TIDMDCL
RNS Number : 9455D
Dexion Commodities Limited
30 March 2011
DEXION COMMODITIES LIMITED
ANNUAL REPORT AND ACCOUNTS
The Company has today, in accordance with DTR 6.3.5, released
its Annual Financial Report for the year ended 31 December 2010.
The Report is available via www.dexioncommodities.com and will
shortly be submitted to the National Storage Mechanism and will
also shortly be available for inspection at
www.hemscott.com/nsm.do
Financial Highlights
31 December 2010 GBP Shares EUR Shares US$ Shares
-------------------------------- -------------- ------------- -------------
Continuing Portfolio
Total Net Assets GBP40,541,826 EUR6,567,507 US$4,569,751
Published Net Asset Value per
Share GBP0.9832 EUR1.1861 US$1.6802
Mid-Market Share Price GBP0.9225 EUR1.1200 US$1.5500
Discount to Net Asset Value (6.17)% (5.57)% (7.75)%
-------------------------------- -------------- ------------- -------------
31 December 2009 GBP Shares EUR Shares US$ Shares
-------------------------------- -------------- ------------- -------------
Continuing Portfolio
Total Net Assets GBP40,824,796 EUR7,810,379 US$1,742,657
Published Net Asset Value per
Share GBP0.9753 EUR1.1784 US$1.6617
Mid-Market Share Price GBP0.8888 EUR1.0388 US$1.5038
Discount to Net Asset Value (8.87)% (11.85)% (9.51)%
-------------------------------- -------------- ------------- -------------
On 31 July 2009, the investments of the Company were split
between a Redemption Portfolio and a Continuing Portfolio, as part
of the Company's Reorganisation. Unless otherwise indicated,
performance statistics used in this Report and Accounts refer to
the original portfolio prior to the Reorganisation, and to the
Continuing Portfolio thereafter.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Annual Report and
Accounts of Dexion Commodities Limited for the year ended 31
December 2010.
2010 Overview
Having seen the performance of the Company improve during 2009,
performance was more subdued in 2010. Many hedge funds felt the
impact of the downturn in the market, caused primarily by the
Eurozone financial crisis. As was the case in 2008 and 2009, a
legacy of discounts persisted across the listed hedge fund listed
sector, and the Company's GBP Shares traded for the majority of
2010 at a discount to NAV of greater than 10%.
During 2010 the net asset value of the Company's GBP Shares rose
by 0.81%. The annualised NAV return on the GBP Shares from
inception to 31 December 2010 has been +0.01% with annualised
volatility of 7.79%.
Following the re-organisation of the Company in 2009, the
Company's Articles of Association were amended to provide for a
continuation vote to be put to Shareholders in June 2010 regardless
of the discount (if any) at which the Company's Shares (or any
class of them) then traded. On 24 June 2010 at the meeting of
Shareholders the 2010 Continuation Resolution was passed, with a
total of 64% of the issued Share capital voting, and 88% of those
being votes cast in favour.
Whilst cognisant that the Share price discount to NAV has been
unwelcome for Shareholders, given the small size of the Company's
asset base, the Board has been unwilling to reduce those assets
further through the repurchase or redemption of Shares and
therefore the Company's ability to reduce the current share price
discount is significantly limited.
Accordingly, in the absence of a significant change in either
market conditions or the Company's performance, the Board believed
it was likely that the discount management provisions would have
been triggered in early July 2011, necessitating a continuation
vote for the relevant classes of Shares in the Company.
Notwithstanding the Investment Adviser's views as to the outlook
for commodity strategies, the Board believed there was a real risk
of one or more of those votes failing.
Winding Down and Proposed Liquidation of the Company
In view of the Company's performance since the 2009
reorganisation, the small size of the Company's asset base, the
share price discount at which the Shares continue to trade, the
likelihood of one or more redemption offers being required later in
2011, the limited liquidity in the Shares, and the Company's
expense base (as a closed-ended investment Company listed on the
main market of the London Stock Exchange) compared to its assets,
the Board announced on 23 December 2010 its intentions to put
proposals to Shareholders for the orderly winding down of the
Company, followed by its liquidation. On 3 March 2011, the Board
issued a Shareholder Circular setting out details of the proposed
realisation and liquidation process and giving notice of two
Extraordinary General Meetings at which approval would be sought
from Shareholders for implementation of the proposals.
The aim of the proposals is for the Company to be able to
realise the vast majority of its Continuing Portfolio on a faster
timetable than would normally be the case as a result of the
Company having secured favourable liquidity from the underlying
managers of the Company's investments.
On 25 March 2011, Shareholders approved the winding down of the
Company, pursuant to which the investment objective and investment
policy of the Company has been amended, now being to realise the
investments in the Continuing Portfolio in an orderly and timely
manner, with a view to distributing cash to Shareholders. It is
expected that all of the investments in the Continuing Portfolio
will have been realised by 31 March 2011, with the proceeds to be
received by the Company by 30 April 2011.
The Board invites Shareholders to a second Extraordinary General
Meeting on 11 April 2011 to consider the Winding Up Resolution for
the winding up of the Company and the appointment of a liquidator.
Subject to the passing of the Winding Up Resolution, the liquidator
will distribute the proceeds from the realisation of the
investments of the Continuing Portfolio to Shareholders. The reason
for the delay between the first and second Extraordinary General
Meetings is so that the Board, rather than the liquidator, remains
in substantial control of the realisation of the investments of the
Continuing Portfolio.
The Board's focus in relation to the winding down and the
winding up has been to achieve a solution which is as quick and
clean as possible for Shareholders. In particular this has involved
the Investment Adviser agreeing to seek consents from certain
underlying funds to the conditional redemption of certain
investments, so enabling a significant part of the Continuing
Portfolio to be realised up to three months earlier than would
otherwise have been the case.
I would like to express my thanks to Shareholders who have been
supportive of the Company and the Board's efforts since inception.
It is with regret that the Board has concluded that the winding up
of the Company is the only viable solution for the Company in its
current situation.
Finally, I would like to take this opportunity to thank my
fellow Directors for their time and endeavours over the last few
years, in ensuring the best outcome for Shareholders. The Board has
worked hard to offer innovative solutions to Shareholders over the
last couple of years, which it has continued to do by enabling a
quick and efficient winding up of the Company.
Rupert Dorey
Chairman
29 March 2011
MANAGER'S REPORT
The published net asset values of the Company's GBP Shares, EUR
Shares and US$ Shares increased by 0.81%, 0.65% and 1.11%
respectively, net of fees and expenses, during 2010.
The first half of 2010 saw commodities underperform. Slowing
growth momentum and renewed concerns about the health of the
financial system heavily influenced investor sentiment. Commodity
prices were buffeted by macro concerns and the DJ-UBS Commodities
Index finished the period down 9.7%. In this environment, the
Company's fundamental strategies encountered difficulties. Losses
were spread across commodity and environmental strategies, with
notable drawdowns occurring in February, May and June. The
heightened macroeconomic concerns saw risk reduced across the
Continuing Portfolio and entering the second half of the year most
managers were trading cautiously awaiting greater clarity over the
financial health of the Eurozone periphery and the US economy.
The second half of 2010 saw investors re-focus on strengthening
global growth and improving commodity fundamentals. An inventory
compression across many commodities (driven by a mixture of demand
and weather influences) helped propel commodity prices higher.
However, the rally was uneven as the energy complex lagged amid
excessive stock levels in oil and natural gas. The commodity
strategy performed well in this environment, achieving a double
digit gain in the second half as the vast majority of the Company's
underlying managers generated profits. The smaller environmental
allocation posted a modest gain, with US and global long/short
strategies performing particularly well.
Commodity Strategies
Commodity markets came under pressure in January, as monetary
tightening in China and the US Administration's crackdown on banks
saw prices dragged lower amid investor de-risking. Despite long
only indices tumbling 8% in January, the commodity strategy posted
a modest gain as shorts in grains and excellent stock selection
from highly hedged long/short managers led to positive returns.
Returns were also supported by long positions in sugar, which
surged to record highs late in the month.
Performance in February and March was disappointing as shifting
fundamentals in sugar led to losses amongst multi-strategy managers
and energy managers struggled amid declining volatility. Tight
stock levels and expectations of supply deficits drove sugar prices
upward in Q4 2009 and January, leading to large backwardation in
the term structure. In February, sugar prices dropped after India
(the second largest producer) surprised analysts with a higher than
estimated crop forecast. The downside was exacerbated as
speculative longs unwound positions and key importing nations
delayed purchases amid high prices and the inverted term structure.
Sugar fell over 30% during February and March. However, despite the
declines, a number of multi-strategy managers remained positively
positioned in this market and recouped some losses as prices
recovered late in the period.
The performance of the Continuing Portfolio in the first half of
2010 was, however, dominated by events in May and June. In May,
commodity markets felt the full force of investor de-risking amid
concerns over the solvency of the European banking system. Of the
major commodities markets only gold, natural gas and orange juice
bucked the negative trend of indiscriminate selling. While the
Company's managers were cognisant of macro developments, they did
not anticipate the scale of market volatility created by Europe's
escalating sovereign debt woes. Improving fundamentals meant
exposure in oil and softs was generally to the long side and these
sectors proved to be a significant source of losses.
In June, idiosyncratic events rather than macro forces impaired
performance. The largest negative contribution came from one of the
Company's diversified managers, whose short exposure to coffee was
hit by a 20% surge in prices, with multiple 5% up days.
The Strategy's strong performance in the second half of 2010 was
underpinned by excellent gains from multi-strategy and agricultural
managers. Base metal strategies also contributed positively,
particularly those with an equity focus. Returns from the energy
sector were more mixed, as large inventory overhangs in oil and
natural gas led to choppy, erratic price movements which made alpha
generation problematic.
The grain complex was one of the best sources of opportunities
over the second half, with multi-strategy managers allocating a
substantial part of their risk budget to the sector given the
compelling opportunities. A mixture of strong demand and
sub-optimal growing conditions for wheat, corn and soyabeans led to
continued downward revisions to 2010 production and inventory data.
This led to large price rises which many managers were positioned
to benefit from. Cotton was another commodity to experience huge
gains. Floods in key growing regions, such as Pakistan, along with
strong demand sparked a doubling of prices over the period.
The strategy enjoyed additional gains from the two dedicated
agricultural managers, whose weighting within the Continuing
Portfolio was increased during the second half of 2010. These
managers employ option based strategies and delivered gains of 34%
and 16% respectively in that period. Both managers actively trade
around their positions, and this was clear to see in November as
they both posted gains in a month when grain prices slumped on
profit taking.
Within base metals, equity based managers outperformed in the
second half, with one Canadian based fund delivering a 40% gain.
Established long positions in small and mid cap mining stocks
performed well as earnings upgrades accompanied rising metal
prices, driving share prices higher. The performance of active
trading metal managers was more modest. Long positions in markets
such as copper and tin benefited as falling inventories sparked
price gains, although tactical shorts in gold hurt, and shorts in
zinc also proved damaging as prices rallied despite forecasts of a
healthy surplus.
The energy complex continued to provide challenges for hedge
funds and 2010 was a disappointing year for many energy managers.
The year was characterised by choppy price action within fairly
wide bands for oil, oil related products and natural gas. The
reason for energy lagging other sectors was the persistent
inventory overhang in most markets. The fundamentals for oil
improved as the year progressed and going forward, many managers
believe 2011 will provide better trading opportunities.
In terms of manager returns, one manager focused on small cap
service and exploration stocks generated very good returns in the
final quarter as these shares were lifted higher amid an equity
rally. The only other manager to post a double digit gain in the
second half was a natural gas trader, who utilised a proprietary
weather model to successfully trade the natural gas gyrations from
both the long and short sides. Less successful was a Houston based
energy trader who encountered difficulties in oil product spreads,
which were generally range bound and lacked the volatility needed
to extract meaningful returns. Further losses were suffered more
generally in natural gas, where weather driven spikes inflicted
losses on directional shorts and bear spread positions.
Environmental
In the first quarter, the changing shape of the carbon curve
challenged the Company's carbon specialist manager, as the
manager's structural long bias to the back of the curve suffered
from the flattening of the term structure. The manager was unable
to recoup the losses when lower carbon prices pushed down the value
of the project portfolio, erasing gains achieved in the trading
book.
In equity long/short, negative policy developments in European
solar and Brazilian water utility sectors proved damaging.
Uncertainty over ongoing German solar subsidies led to first half
30% peak-to-trough declines in many solar stocks, hurting long
positions. The damage to the Continuing Portfolio was limited as
managers had taken significant profits following a strong run in
the second half of 2009. In Brazil, long positions in water utility
stocks suffered as lower than anticipated hikes in water tariffs
led to sharp downward moves.
As with most hedge fund strategies, May was an extremely testing
time as alternative, renewable and carbon long-only indices
declined by between 13% and 21%. Despite positive returns from the
Company's carbon trader and pleasing capital preservation from the
majority of equity long/short managers, heavy losses from Asian
managers and poor performance from a core diversified manager
weighed heavily on returns.
The push for cleaner energy continued unabated and the
fundamental drivers for many of the companies in which the
Company's managers were invested remained unchanged. However, as is
the case in de-leveraging months such as May, smaller and less
understood sectors take the brunt of investor de-risking, with
losses in clean energy, environmental technology and water
treatment stocks accounting for the bulk of losses.
While both earnings and valuation fundamentals remained
positive, the Company's equity long/short managers reduced risk
following May's sell-off, yet still felt the impact in June as
alternative energy stocks fell sharply again at the end of the
month, despite there being no meaningful news.
The strategy generated a healthy single digit gain in the second
half of 2010, with the bulk of performance accruing from equity
related strategies. One manager secured solid gains from its
agricultural/bio-fuel exposure, with additional gains coming from
holdings in energy infrastructure. Elsewhere, positions in solar
energies performed reasonably well despite large sector volatility,
whilst other notable returns accrued from timely shorts in building
efficiency and transportation efficiency stocks.
Water was one of the largest sector exposures within the
strategy and this sector continued to be a source of profits in the
second half. Water stocks continued to exhibit greater dispersion
than traditional equity sectors and the Company's long/short
managers successfully captured this dispersion, with long positions
in water infrastructure achieving especially good gains. As with
other environmentally focused sectors, shorts were a drag on
performance, notably in Asia, where managers' market timing
slightly detracted from returns.
The small allocation to a carbon focused manager resulted in a
positive contribution in the second half of 2010. Whilst much of
the period proved difficult, a profit was achieved following a
large upward re-valuation in December on project positions post the
expiration of the current carbon trading phase in 2012.
