KGR ABSOLUTE RETURN PCC LIMITED
ANNOUNCEMENT OF RESULTS
For the period from 1 January 2008 to 30 June 2008
The financial information set out in the announcement does not
constitute the Company's half-yearly financial report and unaudited condensed
financial statements for the period from 1 January 2008 to 30 June 2008, but
is derived from those financial statements.
The financial statements have been prepared in accordance with
International Financial Reporting Standards (IFRS). Whilst the financial
information included in this preliminary announcement has been computed in
accordance with IFRS, this announcement does not itself contain sufficient
information to comply with IFRS.
A copy of the half-yearly financial report and unaudited condensed
financial statements will be available on the Company's website
www.kgrcapital.com from 29 August 2008.
Company Secretary
Kleinwort Benson (Channel Islands) Fund Services Limited
Telephone number: 01481 727111
Fax number: 01481 728317
29 August 2008
Dorey Court
Admiral Park
St Peter Port
Guernsey
GY1 3BG
CHAIRMAN'S STATEMENT
This report covers the six months from 1 January 2008 to 30 June
2008, a period in which the Company's Net Asset Value per share (NAV) declined
in the face of rapidly deteriorating market conditions in most Asian financial
markets. The share price held up relatively well in the circumstances with the
result that the shares have traded close to or above parity to NAV per share
throughout the period.
Service Providers
The Board was informed in April by the Company's Investment
Adviser, KGR Capital (Hong Kong) Ltd., that its parent company had entered
into an agreement to be acquired by LGT Capital Partners, subject to receipt
of the necessary regulatory approvals. These approvals have now been received
and the transaction is expected to be completed in early September. LGT
Capital Partners is a leading alternative asset manager based in Switzerland,
focused on institutional investors. The firm currently manages over $18
billion in hedge fund and private equity investments globally. We have sought
and received appropriate assurances from LGT Capital Partners regarding the
maintenance of the investment process and the retention of key KGR Capital
staff.
The Board has appointed Winterflood Investment Trusts, a division
of Winterflood Securities, to act as its corporate broker and Frostrow Capital
LLP to act as Board adviser.
It is proposed that, from September 2008, responsibility for
administration and company secretarial services be assumed by Fortis Fund
Services (Guernsey) Limited and that Fortis Bank (Channel Islands) Limited be
appointed Custodian.
Performance
The Company's NAV per share increased in three of the six months
under review but closed the period at 114.93p, 5.1% lower than at the start of
the year. A steady reduction in the portfolio's exposure to long/short equity
strategies with a net long bias since late last year, combined with a
significant reduction in the net exposure of the underlying funds, has
succeeded in protecting the portfolio from the worst effects of declining
markets in Asia. However, the Company continues to target positive absolute
returns over the cycle and the Investment Adviser believes it should be able
to identify managers able to generate positive returns in the current
environment. The growth of opportunities in non-directional strategies is
discussed in more detail in the Investment Adviser's report.
Share Capital
Despite the difficult market conditions, the Company was able to proceed with
the issue of 15.03m C Shares which commenced trading on 16 July. On 11 August
we announced that the net proceeds of the issue were substantially fully
invested or committed to be invested in accordance with the Company's
investment policy. Accordingly, the calculation time in respect of the
conversion of shares is 31 July and a further announcement providing an
illustrative conversion ratio and an expected timetable to conversion will be
made in early September.
In line with the Board's undertaking to cancel any shares held in Treasury for
more than one year, 50,000 shares held in Treasury were cancelled on 1 July.
It remains the Board's intention to use the powers granted by the shareholders
to attempt to maintain the share price within a modest premium/discount range
relative to NAV per share.
Outlook
The Company remains unique in offering investors the opportunity to
invest through a daily traded vehicle in the rapidly expanding markets of Asia
while maintaining a significantly lower risk exposure than would generally be
associated with this type of investment. The annualised volatility of the NAV
since inception has been 7.4% v 14.7% for the MSCI Asia Pacific index over the
same period. While the fallout from the credit crunch and high levels of
commodity inflation are posing significant challenges to Asian economies, the
Board remains confident in the long term outlook for the region.
