TIDMIRIS
RNS Number : 5397S
DCG IRIS Limited
24 September 2014
DCG IRIS LIMITED
ANNUAL REPORTS AND ACCOUNTS
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the period from 1 June 2013 to 31
May 2014. The Report will shortly be available from the Company's
website www.dexioncapital.com.
SUMMARY INFORMATION
Principal Activity
DCG IRIS Limited (the "Company") is a Guernsey authorised
closed-ended investment company. Its Shares were admitted to the
Official List and to trading on the Main Market on the London Stock
Exchange. Trading in the Company's Shares commenced on 27 June
2012.
In light of the current soft premium environment in the
reinsurance market and the Company's total asset size, the
Directors announced on 18 June 2014 that they considered it in the
best interests of shareholders that the Company put forward winding
up proposals. A circular to Shareholders convening the necessary
extraordinary general meeting was published on 3 September
2014.
Investment Objective and Investment Policy
The Company's investment objective is to seek to achieve
positive returns through investing in insurance-linked contracts
and assets carrying exposure to risks related to insured event
risks.
The Company pursues its investment objective by principally
investing its assets (to the extent not retained in cash) in CS
IRIS Low Volatility Plus Fund Limited (the "Master Fund") which
invests in a broadly diversified portfolio of insurance-linked
contracts, securities and derivatives as well as various types of
investments related to insurance risks over the long-term.
The Company may not borrow or incur leverage for investment
purposes although as well as holding cash and investing in cash
equivalents it may borrow for cash management and short term
purposes. The borrowings of the Company are limited to ten per
cent. of the Company's gross assets at the time of drawdown.
Shareholder Information
The Net Asset Value (the "NAV") of the Company and the NAV per
Ordinary Share are published monthly and are calculated by the
Administrator (or such other person as the Directors may appoint
for such purpose from time to time) as at the NAV Calculation
Date.
Weekly NAV estimates are also published by the Company and these
are based primarily upon information obtained by the Administrator
from the Master Fund Manager in relation to the portfolio
valuations of the Master Fund, in each case with adjustments to
account for the ongoing costs of the Company.
The NAV per Share for the Ordinary Shares in the capital of the
Company is published via a Regulatory Information Service ("RIS")
on both a weekly and a monthly basis, approximately 19 Business
Days (but not later than 20 Business Days) after the end of each
month in the case of the monthly NAV and within five Business days
following the end of the previous week in the case of the weekly
NAV.
Financial Highlights
31 May 31 May
2014 2013
-------------------------- --------- ---------
Total NAV GBP67.97m GBP60.18m
NAV per share 98.32p 99.79pp
Mid-Market Share price 96.88p 100.63p
(Discount)/premium to NAV (1.47%) 0.84%
-------------------------- --------- ---------
As at 24 September 2014, the Company's share price stood at a
discount of 2.93% to NAV. The estimated NAV per Share and
Mid-Market Share price stood at 98.51p and 95.63p respectively.
CHAIRMAN'S STATEMENT
This annual report is presented for the period 1 June 2013 to 31
May 2014 on behalf of the Board of DCG IRIS Limited (the
"Company").
Market Conditions - Overview
The Company's shares moved to a small discount towards the end
of 2013, which gradually widened to about 2.93% (as at end
September 2014). This compares somewhat unfavourably with the
Company's listed insurance linked securities ("ILS") peer group
funds, which are at premiums of slightly over 1% (relative to the
end of May 2014 NAVs, the latest reported NAVs).
Results
During the financial year to 31 May 2014 the total return of the
Company's NAV was 3.63%. The annualised return on Shares from
inception to 31 May 2014 was 4.47% compared to 3 Month LIBOR over
the same period of 0.54%. Annualised volatility has been low at
0.47% over the same period, and returns have exhibited low
correlation to equity and fixed income markets.
Recommended proposals for a voluntary winding up of the
Company
The Company's returns have been minimally affected by insurance
events, despite Superstorm Sandy in October 2012, which was the
second most expensive event in US history and resulted in insured
losses of US$36.89 billion (source: Swiss Re Sigma). Superstorm
Sandy resulted in a reduction to NAV of just 0.24%. Despite these
successes, the Company remains of relatively small size (net assets
of GBP67.97m as of 31 May 2014) and has not attracted the investor
demand that was projected at launch.
In light of the current soft premium environment in the
reinsurance market and the Company's total asset size, my fellow
Directors and I resolved to put a proposal to shareholders for its
voluntary winding up. A circular (the "Circular") has been
published and an extraordinary general meeting convened for 24
September 2014. The Company has submitted a full redemption request
to the CS IRIS Low Volatility Plus Fund Limited (the "Master Fund")
for redemption on the next available dealing date in the Master
Fund, which is 1 October 2014.
If the proposal is approved, the Company shall be put into
voluntary liquidation and capital will be returned to
shareholders.
Going Concern
Our Directors' Report sets out the summary review of our key
risks and mitigations in respect of the Going Concern concept. For
the reasons highlighted in that important summary review and as
noted above, my fellow Directors and I believe it is no longer
appropriate for the Company to continue to adopt the Going Concern
basis for the preparation of the 2014 annual financial
statements.
Talmai Morgan
Chairman
24 September 2014
INVESTMENT MANAGER'S REPORT
Investment Review
We report that, since launch, the total return of the Company's
NAV increased by 8.75% net of fees and expenses over the period to
31 May 2014. During this period, the Company declared and paid
dividends totalling 8.50 pence per Share to Shareholders. During
the period from 1 June 2013 to 31 May 2014, the NAV increased by
3.63% and the Company paid dividends totalling 5.0 pence per Share
to Shareholders.
The following report provides the review of the performance of
the Master Fund by the Manager of the Master Fund to 31 May 2014.
References to the allocated investments are, where the context
requires, to those of CS IRIS Low Volatility Plus Fund Limited (the
"Master Fund") of which the Company is a Feeder Fund.
31 May 2014 marked the end of the second full financial year for
the Master Fund, in which the net return was +3.95% ($ class) and
assets under management grew from $635 million to just under $1.82
billion. This financial year was spent primarily deploying the fund
inflows to construct a globally balanced portfolio.
The financial year began with the US renewal in June 2013. After
a short window of market hardening (that is, increasing premium
levels) in the early part of calendar year 2013 as a result of
Superstorm Sandy in late 2012, the Master Fund was facing a
softening premium environment in the Industry Loss Warranties
("ILW") market. As a consequence, we chose to deploy new capacity
in the US mostly through private transactions in the traditional
market. We also took advantage of pricing dislocation in the cat
bond market in the early part of the year and divested some cat
bonds at a mark-to-market gain, reinvesting the capital in private
transactions. After an active tornado season that saw some
relatively large events in the US, the 2013 US hurricane season
proved to be benign. The first official Atlantic hurricane of the
year was not seen until early September 2013, nearly setting a
record for the latest date for the first hurricane formation in a
season since 1944. Ultimately, no hurricane made landfall in the
continental US during the course of the 2013 hurricane season.
Going into the January 2014 renewal in the wake of mild losses
in 2013, the markets saw pricing reductions of 10-15% and brokers
looking to significantly expand coverage terms. We chose to react
by actively pushing back and in some cases cancelled programmes
where we thought that pricing had declined or coverage had expanded
too much. We saw some of the biggest pricing declines in the ILW
market where we chose to reduce the allocation and redeployed the
capital in private ultimate net loss ("UNL") transactions where we
found better value. Ultimately, we found that our longstanding
relationships with our larger insurance and reinsurance partners
proved to be the most stable.
The Japanese renewal in April 2014 was again a successful one
for the Master Fund. With the growth in overall assets under
management, it was important to increase the Japan risk allocation
in the portfolio in line with the Master Fund size. In a market
environment where several reinsurers reduced or canceled programs,
the Master Fund managed to increase line sizes with several
counterparties and therefore achieved the objective. This was the
result of longstanding relationships as well as counterparties
recognising the importance of incorporating ILS as part of a
diversified reinsurance program.
Towards the end of the financial year we saw a significant
increase in primary market cat bond issuance. We saw new cedents
come to the market with issues that included a lot of un-modeled
perils and new pay-out structures. We continued to view certain
segments of this market as being significantly under-priced and
only participated in issues where we found the pricing to be in
line with what we have seen in the traditional market.
Loss Events Impacting the Fund
This financial year saw no events having a negative impact on
fund performance. We are pleased to report that all side pockets
established with respect to positions with valuation uncertainty
following Superstorm Sandy were fully moved back to the main Fund
in Q3 2013. When the side-pocket was instituted it represented 4.9%
of the overall net asset value of the Fund. When the side pocket
was moved back into the main Fund, Superstorm Sandy's overall
impact was -0.24% ($, net). This reflects our conservative
reserving as well as our effective risk positioning of the Master
Fund.
General Market Overview
During the financial year ending 31 May 2014, the Master Fund
significantly grew its assets under management. This growth has
been well managed and the Master Fund has been able to
systematically build a global, geographically diversified
portfolio. While the net return has been lower compared to the
previous financial year, we have maintained our underwriting
discipline in this softening reinsurance market. The lack of loss
events and an abundance of capacity have led to significant spread
compression in the global property/catastrophe reinsurance market
as a whole. In the absence of a market-turning insurance event, we
expect to see this trend to continue. Given our market
relationships and prior experience, however, we believe that the
Master Fund is well positioned in the current market
environment.
Analysis of Significant Investments
The Company's sole investment is in CS IRIS Low Volatility Plus
Fund Limited and equates to 100% (31 May 2013: 99.7%) of the
Company's NAV.
70% (31 May 2013: 74%) of the net assets of CS IRIS Low
Volatility Plus Fund Limited comprises collateral held on insurance
products.
Whilst it is generally considered best practice to disclose the
full portfolio of an investment company, the composition of the
Master Fund's investment portfolio is the subject of
confidentiality provisions with the Master Fund.
Dexion Capital (Guernsey) Limited
24 September 2014
BOARD MEMBERS
Since incorporation on 24 April 2012 the members of the Board
have been as listed below:
Talmai Morgan, (61), (appointed 24 April 2012) (Chairman)
qualified as a barrister in 1976. He moved to Guernsey in 1988
where he worked for Barings and then for the Bank of Bermuda as
Managing Director of Bermuda Trust (Guernsey) Limited. From January
1999 to June 2004, he was Director of Fiduciary Services and
Enforcement at the Guernsey Financial Services Commission
(Guernsey's financial regulatory agency) where he was responsible
for the design and subsequent implementation of Guernsey's law
relating to the regulation of fiduciaries, administration
businesses and company directors. He was also involved in
international working groups of the Financial Action Task Force and
the Offshore Group of Banking Supervisors. From July 2004 to May
2005, he was Chief Executive of Guernsey Finance which is the
official body for the promotion of the Guernsey finance
industry.
Mr Morgan holds a MA in Economics and Law from Cambridge
University. Mr Morgan is Chairman of the Listed Hedge Fund Forum of
the Association of Investment Companies. In addition to being a
director of the Company, Mr Morgan is a director of a number of
listed investment funds including, among others, NB Private Equity
Partners Limited, BH Global Limited, BH Macro Limited, Real Estate
Credit Investments Limited, Global Fixed Income Realisation
Limited, John Laing Infrastructure Fund Limited, NB Distressed Debt
Investment Fund Limited and Sherborne Investors (Guernsey) B
Limited. Mr Morgan is a resident of Guernsey.
Robin Fuller (59), (appointed 14 May 2012) is an Associate of
the Institute of Financial Services and a Fellow of The Chartered
Institute for Securities and Investment. He is a consultant trading
as Guernsey Funds Consultancy Limited, which he incorporated in
April, 2014. Prior to becoming an independent consultant in May,
2014 Mr Fuller was an executive director of Dexion Capital
(Guernsey) Limited ('Dexion'). Before becoming an executive
director of Dexion he was Chairman of Dominion Group Limited which
he joined in 2006 and resigned in April 2012 and prior to this,
from 2004 to 2006, he was Managing Director of Management
International (Guernsey) Limited, a subsidiary of Bank of Bermuda
Limited (now HSBC Securities Services (Guernsey) Limited following
its acquisition by HSBC). Previously, Mr Fuller was Managing
Director of Rothschild Asset Management (CI) Limited in Guernsey
and a director of Rothschild Asset Management Limited, London. Mr
Fuller joined Rothschild in 1980 and has over 30 years' experience
of fund management and fund administration. Mr Fuller is a resident
of Guernsey.
Michael Poulding (63), (appointed 14 May 2012) is a Fellow of
the UK Institute and Faculty of Actuaries. Prior to September 2011,
he was Deputy Director International at the Guernsey Financial
Services Commission with responsibility for actuarial services and
relationships with international bodies including the IAIS
(International Association of Insurance Supervisors), EIOPA (the
European Insurance and Occupational Pensions Authority) and the
European Commission. Prior to joining the Commission in 2001, Mr
Poulding was Chief Actuary of Lloyds TSB Life and Pensions. He
served as president of the Channel Islands Actuarial Association
from October 2009 to October 2011 and is a member of the Groupe
Consultatif's Insurance Committee. He is a member of the Institute
of Directors.
Mr Poulding served as a member of the IAIS Solvency and
Actuarial Issues Subcommittee from 2004 to 2011 and has also sat as
a member of several other IAIS committees. He also played a leading
role in the drafting of the IAIS Captive Guidance Paper which has
served as a global model for captive insurance supervision. Mr
Poulding is a resident of Guernsey.
DIRECTORS' REPORT
The Directors present their report and audited financial
statements for the year ended 31 May 2014.
Results
The results for the year are set out in the Statement of
Comprehensive Income. The dividend paid per share for the year to
31 May 2014, amounted to 5.0p (31 May 2013: 3.5p) per share.
Principal Activity
DCG IRIS Limited was incorporated with limited liability in
Guernsey, Channel Islands as a closed-ended investment company on
24 April 2012. The Company's Shares were listed with a Premium
Listing on the Official List of the UK Listing Authority and
admitted to trading on the Main Market of the London Stock Exchange
on 27 June 2012.
