (948,764)
--------------------------
Cash and cash equivalents at end of year 11 7,228,384 81,569
The notes on pages 25 to 48 are an integral part of these financial statements.
Top Ten Investments
As at 31 December 2009
Market Value
Investments GBP % of Total Net Assets
Millenium International Limited 3,487,876 6.73
Cerberus International Limited 2,980,154 5.75
S.A.C Multi Strategy Fund Limited Class B 2,831,386 5.46
Tapestry Pooled Account VI Limited 2,309,181 4.46
Blue Mountain Credit Alternatives Limited 2,151,733 4.15
Brevan Howard Fund Limited Class A 2,107,808 4.07
Brevan Howard Asia Fund Limited 2,026,072 3.91
The Children's Investment Fund Limited 1,061,456 2.05
Tapestry Pooled Account V Limited 1,029,288 1.99
S.A.C Multi Strategy Fund Limited Class S 346,500 0.67
Note:
Whilst it is generally considered better practice to disclose, publicly, the
full portfolio of an investment company, the Board believes that such disclosure
could be disadvantageous to the Company and its Shareholders, for instance by
increasing competition for the limited investment capacity in underlying funds
and fund strategies. Accordingly, in common with certain other funds of hedge
funds, the Company intends only to disclose its ten largest investments in its
interim accounts and, in compliance with current UK Listing Authority
requirements, in its annual report and accounts, and otherwise as required by
the UK Listing Authority.
Notes to the Financial Statements
1. Company Information
Tapestry Investment Company PCC Limited is a closed-ended Protected Cell Company
incorporated under the laws of Guernsey with registered number 42750 on 25
January 2005, with its registered office at Dorey Court, Admiral Park, St Peter
Port, Guernsey. The Cell's redeemable participating shares are listed on the
London Stock Exchange.
The Cell's objective has been to seek long term capital appreciation with a
target return of 4% to 5% over 3 month Sterling LIBOR over a complete market
cycle (typically 5 years) through a diversified multi-manager, multi-strategy
portfolio.
In accordance with the Circular (the "Circular") to shareholders dated 21 August
2009 and the resolutions passed at the subsequent Extraordinary General Meeting
of the Company on 11 September 2009, the Company is formally in Managed
Wind-down in order to enable Shareholders to realise their investments in the
Company as soon as practicable.
2. Basis of preparation
(a) Statement of compliance
The financial statements have been prepared in accordance with the International
Financial Reporting Standards and interpretations adopted by the International
Accounting Standards Board (IASB) and under the historical cost convention as
modified by the revaluation of certain assets and in accordance with the IMA
Statement of Recommended Practice ('IMA SORP') issued in November 2008, except
for the omission of a full Portfolio Statement and a Statement of Material
Portfolio Changes.
In common with certain other funds of hedge funds, the Company only
discloses its ten largest investments in its interim accounts and, in compliance
with current UK Listing Authority requirements, in its annual report and
accounts, and otherwise as required by the UK Listing Authority. On this basis
no full Portfolio Statement and no Statement of Material Portfolio Changes are
disclosed in these financial statements. This is not in accordance with the IMA
SORP.
The financial statements have been prepared on a total company basis and
not on a cell- by-cell basis as there is currently only one cell. The only
non-cellular assets and liabilities are in respect of the two management shares
in issue represented by cash and cash equivalents.
(b) Basis of measurement
The financial statements have been prepared under the historical cost basis,
except for financial instruments at fair value through profit or loss which are
measured at fair value.
(c) Functional and presentational currency
The financial statements are presented in pounds sterling because that is the
currency of the primary economic environment in which the Company operates and
the currency in which the share capital is raised. The functional currency of
the Company is also considered to be pounds sterling.
(d) Uses of estimates and judgements
The preparation of financial statements in conformity with IFRS requires the
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of income and expenses during the reporting period. Actual results may
differ from those estimates.
Notes to the Financial Statements (continued)
2. Basis of preparation (continued)
(e) Standards and interpretations
The following standards and interpretations have been adopted by the Company for
the year ended 31 December 2009:
· Presentation of financial statements
The Company applied revised IAS 1 Presentation of Financial Statements (2007),
which became effective as of 1 January 2009. The Company has chosen to adopt the
single-statement approach in the presentation of its total comprehensive income.
The adoption of this standard impacts only on presentation aspects and does not
impact on the amounts reported in the current or prior financial periods.
· Fair value disclosures
In March 2009, the IASB issued Amendments to IFRS 7 Financial Instruments:
Disclosures - Improving Disclosures about Financial Instruments, which became
effective for financial periods beginning on or after 1 January 2009.
The amendments extended the disclosures to be made with respect to the fair
value measurements and its components disclosed within the financial statements.
A key new disclosure required now is the categorisation of fair value
measurements within a three-level hierarchy that reflects the significance of
inputs used in measuring fair value. The fair value hierarchy is disclosed in
note 17.
Comparative information has not been presented nor restated as permitted by the
transitional provisions of the amendment.
The adoption of the revised IFRS 7 has resulted in additional disclosures being
made in the financial statements. The revised standard does not have any
financial impact on the amounts reported in the financial statements for the
current or prior financial periods.
· Operating segments
IFRS 8, Operating Segments, which became effective for annual periods beginning
on after 1 January 2009, replaces IAS 14, Segment Reporting. IFRS 8 requires an
entity to identify and disclose financial information on operating segments of
the entity on the "management approach" basis, which is consistent with
information provided internally to the chief operating decision maker of the
entity and is reviewed regularly to make decisions about the allocation of
resources to the respective segments and assess its performance, and for which
discrete financial information is available. This is disclosed by the Company in
note 3.
· Presentation of financial instruments
The International Accounting Standards Board ("IASB") issued amendments to IAS
32, "Financial Instruments: Presentation" and IAS 1, "Presentation of Financial
Statements - Puttable Financial Instruments and Obligations Arising in
Liquidations" in February 2008. The changes were effective for periods beginning
on or after 1 January 2009 although early adoption was permitted. The Directors
did not elect to early adopt the Standard in these financial statements and so
the Standard is effective for the first time in this period.
The amendments to IAS 32 require that entities that have issued financial
instruments that entitle the holder to a pro-rata share of the net assets of the
entity (and that satisfy certain other conditions), to classify such financial
instruments as equity. Redeemable participating shares fall under the scope of
these amendments and on this basis redeemable participating shares have been
classified as equity in these financial statements.