Outlook
Most managers remain bullish on agriculture and base metal
markets. In agriculturals, the Company is witnessing multi-year
lows in inventories across many agricultural commodities, and any
negative weather events could lead to severe price spikes. Both
sector specialists and multi-strategy managers are prepared to
actively trade opportunities in this area and the current
environment provides excellent opportunities.
Copper is the favoured market within the metals complex as
strengthening global demand coupled with modest supply growth
continues to put pressure on inventories. Within energy, the
clearing of the large offshore oil inventory has led to a tighter
supply/demand balance and higher volatility should increase
opportunities for both directional and spread trading strategies.
Natural gas remains a conundrum, with bearish inventory levels
weighing on prices, but weather related events expected to spark
intermittent rallies. Managers who can accurately predict weather
patterns will have an edge in this market.
Monthly NAV Performance since inception
GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2010 -0.19% -1.11% -0.15% 0.29% -2.86% -2.90% 1.68% -0.44% 2.08% 1.55% -0.03% 3.08% 0.81%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2009 0.95% -1.36% -0.04% 3.27% 2.52% 0.41% 0.32% 0.95% 0.23% -0.72% 1.05% -0.70% 7.00%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2008 -4.54% -0.27% -2.29% 2.17% 1.58% 0.02% -1.69% -0.64% -4.62% -8.17% -5.31% 3.73% -18.86%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2007 0.50% 1.42% 0.70% 1.43% 1.79% 0.97% 1.35% -2.10% 2.41% 3.14% -1.16% 0.99% 11.94%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2006 - - - 1.47% -2.53% -0.95% -0.57% -0.89% -0.35% 1.74% 2.48% 1.84% 2.14%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
EUR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2010 -0.30% -0.99% -0.15% 0.47% -2.72% -3.04% 1.63% -0.38% 2.05% 1.17% 0.10% 2.98% 0.65%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2009 0.82% -1.36% -0.66% 1.47% 2.52% 0.47% 0.34% 0.92% 0.21% -0.69% 1.06% -0.67% 4.45%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2008 -4.51% -0.26% -2.22% 1.97% 1.39% -0.08% -2.16% -0.63% -5.11% -8.69% -4.25% -8.85% -29.28%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2007 0.42% 1.29% 0.56% 1.34% 1.68% 1.19% 1.65% -2.22% 2.18% 3.23% -1.35% 0.88% 11.27%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2006 - - - 1.32% -2.72% -1.09% -0.71% -1.05% -0.52% 1.62% 2.33% 1.82% 0.90%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD
2010 -0.20% -0.95% -0.14% 0.34% -2.71% -2.94% 1.75% -0.49% 2.08% 1.51% -0.06% 3.11% 1.11%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2009 0.84% -1.35% -0.43% 1.45% 2.82% 0.46% 0.63% 0.87% 0.21% -0.80% 1.03% -0.70% 5.08%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2008 -4.66% -0.45% -2.61% 1.89% 1.30% -0.23% -2.27% -0.73% -5.39% -6.57% -3.06% 0.69% -20.31%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2007 0.53% 1.42% 0.71% 1.48% 1.75% 0.97% 1.42% -2.15% 2.39% 3.55% -1.31% 0.96% 12.21%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
2006 - - - 1.55% -2.44% -0.86% -0.49% -0.81% -0.32% 1.79% 2.59% 1.83% 2.75%
===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
Note: Historical monthly NAV performance is net of all fees.
Except for a short period between 12 November and 23 December 2008,
Dexion Commodities' GBP Share NAV has been hedged from US$ to GBP
using currency forwards; these hedging arrangements have had a
positive effect on the GBP NAV performance when GBP interest rates
were higher than US$ interest rates and vice versa. Dexion
Commodities' GBP Share NAV was not hedged in this way between 12
November and 23 December 2008, and in that period, the currency
exposure had an overall impact of approximately +0.44% on the GBP
Share NAV and -9.56% on the EUR Share NAV (see RNS dated 22
December 2008, No. 6046K).
Source: Bloomberg (data)
Analysis of significant investments
The ten largest holdings of the Continuing Portfolio as at 31
December 2010 are set out below:
Fair Value % of Company's
Name of Investment Strategy LIR000 Net assets
----------------------- ----------------------- ----------- ---------------
MAN Commodity
Strategies Limited Commodity Strategies 24,038 48.95%
Astenbeck Offshore
Commodities Fund II
Limited Commodity Strategies 2,321 4.73%
Environmental
TRF Feeder Fund Strategies 2,295 4.67%
Range Wise MAC 58
Limited Commodity Strategies 2,231 4.54%
Zurbano Fund Limited Commodity Strategies 1,873 3.81%
Energy &
Oceanic Hedge Fund Transportation 1,678 3.42%
Energy &
AAA Mac 53 Limited Transportation 1,655 3.37%
Front Street Resources
MAC 78 Limited Commodity Strategies 1,446 2.95%
Galena Fund Limited Commodity Strategies 1,359 2.77%
Energy &
Cygnus Mac Limited Transportation 1,347 2.74%
----------------------- ----------------------- ----------- ---------------
GBP40,243 81.95%
----------------------------------------------- ----------- ---------------
The holdings of the Redemption Portfolio as at 31 December 2010
are set out below:
% of
Redemption
Fair Value Portfolio's
Name of Investment Strategy LIR000 Investments
------------------------ ------------------------ ----------- -------------
Plainfield 2009
Liquidating Limited Special Situations 115 45.45%
Autonomy Global Macro Emerging Markets
Fund Limited Macro 50 19.76%
Xmark Opportunity Fund Healthcare
Limited Opportunities 30 11.86%
The Rohatyn Group -
Global Opportunity Emerging Markets
Fund Limited Macro 21 8.30%
Sector Spesit I Fund
Class A USD Energy & Transportation 14 5.53%
Deephaven European
Event Fund Limited Special Situations 12 4.75%
Pequot Healthcare Healthcare
Emerging Markets Fund Opportunities 8 3.16%
TAO L Holdings Limited Asian Opportunities 3 1.19%
LIR253 100.00%
------------------------------------------------- ----------- -------------
The ten largest holdings of the Continuing Portfolio as at 31
December 2009 are set out below:
Market Value % of Company's
Name of Investment Sector LIR000 Net assets
---------------------- ---------------------- ------------- ---------------
RMF Commodity
Strategies Commodity Strategies 25,281 51.77%
RMF Environmental
Opportunities Fund Environmental
Limited Strategies 8,562 17.53%
Energy &
Cygnus MAC Limited Transportation 2,610 5.34%
Zurbano Fund Limited Multi-Strategy 2,551 5.22%
Range Wise MAC 58 Agriculture &
Limited Livestock 1,394 2.86%
Viridian Fund Limited Multi-strategy 1,231 2.52%
Energy &
Oceanic Hedge Fund Transportation 1,218 2.49%
Galena Fund Limited Managed Futures 1,186 2.43%
Energy &
AAA Mac 53 Limited Transportation 1,076 2.20%
Hard Assets 2X Fund
Limited Multi-strategy 941 1.93%
---------------------- ---------------------- ------------- ---------------
LIR46,050 94.29%
--------------------------------------------- ------------- ---------------
The holdings of the Redemption Portfolio as at 31 December 2009
are set out below:
% of
Redemption
Market Value Portfolio's
Name of Investment Strategy LIR000 Investments
----------------------- ----------------------- ------------- -------------
Pemba European Loan European Loan
Opportunities Fund Opportunities 3,461 69.87%
Plainfield 2009
Liquidating Limited Special Situations 1,006 20.31%
Xmark Opportunity Fund Healthcare
Limited Opportunities 175 3.53%
Autonomy Capital Fund Emerging Markets
Limited Macro 143 2.89%
Sector Spesit I Fund Special Situations 66 1.33%
Pequot Healthcare
Emerging Markets Healthcare
Fund Opportunities 66 1.33%
Rohatyn Group Global
Opportunity Fund Emerging Markets
Limited Macro 36 0.74%
LIR4,953 100.00%
----------------------------------------------- ------------- -------------
As the Redemption Portfolio did not have any net assets at the
Statement of Financial Position date, the percentages of the
Redemption Portfolio's investments have been shown.
Whilst it is generally considered best practice to disclose the
full portfolio of an investment company, the composition of the
Company's Continuing Portfolio and Redemption Portfolio is the
subject of confidential provisions with the Investment Adviser. The
Board believes that such disclosure could be disadvantageous to the
Company and its Shareholders, for instance by increasing
competition for the limited investment capacity in underlying hedge
funds and hedge fund strategies. Accordingly, in common with
several other funds of hedge funds, and, in compliance with current
UK Listing Authority requirements, the Company intends to disclose
only its ten largest investments in each portfolio.
Dexion Capital (Guernsey) Limited
29 March 2011
BOARD MEMBERS
The Directors of the Company are listed below, have been members
of the Board since inception in March 2006 and have served
throughout the year:
Rupert Dorey (50), Chairman, has over 22 years of experience in
debt capital markets, specialising in credit related products,
including derivative instruments. Mr Dorey's expertise is
principally in the areas of debt distribution, origination and
trading, covering all types of debt from investment grade to high
yield and distressed debt. Mr Dorey was at Credit Suisse First
Boston for 17 years from 1988 until May 2005. From 2000 until he
left CSFB, he was head of sterling credit sales. Previously, he
held a number of positions at CSFB, including establishing CSFB's
high yield debt distribution business in Europe, fixed income
credit product co-ordinator for European offices and head of UK
Credit and Rates Sales. Since leaving CSFB, Mr Dorey acts as a
non-executive director to a number of hedge funds, fund of hedge
funds and private equity funds. Mr Dorey is a resident of
Guernsey.
Christopher Hill (58), is an Associate of the Chartered
Institute of Bankers and was Managing Director of Guernsey
International Fund Managers Limited, part of The Barings Financial
Services Group, from 1996 until the Group was sold to Northern
Trust in 2005. He has more than 35 years' experience in the field
of offshore banking and fund administration. Mr Hill is a
non-executive director of Thames River Multi-Hedge PCC Limited,
which is a London listed fund of hedge funds and Chairman of UK
Commercial Property Trust Limited also listed in London. Mr Hill is
also a past Chairman of the Guernsey Investment Funds Association
and a resident of Guernsey.
Robin Bowie (49), was educated at Vanderbilt University,
Tennesse. Mr Bowie began his City career as a bond trader at
Citibank in 1984, after which he worked at Goldman Sachs as a
credit trader. In 1989, at BZW he developed their ECU and European
Government Bond trading operations and in 1995 moved to HSBC where
he was in charge of European Government Bond trading. In 1998 he
became Treasurer of KBC Bank in London with responsibility for the
management of interest rate, foreign exchange and credit risk. He
left KBC in 2000 to found Dexion Capital. Mr Bowie is a director of
Dexion Capital Holdings Limited, a Guernsey company which is the
holding company of the Manager and the Investment Consultant. He is
also a director of Dexion Absolute Limited, Dexion Equity
Alternative Limited and Dexion Trading Limited, which are funds of
hedge funds, the shares of which are listed on the London Stock
Exchange. Mr Bowie is a UK resident.
DIRECTORS' REPORT
The Directors present their report and audited financial
statements for the year ended 31 December 2010.
Principal Activity
Dexion Commodities Limited (formerly Dexion Alpha Strategies
Limited) (the "Company") is a Guernsey authorised closed-ended
investment company listed on the London Stock Exchange. The
Company's Shares are classified as premium listed. Trading in the
Company's Shares (of each class) commenced on 23 March 2006.
Company Law
These financial statements have been prepared under the
Companies (Guernsey) Law, 2008.
Direction of the Company
The Board announced that it intended to put forward proposals
which, if approved, would lead to the realisation of the Company's
portfolio and liquidation of the Company. A circular was sent to
Shareholders on 3 March 2011 setting out details of the proposals
and convening a first extraordinary general meeting which was held
on 25 March 2011 at which the proposals to wind down the Company
were approved. A second extraordinary general meeting to approve
the winding up of the Company and the appointment of a liquidator
is to be held on 11 April 2011.
The Shares are currently listed on the Official List and traded
on the main market of the London Stock Exchange. As a result of the
realisation of substantially all of the investments in the
Continuing Portfolio, the Company no longer meets the requirements
of the Listing Rules and, accordingly on 31 March 2011, the listing
for each class of Shares will be suspended (and subsequently
cancelled) at that point. Accordingly, the Shares will no longer be
capable of being traded on the London Stock Exchange.
Investment Objective and Investment Policy for the Continuing
Portfolio
Until 25 March 2011 the investment objective for the Continuing
Portfolio of the Company was to maximise medium-term returns in a
manner commensurate with acceptable risk management. From 25 March
2011 the investment objective for the Continuing Portfolio has been
to realise the investments in an orderly and timely manner.
The investment objective for the Redemption Portfolio has been
to realise the investments in an orderly and timely manner.
Until the 25 March 2011 change of investment policy, the Company
sought to achieve its investment objective for the Continuing
Portfolio through an investment policy that focuses upon commodity,
energy, and environmental strategies accessed, directly or
indirectly, through a multi-manager, multi-strategy portfolio of
commodities themed hedge funds.
Investment Policy
The Company's previous investment policy for the Continuing
Portfolio involved the Company investing either directly or
indirectly in underlying funds across a range of alternative
investment strategies which target emerging and/or under exploited
sources of alpha. Such strategies included commodity, energy and
environmental strategies, accessed, directly or indirectly, through
a multi-manager, multi-strategy portfolio of commodities themed
hedge funds. The Company could have invested in long volatility
strategies (such as short term managed futures) when the Investment
Adviser determined that it was likely that they would be an
attractive source of alpha or provide protection for the Continuing
Portfolio. The allocations and the strategies in which the Company
was invested could have varied from time to time and could have
changed over time at the absolute discretion of the Investment
Adviser.
The Company thus sought to access directly or indirectly around
30 underlying portfolio managers. It was intended that around three
quarters of the value of Continuing Portfolio would have quarterly
liquidity and around one quarter of the Continuing Portfolio would
have monthly liquidity although this was subject to change from
time to time.
Since 25 March 2011, the investment objective and policy of the
Company has been to realise the Company's existing investments in
an orderly and timely manner, with a view to distributing cash to
Shareholders.
The Redemption Portfolio which was created to fund the
acceptances of the Redemption Offers is being managed with a view
to realisation.
Credit facility
The Continuing Portfolio does not have any long-term or fixed
structural gearing. The Company is indirectly exposed to gearing to
the extent that the underlying funds are themselves geared.