Winding up resolution
In light of the current soft premium environment in the
reinsurance market and the Company's total asset size, the
Directors announced on the 18 June 2014 that they considered it in
the best interests of Shareholders that the Company put forward
winding up proposals. A circular to Shareholders detailing the
proposals and convening the necessary extraordinary general meeting
was published on 3 September 2014. The Extraordinary General
Meeting is due to be held on 24 September 2014 where it will be
proposed that the Company be placed into voluntary liquidation. As
a result, the Directors believe it is no longer appropriate to
continue to adopt the going concern basis in preparing the
financial statements. The financial statements have therefore been
prepared on a non-going concern basis.
Company Law
These financial statements have been prepared under the
Companies (Guernsey) Law, 2008 ("the law").
Investment Objective and Investment Policy
The Company's investment objective is to seek to achieve
positive returns through investing in insurance-linked contracts
and assets carrying exposure to risks related to insured event
risks.
The Company pursues its investment objective by principally
investing its assets (to the extent not retained in cash) in CS
IRIS Low Volatility Plus Fund Limited (the "Master Fund") which
invests in a broadly diversified portfolio of insurance-linked
contracts, securities and derivatives as well as various types of
investments related to insurance risks over the long-term. The
Investment Manager of the Master Fund is Credit Suisse AG ("Credit
Suisse").
The Company may not borrow or incur leverage for investment
purposes although as well as holding cash and investing in cash
equivalents it may borrow for cash management and short term
purposes. The borrowings of the Company are limited to 10% of the
Company's gross assets at the time of drawdown.
Investment Restrictions
The Company is subject to the following investment restrictions
which include restrictions set out in the Listing Rules of the
Financial Conduct Authority:
-- Neither the Company nor any of its subsidiaries will conduct
any trading activity which is significant in the context of its
group as a whole;
-- The Company will avoid cross-financing between businesses
forming part of its investment portfolio;
-- The Company will avoid the operation of common treasury
functions as between the Company and investee;
-- Not more than 10% in aggregate of the value of the total
assets of the Company will be invested in other listed closed-ended
investment funds other than closed-ended investment funds which
themselves have published investment policies to invest no more
than 15% of their total assets in other listed closed-ended
investment funds; and
-- The Company must, at all times, invest and manage its assets
in a way which is consistent with its object of spreading
investment risk and in accordance with the published investment
policy.
In the event of any material breach of the Company's investment
policy or of the investment restrictions applicable to the Company,
Shareholders will be informed of the actions to be taken by the
Company and/or the Investment Manager (at the time of such breach)
through an announcement via a Regulatory Information Service
("RIS").
Management Arrangements
The Company has an arrangement with Dexion Capital (Guernsey)
Limited (the "Investment Manager") for the provision of investment
management services. The Investment Manager attends every quarterly
Board meeting and maintains open dialogue with the Directors on an
ongoing basis. No management fees are payable by the Company to the
Investment Manager. Further details are disclosed in Note 9.
Shareholder Information
The NAV of the Company and the NAV per Ordinary Share are
published monthly and are calculated by the Administrator (or such
other person as the Directors may appoint for such purpose from
time to time) as at the NAV Calculation Date.
Weekly NAV estimates are also published by the Company and these
are based primarily upon information obtained by the Administrator
from the Master Fund Manager in relation to the portfolio
valuations of the Master Fund, in each case with adjustments to
account for the ongoing costs of the Company.
The NAV per Sterling Share class of Ordinary Shares in the
capital of the Company is published by Regulatory Information
Service ("RIS") on both a weekly and a monthly basis, approximately
19 Business Days (but not later than 20 Business Days) after the
end of each month in the case of the monthly NAV and within five
Business days following the end of the previous week in the case of
the weekly NAV.
Directors' Interests
The Directors, all served during the year under review. The
Directors had no beneficial interest in the Company other than as
shown below:
31 May 2014 31 May 2013
No of shares No of shares
Talmai Morgan 30,000 30,000
Robin Fuller 49,838 20,000
Michael Poulding 20,000 20,000
----------------- ------ ------
Substantial Interests
Disclosure and Transparency Rules are now comprised in the
Financial Conduct Authority handbook. Such rules require
substantial Shareholders to make relevant holding notifications to
the Company and the UK Financial Conduct Authority. The Company
must then disseminate this information to the wider market.
Principal Risks and Uncertainties
Market Risk
Market risk embodies the potential for both losses and gains and
includes currency risk, interest rate risk and price risk.
The Company's strategy on the management of market risk is
driven by the Company's investment objective. The Company pursues
its investment objective by principally investing its assets (to
the extent not retained in cash) in the Master Fund.
General Capital Markets Risk
In addition to the severity and frequency of certain insurance
events, insurance cash flows will often depend upon prices in the
capital markets, in particular bonds and equities. When the Master
Fund owns investments that are purely linked to certain insurance
events, these dependencies are insignificant. Although the Master
Fund will try to focus on insurance risk and minimise unwanted
capital markets risk, such risk will be present in the Master Fund.
The prices of bonds and equities are obviously outside the control
of Credit Suisse and these capital market risks may negatively
impact the value of the Master Fund.
General Market Disruptions
The Master Fund may incur major losses in the event that
disrupted markets and/or extraordinary events affect markets in a
way that is not consistent with historical pricing relationships.
The risk of loss from the disconnection from historical prices
during a period of market disruption is compounded by the fact that
in disrupted markets many positions become illiquid making it
difficult to close out of positions against which the markets are
moving.
Liquidity Risk
The ultimate responsibility for liquidity risk management rests
with the Board of Directors which has appropriately reviewed the
funding requirements for the management of the Company's short,
medium and long-term funding needs. The Company maintains adequate
reserves by continuously monitoring forecast and actual cash flows.
The Company may borrow to assist with any unforeseen timing
mismatches. The Company's main investment is an investment in the
Master Fund which generally may be illiquid. The Company is
currently required to give 90 days' prior notice to redeem its
holdings in the Master Fund.
As discussed in the Chairman's Statement, the Directors now
consider that it is in the best interests of Shareholders that the
Company put forward winding up proposals. The relevant
Extraordinary Meeting is due to be held on 24 September 2014. As
detailed in the circular dated 3 September 2014, a full redemption
from the Master Fund was submitted for settlement on 1 October
2014. Redemption proceeds are expected to be received from the
Master Fund by 30 November 2014. The Master Fund Shares will be
redeemed at the Net Asset Value per Share of the relevant Share
class of the Master Fund at the valuation point of the Redemption
Date.
The redemption proceeds are subject to the following
restrictions placed on the redemption by the Directors of the
Master Fund:
-- The total number of Master Fund Shares which may be redeemed
on a redemption date may be limited;
-- The Master Fund redemption may be postponed until a
subsequent redemption date if if is unlikely all redemption
requests can be redeemed out of the realised investments of the
Master Fund at the redemption date;and
-- The Master Fund is entitled to pro-rata the redemption
requests for all shareholders who have requested the redemption of
their shares on the relevant redemption date. Any Master Fund
Shares which are not redeemed due to this limitation will be
carried forward for redemption on the next following redemption
date, or any other redemption date the Master Fund Directors may
determine, at the redemption price available at that redemption
day.
If any redemption requests are carried forward, the liquidator
shall make an interim payment following each partial receipt of
proceeds from the Master Fund and a final payment following receipt
of the final balance of proceeds from the Master Fund.
Prior to any distributions being made by the Company, inclusive
of cash awaiting return to Shareholders by way of any partial
redemption offer or similar, the Board must carefully consider the
on-going solvency of the Company. In accordance with the Law under
which the Company operates, a Solvency Certificate must be
considered, resolved and issued by the Board that must certify that
in their opinion the Company will, immediately after the
distribution, satisfy the solvency test, and the grounds for that
opinion. Each certificate is supported by documentation that
evidences the decision of the Board as may be made from
time-to-time.
Credit Risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. Credit Suisse has a credit policy in place and the
exposure to credit risk is monitored on an ongoing basis by the
Board of Directors of the Master Fund. Credit risk is inherent in
certain of the Insurance-Linked Instruments that are part of the
Master Fund's portfolio. When possible, decisions to invest in
these securities take into account credit ratings, if any, issued
by major rating agencies, such as Moody's, S&P etc. Given that
not all of the securities that comprise the Master Fund's portfolio
are rated, Credit Suisse may be guided by other analysis, internal
or external and will be guided by its internal guidelines for
credit risk management. However, the securities in which the Master
Fund invests do not need to have any particular rating of
creditworthiness.
The Company is exposed to material credit risk in respect of
cash and cash equivalents. All cash is placed with Northern Trust
(Guernsey) Limited ("NTGL"). The Company is subject to credit risk
to the extent that this institution may be unable to return this
cash. NTGL is a wholly owned subsidiary of The Northern Trust
Corporation ("TNTC"). TNTC is publicly traded and a constituent of
S&P 500. TNTC has a credit rating of A+ from Standard &
Poor's and A2 from Moody's. Guernsey representatives of TNTC attend
each quarterly meeting of the directors and those meetings of the
audit committee of the Company where the interim and or annual
financial statements are reviewed and discussed.
Significant Events
There were 8 significant events in the year. The earthquake in
New Zealand on 21 July 2013, the winter storm in Northern Europe
between 27 and 29 October 2013, the typhoon in the Philippines in
early November 2013, UK floods in December 2013 and January 2014,
the Malaysian airline flight that disappeared on 8 March 2014, the
earthquake in Northern Chile on 1 April 2014, the floods in South
Eastern Europe in May 2014, and the typhoon Neoguiri in Japan in
July 2014. Credit Suisse continues to monitor the impact of these
events but does not expect there to be any significant impact on
the performance of the Master Fund Company.
Going Concern
The Directors announced on 18 July 2013 that, in accordance with
the Company's articles of incorporation and commitments given in
the prospectus dated 12 November 2012, the Company proposed an
ordinary resolution for the continuation of the Company (the
"Continuation Vote") and offered investors a redemption opportunity
for the entire issued share capital of the Company (the "Redemption
Offer"), before conducting a further placing of sterling
shares.
The Continuation Vote and the Redemption Offer were required
because the NAV of the Company as at 30 June 2013 was less than
GBP150 million. On 9 August 2013, the Company sent a circular to
its shareholders (the "Shareholders") to convene the required EGM
to approve, amongst other things, the Continuation Vote and to set
out full details of the Redemption Offer. On 5 September 2013, the
Company announced that no acceptances of the Redemption Offer had
been received. On 5 September 2013, the Company announced the
results of the EGM being that the Shareholders voted in favour of
the continuation of the Company.
Pursuant to the placing programme, 1,170,000 Sterling Shares
were issued at a price of 100.5 pence per Sterling Share and listed
on the Official List and admitted to trading on the main market of
the London Stock Exchange on 19 July 2013. A further 7,657,838
Sterling Shares were issued at a price of 100.54 pence per Sterling
Share and listed on the Official List and admitted to trading on
the main market of the London Stock Exchange on 11 November
2013.
The Directors now consider that it is in the best interests of
Shareholders that the Company put forward voluntary winding up
proposals. The relevant Extraordinary Meeting is due to be held on
24 September 2014. Accordingly, the Directors have considered it
appropriate to adopt the non-going concern basis in the preparation
of the financial statements.
AIFMD
The Board has resolved to be a Self-Managed Alternative
Investment Fund for the purpose of the Alternative Investment Fund
Managers Directive. Under the Marketing Rules, the Company will
advise the relevant jurisdictions when marketing commences and has
engaged Dexion Capital (Guernsey) Limited to make the necessary
initial and ongoing filings. The Board of the Company does not
intend to take any further action in respect of the Alternative
Fund Managers Directive until the outcome of the voluntary Winding
Up Resolution is known.
Auditor
Disclosure of information to the auditor
So far as each of the Directors is aware, there is no relevant
audit information of which the Company's auditor is unaware, and
each Director has taken all the necessary steps to make themselves
aware of any relevant information and to establish that the
Company's auditor is aware of that information.
Evaluation and assessment of performance of the Auditor
The Corporate Governance Section of the Directors' Report
contains the summary review of the work performed by the Audit
Committee in evaluating and assessing the work and continuing
appointment of KPMG Channel Islands Limited.
Proposal to continue as auditor
KPMG Channel Islands Limited has expressed willingness to
continue in office as auditor, should the liquidation proposals not
be approved.
Corporate Governance Statement
Introduction
The Board recognises the importance of a strong corporate
governance culture that meets the listing requirements of the
London Stock Exchange. All Directors contribute to Board
discussions and debates. The Board believes in providing as much
transparency for investors as is reasonably possible and the
monthly portfolio report continues to be well received by
investors.
Guernsey Regulatory Environment
The Guernsey Financial Services Commission's Finance Sector Code
of Corporate Governance (the "Code") comprises Principles and
Guidance, and provides a formal expression of good corporate
practice against which Shareholders, Boards and the Commission can
better assess the governance exercised over companies in Guernsey's
finance sector.
The Commission recognises that the different nature, scale and
complexity of business will lead to differing approaches to meeting
the Code.
Companies which report against the Association of Investment
Companies Code of Corporate Governance are also deemed to meet this
Code.
This section of the Report of the Directors sets out how the
Board complies with the Association of Investment Companies ("AIC")
Code of Corporate Governance, a framework of best practice of
Guernsey-domiciled companies issued in February 2013 (the "AIC
Code").
AIC endorsement from the Financial Reporting Council
On 22 January 2013, the Financial Reporting Council provided the
AIC with an updated endorsement letter to cover the fifth edition
of the AIC Code. The endorsement confirms that by following the AIC
Code investment company boards should fully meet their obligations
in relation to the UK Corporate Governance Code and paragraph LR
9.8.6 of the Listing Rules.
Statement of Compliance
The Company is a member of the Association of Investment
Companies (the "AIC") and has carefully considered the principles
and recommendations of the AIC Code of Corporate Governance (the
"AIC Code") and has decided to follow the AIC's Corporate
Governance Guide for Investment Companies (the "AIC Guide").
The AIC Code is publicly available on the AIC website.
The AIC Code of Corporate Governance "A Framework of best
practice for Guernsey domiciled member companies" was issued in
February 2013.
The Directors consider that the Company has, throughout the year
ended 31 May 2014 and up to the date of this report, applied the
principles and met the requirements of the AIC Code then in
being.
Internal Controls
The Board is ultimately responsible for the Company's system of
internal control and for reviewing its effectiveness. The Board
confirms that there is an ongoing process for identifying,
evaluating and managing the significant risks faced by the Company.
The Directors conduct at least annually a review of the Company's
system of internal control, covering all controls, including
financial, operational, compliance and risk management.