Notes to the Financial Statements (continued)
2. Basis of preparation (continued)
(e) Standards and interpretations (continued)
· Presentation of Statements of financial position
As the impact of the changes noted above has been limited to presentational
changes, the Directors have not produced three statements of financial position
as strictly required under IAS 1 (revised 2007) for retrospective changes in
accounting policies. The Directors believe this departure does not materially
affect the readers' overall understanding of these financial statements.
The Directors believe that other pronouncements, listed below, which are in
issue but not yet operative or adopted by the Company, will not have a material
impact on the financial statements of the Company in this, or future accounting
periods:
· IAS 23 'Borrowing Costs' - effective for periods beginning on or after
1 January 2009;
· IAS 27 'Consolidated and Separate Financial Statements' - effective
for annual periods beginning on or after 1 July 2009; and
· IAS 39 (Amendment) Financial Instruments: Recognition and Measurement
- effective for annual periods beginning on or after 1 January 2009;
· IFRS 9 Financial Instruments: Recognition and Measurement effective
for annual periods beginning 1 January 2013 (issued but not adopted by the
European Union).
3. Principal Accounting Policies
The following accounting policies have been applied consistently in dealing with
items which are considered material in relation to the Company's financial
statements:-
a. Going concern
At the Extraordinary General Meeting of the Company on 11 September 2009, the
Company's shareholders voted in favour of the Managed Wind-down of the Company.
Since this date the Company has been managed in such a way so as to realise the
investments held in the Company's portfolio and return capital to the
shareholders in a controlled and timely manner.
In accordance with the Circular dated 21 August 2009, shareholders should expect
that, under the terms of the Managed Wind-down, the Board and the Investment
Manager are committed to distributing as much of the available cash as quickly
as reasonably practicable having regard to cost efficiency and retaining
sufficient cash for the purposes of funding ongoing management and
administrative expenses incurred by the Company. Accordingly, it is expected
that, in order to minimise the administrative burden, distributions will be
made, at the discretion of the Board, at regular intervals for a period of 18 to
24 months following the commencement of the Managed Wind-down and thereafter as
the Board thinks appropriate.
In the opinion of the Directors, there is a reasonable expectation that
the Company has adequate resources to continue in operational existence for the
foreseeable future. For this reason the financial statements have been prepared
using the going concern basis.
The Directors have arrived at this opinion by considering, inter alia, the
following factors:
· the Company has sufficient liquidity to meet all on-going expenses;
· the Company holds investments and receivables (Market value
GBP20,569,119) which are redeemable and receivable within one to three months at
the reporting date and therefore will have sufficient resources to meet future
compulsory redemptions and other liquidity requirements;
· the compulsory redemptions are purely at the Company's discretion and
therefore the Company will only proceed with compulsory redemptions once a
detailed cash flow forecast has been completed and sufficient funds are in place
to meet the redemption payments and other liquidity requirements; and
Notes to the Financial Statements (continued)
3. Principal Accounting Policies (continued)
a. Going concern (continued)
· the Directors do not intend liquidating the Company in the near future,
and for a minimum of one year after the approval of these financial statements.
b. Valuation of investments
All investments are classified as "fair value through the profit and loss"
and are initially recognised at cost, being the fair value of the consideration
given.
For the purposes of preparation of the financial statements, investment in
Investee Funds are valued using the latest available information and the values
provided by their managers or their administrators for value as at 31 December
2009. Exchange traded Investee Funds are valued at the closing price available
for the Investee Fund on the date of each valuation.
The Managed Wind-down process should allow sufficient time for the
Investment Manager to maximise the realisation from the portfolio. The
valuations do not reflect a discount which may be appropriate were the
investments sold on an "earliest opportunity" basis.
The Directors will continue to review this to ensure that this represents
a fair market value for the portfolio.
It should be noted that investments totalling GBP7,964,065 (2008:
GBP18,091,334 ) of the net asset value were in funds that were either suspended,
gated, side pocketed or in liquidation. These investments have been valued using
the latest available information and whilst the Directors have no reason to
suspect that any such values are unreliable, the amounts realised from the
redemption of these funds may significantly differ from these values.
Suspended funds are those funds where a provision is in place preventing
withdrawal from the fund during a redemption period. Depending on the terms of
the fund, the manager generally has the ability to implement a suspension at any
time. A suspension will be implemented when a fund is unable to meet redemption
demands.
Gated funds are those funds where a restriction is placed on the fund
limiting the amount of withdrawals from the fund during a redemption period. The
implementation of a gate is up to the discretion of the fund manager and the
purpose of a gate is to prevent a run on the fund, as a large number of
withdrawals from the fund would force the manager to sell off a large number of
positions.
Side pockets are a type of account used in hedge funds to separate
illiquid assets from other more liquid investments. Once an investment enters a
side pocket account, only the present participants in the fund will be entitled
to a share of it. Future investors will not receive a share of the proceeds in
the event the assets' returns are realised. Investors who leave the fund will
still receive a share of the side pocket's value when it gets realised. Usually
only the most illiquid assets receive this type of treatment, because holding
illiquid assets in a standard hedge fund portfolio can cause a great deal of
complexity when investors liquidate their position. Overall, side pocket
accounts resemble single asset private equity funds in structure.
The difference between cost and valuation and realised gains or losses on
realisation of investments are included in the statement of comprehensive
income.
c. Purchases and sales of investments
Purchases and sales of investments are recognised at trade date. Where monies
have been forwarded in advance of the trade date, these have been accounted for
as a receivable on the statement of financial position as advance applications
for stock.
Notes to the Financial Statements (continued)
3. Principal Accounting Policies (continued)
d. Interest and investment income
Bank deposit interest is accounted for on an accruals basis. Dividends are
accounted for on a declared basis.
e. Expenses
Expenses are accounted for on an accruals basis.
f. Foreign exchange
Foreign currency monetary assets and liabilities are translated into Sterling at
the rate of exchange ruling at the statement of financial position date.