Rupert Dorey
Chairman
28 August 2008
INVESTMENT ADVISER'S REVIEW
The Net Asset Value per share ended the first half of 2008 down
5.1% net of fees and expenses having been up 16.1% in 2007. After a strong
2007, the first six months saw more patchy performance of the portfolio in the
face of rapidly deteriorating market conditions for risk assets globally with
an equal number of up and down months. Over the 31-month period since
inception, the annualised return of the NAV per share was 6.3%.
Review of Markets
The first half of 2008 marked one of the most difficult six months
for the Asia Pacific equity markets in many years. All major Asian equity
markets sold off heavily in the first quarter, as oil prices and inflation
continued to climb and the prospect of a more sustained global slowdown took
centre-stage. After rebounding and making back some of the first quarter
losses over April and May, the markets again fell sharply in June as markets
continued to battle with the headwinds of inflation, shrinking credit, and a
global slowdown. Vietnam, China (on-shore), and India were the three worst
performers over this period.
Japan equities were not impacted as severely as other parts of Asia
were, though concerns about the domestic Japanese economy persisted. All major
Japanese indices ended the half year with losses of around 10%. Small-caps
were hit equally hard, with Topix Mid down 12% and Topix Small down 9%, while
the ultra small-cap Mothers index fell a further 31% over the first six months
in 2008 after falling almost 70% over the previous two years.
On the other hand, the period was an exceptional half for
commodities despite considerable volatility. Both oil and gold hit their
respective historic highs during this period, with Brent crude reaching US$140
per barrel towards the end of June 2008 and gold hitting over US$1,000 per
troy ounce in March 2008. Overall, oil and gold ended the period up 48% and
11% respectively, with the broader S&P GSCI also gaining 41%.
Credit markets experienced extraordinarily volatile and difficult
conditions triggered by ongoing concerns over well-publicized problems in U.S.
sub-prime mortgages and structured credit generally. By the end of the first
half of 2008, the spreads on both Asian high grades and high yields were
significantly wider than at the end of 2007.
Review of Fund Performance
We saw a distinct disparity between attribution of performance by
long-biased equity strategies and non-beta strategies in the first half of
2008. Equity strategies, particularly single country managers in China and
India, were hit badly in the face of severe sell-offs across the Asia Pacific
equity markets. Most Japan long/short funds were losers again over the
six-month period, though they generally performed better than the long/short
managers investing in other parts of Asia.
Non-beta strategies generally contributed positively to
performance, whilst the largest single contribution came from event driven
managers. Arbitrage, where we have been steadily increasing our allocations
since 2007, was one of the bigger gainers, benefiting particularly from the
sustained pick up in volatility over the first half of 2008.
Portfolio Review
The number of managers had been reduced to 33 by the end of June
2008 from 35 managers at the end of December 2007. Over the six-month period,
the portfolio saw a subscription to 5 new managers and a complete redemption
in 6. These transactions reflected a continued move towards greater
diversification amongst the pan-Asia/Asia ex-Japan long/short funds in order
to reduce correlation to equity markets, a certain amount of upgrading of
individual managers, and individual instances where a change in mandate or
other fund specific issues necessitated an exit. Aggregate exposure to equity
long-biased equity long/short strategies was reduced significantly from 61.0%
to 49.7% over the period.
By the end of June 2008, our allocation to Japan had been reduced
to 13.3%, compared to 13.9% at the end of December 2007 and 20.3% at the end
of December 2006. Our allocation to arbitrage had been increased to 14.5%,
compared to 13.7% at the end of December 2007 and 8.6% at the end of December
2006.
We have been increasing allocations to arbitrage strategies and
other non-beta managers in the expectation that the higher levels of
uncertainty seen in all areas will persist in the latter part of 2008.
Elsewhere the focus remains both on manager selection and on increasing
diversification to reduce correlation risks and to ensure that downside
exposure is minimised at times of falling traditional asset markets. We have
also endeavoured to allocate towards managers better suited to dealing with
deteriorating liquidity which tend to be either experienced managers with
smaller, newer funds or managers trading larger cap oriented, more liquid
strategies.
KGR Capital (Hong Kong) Limited
28 August 2008
INTERIM MANAGEMENT REPORT
Details of important events that affected the Company during the half year
ended 30 June 2008 can be found in the Chairman's Statement and the Investment
Adviser's Review beginning on page 2.