As there is a delegation of daily operational activity as
described below, the Audit Committee and Board have determined that
there is no requirement for a direct internal audit function. The
internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed.
Accordingly, the internal control systems are designed to manage
rather than eliminate the risk of failure to achieve business
objectives and by their nature can only provide reasonable and not
absolute assurance against misstatement and loss.
The Board has delegated the management of the Company's
investment portfolio and the administration, registrar and
corporate secretarial functions including the independent
calculation of the Company's NAV and the production of the Annual
Report and Financial Statements which are independently audited.
Whilst the Board delegates responsibility, it retains
accountability for the functions it delegates and is responsible
for the systems of internal control. Formal contractual agreements
have been put in place between the Company and providers of these
services.
On an ongoing basis board reports are provided at each quarterly
board meeting by the Administrator, Manager and Company Secretary;
and a representative from the Investment Manager of the Master Fund
is asked to attend these meetings.
As part of the overall risk management process, at each
quarterly meeting the Directors receive, consider and assess a risk
matrix detailing all key risks that are graded by probability and
impact.
The Board and the application of the Principles of the AIC
Code
The Chairman should be independent
The Chairman, Talmai Morgan, met the independence criteria of
the AIC Code Principle 1 upon appointment and has continued to meet
this condition throughout his term of service.
Led by Mr Poulding as Chairman of the Audit Committee, the other
independent Directors discussed the performance and continuing
independence of the Chairman at the Meeting held on 25 July 2013.
For the evaluation of the Chairman, the results are discussed with
the Chairman of the Audit Committee who then discusses them with
the Chairman prior to further distribution to the remaining
Directors. The independent directors agreed that the Chairman was a
good, strong, and a capable Chairman, under whose leadership the
Board works well.
A majority of the Board should be independent of the Manager
The Board currently consists of three non-executive Directors.
In accordance with Principle 2 of the AIC Code two of the
non-executives (the majority) are independent of the Investment
Manager. Mr Fuller is not independent of the Investment Manager as
Mr Fuller is a non-executive director of the Investment Manager.
Being non-executive Directors, no Director has a service contract
with the Company.
Directors should be submitted for re-election at regular
intervals
The Articles of Incorporation provide that one third of the
Directors retire by rotation at each annual general meeting.
However, the Board has adopted a policy whereby each Director
retired and offered themselves for re-election at the first annual
general meeting.
The AIC Code recommends that following election by Shareholders
at the first AGM following their appointment, directors should be
subject to re-election at intervals of no more than three years.
However, The Board will consider the tenure of each Director on an
annual basis.
The Directors are not subject to automatic re-appointment. In
the absence of each retiring Director, the remaining Directors
discussed and appraised each other. The Board recommends the
re-election of each Director.
There should be full disclosure of information about the
Board
The biographical details of the Directors can be found within
the Board members, detailing their experience and length of
service.
Details of all other public company directorships and shared
directorships of any commercial company with other members of the
Board is listed within the disclosure of directorships in public
companies listed on recognised exchanges.
The Board should aim to have a balance of skills, experience,
length of service and knowledge of the Company
The Directors believe that the balance of skills, experience and
knowledge of the Board provide for a solid base in which the
interest of investors will be served to a high standard and believe
this is demonstrated within the biographies.
The Board should undertake a formal and rigorous annual
evaluation of its own performance and that of its committees and
individual Directors
To enable the annual evaluation to take place, the Company
Secretary circulates a detailed questionnaire plus a separate
questionnaire for the evaluation of the Chairman.
The questionnaires, once completed, are returned to the Company
Secretary who collates responses, prepares a summary and discusses
the Board evaluation with the Chairman prior to circulation to the
remaining Board members. The last annual evaluation took place on
25 July 2013. Due to the proposals for the voluntary winding up of
the company, this exercise has not been conducted this year.
Director Remuneration should reflect their duties,
responsibilities and the value of their time spent
The remuneration of the Directors is determined and proposed by
the Board in its entirety.
The independent Directors should take the lead in the
appointment of new directors
Due to the size of the Board and its single investment
objective, nominations would be considered by the Board as a
whole.
As previously mentioned, the Board has a breadth of experience
relevant to the Company, and the Directors believe that any changes
to the Board's composition can be managed without undue
disruption.
Directors should be offered relevant training and induction
There have been no new appointments to the Board since the fund
was launched, and there will be no further appointments to the
Board due to the voluntary winding up proposals.
The Chairman (and the Board) should be brought into the process
of structuring a new launch at an early stage
This principle has not had to be applied in practice as no new
structure with additional board appointments has been required
since inception of the Company's launch on the London Stock
Exchange.
Boards and Managers should operate in a supportive, cooperative
and open environment
As mentioned above, the Company has an investment management
agreement with Dexion Capital (Guernsey) Limited.
The Manager provides a detailed report for and at each quarterly
Board meeting.
Regular dialogue between the Directors and the Manager take
place on an ongoing as needs ad-hoc basis.
The primary focus at regular board meetings should be a review
of investment performance and associated matters such as gearing,
asset allocation, marketing/investor relations and industry
issues
For each regular Board meeting an agenda is agreed with the
Chairman. Standing items include reports from the Manager and
Broker.
The reports address investment performance, share price
discount/premium, peer comparatives, market conditions, outlook,
compliance, shareholder register movements/relations and industry
updates in respect of the Listing Rules or the Guernsey regulatory
and statutory environment.
The Manager and Broker attend or dial into the regular meetings
to present their reports and answer questions from the Board.
The Board should give sufficient attention to overall
strategy
The Board is committed to the strategic progress of the Company.
As discussed in the Chairman's Statement, due to the current soft
premium environment in the reinsurance market and the Company's
total asset size, the Directors have decided that it was in the
best interests of shareholders that the Company put forward
liquidation proposals, demonstrating the Board's capability to
recognise and address when a change of strategy is required and
their ability to action changes.
The Board should regularly review both the performance of, and
contractual arrangements with, the Manager
The Committee has reviewed the appropriateness of the terms of
the investment management agreement, in particular, the length of
the notice period and the fees payable to the Manager.
Following the review, it is in the opinion of the Directors that
the continuing appointment of the Manager on the terms agreed is in
the interest of Shareholders as a whole. However, the appointment
will cease if the voluntary Winding-Up Resolution is passed.
The Board should agree policies with the Manager covering key
operational issues
The investment management agreement sets out the key operational
issues. These may be updated from time-to-time as required by the
Board.
The Board should monitor the level of the share price discount
or premium (if any) and, if desirable, take action to reduce it
On a daily basis, the Manager receives and reviews a report
showing the current market data.
The Board should monitor and evaluate other service
providers
In May 2014 the Management Engagement Committee reviewed the
performance of all key service providers. The findings of the
review were provided to the Board for their consideration. The
Board concluded that the continuing appointment of all service
providers was in the best interests of Shareholders as a whole.
The Board should regularly monitor the shareholder profile of
the Company and put in place a system for canvassing shareholder
views and for communicating the Board's views to shareholders
The Board has commissioned regular reports from an experienced
industry consultant. The reports are tabled at each regular
meeting. In between meetings the Manager monitors shareholder
movement and will report to the Directors on an ad hoc basis.
The Company's Broker maintains a regular dialogue with
institutional Shareholders, the feedback from which is reported to
the Board. In addition, Board members are available to respond to
Shareholders' questions at the Annual General Meeting.
Directors are available for meetings with Shareholders upon
request via the Company Secretary.
The Board should normally take responsibility for, and have
direct involvement in, the content of communications regarding
major corporate events even if the Manager is asked to act as
spokesman
All non-routine announcements are either tabled at a Board
Meeting or circulated to the Directors for their input and approval
prior to release.
The Board should ensure that shareholders are provided with
sufficient information for them to understand the risk:reward
balance to which they are exposed by holding shares
The Board needs to ensure that information presented is fair,
balanced and understandable.
The following key items are addressed below:
-- The Company's investment objective and policy;
-- Ongoing charges;
-- In this year's report, the Directors explain each of the AIC
Code principles and how it complies;
-- Principal Risks and Uncertainties.
-- A Monthly Portfolio Review is made available on the Company's website.
Reserved Powers of the Board
Directors' Duties and Responsibilities
It is the responsibility of the Board to maximise the Company's
success by directing and supervising the affairs of the business
and meeting the appropriate interests of the shareholders and other
stakeholders, while ensuring the protection of investors.
The Directors have adopted a set of Reserved Powers which
confirm the key purpose of the Board and detail its major duties
and also serves as an ongoing means of measuring and monitoring the
effectiveness of its actions.
These Reserved Powers of the Board have been adopted by the
Directors to demonstrate clearly the seriousness with which the
Board takes its fiduciary responsibilities and as an ongoing means
of measuring and monitoring the effectiveness of its actions. It
also addresses Principle 16 of the AIC Code.
These duties cover the following areas of responsibility:
-- Statutory obligations and public disclosure;
-- Strategic matters and financial reporting;
-- Oversight of management and personnel matters;
-- The establishment, terms of reference, and reporting
arrangements for all subcommittees acting on behalf of the
authority of the Board;
-- Risk assessment and management, including reporting,
monitoring, governance and control; and
-- Other matters having a material effect on the Company.
Gender diversity and Lord Davies review into Woman on Boards
The Davies Review into Women on Boards recommended that
companies make available a formal statement over their intentions
concerning gender diversity. The Board welcomes the proposals set
out by Lord Davies in his review into Women on Boards. The Board is
encouraged by and welcomes steps that are now being taken to
increase the general pool of suitably qualified candidates to fill
non-executive director roles. That said, ensuring that the Company
has the strongest possible leadership at Board level remains a key
priority and appropriate candidates will always be appointed on
merit. The Board reviewed its composition and believes that the
current appointments provide an appropriate range of skills and
experience.
The attendance record of the Directors
is set out below
Quarterly Management
Board Audit Engagement Nomination
Meetings Committee Committee Committee
----------------------------- ---------- ---------- ----------
Number of meetings 4 3 1 1
---------------------------- ---------- ---------- ----------
Meetings attended:
Talmai Morgan (Chairman) 4 3 1 1
Robin Fuller 4 N/A N/A N/A
Michael Poulding 4 3 1 1
---------------------------- ---------- ---------- ----------
A further 13 meetings were held during the period which were
administrative in nature.
The Board considers agenda items laid out in the notice and
agenda of meeting which are formally circulated to the Board in
advance of the meeting as part of the Board papers. Directors may
request any agenda item to be added that they consider appropriate
for Board discussion. Additionally, each Director is required to
inform the board of any potential or actual conflicts of interest
prior to Board discussion.
The primary focus at Board meetings is a review of investment
performance and associated matters such as asset allocation,
marketing/investor relations, risk management, gearing, general
administration and compliance, peer group information and industry
issues.
Audit Committee
An Audit Committee has been established consisting of Mr Morgan
and Mr Poulding. Mr Poulding acts as Chairman of the Audit
Committee. The Audit Committee meets formally at least three times
a year, for the purpose, amongst other things, of considering the
appointment, independence and remuneration of the auditor and to
review the Company's annual report and Financial Statements and the
half yearly report and Financial Statements. Where non-audit
services are to be provided by the auditor, full consideration of
the financial and other implications on the independence of the
auditor arising from any such engagement will be considered before
proceeding. The principal duties of the Audit Committee are to
consider the appointment of external auditors, to discuss and agree
with the external auditors the nature and scope of the audit, to
keep under review the scope, results and cost effectiveness of the
audit and the independence and objectivity of the auditor, to
review the external auditor's letters of engagement and management
letter and to analyse the key procedures adopted by the Company's
service providers.
Significant accounting issues and resolutions - 2014
Significant issues considered by the members of the Audit
Committee in respect of this annual report and Financial Statements
were significant accounting policies, valuation of investments and
going concern. These issues were addressed as follows:
Significant accounting policies
With the exception of adopting a non going concern basis of
preparation, there were no new significant accounting policies that
had a material effect on the measurement of the amounts recognised
in the financial statements of the Company.
Valuation of Investments
The policy detailing investment valuation is detailed in note
2f) iv) and is unchanged from the prior year. The net asset value
of the Master Fund is considered to be an accurate measure of fair
value.
As discussed in Note 2 of the Financial Statements, the
Financial Statements are prepared on a non going concern basis. The
Directors have submitted a redemption request for settlement at 1
October 2014. Accordingly the final settlement amount is unknown.
The Company invests in the Class I-50 Sterling Share Class of the
Master Fund. As at 31 August 2014, the NAV per Share of the Class
I-50 Sterling Share Class of the Master Fund is GBP1,065.14 (31 May
2014: GBP1,051.62 per Share). As detailed The Company is subject to
the restrictions as placed on the redemption by the Directors of
the Master Fund. As there has been no significant change to the
fair value of the Master Fund and no indication of delayed
settlement, there has been no adjustment to the fair value of the
investment in the Master Fund at 31 May 2014.
Going Concern
The Going Concern basis of preparation was carefully considered.
At a Board Meeting of the Directors, it was agreed that in light of
the current soft premium environment in the reinsurance market and
the Company's total asset size that it was in the best interests of
Shareholders that the Company put forward liquidation proposals and
as such it was agreed that it was no longer appropriate to adopt
the going concern basis for the 31 May 2014 financial statements.
The financial statements have therefore been prepared on a
non-going concern basis.
There is no significant difference to the Financial Statements
if they are prepared on a non-going concern basis to that of a
going concern basis apart from the estimated costs of the winding
up of the Company of GBP740,000 that would be incurred if the
liquidation proposals are approved by shareholders. The costs of
GBP740,000 have not been included in the Statement of Comprehensive
Income or Statement of Financial Position, but are disclosed in
note 6 of the Financial Statements.
Effectiveness of the External Audit Process
The Directors have taken a practical approach to assessing the
external audit process. Clarity of the audit report and judgements
on the business activities and risks/rewards of the Company have
been well communicated to the Audit Committee. The Committee sought
feedback from key service providers on the approach, technical
understanding and communication skills of the audit team. The
results were re-assuring. A strong professional relationship exists
between the Directors, the auditor and key service providers.
The members of the Audit Committee recommended the continuing
appointment of KPMG Channel Islands Limited as Auditor of the
Company for 2014 should the liquidation proposals not be
approved.
Audit Related and Non-Audit Services
The Terms of Reference of the Audit Committee details the type
of non-audit services the current appointed external auditor may or
may not undertake with or without the prior consent of the Audit
Committee and/or the Board of Directors.