Transactions in foreign currencies are translated into Sterling at the rate
ruling at the date of the transaction. Realised and unrealised foreign exchange
gains and losses are recognised in the capital reserve - realised, and capital
reserve - unrealised respectively. Monetary assets and liabilities, including
investments denominated in United States Dollars have been translated into
Sterling at the rate of exchange of exchange at 31 December 2009 which was US$
1.617.
g. Foreign currency contracts
A foreign currency contract obligates the Company to receive or deliver a fixed
quantity of foreign currency at a specified price on an agreed date. These
contracts are accounted for when any contract becomes binding and are valued in
the statement of financial position at the year end rate. Realised and
unrealised gains and losses are included in the statement of comprehensive
income. All investments are classified as fair value through the profit and loss
under held for trading. The Company ceased to use foreign currency contracts to
hedge its exposure to US Dollars on 30 October 2009 in accordance with the terms
of the Managed Wind-down.
h. Bank borrowings
Overdrafts are recorded when the proceeds are received. Interest payments are
recognised in the statement of comprehensive income.
i. Segmental reporting
The Board has considered the requirements of IFRS 8 'Operating Segments'. The
Board has determined that the primary segmental reporting format is the strategy
allocation of the Company's portfolio of investments, as this is the reporting
format that the Board, as the Company's Chief Operating Decision Maker, receives
on a quarterly basis.
As a result of the adoption of IFRS 8Operating Segments, the financial
statements include an additional note (note 4). As this note incorporates prior
year figures, IAS 1 requires that the statement of financial position as at 31
December 2007 is also provided. As the impact of this change has been limited to
additional disclosures, the Directors have not produced 3 statements of
financial position as strictly required under IAS 1 (revised 2007) for
retrospective changes in accounting policies. The Directors believe this
departure does not materially affect the readers' overall understanding of these
financial statements.
Notes to the Financial Statements (continued)
4. Segmental Reporting
Since the Extraordinary General Meeting held on 11 September 2009, the principal
objective of the Company has been the realisation of the investments held in the
Company's portfolio in order to return capital to the shareholders as part of
the Managed Wind-down of the Company. Therefore since this date the primary
focus of the Board has been the cash held by the Company as this is the figure
on which the Board bases its most significant decisions, being the return of
capital to shareholders and the ongoing payment of creditors.
Up to the date of the EGM, the Board had determined that the primary segmental
reporting format was the strategy allocation of the Company's portfolio of
investments, as this was the reporting format that the Board, as the Company's
Chief Operating Decision Maker, received on a quarterly basis.
The portfolio was broken down into six strategy allocations, being Credit Based,
Event Driven, Convertible / Capital Structure Arbitrage, Fixed Income Arbitrage,
Hedged Equity and Multi-Strategy (Multi-Strategy being made up of Opportunistic
Equity, Volatility Arbitrage, Closed Ended Fund Arbitrage, Private Placements
and Other).
Segment results are based on the performance of each strategy allocation during
the year and the profit or loss for the year directly attributable to each
allocation.
The assets of each segment are represented by the market value of the
investments attributable to that segment and the proceeds due from brokers at
the year end.
Notes to the Financial Statements (continued)
4. Segmental Reporting (continued)
Fixed Income
Arbitrage
Event Driven Hedged Credit Based Global Multi-Strategy Total
Equity Macro
GBP GBP GBP GBP GBP GBP GBP
Opening
valuation 26,559,603 19,034,667 14,717,805 9,839,942 - 22,367,672 92,519,689
Purchases at
cost 5,359,039 6,188,706 2,704,530 2,077,327 2,028,398 7,041,298 25,399,298
Sales -
proceeds (23,706,857) (19,366,197) (11,696,192) (14,006,684) (3,215,887) (25,642,033) (97,633,850)
Realised gains
on sales 1,255,309 2,234,058 1,626,765 1,935,182 504,225 6,438,064 13,993,603
Unrealised
(depreciation)/
appreciation on
revaluation of
investments (2,034,658) (4,646,797) (5,326,836) 3,752,497 3,074,867 (6,618,981) (11,799,908)
Closing
valuation 7,432,436 3,444,437 2,026,072 3,598,264 2,391,603 3,586,020 22,478,832
Due from
brokers 1,606,616 3,975,332 546,625 3,424,939 795,608 12,079,032 22,428,152
--------------------------------------------------------------------------------------------
Closing segment
assets 9,039,052 7,419,769 2,572,697 7,023,203 3,187,211 15,665,052 44,906,984
Comprising:
Closing book 8,301,947 2,827,439 2,032,594 3,254,747 1,267,781 3,328,295 21,012,803
cost
Closing
unrealised
appreciation (869,511) 616,998 (6,522) 343,517 1,123,822 257,725 1,466,029
Closing 7,432,436 3,444,437 2,026,072 3,598,264 2,391,603 3,586,020 22,478,832
valuation
Due from
brokers 1,606,616 3,975,332 546,625 3,424,939 795,608 12,079,032 22,428,152
--------------------------------------------------------------------------------------------
Closing segment 9,039,052 7,419,769 2,572,697 7,023,203 3,187,211 15,665,052 44,906,984
assets
The results and assets attributable to each reporting segment for the year
ended 31 December 2009 are detailed below:
Notes to the Financial Statements (continued)
4. Segmental Reporting (continued)
Event Driven Hedged Fixed Credit Multi-Strategy
Equity Income Based
Arbitrage Total
GBP GBP GBP GBP GBP GBP
Opening
valuation 43,053,709 24,847,205 13,064,663 14,630,901 14,387,458 109,983,936
Purchases at
cost 8,885,845 7,847,907 896,766 8,077,965 5,178,036 30,886,519
Sales -
proceeds (22,560,433) (16,111,073) (25,274) (8,358,398) (8,096,616) (55,151,794)
Realised
(losses)/gains
on sales (352,269) 2,843,845 (9,025) 474,233 532,374 3,489,158
Unrealised
(depreciation)/
appreciation on
revaluation of
investments (2,467,249) (393,217) 790,675 (4,984,759) 10,366,420 3,311,870
Closing
valuation 26,599,603 19,034,667 14,717,805 9,839,942 22,367,672 92,519,689
Due from
brokers 2,610,419 5,055,893 - 341,787 314,081 8,322,180
-----------------------------------------------------------------------------
Closing segment
assets 29,170,022 24,090,560 14,717,805 10,181,729 22,681,753 100,841,869
Comprising:
Closing book 25,393,304 15,480,496 13,079,406 13,247,833 12,052,713 79,253,752
cost
Closing
unrealised
appreciation 1,166,299 3,554,171 1,638,399 (3,407,891) 10,314,959 13,265,937
Closing 26,599,603 19,034,667 14,717,805 9,839,942 22,367,762 92,519,689
valuation
Due from
brokers 2,610,419 5,055,893 - 341,787 314,081 8,322,180
-----------------------------------------------------------------------------
Closing segment
assets 29,170,022 24,090,560 14,717,805 10,181,729 22,681,753 100,841,869
The results and assets attributable to each reporting segment for the year ended
31 December 2008 are detailed below:
Notes to the Financial Statements (continued)
5. Income
01.01.09 to 31.12.09 01.01.08 to 31.12.08
GBP GBP
Bank deposit interest 25,615 24,099
Sundry income 1,358 41,033
----------------------------------------------
Total income 26,973 65,132
6. Investment management, management and custodian fees
Ramius Fund of Funds Group LLC, the Investment Manager, was appointed under an
agreement with the Company and other parties dated 1 February 2005. Either
party, giving not less than 6 months notice, may terminate the agreement. The
Investment Manager receives 60 per cent of the management and performance fees
payable to the Manager (2008: 60 per cent). The performance fee is calculated on
a per share basis and is payable in respect of any financial year where the
closing NAV per share exceeds the opening NAV per share as increased by the
performance hurdle equivalent to Sterling 3 month LIBOR. This fee will equate to
10% of the excess of the closing NAV over the opening adjusted NAV per share or
the High Watermark NAV per share if higher. The aggregate fee payable in respect
of any share in issue will not exceed 4% of the net asset value of that share at
the end of the financial year. During the year ended 31 December 2009,
management fees totalling GBP431,778 were earned by the Investment Manager (2008:
GBP598,012) of which GBP76,701 was payable at the year end (2008: GBP124,922).