Northern Trust (Guernsey) Limited has been the credit facility
provider since inception of the Company. The facility granted is up
to the lower of GBP7.5 million and 20 per cent. of net NAV. The
facility was increased temporarily to the lower of GBP7.5 million
and 30 per cent. of net NAV until 30 April 2010, at which point it
reverted back to the lower of GBP7.5 million or 20 per cent. of net
NAV. As at 31 December 2010, the facility was drawn-down by GBP1.3
million (overdraft). In view of the Liquidation Proposals, the
Company and Northern Trust (Guernsey) Limited have agreed that
following the passing of the Extraordinary General Meeting
Resolution on 25 March 2011, the facility will be cancelled
effective 31 March 2011.
As substantially all of the Continuing Portfolio's assets are
denominated in US dollars whilst the Shares are denominated in
Dollars, Sterling and Euro, the Company will engage in currency
hedging for the Continuing Portfolio until 31 March 2011. No
hedging has been engaged in with regard to the Redemption
Portfolio, or the proceeds of realisation of investments in it.
Investment Restrictions
Until the recent change of the Company's investment objective
and policy the Company had adopted the following investment
restrictions in its Continuing Portfolio which include certain
restrictions set out in the Listing Rules:
-- Neither the Company nor any subsidiary will conduct a trading
activity which is significant in the context of the group as a
whole.
-- Not more than 20 per cent. of the total assets of the Company
will be invested in any one underlying fund or underlying funds
managed by a single portfolio manager at the time the investment is
made.
-- The Company will not make further investment(s) in any
underlying funds managed by a single portfolio manager where,
immediately following such further investments, those underlying
funds represent 30 per cent. or more of the total assets of the
Company.
For the avoidance of doubt, the two restrictions immediately
above did not apply to the Company's investment in the MAN
portfolios (or any other master portfolio invested in by the
Company) where, instead, the two restrictions immediately below
applied.
-- The Company will not make further investments in any
underlying funds managed by the Investment Adviser (excluding MAN
Commodity Strategies Fund) where, immediately following such
further investment(s), those underlying funds represent 50 per
cent. or more of the total assets of the Company, subject always to
ensuring an adequate spread of investment risk consistent with the
Listing Rules.
-- The Company will not make further investments in MAN
Commodity Strategies Fund where, immediately following such further
investment(s), the Company's investment in MAN Commodity Strategies
Fund would represent 80 per cent. or more of the total assets of
the Company, subject always to ensuring an adequate spread of
investment risk consistent with the Listing Rules.
-- The Company will not borrow more than 40 per cent. of its net
assets for short term or temporary liquidity purposes, including as
may be necessary to facilitate investment and withdrawals from
underlying funds or to meet ongoing expenses or to fund share
repurchases and to implement the Company's currency hedging
strategy.
-- Dividends will not be paid unless they are covered by income
received from underlying investments.
-- The distribution as dividend of surpluses arising from the
realisation of investments will be prohibited.
-- Any material change in the investment policy of the Company
will only be made with the approval of Shareholders by ordinary
resolution.
-- The Company will not invest in other listed closed-ended
investment funds.
-- 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 companies.
These investment restrictions no longer apply as the investments
in the Continuing Portfolio are being realised on an orderly
basis.
The above investment restrictions have not applied to the
Redemption Portfolio as the investments in that portfolio are being
realised on an orderly basis.
Shareholder Information
The Company announces its net asset value ("NAV") on a monthly
basis together with commentary on investment performance. Estimated
NAVs are normally provided weekly. Share price, net asset value and
performance information can also be found by eligible Shareholders
via www.dexioncommodities.com. However information on that website
does not form part of, nor is it incorporated by reference into
this document and that information is not available to certain
overseas Shareholders. Shareholder web conferences also take place
and are announced via RNS.
Fair Value Adjustment Policy
Following the Company's announcement on 23 December 2010
regarding liquidation proposals and a review of the illiquid
investments, being those investments which were gated, suspended,
in liquidation or subject to other settlement obstructions, the
Directors established a Fair Valuation Adjustment Policy to be
applied to the carrying value of each illiquid investment as at 31
December 2010 and thereafter.
The Fair Value Adjustment Policy is as follows:
-- Cash - no adjustment
-- Illiquid investments - written down by 50 per cent.
-- Investments in funds or vehicles in liquidation - written
down by 75 per cent.
Approximately 1.09 per cent. of the Continuing Portfolio (using
the final net asset values at 31 December 2010 prior to fair
valuation adjustments) comprised the illiquid investments. By
applying the fair value adjustments the aggregate value of the
illiquid investments was reduced from US$839,321 to US$260,287 as
at 31 December 2010, a reduction of approximately 69 per cent. (a
reduction of 0.75p per share).
Approximately 75 per cent. of the Redemption Portfolio (using
the final net asset values at 31 December 2010 prior to fair
valuation adjustments) comprises illiquid investments. By applying
the fair value adjustments the aggregate value of the illiquid
investments in the Redemption Portfolio was reduced from
US$1,371,013 to US$394,748 as at 31 December 2010, a reduction of
approximately 71 per cent.
Results
The results for the year are set out in the Statement of
Comprehensive Income. The Directors do not propose a dividend for
the year (2009: GBPNil).
The Directors have determined that the Company is operating two
business segments following the Reorganisation in 2009. These
segments have been defined as the Continuing Portfolio and the
Redemption Portfolio. While the Continuing Portfolio's performance
has been assessed in the total return to Shareholders, the
Redemption Portfolio is managed to realise the investments in it in
an orderly and timely manner and with a view to returning the
proceeds of realisation to Redeeming Shareholders.
As a result, the Company's Statement of Financial Position
reflects the assets and liabilities of each segment at the date of
the statement and the Statement of Comprehensive Income and the
Statement of Cashflows reflect the results and cashflows of the
original portfolio prior to Reorganisation and the two segments
post Reorganisation in 2009. The results of the segments are
aggregated into a Company total.
Management Arrangements
The Company has an agreement with Dexion Capital (Guernsey)
Limited for the provision of investment management services until
31 March 2011. Management fees as disclosed in Note 10 were based
on an annual amount of 1.5 per cent. of the total assets of the
Continuing Portfolio plus a performance fee as outlined in Note
10.
The management fee in respect of the Redemption Portfolio is 0.5
per cent. per annum (payable monthly) based on net assets in the
Redemption Portfolio. No performance fees are payable in respect of
the Redemption Portfolio.
Continuing Appointment of the Manager
On 31 March 2011 the management agreement will terminate but
with fees being paid at 1.0 per cent. per annum from that date as
if termination had occurred on 30 June 2011, but on the basis of
the NAV of the Continuing Portfolio at 31 December 2010. Fees in
respect of the Redemption Portfolio will cease on 31 March
2011.
Trail Commissions
Qualifying Investors (or a financial intermediary where
Qualifying Investors are procured by a financial intermediary who
subscribed on their behalf) are until 31 March 2011, entitled to a
trail commission of 0.5 per cent. per annum of the Total Assets
attributable to the Shares held by them calculated and payable
quarterly in arrears by the Manager out of the Manager's management
fee. Trail commission ceases to be payable to Qualifying Investors
in respect of Shares subsequently disposed of by such Qualifying
Investors (including on cancellation) and is not pro-rated to take
account of the date of any disposal/cancellation of Shares during a
quarter and is not payable unless those Shares remain held at the
NAV Calculation Date at the end of the relevant quarter (subject to
any variations agreed by the Manager with certain investors).
Trail commissions will cease to be payable to Qualifying
Investors from 1 April 2011.
Substantial Interests
Disclosure and Transparency Rules are comprised in the Financial
Services Authority Handbook. Such rules require substantial
Shareholders to make relevant holding notifications to the Company
and the UK Financial Services Authority. The Company must then
disseminate this information to the wider market.
Directors' Interests
The Directors, all served throughout the period under review.
The Directors had no beneficial interest in the Company other than
shown below:
31 December 31 December 31 December 31 December
2010 2010 2009 2009
US$ Shares GBP Shares US$ Shares GBP Shares
------------- ------------ ------------ ------------ ------------
RO Dorey - 70,000 - 70,000
RMJ Bowie 35,000 62,000 35,000 62,000
Christopher - - - -
Hill
------------- ------------ ------------ ------------ ------------
Dexion Capital Holdings Limited, of which Robin Bowie is a
director, transferred its holdings in the Company as of 31 December
2009 of 543,598 US$ Shares, 1,570,455 GBP Shares and 97,664 EUR
Shares to its wholly owned subsidiary Dexion Capital (Guernsey)
Limited on 25 June 2010. On 2 September 2010, Dexion Capital
(Guernsey) Limited sold these shares pursuant to a sale and
repurchase-like agreement (structured as an accreting strike
option) under which it is expected that Dexion Capital (Guernsey)
Limited will re-purchase the shares in approximately one year.
The repurchase consideration (exclusive of interest and charges)
is equal to the disposal consideration. During the period Dexion
Capital (Guernsey) Limited retains no voting rights in the shares,
although it does retain economic interest. Robin Bowie Children's
Trust held 4,000 US$ Shares (2009: 4,000).
Corporate Governance
Introduction
In June 2008 the Board determined, as a closed-ended investment
company registered in Guernsey, that it was appropriate to become a
member of the Association of Investment Companies (the "AIC") and
to report against the AIC Code of Corporate Governance (the "AIC
Code") and to follow the AIC's Corporate Governance Guide for
Investment Companies (the "AIC Guide"). During February 2009 the
Financial Reporting Council confirmed that by following the AIC
Guide investment company boards should fully meet their obligations
in relation to the Combined Code.
On 30 September 2010, the Financial Reporting Council provided
the AIC with an updated endorsement letter to cover the fifth
edition of the AIC Code. This Code takes in to account the newly
issued UK Corporate Governance Code that replaces the Combined Code
for accounting periods commencing on or after 29 June 2010.
The Board has considered the principles and recommendations of
the AIC Code by reference to the AIC Guide. The Company Secretary
undertook a review of the corporate governance principles of the
Board and Committees of the Board of the Company. The Directors
confirm compliance to the AIC Code except where detailed below.
Guernsey Regulatory Environment
During 2008, there were a number of changes to the regulatory
regime for Guernsey funds. A number of provisions which were
contained in the Control of Borrowing (Bailiwick of Guernsey)
Ordinance, 1959 to 2003 ("COBO") (which governed closed-ended
funds) were consolidated into the Protection of Investors
(Bailiwick of Guernsey) Law, 1987, as amended (the "POI Law")
(which governed open-ended funds and licensees) so that the POI Law
now governs both open-ended and closed-ended funds (as well as
licensees).
Guernsey Regulatory Environment (continued)
Closed-ended funds are now Category 1 controlled investments
under the POI Law. The changes have also codified in the POI Law a
number of standard conditions and ongoing notification requirements
imposed on the licensees of funds which were listed on the fund's
COBO consent, but were not explicitly set out in COBO. It is
intended that the changes will simplify Guernsey's investment fund
regime by categorising all funds (whether open-ended or
closed-ended) as either registered schemes or authorised
schemes.
The Directors have determined that the Company will continue as
an Authorised Closed-Ended Investment Scheme until the Shares are
cancelled.
The Board
Disclosure under Principle 5 of the AIC Code
The Board currently consists of three non-executive Directors,
each of whom are independent of the Investment Adviser and, with
the exception of Mr Bowie, are independent of the Investment
Manager and the Investment Consultant. The Board accepts collective
responsibility and does not consider it necessary to appoint a
senior independent Director as the Chairman is non-executive. The
Chairman met the independent criteria of the AIC Code Principle 1
and continued to meet this condition throughout his term of office.
Being non-executive Directors, no Director has a service contract
with the Company.
The Articles of Association provide that one third of the
Directors retire by rotation at each annual general meeting. If
their number is not three or a multiple of three, the number
nearest to but not exceeding one third, shall retire from office. A
Director who retires at an annual general meeting may, if willing
to act, be re-appointed. The Directors are not subject to automatic
re-appointment. As the Company was formed in 2006 no Director has
served for a 9 year term. In accordance with the Listing Rules, Mr
Bowie was put forward for re-election annually. Following the
approval of Shareholders for an orderly wind up of the Company and
the forthcoming vote on 11 April 2011 to wind down the Company, the
Directors do not propose to convene an Annual General Meeting for
2011. It is anticipated that Shares will be cancelled during April
2011.
Further for the reasons stated above the Board believes there is
no longer a requirement to consider the tenure of Directors as it
is anticipated that a liquidator will be a duly appointed on 11
April 2011.
The Board meets at least four times a year and between these
formal meetings there is regular contact with the Manager,
Investment Adviser, Secretary and the Company's Broker. The
Directors are kept fully informed of investment and financial
controls, and other matters that are relevant to the business of
the Company that should be brought to the attention of the
Directors. The Directors also have access, to the Secretary and,
where necessary in the furtherance of their duties, to independent
professional advice at the expense of the Company.
The Board has a breadth of experience relevant to the Company,
and the length of service and the experience of the Directors is
disclosed in the report and accounts. A full list of other public
company directorships are also in the report and accounts. There
have been no new appointments to the Board since inception.
The attendance record of Directors is set out below:
Ad hoc Board
Quarterly &
Board Committee Audit
Meetings Meetings Committee
Number of meetings 4 10 3
Meetings attended:
C M W Hill 4 8 3
R O Dorey 4 10 3
R M J Bowie 4 2 (max 2) N/A
--------------------- ---------- ------------- ----------
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 Items 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 number of ad hoc meetings during 2010 amounted to 10 where
the Board regularly reviewed and considered the market conditions
and the effect on the assets, liquidity and going-concern position
of the Company as well as the Reorganisation Proposals and related
matters.
The primary focus of the quarterly Board Meetings is a review of
investment performance and associated matters such as gearing,
asset allocation, as well as marketing/investor relations, risk
management and compliance, peer group information and industry
issues.
The Board has evaluated its performance and prior to the
Liquidation Proposals considered the tenure of each Director on an
annual basis. The Board and believes that the mix of skills,
experience and length of service are appropriate to the
requirements of the Company. Training requirements were also
considered at the time of the review and at the request of the
Directors ad hoc training may be arranged between annual reviews.
To date the annual evaluation has been collated by the Company
Secretary and the annual corporate governance review also carried
out by the Company Secretary. The Board of Directors believes that
the process to date has been robust and effective.
Directors' Duties and Responsibilities
The Directors have adopted a set of Reserved Powers, which
establish the key purpose of the Board and detail its major duties.
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 sub-committees 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.
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.
Committees of the Board
The Board deemed it not necessary to appoint a nomination or
remuneration committee as, being comprised wholly of non-executive
Directors, the whole Board considered these matters. The Board
sought external professional advice with regard to remuneration of
the Directors when necessary.