The external auditors do not audit their own firm's consultancy
work nor make management decisions on behalf of the Company.
Audit and Audit-Related fees disclosed in the Statement of
Comprehensive Income contains fees for audit related services of
GBP7,500 for the interim review. KPMG will also receive a fee of
GBP21,500 for the annual audit.
As part of the proposal for voluntary winding up of the Company,
Ashley Charles Paxton and Linda Maree Johnson of KPMG Channel
Islands Limited will be appointed liquidators of the Company, and
the proposed fee for this engagement is approximately
GBP15,000.
Shareholder Communications
The Chairman of the Audit Committee or a member thereof will
always be available to answer questions about the work of the Audit
Committee.
Nomination Committee
A Nomination Committee has been established which consists of Mr
Morgan and Mr Poulding. Mr Morgan acts as Chairman of the
Nomination Committee. The Nomination Committee meets not less than
once a year and the principal duties of the Nomination Committee
are to: (i) identify individuals qualified to become Board members
and select the director nominees for election at general meetings
of the Shareholders or for appointment to fill vacancies; (ii)
determine director nominees for each committee of the Board; and
(iii) consider the appropriate composition of the Board and its
committees. In addition, the chairmanship of the Audit Committee
and each Director's performance is reviewed annually by the
Chairman and the chairmanship of the Nomination Committee and the
Management Engagement Committee and the performance of the Chairman
is assessed by the remaining Directors.
Management Engagement Committee
A Management Engagement Committee, with defined terms of
reference and duties, has been established to review and make
recommendations on any proposed amendment to the Management and
Secretarial Agreement and keep under review the performance of the
Investment Manager in its role as Investment Manager to the Company
and the Master Fund Manager in its role as Investment Manager to
the Master Fund. During the year the Management Engagement
Committee has reviewed the services provided by the Investment
Manager and Corporate Broker, as well as the other service
providers and have recommended to the Board that their continuing
appointment is in the best interests of the Shareholders.
The Management Engagement Committee consists of Mr Morgan and Mr
Poulding. Mr Morgan acts as Chairman of the Management Engagement
Committee.
Remuneration Committee
In view of the Company's non-executive and independent nature,
the Board considers that it is not appropriate for there to be a
Remuneration Committee as anticipated by the AIC Code. The Board as
a whole fulfils the functions of the Remuneration Committee and it
has been agreed that Mr Morgan should receive remuneration for
services provided to the Company, including as Chairman of the
Board, at a rate of GBP37,500 per annum with effect from Admission.
Mr Poulding should receive remuneration for services provided to
the Company, including Chairman of the Audit Committee, at a rate
of GBP30,000 per annum. Mr Fuller has elected not to receive a fee
for services provided to the Company for as long as he holds any
position at Dexion Capital (Guernsey) Limited.
Terms of Reference
All Terms of Reference for Committees are available from the
Company Secretary upon request.
Corporate Responsibility
The Company is not an operating company. It considers the
ongoing concerns of investors not only by open and regular dialogue
with and through the Manager but also by direct discussions with
Shareholders.
As previously referred, all daily operations are delegated. The
Company itself does not maintain premises, or have any
employees.
Company Reporting
Results of Extraordinary and Annual General Meetings are
announced by the Company on the day of the relevant meeting.
Additionally, the Interim Management Statements and the current
information provided to eligible Shareholders on an ongoing basis
through the Company's website page and newsletter assist in keeping
Shareholders informed. The Company Secretary and Registrar monitor
the voting of the shareholders and proxy voting is taken into
consideration when votes are cast at the Annual General Meeting.
Shareholders may contact the Directors via the Company
Secretary.
By order of the Board
Talmai Morgan Michael Poulding
Chairman Director
24 September 2014
STATEMENT OF DIRECTORS' RESPONSIBLITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Director's
Report and the financial statements in accordance with the
applicable law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law they elected to
prepare the financial statements in accordance with International
Financial Reporting Standards as issued by the IASB (IFRS).
The financial statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that year.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgements and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been
followed, subject to any material departures disclosed and
explained in the financial statements; and
-- prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business. As explained in note 2 b), the Directors do
not believe that it is appropriate to prepare the financial
statements on a going concern basis.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with the Companies (Guernsey) Law,
2008.
They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Under applicable laws and regulations the Directors are also
responsible for preparing this Director's report and Corporate
Governance Statement that comply with Company Law and
regulations.
Directors' Responsibility Statement
The Directors confirm that they have complied with the above
requirements in preparing the financial statements and that to the
best of our knowledge and belief:
(a) The Management Report (comprising the Chairman's Statement,
The Investment Manager's Report and the Directors' Report) includes
a fair review of the development and performance of the business
and the position of the Company together with a description of the
principal risks and uncertainties that the Company faces; and
(b) The financial statements, prepared in accordance with
International Financial Reporting Standards as issued by the IASB,
give a true and fair view of the assets, liabilities, financial
position and profit of the Company.
Having reviewed the annual report and Financial Statements in
detail and considered all matters brought to the attention of the
Board during the year, the Board consider that, taken as a whole,
the annual report and Financial Statements provide a fair, balanced
and understandable representation of the Company's affairs.
Signed on behalf of the Board by:
Talmai Morgan Michael Poulding
Chairman Director
24 September 2014
INDEPENDENT AUDITOR'S REPORT TO THE MEMBERS OF DCG IRIS
LIMITED
Opinions and conclusions arising from our audit
Opinion on financial statements
We have audited the financial statements of DCG Iris Limited
(the "Company") for the year ended 31 May 2014 which comprise the
statement of financial position, the statement of comprehensive
income, the statement of changes in shareholders' equity, the
statement of cash flows and the related notes. The financial
reporting framework that has been applied in their preparation is
applicable law and International Financial Reporting Standards as
issued by the International Accounting Standards Board ("IASB").
These financial statements have not been prepared on the going
concern basis for the reasons set out in note 2 b) to the financial
statements. In our opinion, the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 31 May 2014 and of its total comprehensive income for
the year then ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards as issued by the IASB; and
-- comply with the Companies (Guernsey) Law, 2008.
Our assessment of risks of material misstatement
The risks of material misstatement detailed in this section of
this report are those risks that we have deemed, in our
professional judgment, to have had the greatest effect on: the
overall audit strategy; the allocation of resources in our audit;
and directing the efforts of the engagement team. Our audit
procedures relating to these risks were designed in the context of
our audit of the financial statements as a whole. Our opinion on
the financial statements is not modified with respect to any of
these risks, and we do not express an opinion on these individual
risks.
In arriving at our audit opinion above on the financial
statements the risks of material misstatement that had the greatest
effect on our audit were as follows:
Going concern
-- The risk: Given the current reinsurance market and the
Company's total asset size, the Directors announced on the 18 June
2014 that they considered it in the best interest of shareholders
that the Directors put forward voluntary winding up proposals. A
circular was issued to shareholders on 3 September 2014 detailing
the voluntary winding up resolution and convening the necessary
Extraordinary General Meeting to be held on 24 September 2014. As a
result of this proposal, the Directors have prepared the financial
statements on a non-going concern basis. The going concern
assumption is considered a significant risk due to the voluntary
wind up of the Company being subject to Shareholder approval and
that the Directors' assessment that the going concern basis is no
longer appropriate might therefore be incorrect.
-- Our response: Our audit procedures with respect to the going
concern assumption included but were not limited to, obtaining and
challenging the Directors' written assessment to support their
decision to prepare the financial statements on a non-going concern
basis. In particular we challenged the Directors' written
assessment on the likelihood of the liquidation proposals being
approved on 24 September 2014 and therefore whether the non-going
concern basis of preparation was appropriate.
We also considered the Company's non-going concern disclosure in
Note 2b) of the financial statements for compliance with applicable
International Financial Reporting Standards as issued by the IASB
and other appropriate technical guidance.
Valuation of investments (100% of net asset value)
-- The risk: 100% of the Company's investments as at 31 May 2014
are in CS IRIS Low Volatility Plus Fund Limited (the "Master
Fund"), which is an open ended investment fund. This investment is
valued at the net asset value provided by the Master Fund's
administrator. As the Directors' have proposed to wind up the
Company, the Company has placed a redemption request with the
Master Fund for settlement on 1 October 2014. The valuation of the
Company's investment in the Master Fund, given that it represents
the majority of the net assets of the Company and the ultimate
redemption value is unknown, is therefore considered a significant
risk.
-- Our response: Our audit procedures with respect to the
Company's investment in the Master Fund as at 31 May 2014, included
but were not limited to; obtaining a net asset value per share
confirmation directly from the administrator of the Master Fund;
understanding the investment advisor's oversight controls of the
Master Fund's administrator; inspecting the latest audited
financial statements of the Master Fund in order to consider the
nature of the investments held by the Master Fund, the financial
reporting standards applied in the preparation of the Master Funds
financial statements, any modification to the audit report and
other disclosures which may have been relevant to the valuation of
the Company's investment. We considered the terms of the redemption
request and the disclosures in the Company's financial statements
outlining the terms of the redemption and the latest available fair
value.
We also considered the Company's disclosures (see Note 2f) in
relation to the use of estimates and judgments in determining the
fair value of investments and the Company's investment valuation
policies adopted and the fair value disclosures in Note 12 for
compliance with International Financial Reporting Standards as
issued by the IASB.
Our application of materiality and an overview of the scope of
our audit
Materiality is a term used to describe the acceptable level of
precision in financial statements. Auditing standards describe a
misstatement or an omission as "material" if it could reasonably be
expected to influence the economic decisions of users taken on the
basis of the financial statements. The auditor has to apply
judgment in identifying whether a misstatement or omission is
material and to do so the auditor identifies a monetary amount as
"materiality for the financial statements as a whole".
The materiality for the financial statements as a whole was set
at GBP2,030,000. This has been calculated using a benchmark of the
Company's net assets value as at 31 May 2014 (of which it
represents approximately 3%) which we believe is the most
appropriate benchmark, as net asset value is considered to be one
of the principal considerations for members of the Company in
assessing the financial performance of the Company.
We agreed with the audit committee to report to it all corrected
and uncorrected misstatements we identified through our audit with
a value in excess of GBP102,000, in addition to other audit
misstatements below that threshold that we believe warranted
reporting on qualitative grounds.
Our assessment of materiality has informed our identification of
significant risks of material misstatement and the associated audit
procedures performed in those areas as detailed above.
Whilst the audit process is designed to provide reasonable
assurance of identifying material misstatements or omissions it is
not guaranteed to do so. Rather we plan the audit to determine the
extent of testing needed to reduce to an appropriately low level
the probability that the aggregate of uncorrected and undetected
misstatements does not exceed materiality for the financial
statements as a whole. This testing requires us to conduct
significant depth of work on a broad range of assets, liabilities,
income and expense as well as devoting significant time of the most
experienced members of the audit team, in particular the
Responsible Individual, to subjective areas of the accounting and
reporting process.
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the Board of Directors;
and the overall presentation of the financial statements. In
addition, we read all the financial and non-financial information
in the Annual Report to identify material inconsistencies with the
audited financial statements and to identify any information that
is apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Matters on which we are required to report by exception
Under International Standards on Auditing (UK and Ireland) we
are required to report to you if, based on the knowledge we
acquired during our audit, we have identified other information in
the annual report that contains a material inconsistency with
either that knowledge or the financial statements, a material
misstatement of fact, or that is otherwise misleading.
In particular, we are required to report to you if:
-- we have identified material inconsistencies between the
knowledge we acquired during our audit and the directors' statement
that they consider that the Annual Report and financial statements
taken as a whole is fair, balanced and understandable and provides
the information necessary for members to assess the Company's
performance, business model and strategy; or
-- the Directors' Report does not appropriately address matters
communicated by us to the audit committee.
Under the Companies (Guernsey) Law, 2008, we are required to
report to you if, in our opinion:
-- the Company has not kept proper accounting records; or
-- the financial statements are not in agreement with the accounting records; or
-- we have not received all the information and explanations,
which to the best of our knowledge and belief are necessary for the
purpose of our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement within the Directors' Report
relating to the Company's compliance with the nine provisions of
the UK Corporate Governance Code specified for our review.
We have nothing to report in respect of the above
responsibilities.
Scope of report and responsibilities
The purpose of this report and restrictions on its use by
persons other than the Company's members as a body
This report is made solely to the Company's members, as a body,
in accordance with section 262 of the Companies (Guernsey) Law,
2008 and, in respect of any further matters on which we have agreed
to report, on terms we have agreed with the Company. Our audit work
has been undertaken so that we might state to the Company's members
those matters we are required to state to them in an auditor's
report and for no other purpose. To the fullest extent permitted by
law, we do not accept or assume responsibility to anyone other than
the Company and the Company's members, as a body, for our audit
work, for this report, or for the opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Directors' Responsibilities
Statement, the Directors are responsible for the preparation of the
financial statements and for being satisfied that they give a true
and fair view. Our responsibility is to audit, and express an
opinion on, the financial statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the UK Ethical Standards for
Auditors.
Steven D. Stormonth
For and on behalf of KPMG Channel Islands Limited
Chartered Accountants and Recognised Auditors
24 September 2014
STATEMENT OF FINANCIAL POSITION
AS AT 31 MAY 2014 Note As at 31 As at 31
May 2014 May 2013
GBP000 GBP000
----------------------------------- ---------- --------------- ---------------
Assets
Current assets
Financial assets at fair value
through profit or loss 3a 67,993 51,029
Cash and cash equivalents 3a 30 167
Subscriptions paid in advance 3a - 9,025
Other receivables 3a 5 14
----------------------------------- ---------- --------------- ---------------
Total assets 68,028 60,235
----------------------------------- ---------- --------------- ---------------
Liabilities
Current liabilities
Accounts payable and accrued
expenses 6 62 59
----------------------------------- ---------- --------------- ---------------
Total liabilities 62 59
----------------------------------- ---------- --------------- ---------------
Net assets 67,966 60,176
----------------------------------- ---------- --------------- ---------------
Represented by: 7
Shareholders' equity and reserves
Share capital 68,294 59,546
Other reserves (328) 630
----------------------------------- ---------- --------------- ---------------
Total Shareholders' equity 67,966 60,176
----------------------------------- ---------- --------------- ---------------
Net assets per Share 8 98.32p 99.79p
----------------------------------- ---------- --------------- ---------------
The financial statements were approved by the Board of Directors
on 24 September 2014.