Risks and Uncertainties
Market, credit and liquidity risk are the major risks associated
with the Company. The Company has established parameters for managing these
risks which are reviewed regularly. Further information on the principal
long-term risks and uncertainties of the Company is included in the latest
annual report, starting on page 37. The Board has provided the Investment
Adviser with guidelines and limits for the management of market risk, gearing
and financial assets and liabilities. Other key risks identified by the Board
that could affect the Company's performance are as follows:
Performance risk: The performance risk of the portfolio, delivered
by the Investment Adviser's strategy, relative to the MSCI Asia Pacific index
is monitored closely by the Board.
Discount volatility: The Company's share price can trade at a
discount to the underlying net asset value per share. The Company may purchase
shares in the market with a view to addressing any imbalances between the
supply of and demand for shares, to increase the Net Asset Value per share and
to assist in maintaining a narrow discount to Net Asset Value per share in
relation to the price at which shares may be trading.
Regulatory risk: The Company operates in a complicated regulatory
environment and faces a number of regulatory risks. Breaches of regulations,
such as the UKLA Listing Rules and the Companies (Guernsey) Law, 2008, could
lead to a number of serious outcomes and reputational damage. The Audit
Committee monitors compliance with regulations by reviewing internal control
reports from the Board Adviser, Manager and Investment Adviser.
Foreign exchange risk: The Company is exposed to fluctuations in
exchange rates, as it invests in underlying funds which are predominantly
denominated in U.S. Dollars. In an attempt to reduce the impact on the Company
of currency fluctuations, the Company will continue to use a hedging contract
or contracts each month involving the one month forward sale of the total
value of all investments in their currency of denomination for sterling
delivery. The intention is that this should create a gain (or loss) that
offsets the loss (or gain) that results from holding assets that are
denominated in U.S. dollars.
Gearing risk: The use of the revolving credit facility established with
Barclays Private Clients increases the potential for gearing risk. This
facility can be used exclusively for covering short term funding requirements
and it is the Board's intention that the facility should not be used to
introduce net gearing into the Company's capital structure.
The loan is fixed on a monthly basis and either repaid or rolled at the end of
each month depending on the funding requirements of the Company.
In the view of the Board, these principal risks and uncertainties are as
applicable to the remaining six months of the year as they were to the six
months under review.
RESPONSIBILITY STATEMENT
Director's Responsibilities
The Directors are responsible for preparing the Half-Yearly report
in accordance with applicable law and regulations. The Directors confirm that
to the best of their knowledge the Half-Yearly condensed financial statements,
within the Half-Yearly report, give a true and fair view of the assets,
liabilities, financial position and loss for the period, and have been
prepared in accordance with IAS 34 `Interim Financial Reporting'. The
Directors further confirm that the Chairman's Statement and the Interim
Management Report include a fair review of the information required by 4.2.7R
and 4.2.8R of the FSA's Disclosure and Transparency Rules.
The Half-Yearly Report has not been reviewed or audited by the Company's
auditors.
The Half-Yearly Report was approved by the Board on 28 August 2008 and the
above responsibility statement was signed on its behalf by:
R O Dorey (Chairman) N M S Rich
Director Director
28 August 2008 28 August 2008
CONDENSED INCOME STATEMENT
For the six months ended 30 June 2008
(unaudited) (unaudited)
Six months ended 30 June 2008 Six months ended 30 June 2007
Notes Revenue Capital Total Revenue Capital Total
� � � � � �
Operating income
Net (losses)/ gains on
investments and repurchase
agreement loan
receivable - (3,293,145) (3,293,145) - 3,491,642 3,491,642
Net gain on derivatives - 307,616 307,616 - 1,524,764 1,524,764
Other foreign exchange gain/
(loss) - 440,579 440,579 - (343,702) (343,702)
Pac-Rim Fund Provision - - - - (677,864) (677,864)
Interest and similar income 3 55,059 - 55,059 65,435 - 65,435
Total operating income 55,059 (2,544,950) (2,489,891) 65,435 3,994,840 4,060,275
Operating expenses
Management fee (261,476) - (261,476) (255,385) - (255,385)
Performance fee - - - (347,972) - (347,972)
Custodian fee (16,332) - (16,332) (15,241) - (15,241)
Directors' fees (32,870) - (32,870) (33,408) - (33,408)
Other expenses (52,826) - (52,826) (40,369) - (40,369)
Total operating expenses
before finance costs (363,504) - (363,504) (692,375) - (692,375)
Operating (loss)/ profit
before finance costs (308,445) (2,544,950) (2,853,395) (626,940) 3,994,840 3,367,900
Finance costs
Repurchase loan interest (35,381) - (35,381) (46,801) - (46,801)
Bank overdraft interest - - - (5,774) - (5,774)
Net (loss)/profit for the
period/year (343,826) (2,544,950) (2,888,776) (679,515) 3,994,840 3,315,325
(Loss)/earnings per
redeemable participating
preference share 5 (0.74)p (5.46)p (6.20)p (1.44)p 8.48p 7.04p
There are zero earnings attributable to the management shares.