Management Engagement Committee
A Management Engagement Committee, with defined terms of
reference and duties, was established to review annually the terms
of the management agreement between the Company and the Manager,
the investment advisory agreement between the Company, the Manager
and the Investment Adviser and the investment consultancy agreement
between the Company, the Manager and the Investment Consultant. The
Committee also reviewed the performance of all other key service
providers including the Custodian, Designated Managers and
Corporate Broker. This approach addressed AIC Code Principles 15
and 18. The Committee also ensured that key service providers were
managing conflicts of interest, if any, in accordance with the
Authorised Closed Ended Investment Schemes Rules 2008 issued by the
Guernsey Financial Services Commission. The Management Engagement
Committee consists of Mr Dorey and Mr Hill. Mr Dorey chairs the
Management Engagement Committee.
Audit Committee
An Audit Committee was established consisting of Mr Hill and Mr
Dorey. The Audit Committee is chaired by Mr Hill. The Audit
Committee examined the effectiveness of the Company's internal
control systems, the annual report and accounts and interim report,
the auditors' remuneration and engagement, as well as the auditors'
independence and any non-audit services provided by them. The Audit
Committee received information from the Company Secretary, the
compliance department of the Administrator and the external
auditors. The Audit Committee met three times to review the annual
accounts, interim accounts and audit timetable and other risk
management and governance matters. A full strategic and operational
risk matrix was tabled at each Audit Committee meeting. The
Committee graded each risk in terms of probability and impact.
Terms of Reference
The Terms of Reference of each committee are available from the
Company Secretary.
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 was an ongoing process for identifying,
evaluating and managing the significant risks faced by the
Company.
The Board has reviewed the effectiveness of the system of
internal control. In particular, it has reviewed and updated the
process for identifying and evaluating the significant risks
affecting the Company and the policies by which these risks are
managed.
As there is delegation of 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 were designed to meet the Company's particular
needs and the risks to which it is exposed. Accordingly, the
internal control systems were 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 delegated the management of the Company's investment
portfolio, the provision of custody services and the
administration, registrar and corporate secretarial functions
including the independent calculation of the Company's Net Asset
Value and the production of the Annual Report and Financial
Statements which are independently audited. The Board retains
responsibility and accountability for the functions it delegates
and is responsible for the systems of internal control. On an
ongoing basis compliance reports were provided at each quarterly
board meeting from the Administrator and Custodian. Formal
contractual agreements were put in place between the Company and
providers of these services.
Corporate Responsibility
The Company is not an operating company. The Board considers the
ongoing concerns of investors by open and regular dialogue with and
through the Manager, Investment Adviser and the Company's
Broker.
The Company makes reference to the Corporate Responsibility
Statement of MAN Investments (CH) AG as Investment Adviser.
The Company has kept abreast of regulatory and statutory changes
and took appropriate action where necessary. As previously
referred, all daily operations are delegated. The Company itself
does not maintain premises, or have any employees.
Non Going Concern
On 11 April 2011 a resolution will be considered by Shareholders
to place the Company into voluntary liquidation. As a result, the
Directors are satisfied that it is not appropriate to adopt the
going concern basis in preparing the Financial Statements.
Consequently, these Financial Statements have been prepared in
accordance with International Financial Reporting Standards on a
non-going concern basis.
Relations with Shareholders
AIC Code Principle 17 & 19
The Investment Adviser and the Company's Broker have maintained
a regular dialogue with institutional Shareholders, the feedback
from which was reported to the Board.
In accordance with AIC Code Principle 17 the Board monitored the
trading activity and shareholder profile on a regular basis.
Shareholder sentiment was also ascertained by the careful
monitoring of the discount/premium that the Ordinary Shares are
traded in the market against the NAV per share when compared to the
discount/premium experienced by the Company's peer group.
The Company has historically reported formally to Shareholders
twice a year and a proxy voting card was sent to Shareholders with
the Annual Report and Financial Statements. As previously
mentioned, no Annual General Meeting will be convened for 2011. The
Company's newsletter was provided to eligible Shareholders on an
ongoing basis via www.dexioncommodities.com. The Registrar monitors
the voting of the Shareholders and proxy voting is taken into
consideration when votes are cast at any Annual General Meeting.
Shareholders may contact the Directors via the Company
Secretary.
Disclosure of information to auditor
The Directors who held office at the date of approval of this
Directors' report confirm that, so far as they are each aware,
there is no relevant audit information of which the Company's
auditor are unaware; and each Director has taken all the steps that
he ought to have taken as a Director to make himself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
R O Dorey C M W Hill
Director Director
29 March 2011
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Directors'
Report and the financial statements in accordance with applicable
law and regulations.
The Companies (Guernsey) Law, 2008 requires the Directors to
prepare financial statements for each financial year. Under that
law they have elected to prepare the financial statements in
accordance with International Financial Reporting Standards (IFRS)
and applicable law.
The financial statements are required by law to give a true and
fair view of the state of affairs of the Company and of the profit
or loss of the Company for that year.
In preparing these financial statements, the Directors are
required to:
-- select suitable accounting policies and then apply them
consistently;
-- make judgments 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 the Company is intended to be placed into voluntary
liquidation, the financial statements have been prepared in
accordance with International Financial Reporting Standards on a
non-going concern basis.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and to enable them to ensure that
the financial statements comply with The Companies (Guernsey) Law,
2008. They have general responsibility for taking such steps as are
reasonably open to them to safeguard the assets of the Company and
to prevent and detect fraud and other irregularities.
Directors' Responsibility Statement
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) This annual 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, give a true and fair
view of the assets, liabilities, financial position and profits of
the Company.
R O Dorey C M W Hill
Director Director
29 March 2011
STATEMENT OF FINANCIAL POSITION as at 31 December
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Assets
Investments
designated at
fair value
through
profit or
loss 3 46,044 253 46,297 49,511 4,953 54,464
Forward
foreign
currency
contracts 3 545 - 545 469 - 469
Accounts
receivable 3 3,627 85 3,712 2,408 1,660 4,068
Cash and cash
equivalents 3 341 193 534 1,054 315 1,369
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Total assets 50,557 531 51,088 53,442 6,928 60,370
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Liabilities
Forward
foreign
currency
contracts 3 - - - - 1 1
Financial
liabilities
at fair value
through
profit or 3,
loss 6 - 525 525 - 6,912 6,912
Accounts
payable and
accrued 3,
expenses 6 124 6 130 128 15 143
Bank overdraft 3 1,324 - 1,324 4,484 - 4,484
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Total
liabilities 1,448 531 1,979 4,612 6,928 11,540
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets 49,109 - 49,109 48,830 - 48,830
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Represented
by:
Shareholders'
funds and
reserves
Special
reserve 8 48,147 - 48,147 48,147 - 48,147
Retained
earnings 8 962 - 962 683 - 683
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Total
Shareholders'
funds 49,109 - 49,109 48,830 - 48,830
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets per
GBP Share -
Continuing
Portfolio 9 GBP0.9832 GBP0.9832 GBP0.9753 GBP0.9753
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets per
EUR Share -
Continuing
Portfolio 9 EUR1.1861 EUR1.1861 EUR1.1784 EUR1.1784
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets per 9 US$1.6802 US$1.6802 US$1.6617 US$1.6617
US$ Share -
Continuing
Portfolio
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
The financial statements were approved by the Board of Directors
on 29 March 2011.
R O Dorey C M W Hill
Director Director
.
STATEMENT OF COMPREHENSIVE INCOME for the year ended 31
December
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Income
Net gains/(losses)
on financial assets
held at fair value
through profit or
loss 3 1,513 (1,002) 511 5,047 718 392 6,157
Net
increase/(decrease)
on financial
liabilities held at
fair value through
profit or loss - 875 875 - - (2,095) (2,095)
Net realised foreign
exchange
gains/(losses) (27) 149 122 (2,464) 574 309 (1,581)
Interest income on
financial assets
that are not at
fair value through
profit or loss - - - 4 2 - 6
Other investment
income 16 8 24 338 1 31 370
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Net investment
income/(loss) 1,502 30 1,532 2,925 1,295 (1,363) 2,857
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Expenses
Management fee 10 (714) (18) (732) (760) (304) (40) (1,104)
Administration &
secretarial fees 10 (114) (3) (117) (93) (49) (13) (155)
Audit fee (19) (6) (25) (22) (18) (8) (48)
Other professional
fees (137) - (137) (525) (69) (1) (595)
Directors'
remuneration and
expenses 10 (44) - (44) (46) (4) (11) (61)
Directors' and
officers'
insurance (13) - (13) (9) (6) - (15)
Custodian charges 10 (33) (3) (36) (35) (14) (6) (55)
Credit facility fees (2) - (2) 2 - - 2
Sundry expenses (140) - (140) (141) (139) (53) (333)
Total operating
expenses before
finance costs (1,216) (30) (1,246) (1,629) (603) (132) (2,364)
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Finance costs
Interest expense on
financial
liabilities that
are not at fair
value through
profit or loss (7) - (7) (28) (9) - (37)
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Total finance costs (7) - (7) (28) (9) - (37)
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Other comprehensive
income
Foreign currency
translation gains - - - - - 1,495 1,495
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Total other
comprehensive
income - - - - - 1,495 1,495
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Total comprehensive income
for the year 279 - 279 1,268 683 - 1,951
---------------------------- ------------ ----------- -------- --------------- ----------- ------------ ---------
Basic & Diluted
earnings per GBP
Share - Continuing
Portfolio 13 GBP0.0093 GBP0.0359 GBP0.0069
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Basic & Diluted
earnings per EUR
Share - Continuing
Portfolio 13 EUR(0.0531) (EUR0.0935) EUR0.0610
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Basic & Diluted 13 US$0.1251 (US$0.1372) US$0.0477
earnings per US$
Share - Continuing
Portfolio
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the year ended
31 December
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Balance at 1
January 48,830 - 48,830 90,763 - - 90,763
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total
comprehensive
income for the
year
Total return
for the year 279 - 279 1,268 683 - 1,951
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Transactions
with
Shareholders
Amount paid on
redemptions
and
cancellations - - - (7,513) - - (7,513)
Amounts
payable to
Redeeming
Shareholders - - - - - (36,371) (36,371)
Transfer of
funds to the
Redemption
Portfolio - - - (36,371) - 36,371 -
Transfer of
funds to the
Continuing
Portfolio - - - (48,147) 48,147 - -
--------------- ----------- ------------
Total
transactions
with
Shareholders - - - (92,031) 48,147 - (43,884)
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Balance at 31
December 49,109 - 49,109 - 48,830 - 48,830
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
STATEMENT OF CASHFLOWS for the year ended 31 December
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cashflows from
operating
activities
Total return for the
year 279 - 279 1,268 683 - 1,951
Adjustments:
Net (losses)/gains
on financial assets
held at fair value
through profit or
loss (1,513) 1,002 (511) (5,047) (718) (392) (6,157)
Net increase in
financial
liabilities at fair
value through
profit or loss - 875 875 - - 2,095 2,095
Net foreign exchange
losses/(gains) 27 (149) (122) 2,464 (574) (309) 1,581
Changes in operating
assets and
liabilities:
Decrease/(increase)
in debtors 1,292 - 1,292 2,075 (2,408) (1,660) (1,993)
(Decrease)/increase
in creditors (4) (6,397) (6,401) (2,892) 128 15 (2,749)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net cash from/(used
in) operating
activities 81 (4,669) (4,588) (2,132) (2,889) (251) (5,272)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cashflows from
investing
activities
Realised
(losses)/gains from
forward foreign
currency contracts (2,339) (856) (3,195) 6,476 (939) (340) 5,197
Purchase of
investments (16,844) - (16,844) (21,080) (35,040) - (56,120)
Proceeds from sale
of investments 21,576 5,318 26,894 54,960 26,869 23,669 105,498
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net cash from/(used
in) investing
activities 2,393 4,462 6,855 40,356 (9,110) 23,329 54,575
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cashflows from
financing
activities
Payment on
redemption and
cancellation - (64) (64) (7,513) - (31,554) (39,067)
Transferred to
Continuing or
Redemption Pool - - - (16,476) 7,995 8,481 -
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net cash (used
in)/from financing
activities - (64) (64) (23,989) 7,995 (23,073) (39,067)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net
increase/(decrease)
in cash and cash
equivalents 2,474 (271) 2,203 14,235 (4,004) 5 10,236
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Exchange
(losses)/gains on
cash and cash
equivalents (27) 149 122 549 574 310 1,433
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cash and cash
equivalents at
beginning of the
year (3,430) 315 (3,115) (14,784) - - (14,784)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cash and cash
equivalents at end
of the year (983) 193 (790) - (3,430) 315 (3,115)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Analysis of cash and
cash equivalents at
end of the year
Cash at bank 341 193 534 - 1,054 315 1,369
Bank overdraft (1,324) - (1,324) - (4,484) - (4,484)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
(983) 193 (790) - (3,430) 315 (3,115)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cash flow from
operating activities
include:
Interest received 1 - 1 4 2 - 6
Interest paid (9) - (9) (28) (9) - (37)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
1. General information
Dexion Commodities Limited (formerly Dexion Alpha Strategies
Limited) (the "Company") was incorporated on 7 March 2006 in
Guernsey, Channel Islands. At an Extraordinary General Meeting
("EGM") held on 31 July 2009, the Shareholders approved the change
in the Company's name to reflect its revised investment policy. The
Company's Shares (of each class) were listed on the London Stock
Exchange on 24 March 2006. The Company is registered in Guernsey,
Channel Islands under the Companies (Guernsey) Law, 2008.
The Board of Dexion Commodities Limited announced that it
intends to put forward proposals which, if approved, will lead to
the realisation of the Company's portfolio and liquidation of the
Company. A circular was sent to Shareholders in March 2011 setting
out details of the proposals and convening a first extraordinary
general meeting which was held on 25 March 2011 at which the
proposals to wind down the Company were approved. A second
extraordinary general meeting to approve the winding up of the
Company and the appointment of a liquidator is to be held on 11
April 2011.
The Shares are currently listed on the Official List and traded
on the main market of the London Stock Exchange. As a result of the
realisation of substantially all of the investments in the
Continuing Portfolio, the Company no longer meets the requirements
of the Listing Rules and, accordingly on 31 March 2011, the listing
for each class of Shares will be suspended (and subsequently
cancelled) at that point. Accordingly the Shares will no longer be
capable of being traded on the London Stock Exchange.
2. Significant accounting policies
a) Statement of Compliance
The financial statements which give a true and a fair view have
been prepared on a non going concern basis and in accordance with
International Financial Reporting Standards (IFRS) adopted by the
International Accounting Standards Board (IASB) and are in
compliance with the Companies (Guernsey) Law, 2008.