With effect from 1 January 2009, the performance fee was amended to 10% of
returns over a hurdle of 3 month sterling LIBOR. No performance fee was payable
for the year ended 31 December 2009 (2008: GBPnil).
Kleinwort Benson (Channel Islands) Fund Services Limited was appointed Manager
under an agreement with the Company dated 1 February 2005. Either party, giving
not less than 6 months notice, may terminate the agreement. The manager is
entitled to a fee, payable quarterly in arrears, of 1 per cent per annum
calculated on the Net Asset Value of the Company. The Manager has directed the
Company to pay to the Investment Manager 60 per cent of all the fees, including
the performance fee, received by the Manager under the Management,
Administration and Secretarial Agreement. During the year ended 31 December
2009, fees totalling GBP287,852 were earned by the Manager (2008: GBP399,133) of
which GBP51,134 was payable at the year end (2008: GBP83,282).
Kleinwort Benson (Guernsey) Limited was appointed Custodian under an agreement
with the Company dated 1 February 2005. Either party, giving not less than 3
months notice, may terminate the agreement. The custodian is entitled to a fee,
payable quarterly in arrears, of 0.06 per cent per annum calculated on the Net
Asset Value of the Company up to GBP50 million and 0.045 per cent per annum
thereafter subject to a minimum annual fee of GBP15,000. During the year ended 31
December 2009, fees totalling GBP40,632 were earned by the Custodian (2008:
GBP51,344) of which GBP7,642 was payable at the year end (2008: GBP11,254).
7. Taxation
The Company is exempt from Guernsey Income Tax under the Income Tax (Exempt
Bodies) (Guernsey) Ordinances 1989 to 1997 and is charged an annual exemption
fee of GBP600 (2008: GBP600).
8. Investments
a. Details of the significant accounting policies and methods adopted,
including the criteria for recognition, the basis of measurement and the basis
on which gains and losses are recognised, in respect of its financial assets and
financial liabilities are disclosed in note 3 to the financial statements.
Notes to the Financial Statements (continued)
8. Investments (continued)
b. Categories of Investments
31.12.09 31.12.08
Fair Value % of net assets Fair Value % of net assets
GBP GBP
Designated at fair value
through profit or loss
- Open-ended Investment 22,478,832 43.37% 92,515,322 117.08%
Funds
Listed investments 10,323 0.02% 4,367 0.00%
------------------------------------------------------
24,152,094 43.39% 92,519,689 117.08%
------------------------------------------------------
Financial liabilities at
fair value through profit
or loss
Held for trading
- Derivatives - - 3,406,777 4.31%
------------------------------------------------------
- - 3,406,777 4.31%
------------------------------------------------------
c. Net gains/(losses) on financial assets designated at fair value through
profit or loss
01.01.09 to 31.12.09 01.01.08 to 31.12.08
GBP GBP
Movements in the year:-
Opening valuation 92,519,689 109,983,936
Purchases at cost 25,399,298 30,886,519
Sales - proceeds (97,633,850) (55,151,794)
Realised gains on sales 13,993,603 3,489,158
Unrealised (depreciation)/appreciation
on revaluation of investments
(11,799,908) 3,311,870
------------------------------------------
Closing valuation 22,478,832 92,519,689
Comprising:
Closing book cost 21,012,803 79,253,752
Closing unrealised appreciation 1,466,029 13,265,937
------------------------------------------
Closing valuation 22,478,832 92,519,689
Notes to the Financial Statements (continued)
8. Investments (continued)
d. Net gains/(losses) on financial assets designated at fair value through
profit or loss (continued)
31.12.09 31.12.08
GBP GBP
Net realised gains/(losses) on financial assets at
fair value through profit or loss
- Held for trading 2,978,766 (31,757,292)
- Designated at fair value through profit or loss 13,993,604 3,489,158
--------------------------
16,972,370 (28,268,134)
Change in unrealised appreciation of financial assets
at fair value through profit or loss
- Designated at fair value through profit or loss (11,799,908) 3,311,870
--------------------------
(11,799,908) 3,311,870
--------------------------
Change in unrealised appreciation of financial
liabilities at fair value through profit or loss
- Held for trading 3,406,777 1,187,621
--------------------------
3,406,777 1,187,621
--------------------------
--------------------------
Net Change in unrealised appreciation of financial
assets and liabilities at fair value through profit or
loss (8,393,131) 4,499,491
e. Derivatives
Forward foreign exchange contracts
As at 31 December 2009, the Company had no outstanding forward foreign exchange
contracts.