Talmai Morgan Michael Poulding
Chairman Director
The notes form an integral part of these financial
statements.
STATEMENT OF COMPREHENSIVE INCOME
FOR THE YEAR ENDED 31 MAY 2014
Note For the period
from 24 April
For the year 2012 (date
ended 31 May of incorporation)
2014 to 31 May
GBP000 2013 GBP000
--------------------------------------- ---- -------------- -------------------
Income
Net changes in fair value on financial
assets at fair value through profit
or loss 3b 2,654 2,454
--------------------------------------- ---- -------------- -------------------
Net income 2,654 2,454
--------------------------------------- ---- -------------- -------------------
Expenses
Directors' remuneration and expenses 9a (67) (73)
Administration fee 9f (75) (46)
Audit fee and interim review (30) (29)
Other professional fees (87) (55)
Other operating expenses (103) (79)
--------------------------------------- ---- -------------- -------------------
Total operating expenses (362) (282)
--------------------------------------- ---- -------------- -------------------
Total comprehensive income 2,292 2,172
--------------------------------------- ---- -------------- -------------------
Basic and diluted earnings per
Share 11 3.49p 4.90p
--------------------------------------- ---- -------------- -------------------
All items derive from continuing activities. A proposal for the
voluntary winding up of the Company has been circulated to
Shareholders for approval at the extraordinary general meeting on
24 September 2014.
The notes form an integral part of these financial
statements.
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED TO 31 MAY 2014
Share
Capital Other Reserves Total
GBP000 GBP000 GBP000
-------------------------------- --------- -------------- -------
Balance as at 1 June 2013 59,546 630 60,176
-------------------------------- --------- -------------- -------
Total comprehensive income for
the year
Total comprehensive income for
the year - 2,292 2,292
-------------------------------- --------- -------------- -------
Transactions with Shareholders,
recorded directly in equity
Shares issued 8,876 - 8,876
Share issue costs (128) - (128)
Distributions paid - (3,250) (3,250)
-------------------------------- --------- -------------- -------
Balance as at 31 May 2014 68,294 (328) 67,966
-------------------------------- --------- -------------- -------
FOR THE PERIOD FROM 24 APRIL 2012 (DATE
OF INCORPORATION) TO 31 MAY 2013
Share Other
Capital Reserves Total
GBP000 GBP000 GBP000
-------------------------------- --------- -------------- -------
Balance as at 24 April 2012 - - -
-------------------------------- --------- -------------- -------
Total comprehensive income for
the period
Total comprehensive income for
the period - 2,172 2,172
-------------------------------- --------- -------------- -------
Transactions with Shareholders,
recorded directly in equity
Shares issued 60,450 - 60,450
Share issue costs (904) - (904)
Distributions paid - (1,542) (1,542)
-------------------------------- --------- -------------- -------
Balance as at 31 May 2013 59,546 630 60,176
-------------------------------- --------- -------------- -------
The notes form an integral part of these financial
statements.
STATEMENT OF CASH FLOWS
For the year
ended 31 May For the period
2014 from 24 April
2012 (date
of incorporation)
to 31 May
GBP000 2013 GBP000
--------------------------------------- --------------------- ------------------
Cash flows from operating activities
Total comprehensive income for the
year/period 2,292 2,172
Adjustments for:
Net gains on financial assets held
at fair value through profit or
loss (2,654) (2,454)
Decrease/(increase) in debtors 9 (14)
Increase in creditors 3 59
--------------------------------------- --------------------- ------------------
Net cash used in operating activities (350) (237)
--------------------------------------- --------------------- ------------------
Purchase of financial assets at
fair value through profit and loss (9,002) (60,736)
Proceeds from sale of investments 3,717 3,136
--------------------------------------- --------------------- ------------------
Net cash outflows from investing
activities (5,285) (57,600)
--------------------------------------- --------------------- ------------------
Cash inflows from financing activities
Proceeds from issue of ordinary
shares 8,876 60,450
Share issue costs (128) (904)
Distributions paid (3,250) (1,542)
--------------------------------------- --------------------- ------------------
Net cash inflows used in financing
activities 5,498 58,004
--------------------------------------- --------------------- ------------------
Net (decrease)/increase in cash
and cash equivalents (137) 167
--------------------------------------- --------------------- ------------------
Cash and cash equivalents at the
beginning of the year/period 167 -
--------------------------------------- --------------------- ------------------
Cash and cash equivalents at the
end of the year/period 30 167
--------------------------------------- --------------------- ------------------
Analysis of cash and cash equivalents
at the end of the year/period
Cash at bank 30 167
--------------------------------------- --------------------- ------------------
The notes form an integral part of these financial
statements.
NOTES TO THE FINANCIAL STATEMENTS
For the year ended 31 May 2014
1. General information
DCG IRIS Limited (the "Company") was incorporated with limited
liability in Guernsey, Channel Islands as a closed-ended investment
company on 24 April 2012. The Company's Shares were listed with a
Premium Listing on the Official List of the UK Listing Authority
and admitted to trading on the Main Market of the London Stock
Exchange on 27 June 2012.
The Company invests substantially all of its capital through a
"master-feeder" structure in CS IRIS Low Volatility Plus Fund
Limited (the "Master Fund") which is an open-ended investment
company incorporated under the laws of Guernsey on 28 October 2011
for an unlimited period and is a Qualifying Investor Fund
authorised under The Collective Investment Schemes (Qualifying
Professional Investor Funds) (Class Q) Rules 1998, issued by the
Guernsey Financial Services Commission pursuant to the 1997 Law
(Protection of Investors, Bailiwick of Guernsey). The Company
invests in the Class I-50 Sterling Share Class of the Master
Fund.
The Company's investment objective is to seek to achieve
positive returns through investing in insurance linked contracts
and assets carrying exposure to risks related to insured event
risks.
The Company pursues its investment objective by principally
investing its assets (to the extent not retained in cash) in the
Master Fund which invests in a broadly diversified portfolio of
insurance-linked contracts, securities and derivatives as well as
various types of investments related to insurance risks over the
long-term.
The Company may hold cash and invest in cash equivalents and may
also borrow for cash management and short-term purposes.
The Investment Manager of the Company is Dexion Capital
(Guernsey) Limited (the "Investment Manager"). The Investment
Manager of the Master Fund is Credit Suisse AG ("Credit
Suisse").
2. Significant accounting policies
a) Statement of Compliance
The financial statements for the year ended 31 May 2014, have
been prepared in accordance with InternationalFinancial Reporting
Standards (IFRS) issued by the International Accounting Standards
Board (IASB) and are in compliance with the Companies (Guernsey)
Law, 2008.
The Company has adopted the following new standards with a date
of initial application of 1 January 2013:
IFRS 13 Fair Value Measurement. IFRS 13 establishes a single
framework for measuring fair value and making disclosures about
fair value measurements, when such measurements are required or
permitted by other IFRSs. In particular, it unifies the definition
of fair value as the price at which an orderly transaction to sell
an asset or to transfer a liability would take place between market
participants at the measurement date. It also replaces and expands
the disclosure requirements about fair value measurements in other
IFRSs, including IFRS 7 Financial Instruments: Disclosures.
In accordance with the transitional provisions of IFRS 13, the
Company has applied the new fair value measurement guidance
prospectively, and has not provided any comparative information for
new disclosures. Notwithstanding the above, the change had no
significant impact on the measurements of the Company's assets and
liabilities.
IFRS 10, 'Consolidated Financial Statements', replaces guidance
within IAS 27, 'Consolidated and Separate Financial Statements'.
The standard establishes principles for the presentation and
preparation of consolidated financial statements when an entity
controls one or more other entities. IFRS 10 requires entities to
consolidate entities it controls. Control requires exposure or
rights to variable returns and the ability to affect those returns
through power over an investee. IFRS 10 includes an exception from
consolidation for entities, which meet the definition of an
investment entity, and requires such entities to recognise all
investments at fair value through profit or loss. The Fund meets
the definition of an investment entity under IFRS 10. The Fund
invests directly in the Master Fund. The Investment is held at fair
value through profit or loss, and the Fund does not have control
over the Investments held in the Master Fund as defined under IFRS
10. The amendments did not have any impact on the Fund's financial
position
or performance. The standard is applicable for periods beginning
on or after 1 January 2013.
IFRS 7 (Amendments) 'Financial Instruments: Disclosures', adds
certain new disclosures about financial instruments to those
currently required by IAS 32. It replaces the disclosures
previously required by IAS 30 and puts all the financial
instruments disclosures together into a new standard. IFRS 7
requires certain disclosures to be presented by category of
instrument based on the IAS 39 measurement categories and certain
other disclosures by class of financial instrument. The two main
categories of disclosures required by IFRS 7 are information about
the significance of financial instruments and information about the
nature and extent of risks arising from financial instruments. The
standard is applicable for periods beginning on or after 1 January
2013. The amendments did not have a significant impact on the
Company's Financial Statements.
The following new standards, new interpretations and amendments
to standards and interpretations have been issued but are not
effective for the year and have not been early adopted:
-- Offsetting Financial Assets and Financial Liabilities
(Amendments to IAS 32) clarify the offsetting criteria in IAS 32
and address inconsistencies in their application. This includes
clarifying the meaning of 'currently has a legally enforceable
right of set-off' and that some gross settlement systems may be
considered equivalent to net settlement. The amendments did not
have any impact on the Fund's financial position or performance.
The standard is applicable for periods commencing on or after 1
January 2014.
-- IFRS 9, 'Financial instruments', was updated in July 2014,
and issued as a final complete standard. The standard addresses the
classification and measurement of financial assets. IFRS 9 divides
all financial assets that are currently in the scope of IAS 39 into
two classifications - those measured at amortised cost and those
measured at fair value. IFRS 9 requires that the effects of changes
in credit risk of liabilities designated as at fair value through
profit or loss are presented in other comprehensive income unless
such treatment would create or enlarge an accounting mismatch in
profit or loss, in which case all gains or losses on that liability
are presented in profit or loss. Other requirements of IFRS 9
relating to classification and measurement of financial liabilities
are unchanged from IAS 39. Its adoption is not expected to have a
significant impact on the Company's financial statements because
the majority of the Company's financial assets are designated as at
fair value through profit or loss and there are presently no
financial liabilities designated as at fair value through profit or
loss. The remaining guidance for hedge accounting and impairment
are not considered relevant to the Company's activities. The
standard is applicable for periods commencing on or after 1 January
2018.
The Directors believe that the adoption of the other standards
and interpretations effective in a future period will not have a
material impact on the financial statements of the Company.
b) Basis of preparation
The financial statements are prepared in pounds sterling (GBP),
which is the Company's functional and presentation currency,
rounded to the nearest thousand pounds. They are prepared on a fair
value basis for financial assets at fair value through profit or
loss. Other financial assets and financial liabilities are stated
at amortised cost.
On 18 July 2013, in accordance with the Company's articles of
incorporation and commitments given in the prospectus dated 12
November 2012, the Company proposed a Continuation Vote of the
Company and offered investors a Redemption Offer.
The Continuation Vote and the Redemption Offer were required
because the NAV of the Company as at 30 June 2013 was less than
GBP150 million. On the 9 August 2013, the Company sent a circular
to its Shareholders to convene the required [GM to approve, amongst
other things, the Continuation Vote and to set out full details of
the Redemption Offer. On 2 September 2013, the Company announced
that no acceptances of the Redemption Offer had been received. On 5
September 2013, the Company announced the results of the [GM were
that the Shareholders voted in favour of the continuation of the
Company.
The Company's Articles provide that the Directors are required
to propose an ordinary resolution for the continuation of the
Company if the average of the three month end NAVs of the Company
is less than GBP50million.
On 5 September 2013, the Company announced that Shareholders
voted in favour of a proposed amendment to the articles of
incorporation such that the Directors will not be required to
propose another vote on this basis for a period of one year from
the end of the relevant consecutive three month period. The
proposed amendment was effective from 10 September 2013.
Going concern
After making sufficient and appropriate enquiries, given the
current soft premium environment in the reinsurance market and the
Company's total asset size, the Directors announced on the 18 June
2014 that they considered it in the best interests of Shareholders
that the Company put forward voluntary winding up proposals. A
circular to Shareholders detailing the proposals and convening the
necessary extraordinary general meeting was published on 3
September 2014. The Extraordinary General Meeting is due to be held
on 24 September 2014. As a result the Directors have concluded it
is no longer appropriate to continue to adopt the going concern
basis in preparing the financial statements and the financial
statements have been prepared on a non-going concern basis.
There is no difference to the primary statements if they were to
be prepared on non going concern basis to that of a going concern
basis with the exception of the estimated costs of GBP740,000
disclosed in note 6 of the Financial Statements which represents
the estimated expenses that would be incurred for to the proposed
winding up of the Company. The proposed winding up costs of the
Company are not included in the Statement of Comprehensive Income
or the Statement of Financial Position but are disclosed in note 6
of the Financial Statements.
The following accounting policies have been applied consistently
in dealing with items which are considered material in relation to
the Company's financial statements:
c) Critical accounting judgements and key sources of estimation uncertainty
The preparation of the financial statements in conformity with
IFRS requires management to make judgements, estimates and
assumptions that affect the application of policies and the
reported amounts of assets and liabilities, income and expense.
The estimates and associated assumptions are based on historical
experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the
basis of making the judgements about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates. The main use of
accounting estimates and assumptions occurs in the calculation of
sensitivity analysis and the fair value hierarchy in note 12.
The estimates and underlying assumptions are reviewed on an
ongoing basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision affects
only that period, or in the period of revision and future periods
if the revision affects both current and future periods.
d) Revenue recognition
Interest income is recognised in the Statement of Comprehensive
Income as it accrues using the effective interest method. Dividend
income is recognised when the right to receive payment is
established.
e) Expenses
All expenses are accounted for on an accruals basis.
f) Financial instruments
i) Classification
In accordance with IAS 39 Financial Instruments: Recognition and
Measurement, the Company has designated all its investments upon
initial recognition as financial assets at fair value through
profit or loss. These include financial assets that are not held
for trading purposes and which may be sold and represent a group of
financial assets which is managed and its performance is evaluated
on a fair value basis, in accordance with a documented investment
strategy, and information about the Company is provided internally
on that basis to the entity's key management personnel. These are
exclusively investments in the Master Fund.