The accounting policies have been applied consistently by the
Company and are consistent with those used in the previous
reporting year.
Determination and presentation of operating segments
The Company has adopted IFRS 8 'Operating segments' as of 1
January 2009. The standard requires a 'management approach', under
which segment information is presented on the same basis as that
used for internal reporting purposes.
The Board, as a whole, has been determined as constituting the
chief operating decision maker of the Company. The Board has
considered the requirements of IFRS 8 'Operating Segments', and is
of the view that the Company is engaged in the conduct of two
business segments, being the management of the Continuing Portfolio
for these Shareholders who wished to continue their investment in
the Company with a revised investment policy and the management of
the Redemption Portfolio in order to realise the investments
attributable to Redeeming Shareholders. 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 net
asset value on the Continuing Portfolio, as calculated under IFRS.
The key measure of performance used by the Board to assess the
performance of the Redemption Portfolio is the timing and extent of
realisations to Redeeming Shareholders. As the valuations of both
Portfolios are computed independently and items of income and
expense are allocated to each Portfolio in accordance with the
discretion of the Directors, no reconciliation is required between
the measure of profit or loss used by the Board and that contained
in these financial statements.
The Board of Directors have overall management and control of
the Company. Material changes to the Investment Objective or
Investment Policy (as currently applied to the separate portfolios)
can only be made by the Shareholders. The Board of Directors have
delegated the day to day implementation of this strategy to its
Investment Adviser but retain responsibility to ensure that
adequate resources of the Company are directed in accordance with
their decisions. The investment decisions of the Investment Adviser
are reviewed on a regular basis to ensure compliance with the
policies and legal responsibilities of the Board. The Investment
Adviser 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 Adviser may make the investment decisions
on a day to day basis re the allocation of funds to different
investments, any changes to the investment strategy or major
allocation decisions for the Continuing Portfolio have to be
approved by the Board, even though they may be proposed by the
Investment Adviser. The Board therefore retains full responsibility
as to the major allocations decisions made on an ongoing basis. The
Investment Adviser will always act in accordance with the
Investment Policy and Investment Restrictions as last approved by
Shareholders (and as currently applied to the separate portfolios)
which cannot be materially changed without the approval of the
Shareholders.
Applicable new standards and interpretations not yet
effective
The following new standards, new interpretations and amendments
to standards and interpretations have been issued but are not yet
effective for the financial year beginning 1 January 2010 and have
not been early adopted:
IFRS 9, 'Financial Instruments', issued in December 2009. This
addresses the classification and measurement of financial assets
and is likely to affect the Company's accounting for financial
assets. The standard is not applicable until 1 January 2013 but it
is available for early adoption. The Company will not be adopting
this standard as a circular to liquidate the Company has been
served.
b) Basis of preparation
The financial statements are prepared in pounds sterling (GBP),
which is the Company's presentational 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 and
derivative financial instruments. Other financial assets and
financial liabilities are stated at amortised cost.
Given that the financial statements have been prepared on a fair
value basis, there has not been any significant impact due to the
non-going concern status, however consideration has been given to
this fact while determining the fair value of investments.
The preparation of financial statements in conformity with IFRS
requires management to make judgments, estimates and assumptions
that affect the application of accounting 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 judgments about carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates.
The financial statements of the Company are presented in the
currency of primary economic environment in which the Company
operates (its "functional currency"). The Directors have considered
the primary economic currency of the Company and considered the
currency in which the original capital was raised, distributions to
be made and ultimately the currency in which capital would be
returned on a break up basis. The Directors have also considered
the currency to which the underlying investments are exposed. On
balance, the Directors believe that 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 sterling which is the presentational currency of the
Company.
The Directors have considered the primary economic currency of
the Redemption Portfolio to be the US dollar and this represents
the functional currency of the Redemption Portfolio. For the
purpose of presenting company financial statements, the assets and
liabilities of the Redemption Portfolio are translated into
sterling at exchange rates presiding at the date of the Statement
of Financial Position. Income and expense items are translated at
average exchange rates for the period since Reorganisation.
Exchange differences arising are recognised in the Statement of
Comprehensive Income.
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.
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) 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. Income distributions from investment funds are
recognised in the Statement of Comprehensive Income as dividend
income when declared.
d) Expenses
All expenses are accounted for on an accruals basis.
e) Financial instruments
i) Classification
The Company designates all of 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 group is provided internally on that
basis to the entity's key management personnel. These are
principally investments in unlisted open ended investment
funds.
Financial instruments held for trading include forward foreign
currency deals awaiting settlement.
Financial assets that are classified as loans and receivables
include sales awaiting settlement and other receivables.
The Company has designated the amounts payable to Redeeming
Shareholders as "financial liabilities at fair value through profit
or loss". These liabilities comprise the pool of net assets in the
Redemption Portfolio which are valued at NAV from time to time
which will be realised in order to pay Redeeming Shareholders the
final balance of their cash proceeds.
Financial liabilities that are not at fair value through profit
or loss include purchases awaiting settlement, accounts payable and
accrued expenses.
The table in Note 3 details the categories of financial assets
and financial liabilities held by the Company at the reporting
date.
ii) Recognition
The Company recognises financial assets and financial
liabilities on the date it becomes a party to the contractual
provisions of the instrument.
A regular-way purchase or sale of investments is recognised
using trade date accounting. 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 in the period in which they arise.
Financial assets classified as loans and receivables are carried
at amortised cost using the effective interest rate method less
impairment losses, if any.
Financial liabilities, other than those at fair value through
profit or loss, are measured at amortised cost using the effective
interest rate.
iv) Fair value measurement principles
Investments in underlying funds which are not quoted on a
recognised stock exchange or other trading facility will be valued
at the NAVs provided by such entities or their administrators.
These values may be unaudited or may themselves be estimates. In
addition, these entities or their administrators may not provide
values at all or in a timely manner and, to the extent that values
are not available, those investments will be valued by the
Investment Adviser using valuation techniques appropriate to those
investments. In determining fair value, the Investment Adviser
takes into consideration, where applicable, the impact of
suspensions, of redemptions, liquidation proceedings, investments
in side pockets and other significant factors. Actual results may
differ from these estimates. Following the review of the illiquid
investments, being those investments which are currently gated,
suspended, in liquidation or subject to other settlement
obstructions, the Directors have established a Fair Valuation
Adjustment Policy.
Open forward foreign currency contracts at the statement of
financial position date are valued at forward currency rates at
that point. The unrealised appreciation or depreciation on open
forward foreign currency contracts is calculated by reference to
the difference between the contracted rate and the rate to close
out the contract.
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 statement of financial position 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 writedown 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. The
Company uses the average cost method to determine the gain or loss
on derecognition.
.
f) Foreign currency transactions
Transactions denominated in foreign currencies are translated at
the rate of exchange ruling on the date of transaction. Assets and
liabilities denominated in foreign currencies are translated into
sterling at the exchange rate prevailing at the Statement of
Financial Position 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).
g) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash
equivalents, which include bank overdrafts, are short term, highly
liquid investments that are readily convertible to known amounts of
cash and which are subject to insignificant changes in value. Cash,
deposits with banks and bank overdrafts are stated at their
principal amount.
h) Treasury shares
Where the Company purchases its own share capital (whether into
treasury or for cancellation), the consideration paid, which
includes any directly attributable costs (net of income taxes) is
recognised as a deduction from equity Shareholders' funds through
the special reserve, 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 special
reserve.
Shares held in treasury are not taken into account in
determining NAV per share detailed in Note 9 and earnings per share
detailed in Note 13.
3. Financial instruments
a) Categories of financial instruments
2010 2009
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
Carrying Carrying Carrying Carrying Carrying Carrying
% of % of
Amount Amount Amount net Amount Amount Amount net
GBP000 GBP000 GBP000 assets GBP000 GBP000 GBP000 assets
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Financial
assets at
fair value
through
profit or
loss:
Designated at
fair value
through
profit or
loss:
Investments
in hedge
funds 46,044 253 46,297 96.28% 49,511 4,953 54,464 111.54%
Held for
trading:
Forward
foreign
currency
contracts 545 - 545 1.11% 469 - 469 0.96%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total at fair
value
through
profit or
loss 47,589 253 46,842 97.39% 49,980 4,953 54,933 112.50%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Loans and
receivables:
Cash at bank 341 193 534 1.09% 1,054 315 1,369 2.80%
Accounts
receivable 3,627 85 3,712 5.55% 2,408 1,660 4,068 8.33%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total loans
and
receivables 3,968 278 4,246 6.64% 3,462 1,975 5,437 11.13%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total Assets 50,557 531 51,088 104.03% 53,442 6,928 60,370 123.63%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
3. Financial
instruments
(continued)
a) Categories
of financial
instruments
(continued)
Liabilities
Financial
liabilities
at fair
value
through
profit or
loss:
Financial
liabilities
at fair
value
through
profit or
loss - (525) (525) (1.07%) - (6,912) (6,912) (14.16%)
Forward
foreign
currency
contracts - - - - - (1) (1) -
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total at fair
value
through
profit or
loss - (525) (525) (1.07%) - (6,913) (6,913) (14.16%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Other
financial
liabilities
(at
amortised
cost):
Bank
overdraft (1,324) - (1,324) (2.70%) (4,484) - (4,484) (9.18%)
Accounts
payable and
accrued
expenses (124) (6) (130) (0.26%) (128) (15) (143) (0.29%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total
measured at
amortised
cost (1,448) (6) (1,454) (2.96%) (4,612) (15) (4,627) (9.47%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total
Liabilities (1,448) (531) (1,979) (4.03%) (4,612) (6,928) (11,540) (23.63%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
In the opinion of the Directors the carrying amounts of loans
and receivables and financial liabilities measured at amortised
cost approximate their fair values.
b) Net gains and losses on financial assets at fair value
through profit or loss
Post Reorganization
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Net
gains/(losses)
on financial
assets at fair
value through
profit or loss
Realised
gains/(losses)
on
investments 851 156 1,007 12,758 (813) 328 12,273
Movement in
unrealised
gains/(losses)
on
investments 2,925 (1,487) 1,438 (16,323) 2,792 405 (13,126)
Realised
(losses)/gains
on forward
currency
contracts (2,339) 328 (2,011) 6,476 (939) (340) 5,197
Unrealised
gains/(losses)
on forward
currency
contracts 76 1 77 2,136 (322) (1) 1,813
----------- --------------- ----------- ------------ ---------
1,513 (1,002) 511 5,047 718 392 6,157
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
4. Operating segments
Information on realised gains and losses derived from sales of
investments are disclosed in Note 3 to the financial
statements.
The Company is domiciled in Guernsey. All of the Company's
income from investments is from underlying funds that are
incorporated in countries other than Guernsey. Entity wide
disclosures are necessary as the Company is engaged in two segments
of business. In presenting information on the basis of geographical
segments, segment investments and the corresponding segment net
investment income arising thereon are determined based on the
domicile countries of the respective investment entities and
derivative counterparties.
The segment information provided to the board, in its capacity
as chief operating decision maker of the Company, for the
reportable segments is as follows:
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Interest income - - - 4 2 - 6
Other
investment
income 16 8 24 338 1 31 370
Net
gains/(losses)
on financial
assets held at
fair value
through profit
or loss 1,513 (1,002) 511 5,047 718 392 6,157
Net
gains/(losses)
on financial
liabilities at
fair value
through profit
or loss - 875 875 - - (2,095) (2,095)
Net foreign
exchange
gains/(losses) (27) 149 122 (2,464) 574 309 (1,581)
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total net
segment
income/(loss) 1,502 30 1,532 2,925 1,295 (1,363) 2,857
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total segment
assets 50,557 531 51,088 N/A 53,442 6,928 60,370
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total segment
liabilities (1,448) (531) (1,979) N/A 4,612 6,928 11,540
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
Total
segment
assets
include: GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- ----------- ----------- -------- ----------- ----------- --------
Financial
assets at
fair
value
through
profit or
loss 46,044 253 46,297 49,511 4,953 54,464
Other
assets 4,513 278 4,791 3,931 1,975 5,906
----------- ----------- ----------- -------- ----------- ----------- --------
Geographical segments based on country of domicile
Continuing
Portfolio
31 December Netherlands
2010 Guernsey USA Cayman BVI Ireland Antilles Bahamas Total
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
Financial
assets at
fair value
through
profit or
loss 545 6,369 15,273 - 355 4 24,043 46,589
Net investment
(loss)/income (11) 209 502 - 12 - 790 1,502
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
Redemption
Portfolio
31 December Netherlands
2010 Guernsey USA Cayman BVI Ireland Antilles Bahamas Total
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
Financial
assets at
fair value
through
profit or
loss - 49 197 - - 4 3 253
Financial
liabilities
at fair value
through
profit or
loss (525) - - - - - - (525)
Net investment
income/(loss) 1,032 (194) (780) - - (16) (12) 30
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
Continuing
Portfolio
31 December Netherlands
2009 Guernsey Jersey Cayman BVI Ireland Antilles Bahamas Total
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
Financial
assets at
fair value
through
profit or
loss 469 - 48,570 941 - - - 49,980
Net investment
income - - 1,294 1 - - - 1,295
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
Continuing
Portfolio
31 December Netherlands
2009 Guernsey Jersey Cayman BVI Ireland Antilles Bahamas Total
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
Financial
assets at
fair value
through
profit or
loss - - 1,492 - 3,461 - - 4,953
Financial
liabilities
at fair value
through
profit or
loss (6,913) - - - - - - (6,913)
Net investment
(loss)/income (2,095) - 157 - 575 - - (1,363)
--------------- --------- ------- ------- ---- -------- ------------ -------- --------
The Company also has a diversified shareholder population and no
individual investor owns more than 10 percent. of the issued
capital of the Company as at 31 December 2010 (31 December 2009)
except the following underlying Shareholders:
- Ericsson Pensionsstiftelse (23.6 per cent.) (2009: 11.7 per
cent.)
- Kleinwort Benson Private Bank (12.6 per cent.) (2009: Nil per
cent.)
- Weiss Asset Management LP (11.7 per cent.) (2009: Nil per
cent.)
- South Yorkshire Pensions Authority (10.2 per cent.) (2009: Nil
per cent.)
- BlackRock,Inc (Nil per cent.) (2009: 18.65 per cent.)
5. Financial risk management
Until 31 March 2011 the Company pursued its investment objective
set out in the Manager's Report. The Company entered into
investment transactions in financial instruments, principally the
investment portfolio, the holding of which gave exposure to risks,
which include market risk, liquidity risk, and default/credit risk.