As at 31 December 2008, the Company had the following outstanding forward
foreign exchange contracts:
Contract value
Average Contract value GBP Fair value - GBP
exchange rate USD Financial asset
Outstanding
contracts
Buy GBP 1.51865 131,115,000 86,336,549 (3,406,777)
In accordance with the Cell's investment objectives and policies the Company may
enter into forward foreign exchange contracts traded over the counter to hedge
specific foreign currency payments. As there is no assurance that these hedges
will be effective in achieving offsetting changes in the cash flows attributable
to the currency risk on these specific foreign currency payments it is the
policy of the Company not to apply hedge accounting.
The Cell holds investments denominated in US Dollars as at 31 December 2009, and
up to 30 October 2009 had entered into forward foreign exchange contracts for
terms not exceeding 3 months to hedge the exchange rate risk arising from future
cash flows on these investments. The fair value of the forward foreign exchange
contracts are included in derivatives held for trading classified as financial
assets or liabilities at fair value through profit or loss disclosed in note 8
(b) to the financial statements.
In accordance with the terms set out in the Circular, the currency hedge was
removed on 30 October on the basis that the Company was to commence the return
of capital to the shareholders as part of the process of the Managed Wind-down.
Notes to the Financial Statements (continued)
9. Receivables
31.12.09 31.12.08
GBP GBP
Due from brokers 22,428,152 8,322,180
Receivables - 357,172
-------------------------
22,428,152 8,679,352
The carrying amount of these assets approximates their fair value.
10. Payables
31.12.09 31.12.08
GBP GBP
Accrued expenses 283,671 403,500
----------------------
283,671 403,500
The carrying amount of these liabilities approximates their fair value.
11. Cash and cash equivalents
31.12.09 31.12.08
GBP GBP
Cash at bank 7,228,384 81,569
-----------------------
Net cash at the year end 7,228,384 81,569
Cash and cash equivalents comprise cash held by the Company with Kleinwort
Benson (Channel Islands) Limited (Guernsey branch).
The carrying amount of these assets approximates their fair value.
12. Share Capital
The authorised share capital of the Company is GBP2 divided into 2 Management
Shares of GBP1 each and an unlimited number of no par value shares that may be
issued as Cell shares. The Cell shares are issued as redeemable participating
preference shares ("the cellular shares") and 45,000,000 cellular shares were
issued at 100p per share on launch of the Cell on 22 February 2005.
With confirmation of the Royal Court in Guernsey on 31 January 2005 the amount
standing to the credit of the share premium account, net of issue costs,
immediately following the issue of the cellular shares was transferred to a
special reserve (which is distributable) and the share premium account was
cancelled.
The cellular shares carry the right to receive all the revenue profits of the
Cell, which are available for the distribution as the Directors may determine.
On a winding-up cellular shareholders are entitled to the assets of the Cell
subject to any specific rights attributable thereto as described in the
Prospectus.
During the year the Company purchased 4,800,000 shares to be held in Treasury.
During the year 10,018,010 shares were cancelled from Treasury.
On 18 November 2009, the Company completed the first compulsory redemption as
part of the Managed Wind-down of the Company in which 32,594,936 shares were
redeemed.
Notes to the Financial Statements (continued)
13. Management Shares
The management shares, of which there are 2 in issue (2008: 2), were created to
comply with Guernsey Company Law, under which there must be a class of
non-redeemable shares in issue in order that the cellular shares may be
redeemable preference shares in accordance with Guernsey Company Law. The sums
paid up on the management shares will be credited to the non-cellular assets of
the Company.
The management shares do not carry any rights to dividends and holders of
management shares are only entitled to participate in the non-cellular assets of
the Company on a winding-up.
Notes to the Financial Statements (continued)
14. Net assets attributable to holders of Cellular shares
The net assets attributable to holders of cellular shares comprise issued
cellular shares, capital reserves and retained earnings.
Own shares Capital Capital
held in Reserve Reserve
Treasury Retained Share Special Realised Unrealised
Reserve
Earnings Premium Total
GBP GBP GBP GBP GBP GBP GBP
As at 1 (5,470,483) (5,568,643) 56,949,405 44,212,500 (19,571,718) 8,462,781 79,013,842
January
2009
Cost of
shares
purchased (3,281,000) - - - - - (3,281,000)
Shares
cancelled 8,751,483 - (8,751,483) - - - -
from
Treasury
First
compulsory - - - (31,470,312) - - (31,470,312)
redemption
Realised
gain on - - - - 13,993,604 - 13,993,604
investments
Movement in
unrealised
loss on - - - - - (11,799,908) (11,799,908)
investments
Realised
currency
gains on
forward
foreign - - - - 2,978,766 - 2,978,766
currency
contracts
Movement in
unrealised
currency
losses on
forward - - - - - 3,406,777 3,406,777
foreign
currency
contracts
Movement in
unrealised
currency - - - - - 1,156,303 1,156,303
losses
Net loss on - (2,188,231) - - - - (2,188,231)
ordinary
activities
----------------------------------------------------------------------------------------
As at 31
December
2009 - (7,756,874) 48,197,922 12,742,188 (2,599,348) 1,225,953 51,809,841
Notes to the Financial Statements (continued)
14. Net assets attributable to holders of Cellular shares (continued)
The net assets attributable to holders of cellular shares comprise issued
cellular shares, capital reserves and retained earnings.
Own shares Capital Capital
held in Reserve Reserve
Treasury Retained Share Special Realised Unrealised
Reserve
Earnings Premium Total
GBP GBP GBP GBP GBP GBP GBP
As at 1 - (3,375,421) 56,949,405 44,212,500 8,696,416 4,912,054 111,394,954
January
2008
Cost of
shares held
in Treasury (5,470,483) - - - - - (5,470,483)
Realised
gain on - - - - 3,489,158 - 3,489,158
investments
Movement in
unrealised
gain on - - - - - 3,311,870 3,311,870
investments
Realised
currency
gains on
forward
foreign - - - - (31,757,292) - (31,757,292)
currency
contracts
Movement in
unrealised
currency
gains on
forward
foreign - - - - - 1,187,621 1,187,621
currency
contracts
Movement in
unrealised
currency
gains - - - - - (948,764) (948,764)
Net loss on
ordinary
activities - (2,193,222) - - - - (2,193,222)
-----------------------------------------------------------------------------------
As at 31
December
2008 (5,470,483) (5,568,643) 56,949,405 44,212,500 (19,571,718) 8,462,781 79,013,842
Notes to the Financial Statements (continued)
15. Return/(loss) per Cellular Share
Return per cellular share is based on the return for the financial year of
GBP7,547,311 (2008: loss GBP26,910,689) and on the weighted average number of
cellular shares in issue during the year of 80,450,327 (2008: 91,067,503).