Financial assets that are classified as loans and receivables
include other receivables and cash and cash equivalents. Financial
liabilities at amortised cost include accounts payable and accrued
expenses. The table in Note 3 details the categories of financial
assets and liabilities held by the Company as at 31 May 2014.
ii. Recognition
The Company recognises financial assets and financial
liabilities on the date it becomes a party to the contractual
provisions of the instrument.
Regular purchases and sales of investments are recognised on the
trade date, being the date on which the Company commits to purchase
or sell the investment. From this date any gains and losses arising
from changes in fair value of the financial assets or financial
liabilities are recorded.
iii. Measurement
Financial instruments are measured initially at fair value
(transaction price). Transaction costs on financial assets and
financial liabilities at fair value through profit or loss are
expensed immediately. Subsequent to initial recognition, all
instruments classified as fair value through profit or loss are
measured at fair value with changes in their fair value recognised
in the Statement of Comprehensive Income within net changes in fair
value on financial assets at fair value through profit or loss, in
the period in which they arise.
Financial assets classified as loans and receivables are carried
at amortised cost using the effective interest method less
impairment losses, if any.
iv. Fair value measurement principles
The investment in the Master Fund is measured at fair value. The
NAV of the Master Fund, which is established based on IFRS
requirements, is used as a measure of fair value as this is price
at which the Company may redeem its investment. The Company invests
in the Class I-50 Sterling Share Class of the Master Fund. As at 31
August 2014, the NAV per Share of the Class I-50 Sterling Share
Class of the Master Fund is GBP1,065.14 (31 May 2014: GBP1,051.62
per Share). There has been no significant change to the fair value
of the Master Fund and no indication of delayed settlement on the
redemption request submitted. There has therefore been no
adjustment to the fair value of the investment in the Master Fund
at 31 May 2014.
The fair value of investments by the Master Fund in underlying
financial instruments, for which a quoted market price is not
available on a recognised stock exchange or from a broker/dealer
for non-exchange traded financial instruments, are estimated using
valuation techniques, including use of recent arm's length market
transactions, reference to the current fair value of another
instrument that is substantially the same, discounted cash flow
techniques, option pricing models or any other valuation technique
that provides a reliable estimate of prices obtained in actual
market transactions.
Where discounted cash flow techniques are used by the Master
Fund, estimated future cash flows are discounted using market rates
at the reporting date applicable for an instrument with similar
terms and conditions. Where other pricing models are used, inputs
are based on maximum observable market data at the reporting
date.
The fair value of derivatives that are not exchange-traded is
estimated at the amount that the Master Fund would receive or pay
to terminate the contract at the reporting date taking into account
current market conditions (volatility, appropriate yield curve) and
the current creditworthiness of the counterparties.
v. Realised and unrealised gains and losses
Realised gains and losses arising on disposal of investments are
calculated by reference to the proceeds received on disposal and
the average cost attributable to those investments, and are
recognised in the Statement of Comprehensive Income. Unrealised
gains and losses on investments are recognised in the Statement of
Comprehensive Income.
vi. Impairment
Financial assets that are stated at cost or amortised cost are
reviewed at each reporting date to determine whether there is
objective evidence of impairment. If any such indication exists, an
impairment loss is recognised in the Statement of Comprehensive
Income as the difference between the asset's carrying amount and
the present value of estimated future cash flows discounted at the
financial asset's effective interest rate.
If in a subsequent period the amount of an impairment loss
recognised on a financial asset carried at amortised cost decreases
and the decrease can be linked objectively to an event occurring
after the write-down, the write-down is reversed through the
Statement of Comprehensive Income.
vii) Derecognition
The Company derecognises a financial asset when the contractual
rights to the cash flows from the financial asset expire, or it
transfers the financial asset and the transfer qualifies for
derecognition in accordance with IAS 39. A financial liability is
derecognised when the obligation specified in the contract is
discharged, cancelled or expired.
g) Foreign currency transactions
The financial statements of the Company are presented in the
currency of the primary economic environment in which the Company
operates (its 'functional currency'). The Directors have considered
the currency in which the original capital was raised,
distributions will be made and ultimately the currency in which
capital would be returned in a liquidation. The Directors have also
considered the currency to which the underlying investments of the
Master Fund are exposed. On balance, the Directors believe that
pounds sterling (GBP) best represents the functional currency. For
the purpose of the financial statements, the results and financial
position of the Company are expressed in pounds sterling, which is
the presentation currency of the Company. Transactions denominated
in foreign currencies are translated into pounds sterling at the
rate of exchange ruling on the date of the transaction. Financial
assets and liabilities denominated in foreign currencies at the
reporting date are translated into pounds sterling at the exchange
rate prevailing at that date. Realised and unrealised gains or
losses on currency translation are recognised in the Statement of
Comprehensive Income. Foreign currency differences relating to
investments at fair value through profit or loss are included in
gains and losses on investments (Note 3).
h) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash
equivalents, which can include bank overdrafts, are short-term,
highly liquid investments that are readily convertible to known
amounts of cash and which are subject to insignificant changes in
value. Cash, deposits with banks and bank overdrafts are stated at
their principal amount.
i) Share issue costs
Share issue costs are fully written off against the share
capital account in the period of the share issue.
j) Treasury Shares
Where the Company purchases its own share capital, the
consideration paid, which includes any directly attributable costs,
is recognised as a deduction from Shareholders' equity through the
other reserves, which is a distributable reserve.
When such Shares are subsequently sold or reissued, any
consideration received, net of any directly attributable
incremental transaction costs and the related income tax effects,
is recognised as an increase in equity and the resulting surplus or
deficit on the transaction is transferred to/from the other
reserve. Where the Company cancels treasury shares, no further
adjustment is required to the share capital account at the time of
cancellation. Shares held in treasury are excluded from
calculations when determining NAV per share and earnings per
share.
k) Operating Segments
The Board has considered the requirements of IFRS 8 'Operating
Segments', and is of the view that the Company is engaged in a
single segment of business, being an investment strategy tied to
insured event risks. The Board, as a whole, has been determined as
constituting the chief operating decision maker of the Company.
The key measure of performance used by the Board to assess the
Company's performance and to allocate resources is the total return
on the Company's NAV, as calculated under IFRS, and therefore no
reconciliation is required between the measure of profit or loss
used by the Board and that contained in these audited financial
statements.
The Board of Directors is charged with setting the Company's
investment strategy in accordance with the investment policy. They
have delegated the day to day implementation of this strategy to
its Investment Manager but retain responsibility to ensure that
adequate resources of the Company are directed in accordance with
their decisions. The investment decisions of the Investment Manager
are reviewed on a regular basis to ensure compliance with the
policies and legal responsibilities of the Board. The Investment
Manager has been given full authority to act on behalf of the
Company, including the authority to purchase and sell securities
and other investments on behalf of the Company and to carry out
other actions as appropriate to give effect thereto. Whilst the
Investment Manager may make the investment decisions on a day to
day basis regarding the allocation of funds to different
investments, any changes to the investment strategy or major
allocation decisions have to be approved by the Board, even though
they may be proposed by the Investment Manager. The Board therefore
retains full responsibility as to the major decisions made on an
ongoing basis. The Investment Manager will always act under the
terms of the Prospectus which cannot be significantly changed
without the approval of the Board of Directors or, where necessary,
Shareholders.
3. Financial Instruments
a) Categories of financial instruments As at 31 May
As at 31 May 2013 Carrying
2014 Carrying amount % of
amount % of GBP000 net
GBP000 net assets assets
----------------------------------------------------- -------------------------- -----------------------
Financial assets and liabilities at
fair value through profit or loss:
Classified as fair value through profit
or loss:
Investment in the Master Fund 67,993 100.04% 51,029 84.80%
Loans and Receivables: 35 0.05% 9,206 15.30%
Financial liabilities measured at amortised
cost: (62) (0.09%) (59) (0.10%)
----------------------------------------------------- ------------ ------------ ---------- -----------
67,966 100.00% 60,176 100.00%
----------------------------------------------------- ------------ ------------ ---------- -----------
Loans and Receivables presented above represent cash and cash
equivalents and other receivables including subscriptions paid in
advance, which represent subscriptions into the Master Fund, as
detailed in the Statement of Financial Position.
Financial liabilities measured at amortised cost presented above
represent distributions payable, accounts payable and accrued
expenses as detailed in the Statement of Financial Position.
b) Net changes in fair value on financial assets at fair value through profit or loss
For the period
For the from 24 April
year 2012 (date
ended of incorporation)
31 May to 31 May 2013
2014 GBP000
GBP000
---------------------------------------------- ---------- --------------------
Realised gains on investments 52 197
Movement in unrealised gains on investments 2,602 2,257
---------------------------------------------- ---------- --------------------
Net changes in fair value on financial
assets at fair value through profit
or loss 2,654 2,454
---------------------------------------------- ---------- --------------------
4. Financial Risk Management
The Investment Manager provides investment management services
to the Company and monitors and manages risks relating to the
operations of the Company through internal risk reports which
analyse exposures by degree and magnitude of risks.
The Company's financial instruments include investments
designated as fair value through profit or loss and cash and cash
equivalents. The main risks arising from the Company's financial
instruments are market price risk, interest rate risk, currency
risk, liquidity risk and credit risk. The techniques and
instruments utilised for the purposes of efficient portfolio
management are those which are reasonably believed by the
Investment Manager to be economically appropriate to the efficient
management of the Company.
a) Capital risk management
The Company manages its capital to ensure that it is able to
continue as a going concern while following the Company's stated
investment policy. The capital structure of the Company consists of
Shareholders' equity, which comprises share capital and other
reserves. To maintain or adjust the capital structure, the Company
may return capital to Shareholders or issue new Shares. There are
no regulatory or any other externally imposed requirements to
return capital to Shareholders.
i) Share buybacks
The Directors have the authority to purchase up to 14.99% of the
Company's Shares of each class in issue immediately following
Admission at a price not exceeding: (i) 5% above the average of the
mid-market values of Shares of the relevant class for the five
Business Days before the purchase is made; or (ii) the higher of
the last independent trade or the highest current independent bid
for Shares of the relevant class.
Any buy back of Shares is made subject to Guernsey law and
within guidelines established from time to time by the Board (which
will take into account the income and cash flow requirements of the
Company) and the making and timing of any buy backs is at the
absolute discretion of the Board.
The Board may elect, subject to compliance with the applicable
laws in Guernsey, to hold Shares purchased under the Company's buy
back programme in Treasury, if it considers it to be in the best
interests of shareholders. The Articles permit the Company to hold
up to 10% of its total number of Shares in issue in Treasury in
accordance with Guernsey Law. The Company will be able to sell
shares held in Treasury, subject to compliance with all applicable
laws and regulations, and such sale will not be subject to any
pre-emption rights in favour of existing shareholders.
b) Market risk
Market risk embodies the potential for both losses and gains and
includes currency risk, interest rate risk and price risk. The
Company's strategy on the management of market risk is driven by
the Company's investment objective. The Company pursues its
investment objective by principally investing its assets (to the
extent not retained in cash) in the Master Fund.
The investment objective of the Master Fund is to achieve
positive returns through an investment strategy related to insured
event risks. The Master Fund's market risk is managed by Credit
Suisse in accordance with its own policies and procedures.
Credit Suisse's strategies will be subject to some dimension of
market risk: directional price movements, deviations from
historical pricing relationships, changes in the regulatory
environment, changes in market volatility, weather, seismic or
other insured events, international political events, "flights to
quality" events and "credit squeezes". The Master Fund may
materially under-perform other investment funds with substantially
similar investment objectives and approaches.
The Master Fund may invest through Over-the-Counter Insurance
Contracts. Over-the-Counter Insurance Contracts are prone to sudden
and unexpected losses.
In addition, the unpredictable nature of such losses makes it
difficult to determine whether a particular Over-the-Counter
Insurance Contract Instrument is properly priced in the ordinary
course of trading.
The valuation models used in the insurance-linked markets
attempt to value fundamentally unpredictable events (such as
earthquakes or hurricanes), as opposed to traditional financial
models which may interpolate securities values based on different
market parameters.
Due to the long-term or open-end nature of reinsurance and
insurance risks, the strategy of Credit Suisse is to enter into
financial transactions where the longevity of the underlying risks
is capped at a final duration date or even terminate these
contracts before the final maturity. The main strategy is to create
a diversifiedportfolio of insurance risks, which are quantifiable
and can be modelled by scientific and mathematical models and
techniques. Credit Suisse seeks to achieve a portfolio that is
geographically diversified by uncorrelated risks.
The Directors of the Master Fund created a side pocket in order
to manage the risks arising from Superstorm Sandy for Investments
of the Master Fund that were potentially impacted with the value
date of 31 October 2012. The Side Pocket was finally merged with
the Master Fund's main portfolio as of 30 August 2013 and the total
impact of Superstorm Sandy was -0.24% of the NAV as of 31 October
2012.
i. Market price risk management
Price risk is the risk that the value of the instrument will
fluctuate as a result of changes in market prices, whether caused
by factors specific to an individual investment, its issuer or all
factors affecting all instruments traded in the market.
As the majority of the Company's financial instruments are
carried at fair value with fair value changes recognised in the
Statement of Comprehensive Income, all changes in market conditions
will directly affect the NAV of the Company.
The Master Fund price risk is mitigated by Credit Suisse by
constructing a diversified portfolio of insurance risks. In
addition, price risk may be hedged using derivative financial
instruments such as options or futures.
Price risk is managed on a daily basis by Credit Suisse in
accordance with the policies and procedures in place. The Master
Fund's overall price risks, are monitored on a quarterly basis by
the Company's Board of Directors.
The Directors have submitted a redemption request for settlement
at 1 October 2014. Accordingly the final settlement amount is
unknown. The Company invests in the Class I-50 Sterling Share Class
of the Master Fund. As at 31 August 2014, the NAV per Share of the
Class I-50 Sterling Share Class of the Master Fund is GBP1,065.14
(31 May 2014: GBP1,051.62 per Share).
Price sensitivity analysis
The Company's only investment is in the Master Fund. Therefore,
market price risk is managed indirectly through diversification of
the investment portfolio in the Master Fund.
The following details the Company's sensitivity to a 100bps
increase and decrease in the market prices, with 100bps being the
sensitivity rate used when reporting price risk internally to key
management personnel and representing management assessment of the
possible change in market prices.