Asset allocation was determined by the Company's Investment Adviser
who managed the distribution of the assets to achieve the
investment objectives. Divergence from target asset allocations and
the composition of the portfolio (from 31 July 2009 solely in
respect of the Continuing Portfolio) was monitored by the Company's
Investment Adviser. The nature and extent of the financial
instruments outstanding at the end of the reporting period and the
risk management policies employed by the Company are discussed
below.
Capital risk management
The capital structure of the Company consists of equity
attributable to Shareholders, including issued share capital,
reserves and retained earnings as disclosed in Notes 7 and 8. The
Company adheres to the Listing Rules of the UK Listing
Authority.
Gearing Ratio
The Continuing Portfolio does not have any long-term or fixed
structural gearing. The Company was indirectly exposed to gearing
to the extent that the underlying funds are themselves geared.
Northern Trust (Guernsey) Limited has been the credit facility
provider since inception of the Company. The facility granted is up
to the lower of GBP7.5 million and 20 per cent. of net NAV. The
facility was increased temporarily to the lower of GBP7.5 million
and 30 per cent. of net NAV until 30 April 2010, at which point it
reverted back to the lower of GBP7.5 million or 20 per cent. of net
NAV. As at 31 December 2010, the facility was drawn-down by GBP1.3
million (overdraft). In view of the Liquidation Proposals, the
Company and Northern Trust (Guernsey) Limited have agreed that
following the passing of the Extraordinary General Meeting
Resolution on 25 March 2011, the facility will be cancelled
effective 31 March 2011.
a) Market price risk
Market risk embodies the potential for both losses and gains and
includes price risk, interest rate risk and currency risk.
The Company sought to achieve its investment objective for the
Continuing Portfolio through investment in an actively managed
portfolio of underlying funds diversified across a range of
alternative investment strategies focused upon the commodity,
energy and environmental complex. The Investment Adviser allocated
the Company's assets in the Continuing Portfolio either directly or
indirectly to underlying funds (which included funds managed or
advised by the Investment Adviser) investing across the following
strategies:
-- Commodity Strategies
-- Environmental Strategies
-- Long Volatility Strategies
Although the Investment Adviser allocated the Company's assets
in the Continuing Portfolio among portfolio managers employing one
or more of the strategies described above, subject to maintaining
an appropriate spread of funds and investment strategies, the
Company's assets in the Continuing Portfolio were deployed by the
Investment Adviser in whatever funds and investment strategies the
Investment Adviser deemed appropriate from time to time and which
are consistent with the revised investment policy.
The exact number of funds and strategies used varied over time,
although the Investment Adviser ensured an appropriate spread of
investment risk consistent with the Listing Rules. The Company
invested and managed its assets in the Continuing Portfolio in a
way which was consistent with its objective of spreading investment
risk.
Generally, the Investment Adviser sought (i) not to make further
investment(s) in any one underlying fund, accessed either directly
or indirectly, where immediately following such further
investment(s) the underlying fund represented 8 per cent. or more
of the Continuing Portfolio's total assets; and (ii) not to make
further investment(s) in any underlying funds managed by a single
portfolio manager, accessed either directly or indirectly, where
immediately following such further investment(s) those underlying
funds represented 20 per cent. or more of the Continuing
Portfolio's total assets, although the Investment Adviser was able
to deviate from any such guidelines from time to time, subject
always to the maximum exposures, introduced in accordance with the
Listing Rules, set out in the investment restrictions. For the
avoidance of doubt, the MAN Portfolios (or any MAN master
portfolio) invested in by the Continuing Portfolio were not subject
to the above restrictions.
The Company intended to be substantially fully invested at all
times, although the Investment Adviser used its discretion to hold
cash or equivalent investments from time to time.
Market risk relates to the fact that there are certain general
market conditions in which any given investment strategy is
unlikely to be profitable. Neither the underlying portfolio
managers nor the Investment Adviser had any ability to control or
predict such market conditions. With respect to market risk, the
Company's investment approach for the Continuing Portfolio was
designed to achieve broad diversification on a global basis across
financial markets in an attempt to reduce the Continuing
Portfolio's exposure to any single market. However, from time to
time multiple markets could move in tandem against the Continuing
Portfolio's underlying investments and the Continuing Portfolio
could suffer losses.
The performance of the Company's investments depended to a great
extent on correct assessments of the course of price movements of
securities and other investments by portfolio managers of the
Company's underlying funds. There could be no assurance that those
portfolio managers will be able to predict accurately these price
movements. The securities markets have, in recent years, been
characterised by great volatility and unpredictability. With
respect to the investment strategies utilised by underlying funds
in which the Company invested, there were some, and occasionally a
significant, degree of market risk.
(i) Price risk
Market price risk arises mainly from uncertainty about future
prices of financial instruments held by the underlying funds. It
represents the potential gains and losses that might be suffered
through holding market positions in the face of price movements.
The Company's investments were indirectly exposed to market price
fluctuations which were monitored by the Investment Adviser in
pursuance of its investment objectives and policies. Adherence to
investment guidelines and to investment and borrowing restrictions
set out in the Company's investment policy for the separate
portfolios and stated above mitigated the risk of excessive
exposure to any particular type of fund. In addition to strict
adherence to investment policy restriction, the Company diversified
exposure to market risk for the Continuing Portfolio by spreading
its investments using different trading strategies. At the end of
the reporting period, the assets of the portfolios were allocated
in the following strategies:
(i)
Continuing Redemptions Company Continuing Redemptions Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ------------ -------- ----------- ------------ --------
Investment
Strategy
Agriculture and
Livestock - - - 1,394 - 1,394
Asian
Opportunities - 3 3
Base Metals 327 - 327 346 - 346
Commodity
Strategies 33,268 - 33,268 25,281 - 25,281
Emerging
Markets Macro - 71 71 238 179 417
Energy and
Transportation 6,731 14 6,745 5,316 - 5,316
Environmental
Strategies 2,295 - 2,295 8,562 - 8,562
European Loan
Opportunities - - - - 3,461 3,461
Healthcare
Opportunities - 38 38 319 241 560
Multi-Strategy 3,259 - 3,259 4,724 - 4,724
Short-Term
Managed
Futures - - - 1,186 - 1,186
Special
Situations - 127 127 87 1,072 1,159
Investments in
advance 164 - 164 2,058 - 2,058
Portfolio total 46,044 253 46,297 49,511 4,953 54,464
---------------- ----------- ------------ -------- ----------- ------------ --------
Price sensitivity analysis
The Company used the MSCI World Composite Index as its benchmark
to monitor regularly the evolution of the beta of the Continuing
Portfolio and assessed overall performance and risk of the
Continuing Portfolio. The beta of the Continuing Portfolio was
calculated separately versus the benchmark, and had been reasonably
constant throughout the year. The Investment Adviser used
correlation, beta, standard deviation, among other statistical
techniques, to test how the Continuing Portfolio might reasonably
be expected to react under the prolonged rise or drawdown of its
benchmarks, based on historical data about risk and return. The
results of this analysis were used to re-assess risk and if
necessary, rebalance the composition of the portfolio.
The table below illustrates the likely impact of a rise or fall
of the MSCI World Composite Index by 10 per cent. on the net asset
value of the Company at the end of the reporting year, under the
assumption that all other factors remain constant:
Continuing Portfolio
Increase Decrease
of 10% of 10%
Impact in Impact in
Statement Statement
of of
Comprehensive Comprehensive
Carrying amount Income Income
For the year ended 31 December
2010 GBP000 GBP000 GBP000
----------------------------------- ------- -------------- --------------
Financial instruments designated
at
fair value through profit or loss 46,044 4,743 (4,743)
----------------------------------- ------- -------------- --------------
For the year ended 31 December
2009
-----------------------------------
Financial instruments designated
at
fair value through profit or loss 49,511 5,100 (5,100)
----------------------------------- ------- -------------- --------------
Redemption Portfolio
Increase Decrease
of 10% of 10%
Impact in Impact in
Statement Statement
of of
Comprehensive Comprehensive
Carrying amount Income Income
For the year ended 31 December
2010 GBP000 GBP000 GBP000
----------------------------------- ------- -------------- --------------
Financial instruments designated
at
fair value through profit or loss 253 26 (26)
----------------------------------- ------- -------------- --------------
For the year ended 31 December
2009
-----------------------------------
Financial instruments designated
at
fair value through profit or loss 4,953 510 (510)
----------------------------------- ------- -------------- --------------
Actual trading results may differ from the above sensitivity
analysis and those differences may be material.
(ii) Interest rate risk
Substantially all of the Company's assets are non-interest
bearing investments and its exposure to interest rate changes is
limited. The Company, however, has a bank overdraft of GBP1,323,645
(2009: GBP4,483,956) at the year end and is therefore subject to
cashflow interest rate risk due to fluctuations in the prevailing
levels of market interest rates. The short term investments
included within cash equivalents and bank overdraft have an
overnight maturity, and as a result they have a limited exposure to
fair value interest rate risk due to fluctuations in the prevailing
levels of market interest rates.
Northern Trust (Guernsey) Limited has been the credit facility
provider since inception of the Company and will continue to be
until 31 March 2011. The interest rate which applies to all
drawings under the facility is calculated at 1.25 per cent. over
Northern Trust (Guernsey) Limited's cost of funds in the relevant
currency. The amount drawn down at 31 December 2010 was
GBP1,323,645 (2009: GBP4,483,956). Credit facility fees incurred
amounted to GBP18,750 (2009: GBP35,938).
The following table details the Company's exposure to interest
rate risks. It includes the Company's assets and trading
liabilities at fair values, categorised by the earlier of
contractual re-pricing or maturity date measured by the carrying
value of the assets and liabilities.
Continuing Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2010 GBP000 GBP000 GBP000
----------------------------------------- ---------- ------------- --------
Assets
Financial assets at fair value
through profit or loss
Investments - 46,044 46,044
Forward foreign currency contracts - 545 545
Loans and receivables
Cash and cash equivalents 341 - 341
Accounts receivable - 3,627 3,627
----------------------------------------- ---------- ------------- --------
Total assets 341 50,216 50,557
----------------------------------------- ---------- ------------- --------
Liabilities
Financial liabilities at fair value
through profit or loss, held for
trading
Forward foreign currency contracts
Other financial liabilities (at
amortised cost)
Bank overdraft (1,324) - (1,324)
Accounts payable - (124) (124)
----------------------------------------- ---------- ------------- --------
Total liabilities (1,324) (124) (1,448)
----------------------------------------- ---------- ------------- --------
Total interest sensitivity analysis
gap (983)
----------------------------------------- ---------- ------------- --------
Redemption Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2010 GBP000 GBP000 GBP000
------------------------------------------ ---------- ------------- -------
Assets
Financial assets at fair value
through profit or loss
Investments - 253 253
Forward foreign currency contracts
Loans and receivables
Cash and cash equivalents 193 - 193
Accounts receivable - 85 85
------------------------------------------ ---------- ------------- -------
Total assets 193 338 531
------------------------------------------ ---------- ------------- -------
Liabilities
Net assets attributable to Shareholders - (525) (525)
Financial liabilities at fair value
through profit or loss, held for trading
Forward foreign currency contracts
Other financial liabilities (at
amortised cost)
Bank overdraft
Accounts payable - (6) (6)
------------------------------------------ ---------- ------------- -------
Total liabilities - (531) (531)
------------------------------------------ ---------- ------------- -------
Total interest sensitivity analysis
gap 193
------------------------------------------ ---------- ------------- -------
Continuing Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2009 GBP000 GBP000 GBP000
----------------------------------------- ---------- ------------- --------
Assets
Financial assets at fair value
through profit or loss
Investments - 49,511 49,511
Forward foreign currency contracts - 469 469
Loans and receivables
Cash and cash equivalents 1,054 - 1,054
Accounts receivable - 2,408 2,408
----------------------------------------- ---------- ------------- --------
Total assets 1,054 52,388 53,442
----------------------------------------- ---------- ------------- --------
Liabilities
Financial liabilities at fair value
through profit or loss, held for
trading
Forward foreign currency contracts - - -
Other financial liabilities (at
amortised cost)
Bank overdraft (4,484) - (4,484)
Accounts payable - (128) (128)
----------------------------------------- ---------- ------------- --------
Total liabilities (4,484) (128) (4,612)
----------------------------------------- ---------- ------------- --------
Total interest sensitivity analysis
gap (3,430)
----------------------------------------- ---------- ------------- --------
Redemption Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2009 GBP000 GBP000 GBP000
----------------------------------------- ---------- ------------- --------
Assets
Financial assets at fair value
through profit or loss
Investments - 4,953 4,953
Loans and receivables
Cash and cash equivalents 315 - 315
Accounts receivable - 1,660 1,660
----------------------------------------- ---------- ------------- --------
Total assets 315 6,613 6,928
----------------------------------------- ---------- ------------- --------
Liabilities
Financial liabilities at fair value
through profit or loss
Net assets attributable to Shareholders (6,912) (6,912)
Financial liabilities at fair value
through profit or loss, held for
trading
Forward foreign currency contracts - (1) (1)
Other financial liabilities (at
amortised cost)
Bank overdraft - - -
Accounts payable and accrued expenses - (15) (15)
----------------------------------------- ---------- ------------- --------
Total liabilities - (6,928) (6,928)
----------------------------------------- ---------- ------------- --------
Total interest sensitivity analysis
gap 315
----------------------------------------- ---------- ------------- --------
Interest rate sensitivity analysis
As at 31 December 2010, an increase of 100 basis points in
interest rates would have decreased the net assets attributable to
Shareholders in the Continuing Portfolio and changes in net assets
attributable to Shareholders by GBP9,830. As at 31 December 2009,
an increase of 100 basis points in interest rates would have
decreased the net assets attributable to Shareholders and changes
in net assets attributable to Shareholders by GBP34,300. A decrease
of 100 basis points would have had an equal and opposite
effect.
Actual trading results may differ from the above sensitivity
analysis and those differences may be material.
iii) Currency risk
The principal exposure to currency risk arises from investments
denominated in currencies other than the functional currency. The
value of such investments may be affected favourably or
unfavourably by fluctuations in exchange rates, notwithstanding any
efforts made to hedge such fluctuations. A significant portion of
the Company's investments at the end of the reporting year are
denominated in currencies other than the base currency hence the
exposure to currency risk in this manner is significant. The
Company may from time to time enter into transactions in derivative
instruments and take short positions with a view to hedging the
Continuing Portfolio's currency exposure. At the reporting date,
the Company had hedged almost all foreign currency positions in the
Continuing Portfolio by selling them forward.