16. Net Asset Value per Cellular Share
The net asset value per cellular share is based on net assets attributable to
shares of GBP51,809,841 (2008: GBP79,013,842) and on 50,981,904 (2008: 88,376,840)
cellular shares, being the number of cellular shares in issue at the year end.
17. Financial risk management
Concentration risk
As stated previously, the Company is in Managed Wind-down and therefore the
Company's primary objective is to realise the Company's existing investment
portfolio with a view to maximising the orderly return of invested capital to
shareholders.
The Managed Wind-down involves accessing liquidity from managers where available
without
regard to the construct of the remaining portfolio, which therefore gives rise
to the following risks:
· a lack of strategy and sub-strategy diversification;
· an inability to manage style diversification across remaining hedge
fund managers;
· a bias towards the earlier realisation of more liquid strategies
thereby causing an overweight in less liquid strategies; and
· a lack of manager diversification.
Fair value measurements
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This
requires the Company to classify fair value hierarchy that reflects the
significance of the inputs used in making the measurements. IFRS 7 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); or
· 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 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.
Notes to the Financial Statements (continued)
17. Financial risk management (continued)
Fair value measurements (continued)
The following table presents the Company's financial assets and liabilities by
level within the valuation hierarchy as of 31 December 2009.
Percentage of net assets
2009
GBP %
Level 1 fair value assets 10,322 0.02
Level 2 fair value assets 14,504,445 28.00
Level 3 fair value assets 7,964,065 15.37
----------------------------------------
22,478,832 43.39
The Company holds one investment which is listed and which is therefore
categorised as level 1 of the IFRS fair value hierarchy.
The investments categorised as level 2 are investments which are held in the
Company's portfolio where there is a potential underlying liquidity issue, but
nonetheless investments where the Investment Manager believes that the
investments can be realised in a reasonable timeframe which is close to the
original redemption terms of the underlying fund.
The investments categorised as level 3 are investments which are suspended,
gated, side pocketed and in liquidation and therefore investments where the
Investment Manager believes that there is not sufficient liquidity to realise
the value in the underlying investment in accordance with the original
redemption terms of the underlying fund.
Financial risk profile
The Cell's financial instruments comprise investments, and cash and various
items such as receivables etc that arise directly from the Company's
operations. The main purpose of these instruments is the investment of
shareholders' funds.
Categories of financial instruments
Financial assets
and liabilities at
Held at fair value amortised cost
through profit or
loss
31 December 2009 Note Total
GBP GBP GBP
Financial assets
Financial assets at
fair value through
profit or loss 8 22,478,832 - 22,478,832
Due from brokers 9 - 22,428,152 22,428,152
Cash at bank 11 - 7,228,384 7,228,384
------------------------------------------------------
22,478,832 29,656,536 52,135,368
------------------------------------------------------
Financial
liabilities
Payables 10 - 283,671 283,671
Due to brokers 10 - 41,854 41,854
------------------------------------------------------
- 325,525 325,525
------------------------------------------------------
Notes to the Financial Statements (continued)
17. Financial risk management (continued)
Categories of financial instruments (continued)
Held at fair value Financial assets
through profit or and liabilities at
loss amortised cost
Total
31 December 2008 Note
GBP GBP GBP
Financial assets
Financial assets at
fair value through
profit or loss 8 92,519,689 - 92,519,689
Due from brokers 9 - 8,322,180 8,322,180
Receivables 9 - 357,172 357,172
Cash at bank 11 - 81,569 81,569
------------------------------------------------------
92,519,689 8,760,921 101,280,610
------------------------------------------------------
Financial
liabilities
Payables 10 - 403,500 403,500
Unrealised loss on
forward foreign
exchange contracts 8 3,406,777 - 3,406,777
Borrowings 18 - 18,456,489 18,456,489
------------------------------------------------------
3,406,777 18,859,989 22,266,766
------------------------------------------------------
Capital risk management
The capital structure of the Company consists of the cash and cash equivalents
and net assets attributable to holders of cellular shares, which comprise of
issued cellular shares, capital reserves and revenue reserves as disclosed in
note 14. The Company does not have any externally imposed capital requirements.
The capital is to be used by the Company to invest in established hedge funds
worldwide. At 31 December 2009, net assets attributable to the holders of
cellular shares was GBP51,809,841 (2008: GBP79,013,842).
As a result of the resolutions passed at the Extraordinary General Meeting of
the Company on 11 September 2009, the Company is now in Managed Wind-down and
therefore the investment objectives of the Company have changed.
The revised investment policy of the Company is therefore as follows:
The Company will not make any new investment however, this will not preclude the
Company from switching an existing investment to a new share class or new
vehicle should this enhance the prospects of that particular investment's future
realisations.
The Company will seek to realise the Company's existing investment portfolio
with a view to maximising the orderly return of invested capital to
Shareholders.
Any 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 on deposit.
The Company will not have borrowings other than for short-term working capital
purposes.
During the first period of the year to the Extraordinary General Meeting on 11
September 2009, the assets of the Company were invested in accordance with the
Company's investment policy. The Company, through its underlying portfolio
manager invested in various strategies to mitigate its investment risk.
During the period following the Extraordinary General Meeting, the assets of the
Company were managed with a view to returning capital to the shareholders as
stated in the revised investment policy above.
Notes to the Financial Statements (continued)
17. Financial risk management (continued)
As at 31 December 2009, the Company's investments were spread over 6 strategies
as set out below:
Market Value
Investment Strategy GBP'000 % of NAV
Event Driven 7,432 14.34%
Hedged Equity 3,445 6.65%
Fixed Income Arbitrage 2,026 3.91%
Credit-Based 3,598 6.95%
Global Macro 2,392 4.62%
Multi-Strategy 3,586 6.92%
------------------------------
Total Investments 22,479 43.39%
Cash and other assets less liabilities 29,331 56.61%
------------------------------
Total Net Assets 51,810 100.00%
As at 31 December 2008, the Company's investments were spread over 5 strategies
as set out below:
Market Value
Investment Strategy GBP'000 % of NAV
Event Driven 26,559 33.61%
Hedged Equity 19,035 24.09%
Fixed Income Arbitrage 14,718 18.63%
Credit-Based 9,840 12.45%
Multi-Strategy 22,368 28.31%
------------------------------
Total Investments 92,520 117.09%
Cash and other assets less liabilities (13,506) (17.09)%
------------------------------
Total Net Assets 79,014 100.00%
Market price risk
The main risk arising from the Cell's financial instruments is market price
risk. The Company does not hedge against its exposure to market price risk. Up
to 11 September 2009, the Investment Manager managed the Cell's market price
risk on a daily basis in accordance with the Cell's original investment
objectives and policies and the Board of Directors monitored the Cell's overall
market positions regularly.