At 31 May 2014 if the market prices had been 100bps higher with
all other variables held constant, the increase in the net assets
attributable to equity Shareholders would have been GBP679,931. An
equal change in the opposite direction would have decreased the net
assets attributable to equity Shareholders.
Actual trading results may differ from the above sensitivity
analysis and those differences may be material.
ii. Interest rate risk management
Interest rate risk represents the uncertainty of investment
return due to changes in the market rates of interest.
Substantially all of the Company's assets is a non-interest bearing
equity investment and its exposure to interest rate changes is
minimal.
Interest receivable on bank deposits and interest payable on
bank overdraft positions will be affected by fluctuations in
interest rates. All cash balances are at variable rates.
The majority of the Master Fund's financial assets are interest
bearing. The majority of the Master Fund's liabilities are
non-interest bearing. Most of the interest-bearing assets mature in
more than one year and less than five years. As a result, the
Master Fund is subject to a high exposure to fair value interest
rate risk due to fluctuations in the prevailing levels of market
interest rates. The Master Fund's interest rate risk is managed on
a daily basis by Credit Suisse in accordance with policies and
procedures in place. The Master Fund's overall interest rate risk
is monitored on a quarterly basis by the Board of Directors of the
Master Fund.
As at 31 May 2014, all of the Company's assets and liabilities
were non-interest bearing with the exception of cash and cash
equivalents (see table below).
Non-interest
1-3 months bearing Total
GBP000 GBP000 GBP000
------------------------------- ---------- --------------- -------
Assets
Financial assets at fair value
through profit or loss:
Investment in the Master Fund - 67,993 67,993
Cash and cash equivalents 30 - 30
Other receivables - 5 5
------------------------------- ---------- --------------- -------
Total assets 30 67,998 68,028
------------------------------- ---------- --------------- -------
Liabilities
Financial liabilities measured
at amortised cost:
Accounts payable and accrued
expenses - (62) (62)
------------------------------- ---------- --------------- -------
Total liabilities - (62) (62)
------------------------------- ---------- --------------- -------
Total interest sensitivity
gap 30 - 30
------------------------------- ---------- --------------- -------
As at 31 May 2013, all of the Company's assets and liabilities
were non-interest bearing with the exception of cash and cash
equivalents (see table below).
Non-interest
1-3 months bearing Total
GBP000 GBP000 GBP000
------------------------------- ---------- --------------- -------
Assets
Financial assets at fair value
through profit or loss:
Investment in the Master Fund - 51,029 51,029
Cash and cash equivalents 167 - 167
Subscriptions paid in advance - 9,025 9,025
Other receivables - 14 14
------------------------------- ---------- --------------- -------
Total assets 167 60,068 60,235
------------------------------- ---------- --------------- -------
Liabilities
Financial liabilities measured
at amortised cost:
Accounts payable and accrued
expenses - (59) (59)
------------------------------- ---------- --------------- -------
Total liabilities - (59) (59)
------------------------------- ---------- --------------- -------
Total interest sensitivity
gap 167 - 167
------------------------------- ---------- --------------- -------
Interest rate sensitivity analysis
Cash and cash equivalents will be affected by movements in
interest rates. However there will be no material impact on the
Statement of Comprehensive Income or Statement of Changes in
Shareholder's Equity from movements in interest rates due to the
immateriality of the bank balances at the year end. At the year end
the Company's cash balance was GBP29,560.
iii) Currency risk management
The Master Fund's investments comprise predominantly US Dollar
denominated investments. Whilst the Master Fund will (subject to
the availability of appropriate foreign exchange and credit lines)
engage in currency hedging in an attempt to reduce the impact on
its Class I-50 Sterling Shares of currency fluctuations, volatility
of returns may result from such currency exposure.
The Company's investment in the Master Fund is denominated in
pounds sterling; therefore no additional currency risk arises as a
result. Any uninvested monies, such as working capital
requirements, are monitored by the Investment Manager.
Except as disclosed above, the Company had no significant
exposure to currency risk at 31 May 2014 (31 May 2013: Nil).
c) Liquidity risk management
The ultimate responsibilities for liquidity risk management
rests with the Board of Directors which has appropriately reviewed
the funding requirements for the management of the Company's short,
medium and long-term funding needs. The Company maintains adequate
reserves by continuously monitoring forecast and actual cash flows.
The Company may borrow as described in Note 14 to assist with any
unforeseen timing mismatches, in accordance with the
Prospectus.
The Company's principal investment in financial instruments is
an investment in the Master Fund, which generally may be illiquid.
The Company is currently required to give 90 days' prior notice to
redeem its holdings in the Master Fund.
Some of the investments made by the Master Fund may not be
readily realisable and their marketability may be restricted and it
may be difficult for the Master Fund to sell or realise its
investments in whole or in parts.
In preparation of the voluntary winding up proposals being
passed, the Directors instructed the Administrator to issue a full
redemption request for all of the Company holdings in the Master
Fund. A full redemption from the Master Fund was submitted for
settlement on 1 October 2014. Redemption proceeds are expected to
be received from the Master Fund by 30 November 2014. The Master
Fund Shares will be redeemed at the NAV per Share of the relevant
Share class of the Master Fund at the valuation point of the
Redemption date.The Company invests in the Class I-50 Sterling
Share Class of the Master Fund. As at 31 August 2014, the NAV per
Share of the Class I-50 Sterling Share Class of the Master Fund is
GBP1,065.14 (31 May 2014: GBP1,051.62 per Share). The Company is
subject to the restrictions as placed on the redemption by the
Directors of the Master Fund. There has been no significant change
to the fair value of the Master Fund and no indication of delayed
settlement on the redemption request submitted.
The Master Fund had created a side pocket in connection with
Superstorm Sandy for Investments of the Master Fund that were
potentially impacted with the value date of 31 October 2012. The
Side Pocket was finally merged with the Master Fund's main
portfolio as of 30 August 2013 and the total impact of Superstorm
Sandy was -0.24% of the NAV as of 31 October 2012.
Shareholders have no right to have their shares redeemed or
repurchased by the Company. Shareholders wishing to release their
investment in the Company are therefore required to dispose of
their shares on the market.
Residual contractual maturities of
financial liabilities
31 May 2014 1-3 months Total
GBP000 GBP000
--------------------------------------- ----------- --------
Accounts payable and accrued expenses 62 62
--------------------------------------- ----------- --------
31 May 2013 1-3 months Total
GBP000 GBP000
--------------------------------------- ----------- --------
Accounts payable and accrued expenses 59 59
--------------------------------------- ----------- --------
d) Credit risk
Credit risk refers to the risk that a counterparty will default
on its contractual obligations resulting in financial loss to the
Company. Credit Suisse has a credit policy in place and the
exposure to credit risk is monitored on an ongoing basis by the
Board of Directors of the Master Fund.
Credit risk is inherent in certain of the Insurance-Linked
Instruments that are part of the Master Fund's portfolio. When
possible, decisions to invest in these securities take into account
credit ratings, if any, issued by major rating agencies, such as
Moody's, S&P etc. 24% (31 May 2013: 41%) of the Master Fund's
portfolio is rated BB or greater by S&P.
Given that not all of the securities that comprise the Master
Fund's portfolio are rated, Credit Suisse may be guided by other
analysis, internal or external, and by its internal guidelines for
credit risk management. However, the securities in which the Master
Fund invests do not need to have any particular rating of
creditworthiness.
The Company is exposed to material credit risk in respect of
cash and cash equivalents. All cash is placed with Northern Trust
(Guernsey) Limited ("NTGL"). The Company is subject to credit risk
to the extent that this institution may be unable to return this
cash. NTGL is a wholly owned subsidiary of The Northern Trust
Corporation ("TNTC"). TNTC is publicly traded and a constituent of
S&P 500. TNTC has a credit rating of A+ from Standard &
Poor's and A2 from Moody's.
The Company's financial assets which were mainly exposed to
credit risk via the investment in the Master Fund were concentrated
as follows:
As at As at
31 May 31 May
2014 2013
GBP000 GBP000
Cash and cash equivalents 30 167
Subscriptions paid in advance - 9,025
Investment in the Master Fund 67,993 51,029
------------------------------ ------ ------
68,023 60,221
------------------------------ ------ ------
5. Operating segments
Information on realised gains and losses derived from sales of
investments are disclosed in Note 3(b) of the financial statements.
The Company is domiciled in Guernsey. Substantially all of the
Company's income is from its investment in the Master Fund, which
is incorporated in Guernsey.
The Company has no assets classified as non-current assets. The
investment in the Master Fund as at 31 May 2014 represents an
effective holding of 6.29% (31 May 2013: 12.51%) of the Master
Fund. The Company, indirectly, has a highly diversified portfolio
of investments via the Master Fund.
Segment information provided to management is measured on the
same basis as that which is used in the preparation of the
Company's Financial Statements. Therefore no reconciliation between
segmental information provided to management and the segmental
information disclosed in the Financial Statements is required.
The Company also has a diversified Shareholder base. As at 31
May 2014, registered shareholders with holdings greater than 10% in
the Company were:
Shareholder Shares % of issued
share
capital
--------------------------------------------- ---------- -----------
Ericsson Pensionsstiftelse (A) 15,208,000 22.00%
Credit Suisse Asset Management Investment
Limited 10,000,000 14.47%
------------------------------------------------- ---------- -----------
6. Accounts payable and accrued expenses
As at As at
31 May 31 May
2014 2013
GBP000 GBP000
--------------------------------------------- ---------- -----------
Audit fee 22 20
Directors' remuneration 11 11
Administration fee 12 8
Other professional fees 5 4
Other operating expenses 12 16
------------------------------------------------- ---------- -----------
62 59
------------------------------------------------- ---------- -----------
If the proposal for the voluntary winding up of the Company is
passed at the Extraordinary General Meeting on 24 September 2014,
winding up costs of approximately GBP740,000 will be incurred by
the Company. These have not been included in the Financial
Statements.
7. Share capital
As at As at
31 May 31 May
2014 2013
GBP000 GBP000
Authorised
Unlimited number of Shares at no par value - -
Issued at no par value
69,127,278 (31 May 2013: 60,299,440) Sterling Shares - -
Reconciliation of number of Shares
As at As at
31 May 31 May
2014 2013
No. of Shares No. of Shares
Shares at the beginning of the year/period 60,299,440 -
Issue of Shares 8,827,838 60,299,440
Total Shares in issue at the end of the year/period 69,127,278 60,299,440
Share capital account
As at As at
31 May 31 May
2014 2013
Share Capital Share Capital
GBP000 GBP000
Share Capital at the beginning of the year/period 59,546 -
Issued Share Capital 8,876 60,450
Share issue costs (128) (904)
Total Share Capital at the end of the year/period 68,294 59,546
The Share Capital of the Company consists of an unlimited number
of Shares with or without par value which, upon issue, the
Directors may designate as: (a) Shares; (b) B Shares; or (c) C
Shares, in each case of such classes and denominated in such
currencies as the Directors may determine.
As at 31 May 2014 one (31 May 2013: one) Sterling share class
has been issued, being the ordinary Shares of the Company. No
Shares have been issued in the B Class.
Pursuant to the placing programme, 1,170,000 Sterling Shares
were issued at a price of 100.5 pence per Sterling Share and listed
on the Official List and admitted to trading on the main market of
the London Stock Exchange on 19 July 2013. A further 7,657,838
Sterling Shares were issued at a price of 100.54 pence per Sterling
Share and listed on the Official List and admitted to trading on
the main market of the London Stock Exchange on 11 November
2013.
The rights attaching to the Shares are as follows:
a) the holders of Shares shall confer the right to all dividends
in accordance with the Articles of Incorporation of the
Company.
b) the Shareholders present in person or by proxy or (being a
corporation) present by a duly authorised representative at a
general meeting have, on a show of hands, one vote and, on a poll,
one vote for every Share held.
c) B Shares and, save in certain limited circumstances, C Shares
will not carry the right to attend and receive notice of any
general meetings of the Company, nor will they carry the right to
vote at such meetings.
d) the capital and surplus assets of the Company remaining after
payment of all creditors shall, on winding-up or on a return (other
than by way of purchase or redemption of own Shares) after
conversion, be divided amongst the Shareholders on the basis of the
capital attributable to the Shares at the date of winding up or
other return of capital.
8. Net asset value
The NAV of each Share of 98.32 pence (31 May 2013: 99.79 pence)
is determined by dividing the net assets of the Company attributed
to the Shares of GBP67,965,415 (31 May 2013: GBP60,175,183) by the
number of Shares in issue at 31 May 2014 of 69,127,278 (31 May
2013: 60,299,440).
9. Related parties and significant related parties
a) Directors' Remuneration & Expenses
The Directors of the Company are remunerated for their services
at such a rate as the Directors determine provided that the
aggregate amount of such fees does not exceed GBP300,000 per
annum.
The annual Directors' fees comprise GBP37,500 payable to Mr
Morgan, the Chairman and GBP30,000 to Mr Poulding as Chairman of
the Audit Committee. Mr Fuller has waived his right to a fee as Mr
Fuller is also a non-executive director of the Investment Manager,
as detailed in note 9b. On 24 September 2013, Mrs Carol Kilby was
appointed as an alternate Director for Mr Fuller for the period 25
September 2013 to 11 November 2013. No fees were payable to Mrs
Kilby for this service. During the year ended 31 May 2014,
Directors fees of GBP67,315 (31 May 2013: GBP72,837) were charged
to the Company, of which GBP11,096 (31 May 2013: GBP11,281)
remained payable at the end of the year.
b) Investment Manager
No management or performance fees are payable by the Company to
the Investment Manager. The Master Fund pays a monthly management
fee equal to one-twelfth of 1.25% of the NAV of the Class I-50
Sterling Share Class in respect of the Master Fund Shares held by
the Company. This is shared between the Investment Manager and the
Master Fund Manager.
During the year ended 31 May 2014, the Investment Manager
received a fee of GBP137,033 (31 May 2013: GBP79,833) as its share
of the monthly management fee paid by the Master Fund.