As at 31 December 2010, the net currency exposure of the
Continuing Portfolio expressed in Sterling was as follows:
Continuing Portfolio
USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ --------- ------- ------- -------
Investments held at fair value 46,044 - - 46,044
Cash and cash
equivalents (1,098) (8) 123 (983)
Other net assets/(liabilities) 3,617 (7) (107) 3,503
------------------------------------ --------- ------- ------- -------
Total net long
position 48,563 (15) 16 48,564
Effect of forward foreign currency
contracts (44,855) 5,548 39,852 545
Net exposure 3,708 5,533 39,868 49,109
------------------------------------ --------- ------- ------- -------
As at 31 December 2010, the net currency exposure of the
Redemption Portfolio expressed in Sterling was as follows:
Redemption Portfolio
USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ ------- ------- ------- -------
Investments held at fair value 253 - - 253
Cash and cash
equivalents 193 - - 193
Other net assets/(liabilities) (440) - (6) (446)
------------------------------------ ------- ------- ------- -------
Total net long
position 6 - (6) -
Effect of forward foreign currency
contracts - - - -
Net exposure 6 - (6) -
------------------------------------ ------- ------- ------- -------
There was no hedging in the Redemption Portfolio as at 31
December 2010.
As at 31 December 2009, the net currency exposure of the
Continuing Portfolio expressed in Sterling was as follows:
Continuing Portfolio USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ --------- ------- ------- --------
Investments held at fair value 49,511 - - 49,511
Cash and cash equivalents (3,481) 31 20 (3,430)
Other net assets/(liabilities) 2,193 (9) 96 2,280
------------------------------------ --------- ------- ------- --------
Total net long
position 48,223 22 116 48,361
Effect of forward foreign currency
contracts (47,304) 6,836 40,937 469
Net exposure 919 6,858 41,053 48,830
------------------------------------ --------- ------- ------- --------
As at 31 December 2009, the net currency exposure of the
Redemption Portfolio expressed in Sterling was as follows:
Redemption Portfolio
USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- -------- ------- --------
Investments held
at fair value 1,492 3,461 - 4,953
Cash and cash equivalents 315 - - 315
Other net liabilities (5,252) (3) (12) (5,267)
------------------------------------ -------- -------- ------- --------
Total net long position (3,445) 3,458 (12) 1
Effect of forward foreign currency
contracts 3,311 (3,312) - (1)
--------
Net exposure (134) 146 (12) -
------------------------------------ -------- -------- ------- --------
Since the Company hedged all its foreign currency position as
illustrated by the table above, any subsisting foreign exchange
risk is immaterial so no sensitivity analysis has been carried
out.
b) Liquidity risk management
The Company's financial instruments included investments in
other open-ended investment funds which are not traded in an
organised public market some of which were illiquid. At the date of
signing these financial statements, substantially all such
investments have been realized except those that are designated in
the Manager's Report as having restricted liquidity, totalling 0.4%
of the Continuing Portfolio. The Investment Adviser continues to
explore the options available to realise these investments and
those in Redemption Portfolio in a timely manner
The Company has a loan facility with Northern Trust (Guernsey)
Limited of the lower of GBP7.5 million or 20 per cent. of its net
asset value for short-term or temporary liquidity purposes. Prior
to April 2010, the facility was extended temporarily to up to the
lower of GBP7.5 million and 30 per cent. of NAV. On 30 April 2010,
the facility reverted to up to the lower of GBP7.5 million or 20
per cent. of net NAV. The expiry date of the facility is the
banking day being three calendar months from the date of written
notice advising the Company of the termination of the facilities.
As at 31 December 2010, this facility was drawn down by GBP1.3
million. The facility will be terminated on 31 March 2011.
The table below analyses the Company's financial liabilities
into relevant maturity groupings based on the remaining period at
the end of the reporting year to the contractual maturity date. The
amounts in the table are the contractual undiscounted cash flows.
Balances due within 12 months equal their carrying balances, as the
impact of discounting is not significant.
Continuing Portfolio
Within 1-3
1 month months Total
At 31 December 2010 GBP000 GBP000 GBP000
---------------------- -------- ------- -------
Bank overdraft 1,324 - 1,324
Accounts payable 98 26 124
1,422 26 1,448
---------------------- -------- ------- -------
Redemption Portfolio
Within 1-3
1 month months Total
At 31 December 2010 GBP000 GBP000 GBP000
Accounts payable 6 525 531
---------------------- -------- ------- -------
Company Total
Within 1-3
1 month months Total
At 31 December 2010 GBP000 GBP000 GBP000
--------------------- -------- ------- -------
Bank overdraft 1,324 - 1,324
Accounts payable 104 551 655
1,428 551 1,979
--------------------- -------- ------- -------
Continuing Portfolio
Within 1-3
1 month months Total
At 31 December 2009 GBP000 GBP000 GBP000
---------------------- -------- ------- -------
Bank overdraft 4,484 - 4,484
Accounts payable 91 37 128
4,575 37 4,612
---------------------- -------- ------- -------
Redemption Portfolio
Within 1-3
1 month months Total
At 31 December 2009 GBP000 GBP000 GBP000
Accounts payable 16 6,912 6,928
---------------------- -------- ------- -------
Company Total
Within 1-3
1 month months Total
At 31 December 2009 GBP000 GBP000 GBP000
---------------------- -------- ------- -------
Bank overdraft 4,484 - 4,484
Accounts payable 107 6,949 7,056
4,591 6,949 11,540
---------------------- -------- ------- -------
c) Credit risk management
Credit risk is the risk that a counterparty to a financial
instrument will fail to discharge an obligation or commitment that
it has entered into with the Company.
Credit risk generally is higher when a non-exchange traded
financial instrument is involved because the counterparty for
non-exchange traded financial instruments is not backed by an
exchange clearing house. The Company is also exposed to
credit risk on the financial assets with its brokers.
The carrying amounts of financial assets best represent the
maximum credit risk exposure at the end of the reporting year. This
relates also to financial assets carried at amortised cost as they
have a short-term to maturity.
At the end of the reporting year, the Company's financial assets
exposed to credit risk amounted to the following:
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ----------- ----------- -------- ----------- ----------- --------
Financial
assets at
fair value
through
profit or
loss 46,044 253 46,297 49,511 4,953 54,464
Forward
foreign
currency
contracts 545 - 545 469 - 469
Accounts
receivable 3,627 85 3,712 2,408 1,660 4,068
Cash and
cash
equivalents 341 193 534 1,054 315 1,369
------------- -------- ----------- ----------- --------
50,557 531 51,088 53,442 6,928 60,370
------------- ----------- ----------- -------- ----------- ----------- --------
Credit risk arising on transactions with brokers relates to
transactions awaiting settlement. Risk relating to unsettled
transactions is considered small due to the short settlement period
involved and the credit quality of the brokers used.
Transactions involving derivative financial instruments are
usually with counterparties with whom the Company has signed master
netting agreements. Master netting agreements provide for the net
settlement of contracts with the same counterparty in the event of
default.
Investments made by the Company and the funds in which it
invests may not be regulated by the rules of any stock exchange or
investment exchange or other regulatory body or authority. The
counterparties to such investments have no obligation to make
markets in such investments. Furthermore, the Company and such
funds were subjected to the risk of bankruptcy of, or the inability
or refusal to perform with respect to such investments by, the
counterparties with which the Company or such funds deal.
The Investment Adviser carried out rigorous due diligence
procedures before investing in an underlying manager's fund.
Procedures were also in place to monitor the managers on a regular
basis, thereby ensuring that the Company limits its exposure to
credit risk on its underlying funds.
The Company monitored the credit rating and financial positions
of the brokers used to further mitigate this risk. Substantially
all of the assets of the Company were held by Northern Trust
(Guernsey) Limited. Bankruptcy or insolvency of the Custodian may
cause the Company's rights with respect to securities held by the
Custodian to be delayed or limited. The Company monitored its risk
by monitoring the credit quality and financial position of the
Custodian.
All of the cash held by the Company was held by the Custodian
and certain other financial institutions. Bankruptcy or solvency by
the Custodian or other financial institutions may cause the
Company's rights with respect to the cash held by the Custodian and
other financial institutions to be delayed or limited. The Company
monitored its risk by monitoring the credit rating of the Custodian
and other service providers. The credit rating of the Northern
Trust Company from Standard & Poor's at the year end was AA-
(2009: AA-).
The Investment Adviser analysed credit concentration based on
the counterparty and strategy of the financial assets that the
Company holds. The ten largest holdings of the Company which are
exposed to credit risk at 31 December 2010 are set out in the
Manager's Report.
The Company's financial assets exposed to credit risk were
concentrated in the following industries:
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
% % % % % %
--------- ----------- ----------- -------- ----------- ----------- --------
Hedge
Funds 91.07 47.65 90.62 92.64 95.44 92.96
Banking 0.67 36.35 1.05 1.97 4.55 2.27
Other 8.26 16.00 8.33 5.39 0.01 4.77
Total 100.00 100.00 100.00 100.00 100.00 100.00
--------- ----------- ----------- -------- ----------- ----------- --------
d) Fair value measurement
The Company adopted the amendment to IFRS 7, effective 1 January
2009. This requires the Company to classify financial instruments
in terms of a fair value hierarchy that reflects the significance
of the inputs used in making the measurements of such financial
instruments for reporting purposes. IFRS 7 establishes a fair value
hierarchy that prioritises the inputs to valuation techniques used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1 measurements) and the lowest priority to
unobservable inputs (Level 3 measurements). The three levels of the
fair value hierarchy under IFRS 7 are as follows:
Level 1 Quoted prices (unadjusted) in active markets for
identical assets or liabilities;
Level 2 Inputs other than quoted prices included within Level 1
that are observable for the asset or liability either
directly (that is, as prices) or indirectly (that is, derived
from prices);
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 was 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 was assessed against the fair value
measurement in its entirety.
If a fair value measurement uses observable inputs that require
significant adjustment based on unobservable inputs, that
measurement is a Level 3 measurement. Assessing the significance of
a particular input to the fair value measurement in its entirety
requires judgment, considering factors specific to the asset or
liability.
The determination of what constitutes 'observable' requires
significant judgment by the Company. The Company considers
observable data to be that market data that is readily available,
regularly distributed or updated, reliable and verifiable, not
proprietary, and provided by independent sources that are actively
involved in the relevant market.
Fair value disclosures
The following table analyses within the fair value hierarchy the
Company's financial assets and financial liabilities measured at
fair value at 31 December 2010:
Continuing Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in hedge
funds - 45,862 182 46,044
- 45,862 182 46,044
--------------------------------------------- -------- -------- -------
Redemption Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in hedge
funds - - 253 253
- - 253 253
--------------------------------------------- -------- -------- -------
The following table analyses within the fair value hierarchy the
Company's financial assets and financial liabilities measured at
fair value at 31 December 2009:
Continuing Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in
hedge funds - 49,185 326 49,511
- 49,185 326 49,511
--------------------------------------------- -------- -------- -------
Redemption Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in
hedge funds - 3,701 1,252 4,953
- 3,701 1,252 4,953
--------------------------------------------- -------- -------- -------
The Investee Funds held by the Company are not quoted in active
markets.
Investee Funds classified in Level 2 and Level 3 were fair
valued using the net asset value of the Investee Funds, as reported
by the respective Investee Fund's administrator. Illiquid
investments, being those investments which were gated, suspended,
in liquidation or subject to other settlement obstructions have
been marked down by the Directors according to the Fair Value
Adjustment Policy.
Continuing Portfolio
Level 2 is comprised of 19 holdings in 17 discrete funds. All of
these holdings were fair valued with reference to net asset value
as reported by the underlying fund's administrator.
Level 3 is comprised of 21 holdings in 8 discrete funds. 4 of
these holdings were fair valued with reference to net asset value
as reported by the underlying fund's administrator. 17 holdings
were fair valued with reference to the Company's Fair Value
Adjustment Policy.
The following table presents the movement of investments in
level 3 for the year ended 31 December 2010:
Investments
in
Hedge Funds
GBP000
-------------------------------- ------------
Balance at 31 December 2009 326
Purchases 467
Sales (137)
Transfers into level 3 232
Realised losses (30)
Movement in unrealised losses (676)
-------------------------------- ------------
Fair value at 31 December 2010 182
-------------------------------- ------------
Redemption Portfolio
Level 3 is comprised of 22 holdings in 8 discrete funds. 5 of
these holdings were fair valued with reference to net asset value
as reported by the underlying fund's administrator. 17 of these
holdings were fair valued with reference to the Company's Fair
Value Adjustment Policy.
The following table presents the movement of investments in
level 3 for the year ended 31 December 2010:
Investments
in
Hedge Funds
GBP000
-------------------------------- ------------
Balance at 31 December 2009 1,252
Purchases 208
Sales (368)
Transfers into level 3 181
Realised losses (53)
Movement in unrealised losses (967)
-------------------------------- ------------
Fair value at 31 December 2010 253
-------------------------------- ------------
The following table presents investments in level 3 for the
period between Reorganisation and the Statement of Financial
Position date at 31 December 2009.
Continuing Portfolio
Investments
in
Hedge Funds
GBP000
------------------------------------- ------------
Transferred from original portfolio 1,848
Sales (1,566)
Realised gain 42
Unrealised gain 2
Fair value at 31 December 2009 326
------------------------------------- ------------
The following table presents investment in level 3 for the
period between Reorganisation and the Statement of
FinancialPosition date at 31 December 2009.
Redemption Portfolio
Investments
in
Hedge Funds
GBP000
------------------------------------- ------------
Transferred from original portfolio 1,396
Sales (5)
Realised gain -
Unrealised gain (139)
Fair value at 31 December 2009 1,252
------------------------------------- ------------
6. Accounts payable and accrued expenses
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ----------- -------- ----------- ----------- --------
Liabilities at fair value
through profit or loss
Amounts payable
to Redeeming
Shareholders - 525 525 - 6,912 6,912
Accounts payable and accrued
expenses
Management fee 61 1 62 63 3 66
Audit fee 8 5 13 17 4 21
Administration
fee 14 - 14 14 1 15
Secretary fee 10 - 10 4 - 4
Custodian fee 3 - 3 6 1 7
Directors'
remuneration 12 - 12 11 6 17
Interest
payable - - - 2 - 2
Other accrued
expenses 16 - 16 11 - 11
124 6 130 128 15 143
---------------- ----------- ----------- -------- ----------- ----------- --------
Amounts payable to Redeeming Shareholders represents the pool of
assets comprised in the Redemption Portfolio. Some of these assets
are valued at NAV while others have been fair value adjusted. All
such assets will be realised in order to pay Redeeming Shareholders
the final balance of their cash proceeds. On approval of the
liquidation and Winding Up of the Company, the Liquidator will take
the responsibility for realising the remaining investments in the
Redemption Portfolio. Redeeming Shareholders should be aware that
realisation of assets in the Redemption Portfolio may still not
have occurred even after all of the investments in the Continuing
Portfolio have been realised.