With effect from 11 September 2009, the Investment Manager ceased to manage the
Cell's market price risk on a daily basis as the requirement to liquidate assets
in accordance with the revised investment policy (as described on page 42) has
prevented them from doing so.
Price Sensitivity
The following details the Cell's sensitivity to a 10% increase and decrease in
the market prices.
At 31 December 2009, if market prices had been 10% higher with all other
variables held constant, the increase in net assets attributable to holders of
cellular shares for the year would have been GBP2,415,209 (2008: GBP9,251,969).
If market prices had been 10% lower with all other variables held constant, the
decrease in net assets attributable to holders of cellular shares for the year
would have been GBP2,415,209 (2008: GBP9,251,969).
This analysis excludes any forward foreign exchange contracts.
The sensitivity is lower in 2009 than in 2008 because of the decrease in the
fair value of financial assets at fair value through profit or loss at the
statement of financial position date.
Notes to the Financial Statements (continued)
17. Financial risk management (continued)
Interest rate risk
Currency Financial Floating rate financial Total Total
assets/(liabilities) assets/(liabilities)
on which no interest
is paid
31.12.09 31.12.08 31.12.09 31.12.08 31.12.09 31.12.08
GBP GBP GBP GBP GBP GBP
Assets:
Sterling - - 4,360,089 2,424 4,360,089 2,424
U.S Dollars 22,478,832 92,519,689 2,868,295 79,145 25,347,127 92,598,834
----------------------------------------------------------------------
22,478,832 92,519,689 7,228,384 81,569 29,707,216 92,601,258
----------------------------------------------------------------------
Liabilities:
Sterling - - - - - -
U.S Dollars - - - (18,456,489) - (18,456,489)
----------------------------------------------------------------------
- - - (18,456,489) - (18,456,489)
----------------------------------------------------------------------
----------------------------------------------------------------------
Total assets/
(liabilities) 22,478,832 92,519,689 7,228,384 (18,374,920) 29,707,216 74,144,769
The above analysis excludes short-term receivables and payables, as all the
material amounts are non-interest bearing.
As the Company primarily invests in non-interest bearing investments, the
interest rate risk as at 31 December 2009 and as at 31 December 2008 is limited
to the extent of bank balances, bank overdrafts and the credit facility noted in
note 18.
Interest rate sensitivity
The following details the Cell's sensitivity to a 100 basis points increase and
decrease in the interest rates applied to the Cell's floating rate financial
assets and liabilities.
At 31 December 2009, had interest rates been 100 basis points higher, with all
other variables held constant, the increase in net assets attributable to
holders of cellular shares would have been GBP72,284 (2008: decrease GBP183,749)
arising from an increase in interest receivable on floating rate assets of
GBP72,284 (2008: increase GBP816) and an increase in interest payable on floating
rate liabilities of GBPnil (2008: increase GBP184,565
If interest rates had been 100 basis points lower, with all other variables held
constant, the decrease in net assets attributable to holders of cellular shares
would have been GBP72,284 (2008: increase GBP183,749) arising from a decrease in
interest receivable on floating rate assets of GBP72,284 (2008: decrease GBP816) and
a decrease in interest payable on floating rate liabilities of GBPnil (2008:
decrease GBP184,565).
Notes to the Financial Statements (continued)
17. Financial risk management (continued)
Foreign currency risk
Foreign currency risk is the risk that a financial instrument will fluctuate
because of changes in foreign exchange rates.
At 31 December 2009 the Company's net currency exposure was as follows:
2009 2008
GBP % GBP %
Sterling 4,076,417 7.87 (3,792,469) (4.80)
United States
Dollars 47,733,424 92.13 82,806,311 104.8
---------------------------------------
51,809,841 100.00 79,013,842 100.00
As part of the Managed Wind-down with effect from 30 October 2009 the Company
removed the currency hedge and therefore from this point in time, as the
Company's portfolio of investments is denominated in US Dollars, the
shareholders were exposed to the fluctuations in the US Dollar/Sterling exchange
rate as well as the investment performance of these assets.
The following table sets out the Company's net exposure after hedging:
Monetary Monetary Forward FX Net Exposure
Assets Liabilities Contracts
31 December
2009
GBP GBP GBP GBP
Pound 4,360,088 (283,671) - 4,076,417
Sterling
United 47,775,278 (41,854) - 47,733,424
States
Dollars
Monetary Monetary Forward FX Net Exposure
Assets Liabilities Contracts
31 December
2008
GBP GBP GBP GBP
Pound 17,809 (403,500) 86,336,549 85,950,858
Sterling
United 101,008,253 (18,456,489) (89,626,769) (7,075,005)
States
Dollars
Currency sensitivity
The following details the Cell's sensitivity to a 5 per cent. weakening and
strengthening of the US Dollar against Sterling.
At 31 December 2009, had the US Dollar weakened against Sterling, with all other
variables held constant, the decrease in net assets attributable to holders of
cellular shares would have been GBP2,273,020 (2008: decrease GBP3,943,158).
At 31 December 2009, had the US Dollar strengthened against Sterling, with all
other variables held constant, the increase in net assets attributable to
holders of cellular shares would have been GBP2,512,285 (2008: increase
GBP4,358,227).
Notes to the Financial Statements (continued)
17. Financial risk management (continued)
Liquidity risk
Liquidity risk is the risk that the Company cannot meet its liabilities as they
fall due. The Company's primary source of liquidity consists of net cash and is
considered to satisfy the liquidity requirements of the Company.