All revenue and capital items in the above statement derive from continuing operations.
The total column of this Income Statement is prepared in accordance
with International Financial Reporting Standards (IFRS). The revenue return
and capital return columns are supplementary to this and are prepared under
guidance published by the Association of Investment Companies.
CONDENSED INCOME STATEMENT
For the period 1 January 2008 to 30 June 2008
(audited)
Year ended 31 December 2007
Notes Revenue Capital Total
� � �
Operating income
Net gains on investments
and repurchase agreement loan - 8,572,463 8,572,463
Net gain on derivatives - 709,355 709,355
Other foreign exchange loss - (52,751) (52,751)
Interest and similar income 3 171,565 - 171,565
Total operating income 171,565 9,229,067 9,400,632
Operating expenses
Management fee (516,812) - (516,812)
Performance fee (693,563) - (693,563)
Custodian fee (31,994) - (31,994)
Directors' fees (67,000) - (67,000)
Other expenses (100,618) - (100,618)
Total operating expenses before
finance costs (1,409,987) - (1,409,987)
Operating (loss)/ profit before
finance costs (1,238,422) 9,229,067 7,990,645
Finance costs
Repurchase loan interest (144,606) - (144,606)
Bank overdraft interest (1,645) - (1,645)
Net (loss)/profit for the
period/year (1,384,673) 9,229,067 7,844,394
(Loss)/ Earnings per
redeemable participating
preference share 5 (2.95)p 19.68p 16.73p
There are zero earnings attributable to the management shares.
All revenue and capital items in the above statement derive from continuing operations.
The total column of this Income Statement is prepared in accordance
with International Financial Reporting Standards (IFRS). The revenue return
and capital return columns are supplementary to this and are prepared under
guidance published by the Association of Investment Companies.
CONDENSED BALANCE SHEET
As at 30 June 2008
(unaudited) (unaudited) (audited)
Notes 30 June 2008 30 June 2007 31 December 2007
� � �
Non-current assets
Financial assets at fair value
through profit or loss 51,468,495 43,133,664 48,932,733
51,468,495 43,133,664 48,932,733
Current assets
Cash and cash equivalents 1,416,594 4,024,045 5,903,415
Fair value of derivative
financial instruments 8 - 353,667 -
Repurchase agreement assets at
fair value through profit or loss - 5,311,695 5,226,692
Advance applications - - 629,760
Amount due from redemptions
awaiting settlement 1,066,606 2,322,509 1,595,984
Other receivables 32,848 39,394 43,924
2,516,048 12,051,310 13,399,775
Total assets 53,984,543 55,184,974 62,332,508
Current Liabilities
Repurchase agreement loan 10 - 2,489,048 3,036,208
Other payables 442,274 536,619 891,268
Fair value of derivative
financial instrument 8 15,908 - 1,989,895
Total liabilities 458,182 3,025,667 5,917,371
Net assets attributable to holders
of redeemable participating
preference shares 53,526,361 52,159,307 56,415,137
Redeemable participating
preference shareholders' funds
Management shares 6 2 2 2
Share premium account 7 46,238,863 46,238,863 46,238,863
Treasury shares 7 (325,820) (52,581) (325,820)
Retained earnings 7,613,316 5,973,023 10,502,092
Total equity 53,526,361 52,159,307 56,415,137
Net asset value per redeemable
participating preference share 9 114.94p 111.40p 121.14p
Net asset value per management share 100.00p 100.00p 100.00p
These financial statements were approved by the Board of Directors on 28 August 2008.