Mr Fuller, a directorof the Company, is also a non-executive
director of the Investment Manager.
c) Secretary
Dexion Capital (Guernsey) Limited ("the Secretary") performs
secretarial duties for which it was remunerated at an annual fee of
GBP25,000. During the year ended 31 May 2014, secretarial fees of
GBP36,865 (31 May 2013: GBP23,269) were charged to the Company, of
which GBP4,109 (31 May 2013: GBP4,425) remained payable at the end
of the year. Additional secretarial fees of GBP12,000 were paid
during the year.
d) Placing Agent
For its services as the Company's placing agent (the "Placing
Agent") pursuant to a second placing agreement dated 12 November
2012 in connection with the Placing Programme, the Company paid
Dexion Capital plc a commission in respect of each placing based on
the gross issue proceeds of each placing, out of which the Placing
Agent has agreed to pay for all the costs of the Placing Programme.
As at 31 May 2014, commissions of GBP302,067 had been paid in
connection with the second placing agreement, of which GBPnil were
paid during the period.
The commissions payable under the second placing agreement
constitute a smaller related party transaction for the purposes of
Listing Rule 11.1.10 of the UK Listing Authority ('UKLA') because
the Placing Agent is a member of the Investment Manager's group and
is therefore a related party for the purposes of the Listing Rules
of the UKLA.
On 20 May 2013 and 5 September 2013, independent Shareholders
approved related party transactions to permit Ericsson
Pensionsstiftelse (A) ("Ericsson") to participate in placings.
Independent Shareholder approval was required because Ericsson was
a substantial shareholder and therefore a related party for the
purposes of Listing Rules of the UKLA.
On 5 September 2013, independent Shareholders approved a related
party transaction to permit the Placing Agent to be able to acquire
Shares as principal under the Placing Programme on an ongoing basis
in its capacity as a market maker for the Company. No Shares were
acquired under the placing programme by the Placing Agent during
the period.
e) Shares held by related parties
As at 31 May 2014, Directors of the Company held the following
shares beneficially:
Number of
sterling % of issued
shares share capital
------------------ ---------- ----------------
Talmai Morgan 30,000 0.04%
Robin Fuller 49,838 0.07%
Michael Poulding 20,000 0.03%
------------------ ---------- ----------------
As at 31 May 2014, Dexion Capital (Guernsey) Limited
beneficially held 4,000,000 shares (31 May 2013: 4,000,000 shares),
which is 5.79% of issued share capital (31 May 2013: 6.63%). Dexion
Capital plc, held a market making position of 855,184 shares (31
May 2013: 1,535,100), which is 1.24% (31 May 2013: 2.55%) of the
total shares in issue. Ericsson held 15,208,000 shares (31 May
2013: 10,967,000), which is 22% of the total shares in issue (31
May 2013: 18.19%).
Significant agreements
e) Administrator
Northern Trust International Fund Administration Services
(Guernsey) Limited (the "Administrator") performs administrative
duties for which it was remunerated at a rate of 0.025% per annum
on the first GBP500 million of the net assets of the Company and
0.01% per annum thereafter, subject to a minimum of GBP75,000 per
annum. During the year ended 31 May 2014, administration fees of
GBP74,794 (31 May 2013: GBP46,438) were charged to the Company, of
which GBP12,329 (31 May 2013: GBP8,767) remained payable at the end
of the year.
10. Taxation
The Company has been granted tax exempt status in Guernsey where
it pays an annual fee of GBP600 under The Income Tax (Exempt
Bodies) (Guernsey) Ordinances 1989.
11. Earnings per Share
The calculation of the earnings per Share of 3.49 pence (31 May
2013: 4.90 pence) is based on the total return for the year
attributable to Ordinary Shareholders of GBP2,292,354 (31 May 2013:
GBP2,171,205) and on the weighted average number of Ordinary Shares
in issue during the year ended 31 May 2014 of 65,592,369 (31 May
2013: 44,282,189).
12. Fair value measurement
All assets and liabilities are carried at fair value or at
carrying value which equates to fair value.
IFRS 13 requires the Company to classify the fair value
hierarchy that reflects the significance of the inputs used in
making the measurements. IFRS 13 establishes a fair value hierarchy
that prioritises the inputs to valuation techniques used to measure
fair value.
The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets or liabilities (Level
1 measurements) and the lowest priority to unobservable inputs
(Level 3 measurements).
The three levels of the fair value hierarchy under IFRS 13 are
as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level 2 Inputs other than quoted prices included within level 1
that are observable for including interest rates, yield curves,
volatilities, prepayment speeds, credit risks and default rates) or
other market corroborated inputs.
Level 3 Inputs for the asset or liability that are not based on
observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair
value measurement is categorised in its entirety is determined on
the basis of the lowest level input that is significant to the fair
value measurement in its entirety. For this purpose, the
significance of an input is assessed against the fair value
measurement in its entirety. If a fair value measurement uses
observable inputs that require significant adjustment based on
unobservable inputs, that measurement is a Level 3 measurement.
Assessing the significance of a particular input to the fair value
measurement in its entirety requires judgement, as well as/and
considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires
significant judgement by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
The following table presents the Company's financial assets and
liabilities by level within the valuation hierarchy as of 31 May
2014.
Assets and Liabilities at Fair Value
At 31 May 2014 Level Level Level Total
1 2 3 GBP000
GBP000 GBP000 GBP000
---------------------------------- ---------- --------- --------- ---------
Financial assets and liabilities
at fair value through
profit or loss:
Investment in the Master
Fund - 67,993 - 67,993
---------------------------------- ---------- --------- --------- ---------
Total assets - 67,993 - 67,993
---------------------------------- ---------- --------- --------- ---------
Level 2 is comprised of one investment in the Master Fund Class
I-50 Shares which was fair valued using the NAV as supplied by the
administrator of the Master Fund.
As detailed the Financial Statements a full redemption from the
Master Fund was submitted for settlement on 1 October 2014. As at
31 August 2014, the NAV per Share of the Class I-50 Sterling Share
Class of the Master Fund is GBP1,065.14 (31 May 2014: GBP1,051.62).
As there has been no significant change to the fair value of the
Master Fund and no indication of delayed settlement on the
redemption request submitted, there has been no adjustment to the
fair value of the investment in the Master Fund at 31 May 2014.
In the opinion of the Directors, the NAV of the Master Fund is
representative of the fair value and no adjustments are
required.
For financial instruments that are recognised at fair value on a
recurring basis, the Company determines whether transfers have
occurred between Levels in the hierarchy by re-assessing
categorisation, based on the lowest level input that is significant
to the fair value measurement as a whole, at the end of each
reporting period.
The following table presents the Company's financial assets and
liabilities by level within the valuation hierarchy as of 31 May
2013.
Assets and Liabilities at Fair Value
At 31 May 2013 Level Level Level Total
1 2 3 GBP000
GBP000 GBP000 GBP000
---------------------------------- ---------- --------- --------- ---------
Financial assets and liabilities
at fair value through
profit or loss:
Investment in the Master
Fund - 50,646 383 51,029
---------------------------------- ---------- --------- --------- ---------
Total assets - 50.646 383 51,029
---------------------------------- ---------- --------- --------- ---------
Level 3 investments as at 31 May 2013 (31 May 2014: no level 3
investments held) comprised of one investment in the Master Fund's
side pocket, Class D S Shares. This investment was fair valued
using the NAV, as supplied by the administrator of the Master Fund,
which took into account that the illiquid investments held in the
side pocket have been illiquid for a certain amount of time as the
collateral held there may not have been released until there was
more certainty that Superstorm Sandy would have no further impact.
As of 30 August 2013 the side pocket was merged with the Master
Fund's main portfolio. Investments in the Master Fund that were
potentially impacted by Superstorm Sandy were transferred from
Level 2 to Level 3 as at 31 May 2013.
The following table presents the movements in level 3
Investments for the year ended 31 May 2014 and for the period from
24 April 2012 to 31 May 2013. Gains and losses are included in the
Statement of Comprehensive Income.
For the period
from 24 April
2012 (date of
For the year ended incorporation)
31 May 2014 Investment to 31 May 2013
in Master Fund Investment in
GBP000 Master Fund GBP000
------------------------------------- ----------------------------- -------------------------
Opening balance 383 -
Net Transfers (322) 247
Realised (loss)/gain on investment (36) 111
Unrealised (loss)/gain on investment (25) 25
------------------------------------- ----------------------------- -------------------------
Closing balance - 383
------------------------------------- ----------------------------- -------------------------
Total (losses)/gains for the
year/period included in the
Statement of Comprehensive
Income relating
to assets and liabilities held
at the year/period end (61) 136
------------------------------------- ----------------------------- -------------------------
13. Ultimate Controlling Party
In the opinion of the Directors on the basis of shareholdings
advised to them, the Company has no ultimate controlling party.
14. Short term borrowing
The Company may not borrow or incur leverage for investment
purposes although it may borrow for efficient cash management and
short term purposes. The borrowings of the Company shall be limited
to ten per cent. of the Company's gross assets at the time of
drawdown. The Company did not have any borrowing facilities in
place at 31 May 2014 (31 May 2013: Nil).
15. Distribution policy
Subject to market conditions and the Master Fund's performance,
the financial position of the Company and the financial outlook, it
is the Directors' intention to declare interim dividends to
Shareholders in October, January, April and July. There are
however, no assurances that these dividends will be paid or that
the Company will pay any dividends.
The Company declared the following dividends for the year from 1
June 2013 to 31 May 2014. Note 17 details the dividend proposed and
paid after the year end.
Dividend rate Net dividend Ex-dividend
Period to per share payable Record date date Pay date
------------- ------------- ------------ ----------- ----------- ----------
30 June 2013 GBP0.0125 GBP753,743 12/07/2013 10/07/2013 12/08/2013
30 September GBP0.0125 GBP768,368 11/10/2013 09/10/2013 12/11/2013
2013
31 December GBP0.0125 GBP864,091 10/01/2014 08/01/2014 11/02/2014
2013
31 March 2014 GBP0.0125 GBP864,091 11/04/2014 09/04/2014 13/05/2014
Companies can pay dividends in excess of accounting profit
provided they satisfy the solvency test prescribed under the
Companies (Guernsey) Law, 2008. The solvency test considers whether
a company is able to pay its debts when they fall due; and whether
the value of a company's assets is greater than its
liabilities.
16. Ongoing Charges
The Ongoing Charges for the year ended 31 May 2014 have been
prepared in accordance with the AIC's recommended methodology and
was 0.49% (31 May 2013: 0.45%).
17. Subsequent Events
These financial statements were approved for issuance by the
Board on 24 September 2014. Subsequent events have been evaluated
until this date. The Company does not anticipate making any further
dividend payments on the commencement of winding up proposals and
appointment of a liquidator.
On 3 July 2014 the Company declared its fifth interim dividend
of 0.0125p per ordinary share in respect of the period ending 30
June 2014, payable on 12 August 2014 to ordinary shareholders on
the register at 11 July 2014. The ex-dividend date was 9 July 2014.
The Company does not anticipate making any further dividend
payments if the winding up proposals are approved and a liquidator
is appointed.
As at 24 September 2014, thedate of this Report, the Company had
69,127,278 Sterling Shares in issue.
Voluntary Winding up proposals
After making enquiries, given the current soft premium
environment in the reinsurance market and the Company's total asset
size, the Directors announced on the 18 June 2014 that they
considered it in the best interests of Shareholders that the
Company put forward voluntary winding up proposals. The
Extraordinary General Meeting is due to be held on 24 September
2014.
The circular to Shareholders detailing the proposals was
published on 3 September 2014. As detailed in the circular, a full
redemption from the Master Fund was submitted for settlement on 1
October 2014. The Master Fund Shares will be redeemed at the Net
Asset Value per Share of the relevant Share class of the Master
Fund at the valuation point of the redemption date. The Company
invests in the Class I-50 Sterling Share Class of the Master Fund.
Redemption proceeds are expected to be received from the Master
Fund by 30 November 2014. Accordingly the final settlement amount
is unknown. As at 31 August 2014, the NAV per Share of the Class
I-50 Sterling Share Class of the Master Fund is GBP1,065.14 (31 May
2014: GBP1,051.62 per Share).
CORPORATE INFORMATION
Directors
Talmai Morgan - Chairman
Robin Fuller
Michael Poulding
Investment Manager and Secretary of the Company
Dexion Capital (Guernsey) Limited
1 Le Truchot
St. Peter Port
Guernsey GY1 1WD
Manager of the Master Fund
Credit Suisse AG
AISE 2
Kalanderplatz 1
8070 Zurich
Switzerland
Administrator of the Company and the Master Fund
Northern Trust International Fund Administration Services
(Guernsey) Limited
P.O. Box 255
Trafalgar Court
Les Banques
St. Peter Port
Guernsey GY1 3QL
Corporate Broker
Dexion Capital plc
1 Tudor Street
London EC4Y 0AH
UK Legal Adviser to the Company
Dickson Minto W.S.
Broadgate Tower
20 Primrose Street
London EC2A 2EW
Guernsey Legal Adviser to the Company
Carey Olsen
PO Box 98
Carey House
Les Banques
St. Peter Port
Guernsey GY1 4BZ
Registrar, Paying Agent and Transfer Agent
Computershare Investor Services (Guernsey) Limited
3rd Floor
NatWest House
Le Truchot
St. Peter Port
Guernsey GY1 1WD
Receiving Agent
Computershare Investor Services PLC
Corporate Actions Projects
Bristol BS99 6AH
Auditors of the Company and the Master Fund
KPMG Channel Islands Limited
PO Box 20
20 New Street
St. Peter Port
Guernsey GY1 4AN
DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON
RECOGNISED EXCHANGES (PRINCIPLE 5 OF THE AIC CODE)
Company Name Exchange
Talmai Morgan
BH Global Limited London, Bermuda and Dubai
BH Macro Limited London, Bermuda and Dubai
DCG IRIS Limited London
Global Fixed Income Realisation Limited London
John Laing Infrastructure Fund Limited London
NB Distressed Debt Investment Fund Limited London
NB Private Equity Partners Limited London
Real Estate Credit Investments Limited London
Sherborne Investors (Guernsey) B Limited London
Robin Fuller
Blackpoint PCC Limited Luxembourg
DCG IRIS Limited London
ELDeRS Investment Company Limited Channel Islands
Jubilee Absolute Return Master Fund Limited Luxembourg
Jubilee Absolute Return Fund PCC Limited Luxembourg
Nemrod Diversified Holdings Limited Luxembourg
Michael Poulding
DCG IRIS Limited London
This information is provided by RNS
The company news service from the London Stock Exchange
END
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