The following table details the Cell's liquidity analysis for its financial
assets and liabilities as at 31 December 2009:
Less than 1 - 3 3 Months to More than
1 month months 1 year 1 year
Total
2009 GBP GBP GBP GBP GBP
Assets
Investments - 30,921 12,272,595 10,175,316 22,478,832
Due from
brokers 15,721,775 4,816,423 673,171 1,216,783 22,428,152
Cash at bank 7,228,384 - - - 7,228,384
------------------------------------------------------------------
22,950,159 4,847,344 12,945,766 11,392,099 52,135,368
------------------------------------------------------------------
Liabilities
Payables 283,671 - - - 283671
Due to
brokers 41,854 - - - 41,854
------------------------------------------------------------------
325,525 - - - 325,525
------------------------------------------------------------------
The following table details the Cell's liquidity analysis for its financial
assets and liabilities as at 31 December 2008:
Less than 1 - 3 3 Months More than
1 month months to 1 year 1 year
Total
2008 GBP GBP GBP GBP GBP
Assets
Investments - 55,686,717 18,741,638 18,091,334 92,519,689
Due from
brokers 8,322,180 - - - 8,322,180
Receivables 357,172 - - - 357,172
Cash at bank 81,569 - - - 81,569
-----------------------------------------------------------------
8,760,921 55,686,717 18,741,638 18,091,334 101,280,610
-----------------------------------------------------------------
Liabilities
Foreign
exchange
forward
contracts - 3,406,777 - - 3,406,777
Payables - 403,500 - - 403,500
Borrowings - - 18,456,489 - 18,456,489
Net assets
attributable
to redeemable
shares - 79,013,842 - - 79,013,842
-----------------------------------------------------------------
- 82,824,119 18,456,489 - 101,280,608
-----------------------------------------------------------------
Notes to the Financial Statements (continued)
17. Financial risk management (continued)
Liquidity risk (continued)
Compulsory redemptions are purely at the Company's discretion and therefore the
Company will only proceed with compulsory redemptions once a detailed cash flow
forecast has been completed and sufficient funds are in place to meet the
redemption payments and other liquidity requirements.
Credit risk
Credit risk is the risk that one party to a financial instrument will cause a
financial loss for the other party by failing to discharge an obligation.
Credit risk on liquid funds and derivative financial instruments is limited
because the counterparties are banks with high credit ratings assigned by
international credit rating agencies.
18. Credit Facility
On 25 November 2008, the Company entered into a Secured Revolving Credit and
Liquidity Agreement with Bayerische Hypo-und Vereinsbank AG, New York Branch
("HVB").
Under the terms of the Secured Revolving Credit and Liquidity Agreement, HVB as
the Lender makes available to the Company a 364 day United States Dollar
revolving credit facility in an aggregate amount equal to USD 40 million.
Interest is payable on the unpaid principal amount of the loan for each day it
is outstanding at a rate per annum equal to the Base Rate in effect for such
day, plus the Applicable Margin of 2.75%. The Agreement also stipulates that the
Company shall pay an unused commitment fee based on the average daily amount of
the facility which was unused during the immediately preceding quarter
calculated on the basis of actual days elapsed in the year consisting of 360
days at the rate of 0.5 per cent per annum, payable in arrears on the fifth
Business Day of each February, May, August, and November, in each case for the
period beginning as of the first day of the immediately preceding calendar
quarter, commencing in February 2009, covering the period as 25 November 2008
and ending as of 31 December 2008. To secure the facility, the Company has
provided HVB with a security interest in and lien on substantially all of its
assets.
The Secured Revolving Credit and Liquidity Agreement is subject to a number of
covenants. During the year under review there were no reported breaches of any
of the covenants contained within the agreement.
The purpose of this facility was to provide the Company with liquidity to
purchase investments in underlying hedge funds, to buy back its shares and to
pay operating expenses and fees. Any borrowing was short term in nature, did
not exceed 25 per cent. of the Company's Net Asset Value and was for the
purposes of efficient portfolio management. Borrowings were held at amortised
cost.
At 31 December 2009, the Company had repaid the facility in full and there is no
intention to utilise this facility further. At 31 December 2008 the Company had
borrowed USD 27 million ( GBP18,456,489 translated at 31 December 2008).
19. Related parties
Kleinwort Benson (Channel Islands) Fund Services Limited (the "Manager"), Ramius
HVB Partners, LLC (the "Investment Manager"), Kleinwort Benson (Guernsey)
Limited (the "Custodian") and the Directors are regarded as related parties. The
only related party transactions are described below:
The fees and expenses payable to the Manager, Investment Manager and Custodian
are explained in note 6 and detailed in the statement of comprehensive income.
Notes to the Financial Statements (continued)
20. Events after the reporting date
On 24 February 2010, the Company completed the second compulsory partial
redemption of shares in accordance with the resolutions passed at the
Extraordinary General Meeting on 11 September 2009 for the Company to undergo a
Managed Wind-down.
The redemption was for 46 per cent. of the cellular shares in issue at 24
February 2010 at a price of 101.6985pence per share. On this basis 23,451,676
shares were redeemed at a total cost of GBP23,850,003.
Of the total of 83,756,840 shares in issue at the time of the Extraordinary
General Meeting, 56,046,612 shares have now been redeemed with a total return of
funds to investors of GBP55,320,315. Realisation of investments continues and as
at 27 April 2010 the Company held cash totalling GBP8,616,600.
21. Controlling parties
In the opinion of the Directors, there is no parent company or ultimate
controlling party of the Company.
Notice of Annual General Meeting
Notice is hereby given that the Third Annual General Meeting of the Company will
be held at Dorey Court, Admiral Park, St Peter Port, Guernsey, on 12 August
2010 at 2.30 pm. for the following purposes:-
Ordinary Resolutions:-
1. To consider and approve the Directors' report and financial statements for
the year ended 31 December 2009.
2. To re-elect Mr John Hallam as Director.
3. To re-elect Mr Michael Strachan as Director.
4. To re-appoint Deloitte LLP as Auditors.
By order of the board
Kleinwort Benson (Channel Islands) Fund Services Limited
Secretary
Dorey Court
Admiral Park
St Peter Port
Guernsey
29 April 2010
Note: A member entitled to be present and vote at the meeting may appoint a
proxy to attend and, on a poll, to vote in his stead. Appointment of a proxy
will not preclude a member from attending the meeting and voting in person. A
proxy need not be a member of the Company. The Directors have no contracts with
the Company.
=-------------------------------------------------------------------------------
[1] Please refer to the performance disclosure at the end of this document.
[2] The Company's portfolio characteristics will change over time. There can be
no assurance that these characteristics will be indicative of the portfolio's
characteristics in the future.
[HUG#1410260]
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