CONDENSED STATEMENT OF CHANGES IN EQUITY
For the six months ended 30 June 2008
(unaudited)
For the six months ended 30 June 2008
Management Share Shares held Capital Revenue
Shares Premium in Treasury Reserve Reserve Total
� � � � � �
Balance at
31 December 2007 2 46,238,863 (325,820) 12,637,582 (2,135,490) 56,415,137
Loss for the period* - - - (2,544,950) (343,826) (2,888,776)
Balance at
30 June 2008 2 46,238,863 (325,820) 10,092,632 (2,479,316) 53,526,361
(unaudited)
For the six months ended 30 June 2007
Management Share Shares held Capital Revenue
Shares Premium in Treasury Reserve Reserve Total
� � � � � �
Balance at
31 December 2006 2 46,678,624 - 3,408,515 (750,817) 49,336,324
Shares purchased for cancellation - (439,761) - - - (439,761)
Shares purchased for treasury - - (52,581) - - (52,581)
Profit/ (loss) for the period* - - - 3,994,840 (679,515) 3,315,325
Balance at
30 June 2007 2 46,238,863 (52,581) 7,403,355 (1,430,332) 52,159,307
(unaudited)
For the six months ended 30 June 2007
Management Share Shares held Capital Revenue
Shares Premium in Treasury Reserve Reserve Total
� � � � � �
Balance at
31 December 2006 2 46,678,624 - 3,408,515 (750,817) 49,336,324
Shares purchased for cancellation - (439,761) - - - (439,761)
Shares purchased for treasury - - (325,820) - - (325,820)
Profit/ (loss) for the year* - - - 9,229,067 (1,384,673) 7,844,394
Balance at
31 December 2007 2 46,238,863 (325,820) 12,637,582 (2,135,490) 56,415,137
*The profit/(loss) for the period/year is the total income and expense recognized in equity.
The aggregate of the Capital and Revenue reserves equates to the retained earnings per the Balance Sheet.
CONDENSED CASH FLOW STATEMENT
For the period 1 January 2008 to 30 June 2008
(unaudited) (audited)
(unaudited)
30 June 31 December
2008 30 June 2007 2007
� � �
Cash flows from operating activities
Net (loss)/profit for the period/year (2,888,776) 3,315,325 7,844,394
Add back: interest payable 35,381 52,575 146,251
Loss/(gain) on investments held at fair
value through profit or loss and
foreign exchange gains 2,544,950 (3,994,840) (9,229,067)
Interest and similar income (55,059) (65,435) (171,565)
Decrease/ (Increase) in other receivables 11,076 (3,795) (8,325)
(Decrease)/ Increase in other payables (448,994) 218,306 572,955
Purchase of investments through
profit or loss and repurchase
agreement loan receivable (9,918,924) (21,464,103) (26,245,847)
Sales of investments held at fair value
through profit or loss 10,475,826 19,741,182 24,680,025
Short term interest net of available tax credits 55,059 65,435 155,849
Net settlement on derivatives (1,666,371) 1,082,611 2,610,764
Net cash (outflow)/ inflow from
operating activities before interest (1,855,832) (1,052,739) 355,434
Interest paid (35,381) (52,575) (132,789)
Net cash (outflow)/ inflow from
operating activities (1,891,213) (1,105,314) 222,645
Financing activities
Repurchase of shares - (492,343) (765,581)
Repurchase loan (3,036,187) 2,489,048 3,022,746
Net cash (outflow)/ inflow from
financing activities (3,036,187) 1,996,705 2,257,165
(Decrease)/ increase in cash and cash
equivalents during the period/ year (4,927,400) 891,391 2,479,810
Cash and cash equivalents at beginning
of period/ year 5,903,415 3,476,356 3,476,356
Effect of foreign exchange rate changes 440,579 (343,702) (52,751)
Cash and cash equivalents at
end of period/ year 1,416,594 4,024,045 5,903,415
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
For the six months ended 30 June 2008
1. General information
The Company is a Guernsey incorporated, closed-ended, Protected
Cell Company with an unlimited life, governed by the provisions of The
Companies (Guernsey) Law, 1994 and The Protected Cell Companies Ordinance,
1997 (the "Ordinance"). The Company has initially been established with one
Cell in accordance with the Ordinance: KGR Asia Dynamic 1 (GBP). The KGR Asia
Dynamic 1 (GBP) Cell was listed on 22 November 2005 on the London Stock
Exchange. The Company retains the option to create new Cells with different
investment objectives and terms in the future.
The information for the year ended 31 December 2007 does not constitute
statutory accounts. A copy of the statutory accounts for that year has been
filed with the Guernsey Financial Services Commission and the FSA. The
auditor's report on those accounts was not qualified.
2. Principal Accounting Policies
Owing to a requirement of the United Kingdom Listing Authority, the
financial statements contained within the 31 December 2007 Annual Report and
Audited Financial Statements were converted from UK Generally Accepted
Accounting Practice (UK GAAP) to International Financial Reporting Standards
(IFRS) as adopted by the European Union. The IFRS 31 December 2007 financial
statements can be found in the prospectus issued 26 June 2008. The condensed
set of financial statements included in this half-yearly financial report has
been prepared in accordance with International Accounting Standards 34
`Interim Financial Reporting', as adopted by the European Union.
The date of transition to IFRS from UK GAAP and the date of the
opening IFRS balance sheet was 13 October 2005. The transition to IFRS did not
entail any significant changes in accounting policies nor any restatement of
figures.
International Financial Reporting Standard ("IFRS") 7 (Financial
Instruments: Disclosures) was issued by the IASB on 18 August 2005 and was
applied to the 31 December 2007 financial statements found in the prospectus
issued 26 June 2008. The adoption of IFRS 7 had no material impact on the
financial statements of the Company.
The same accounting policies, presentation methods of computation
are followed in the condensed set of financial statements as applied in the
Company's latest audited financial statements.
At the date of authorisation of these financial statements, the
following Standard and Interpretations were in issue but not yet effective:
Amendments to IAS 1: Presentation of financial statements - A
revised presentation (effective for annual periods beginning on or after 1
January 2009). The Directors anticipate that the adoption of this standard in
future periods will have no material financial impact other than revised
presentation of the financial statements of the Company.
3. Interest and Similar Income
(unaudited) (unaudited) (audited)
Six months ended Six months ended Year ended
30 June 2008 30 June 2007 31 December
2007
� � �
Dividends 12,048 - 15,716
Bank interest 43,011 61,641 155,849
Other income - 3,794 -
Total income 55,059 65,435 171,565
4. Taxation
During the period the Company was exempt from Guernsey Income Tax under the
Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and was charged an annual
exemption fee of �600. The Company, as a collective investment scheme, is able
to continue to apply for exempt tax status under the revised company income
tax regime that came into effect on 1 January 2008.
5. Earnings per Redeemable Participating Preference Share
Revenue return per redeemable participating preference share is based on the
loss attributable to the redeemable participating preference shares of
�343,826 (30.06.2007: loss 679,515; 31.12.2007: loss �1,384,673) and on the
weighted average number of redeemable participating preference shares in issue
of 46,569,999 (30.06.2007: 47,104,308; 31.12.2007: 46,900,985). Capital return
per redeemable participating preference share is based on the net capital loss
attributable to the redeemable participating preference shares of �2,544,950
(30.06.2007: gain �3,994,840; 31.12.2007: gain �9,229,067) and on the weighted
average number of redeemable shares in issue of 46,569,999 (30.06.2007:
47,104,308; 31.12.2007: 46,900,985).
6. Management Shares
Two Kleinwort Benson nominee companies beneficially own one each of the two
Management Shares of �1 each in issue. The management shares were created to
comply with Guernsey Company Law, under which there must be a class of
non-redeemable shares in issue in order that the cellular shares may be
redeemable participating preference shares in accordance with Guernsey Company
Law. The sums paid up on the management shares are credited to the
non-cellular assets of the Company. The management shares do not carry any
rights to dividends and holders of management shares are only entitled to
participate in the non-cellular assets of the Company on a winding-up.
7. Share Capital
The authorised share capital of the Company is �2 divided into 2 management
shares of �1 each and an unlimited number of no par value shares that may be
issued as cell shares. The cell shares are issued as redeemable participating
preference shares ("Shares").
30 June 2008 30 June 2007 31 December
2007
Management shares 2 2 2
Redeemable participating preference
shares 46,569,999 46,819,999 46,569,999
As at 30 June 2008 the total number of shares held in treasury was 300,000
(30.06.2007: 50,000; 31.12.2007: 300,000) representing 0.64% of the issued
share capital.
The holders of the Shares attributable to a particular cell will only be
entitled to participate in the income, profits and assets attributable to that
cell. On a winding up the holders of the Shares are only entitled to
participate in the assets of the cell and have no entitlement to participate
in the distribution of any assets attributable to any other cell. Holders of
the Shares are entitled to attend and vote at general meetings of the Company.
Under the discretionary redemption facility the Directors may at their sole
discretion offer the holders of the Shares an opportunity to redeem all or
part of their holdings on a bi-annual basis commencing on 30 June 2007.
Although the Shares are redeemable, redemption is at the sole discretion of
the Directors.
8. Derivative Financial Instruments: Forward Foreign Exchange Contracts
The Company hedges its U.S. dollar exposure by entering into forward sales of
U.S. dollars into sterling. The intention is that this should create a gain
(or loss) that offsets the loss (or gain) that results from holding assets
that are denominated in U.S. dollars. Occasionally, the Company may invest in
Funds that are denominated in currencies other than U.S. dollars and because
of this from time to time it may be necessary for the Company to hedge against
the exposure to these currencies. At the period end there were two outstanding
forward sale contracts totalling U.S.$104,996,548 against Sterling maturing 31
July 2008. These contracts showed an aggregate unrealised loss of �15,908 as
at 30 June 2008 (30.06.2007 unrealised gain �353,667; 31.12.2007 unrealised
loss of �1,989,895).
9. Net Asset Value per Redeemable Participating Preference Share
The net asset value per redeemable participating preference share
is based on net assets attributable to redeemable participating preference
shares of �53,526,359 (30.06.2007: �52,159,305; 31.12.2007: �56,415,135) and
on the redeemable participating preference shares in issue at the period end
of 46,569,999 (30.06.2007: 46,819,999: 31.12.2007: 46,569,999).
10. Repurchase Agreement Loan
During 2007 the Company entered into an agreement whereby funds are raised by
offering the counterparty a specified selection of securities in the portfolio
as collateral for the funds borrowed. From 4 January 2008, the Company has
switched the counterparty to this transaction from Dresdner Kleinwort to
Barclays Private Clients International Limited.
As a result of the new revolving credit facility established with
Barclays Private Clients International Limited, it is no longer be necessary
for the Company to use the borrowing facility to post collateral for the
forward currency transactions involved in the hedging policy. This means that
the new facility can be used exclusively for covering short term funding
requirements. It is the Board's intention that the facility should not be used
to introduce net gearing into the Company's capital structure.
The loan is fixed on a monthly basis and either repaid or rolled at the end of
each month depending on the funding requirements of the Company.
The fair value of the investments held by the counterparty under the
repurchase agreement loan at 30 June 2008 was nil. (30.06.2007: �5,311,695;
31.12.2007: �5,226,692).
11. Events After the Balance Sheet Date
Cancellation of Treasury Shares
On 1 July 2008, with immediate effect, the Company cancelled 50,000
redeemable participating preference shares of no par value that were
previously held in treasury.
Following this, the Company has 250,000 redeemable participating
preference shares of no par value held in treasury, with the remaining issued
share capital consisting of 46,569,999 redeemable participating preference
shares with voting rights.
C Share Issue
On 15 July 2008, the Company announced that 15,030,000 C Shares would be
issued raising an aggregate of �15.03 million before expenses
On 11 August 2008, the net proceeds of the C Share issue were
substantially fully invested (or committed to be invested) in appropriate
hedge funds in accordance with the Company's investment policy.
In accordance with the C Share prospectus, the calculation time in
respect of conversion of the C Shares is 31 July 2008. The announcement
outlining the expected timetable to conversion, and an illustrative conversion
ratio, will be made on or around 2 September 2008.
Investment Adviser
The Board was informed in April by the Company's Investment Adviser, KGR
Capital (Hong Kong) Ltd., that its parent company had entered into an
agreement to be acquired by LGT Capital Partners, subject to receipt of the
necessary regulatory approvals. These approvals have now been received and the
transaction is expected to be completed in early September. LGT Capital
Partners is a leading alternative asset manager based in Switzerland, focused
on institutional investors. The firm currently manages over $18 billion in
hedge fund and private equity investments globally.
END
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