7. Called up share capital
Continuing Continuing
Portfolio Portfolio
--------------------------------------------
2010 2009
--------------------------------------------
No. of
No. of Shares Shares
-------------------------------------------- -------------- -----------
Authorised
Unlimited number of shares at no par value - -
Issued at no par value
GBP Shares 41,233,649 41,859,900
EUR Shares 5,537,087 6,627,866
US$ Shares 2,719,786 1,048,710
-------------------------------------------- -------------- -----------
Reconciliation of number of ordinary shares
GBP Shares Continuing Portfolio
--------------------------------------------
2010 2009
--------------------------------------------
No. of Shares No. of Shares
-------------------------------------------- -------------- --------------
Issued GBP Shares at the start of the year 41,859,900 79,092,126
Redemption of GBP Shares - (27,925,515)
Conversion of GBP Shares (626,251) 238,086
Purchase of own GBP Shares into treasury
and cancelled - (9,544,797)
-------------------------------------------- -------------- --------------
Total GBP Shares at the end of the year 41,233,649 41,859,900
-------------------------------------------- -------------- --------------
Continuing Portfolio
2010 2009
EUR Shares No. of Shares No. of Shares
-------------------------------------------- -------------- --------------
Issued EUR Shares at the start of the year 6,627,866 15,758,167
Redemption of EUR Shares - (9,165,328)
Conversion of EUR Shares (1,090,779) 35,027
-------------------------------------------- -------------- --------------
Total EUR Shares at the end of the year 5,537,087 6,627,866
-------------------------------------------- -------------- --------------
Continuing Portfolio
2010 2009
US$ Shares No. of Shares No. of Shares
-------------------------------------------- -------------- --------------
Issued US$ Shares at the start of the year 1,048,710 1,482,881
Redemption of $ Shares - (206,848)
Conversion of EUR Shares to $ Shares 1,671,076 -
Conversion of US$ Shares - (227,323)
--------------------------------------------
Total US$ Shares at the end of the year 2,719,786 1,048,710
-------------------------------------------- -------------- --------------
The facility to convert between share classes operated in
respect of the March 2010 and September 2010 Conversion Calculation
Dates. On the basis of the Conversion Notices received by the
Company, Shares were converted between share classes as summarised
above.
As of 31 December 2010, the Board exercised its powers under the
Company's articles of incorporation to prohibit conversions from
the GBP Share class into US$ Share class, as it believed that the
limit requiring at least 25 per cent. of Shares of a class to be in
public hands was close to being breached, and that such a breach
would not be in the interests of Shareholders.
The rights attaching to the Ordinary Shares are as follows:
a) the holding of existing Ordinary Shares shall confer the
right to all other dividends in accordance with the Articles of
Association of the Company.
b) the existing 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) 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 respective classes of Shares at the
date of winding up or other return of capital, and amongst the
members of a particular class pro rata according to their holdings
of Shares of that class.
During the year, the Company purchased Nil (2009: 9,544,797) of
its own GBP Shares for consideration (2009: GBP7,512,540). All of
the Shares purchased were cancelled.
Treasury shares are recorded as part of Shareholders' equity
until they are reissued or cancelled as ordinary shares.
Also in issue is 1 subordinated non-voting share.
Redeeming Shareholders have no rights to vote at meetings or
dividends or to the capital and surplus assets of the Company other
than the Redemption Portfolio.
8. Reserves
Special Retained
Continuing Portfolio Reserve Earnings Total
As at 31 December 2010 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance 48,147 683 48,830
Net profit for the year - 279 279
48,147 962 49,109
--------------------------------------- --------- ---------- ---------
Special Retained
Redemption Portfolio Reserve Earnings Total
As at 31 December 2010 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance - - -
Net profit for the year - - -
- - -
--------------------------------------- --------- ---------- ---------
Special Retained
Company Total Reserve Earnings Total
As at 31December 2010 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance 48,147 683 48,830
Net profit for the year - 279 279
48,147 962 49,109
--------------------------------------- --------- ---------- ---------
Special Retained
Pre Reorganisation Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance 93,835 (3,072) 90,763
Repurchase of own Shares into
treasury (7,513) - (7,513)
Transfer to Continuing and Redemption
Portfolios (87,590) 3,072 (84,518)
Net income for the year 1,268 - 1,268
--------------------------------------- --------- ---------- ---------
- - -
--------------------------------------- --------- ---------- ---------
Special Retained
Continuing Portfolio Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ---------
Transfer from Original Portfolio 48,147 - 48,147
Net income for the year - 683 683
48,147 683 48,830
---------------------------------- --------- ---------- ---------
Special Retained
Redemption Portfolio Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ---------
Transfer from Original Portfolio 36,371 - 36,371
Amounts Payable to Redeeming
Shareholders (36,371) - (36,371)
- - -
---------------------------------- --------- ---------- ---------
Special Retained
Company Total Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ---------
Opening balance 93,835 (3,072) 90,763
Repurchase of own shares into
treasury (7,513) - (7,513)
Transfer between portfolios (3,072) 3,072 -
Amounts Payable to redeeming
Shareholders (36,371) - (36,371)
Net income for the year 1,268 683 1,951
48,147 683 48,830
---------------------------------- --------- ---------- ---------
9. Net asset value
The net asset value of each GBP, EUR and US$ Share has been
determined by dividing the net assets of the Continuing Portfolio
attributed to the GBP, EUR and US$ Shares of the Continuing
Portfolio by the number of GBP, EUR and US$ Continuing Shares in
issue at the year end as follows:
Net assets
attributable
to each share Shares in Net Assets
Continuing Portfolio class issue per share
------------------------ --------------- ----------- -----------
As at 31 December 2010
------------------------ --------------- ----------- -----------
GBP Share GBP40,541,826 41,233,649 GBP0.9832
EUR Share EUR6,567,507 5,537,087 EUR1.1861
US$ Share US$4,569,751 2,719,786 US$1.6802
------------------------ --------------- ----------- -----------
As at 31 December 2009
------------------------ --------------- ----------- -----------
GBP Share GBP40,824,796 41,859,900 GBP0.9753
EUR Share EUR7,810,379 6,627,866 EUR1.1784
US$ Share US$ 1,742,657 1,048,710 US$1.6617
10. Significant Agreements and Related Parties
a) Directors' Remuneration & Expenses
The annual Directors' fees comprise GBP26,000 payable to Mr
Dorey and GBP22,000 to Mr Hill, Audit Committee Chairman. Mr. Bowie
waived his right to an annual fee of GBP20,000.
At 31 December 2010 Directors' remuneration of GBP43,000 (2009:
GBP61,000) was charged and a payable amount of GBP12,000 (2009:
GBP17,000) was accrued in the Statement of Financial Position.
b) Manager
Dexion Capital (Guernsey) Limited (the "Manager") was
remunerated at a monthly rate of 0.125 per cent. per month of the
Total Assets of the Continuing Portfolio (out of which it pays the
trail commissions payable to qualifying investors, fees payable to
the Investment Adviser and fees payable to the Investment
Consultant) and at a monthly rate of 0.0416 per cent. per month of
the Total Assets of the Redemption Portfolio (out of which it pays
fees payable to the Investment Adviser and fees payable to the
Investment Consultant) for the provision of investment management
services.
The management fee is calculated on the NAV Calculation Date in
each calendar month and is payable monthly in arrears.
Additionally, the Manager is entitled to a performance fee,
provided the total assets attributable to a class of Continuing
Portfolio shares at the end of one financial year (having adjusted
for any issues, redemptions or repurchases of ordinary shares
arising on conversion of C shares or conversion from or to ordinary
shares of other classes and for any contingent or accrued but
unpaid liabilities) are greater than the value of the total assets
attributable to that class of ordinary shares (as adjusted) at the
end of any previous financial period, a performance fee equivalent
to 10 per cent. of the amount by which the period-end total assets
attributable to that class of ordinary shares exceed the greatest
value of the total assets attributable to that class of shares at
the end of any previous financial period (being adjusted as
referred to above). The performance fee is calculated and payable
annually in arrears. No performance fees were incurred during the
year ended 31 December 2010 (2009: Nil).
At 31 December 2010, management fees of GBP732,000 (2009:
GBP1,104,000) were charged and a payable amount of GBP62,000 (2009:
GBP66,000) was accrued in the Statement of Financial Position.
No performance fee is charged with respect of the Net Assets
attributable to the Redemption Portfolio.
The investment management agreement will terminate on 31 March
2011.
c) Investment Advisers
The Manager was responsible for the fees paid to MAN Investments
(CH) AG (formerly RMF Investment Management) (the "Investment
Adviser").
d) Administrator
HSBC Securities Services (Guernsey) Limited (the
"Administrator") performed administrative duties for which it was
remunerated at a rate of 0.1 per cent. per annum of the Net Asset
Value up to GBP49 million, 0.075 per cent. per annum of the next
GBP50 million, 0.05 per cent. of the next GBP125 million and 0.03
per cent. per annum thereafter per annum for both the Continuing
Portfolio and the Redemption Portfolio (subject to a minimum annual
fee of GBP50,000 calculated in total for the Continuing Portfolio
and Redemption Portfolio). On approval of liquidation of the
Company by the Shareholders, the Liquidator will take
responsibility for realising the Company assets, and at such time
the administration agreement will be terminated.
At 31 December 2010, administration fees of GBP91,000 (2009:
GBP131,000) were charged and a payable amount of GBP14,000 (2009:
GBP15,000) was accrued in the Statement of Financial Position.
e) Secretary
Dexion Capital (Guernsey) Limited (the "Secretary") performed
secretarial duties for which it was remunerated at an annual fee of
GBP24,000. On approval of liquidation of the Company by the
Shareholders, the Liquidator will take responsibility for realising
the Company assets, and at such time the secretarial agreement will
be terminated.
At 31 December 2010, secretary fees of GBP26,000 (2009:
GBP24,000) were charged and a payable amount of GBP10,000 (2009:
GBP4,000) was accrued in the Statement of Financial Position.
f) Custodian
Northern Trust (Guernsey) Limited (the "Custodian"), was
remunerated at an annual rate of 0.07 per cent. of the net asset
value of the Company up to GBP49 million, 0.065 per cent. of the
next GBP50 million, 0.06 per cent. of the next GBP125 million, 0.05
per cent. of the next GBP250 million 0.04 per cent. of the next
GBP200 million and 0.03 per cent. thereafter for both the
Continuing Portfolio and the Redemption Portfolio (subject to a
minimum annual fee of GBP18,000 calculated in total for the
Continuing Portfolio and Redemption Portfolio). On approval of
liquidation of the Company by the Shareholders, the Liquidator will
take the responsibility for realising the Company assets, and at
such time the custodian agreement will be terminated and will be
replaced by an agreement between the Liquidator and the
Custodian.
At 31 December 2010, custodian fees of GBP36,000 (2009:
GBP55,000) were charged and a payable amount of GBP3,000 (2009:
GBP7,000) was accrued in the Statement of Financial Position.
11. Taxation
The Company is registered for taxation purposes in Guernsey
where it pays an annual exempt status fee of GBP600 under The
Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989.
12. Distributions
The Directors do not expect income (net of expenses) to be
significant and do not currently expect to declare any dividends.
Subject to Shareholders approval at the Extraordinary General
Meeting on 11 April 2011, the liquidator will distribute the
residual assets to the Shareholders.
13. Basic and Diluted Earnings per Share
Continuing Portfolio
The calculation of the return per GBP, EUR and US$ Share is
based on the total return for the year attributable to GBP, EUR and
US$ Shares in the Continuing Portfolio and in the weighted average
number of GBP, EUR and US$ Shares in issue for the Continuing
Portfolio (excluding treasury shares) during the year as
follows:
Total return Weighted average
attributable no. of shares
to in
each share Return per
class issue share
For the year ended 31
December 2010
------------------------------ ------------- ----------------- ------------
GBP Share GBP397,224 42,739,344 GBP0.0093
EUR Share (EUR235,583) 4,435,361 (EUR0.0531)
US$ Share US$129,382 1,034,498 US$0.1251
Original Portfolio
The calculation of the return per GBP, EUR and US$ Share is
based on the total return for the period prior to Reorganisation
attributable to GBP, EUR and US$ Shares in the Continuing Portfolio
and on the weighted average number of GBP, EUR and US$ Shares in
issue (excluding treasury shares) during that period as
follows:
Total return Weighted average
attributable no. of shares
to in
each share Return per
class issue share
For the period from 1
January to 31 July 2009 :
---------------------------- --------------- ----------------- ------------
GBP Share GBP2,693,050 75,118,181 GBP0.0359
EUR Share (EUR1,475,971) 15,783,379 (EUR0.0935)
US$ Share (US$189,086) 1,378,379 (US$0.1372)
Continuing Portfolio
The calculation of the return per GBP, EUR and US$ Share is
based on the total return for the period post Reorganisation
attributable to GBP, EUR and US$ Shares in the Continuing Portfolio
and on the weighted average number of GBP, EUR and US$ Shares in
issue (excluding treasury shares) during that period as
follows:
Total return Weighted average
attributable no. of shares
to in
each share Return per
class issue share
For the period from 1 August
to 31 December 2009:
------------------------------- ------------- ----------------- -----------
GBP Share GBP288,637 41,768,410 GBP0.0069
EUR Share EUR407,162 6,669,659 EUR0.0610
US$ Share US$52,031 1,091,237 US$0.0477
The return per Share as disclosed is calculated on performance
per currency class and is expressed in currency prior to conversion
to reporting currency.
14. Derivatives and hedging
In the normal course of business the Company engages in currency
hedging to the Continuing Portfolio solely to reduce the risk of
currency fluctuations and the volatility of returns which may
result from currency exposure. This involves hedging the assets,
which are predominantly US dollar based, to Sterling and Euro, as
appropriate through the use of rolling forward foreign exchange
transactions.
The following forward foreign exchange contracts were in place
at 31 December 2010 in the Continuing Portfolio:
Currency bought Currency sold Maturity date Unrealised gain
---------------- -------------- ---------------- ----------------
GBP19,926,000 $30,739,242 31 January 2011 GBP233,536
GBP19,926,000 $30,798,622 31 January 2011 GBP195,496
EUR6,458,000 $8,479,225 31 January 2011 GBP115,497
The Redemption Portfolio does not hold any forward contracts as
at 31 December 2010 and 31 December 2009.
The following forward foreign exchange contracts were in place
at 31 December 2009 in the Continuing Portfolio:
Currency bought Currency sold Maturity date Unrealised gain
---------------- -------------- ---------------- ----------------
EUR7,707,504 US$11,041,000 29 January 2010 GBP3,125
GBP22,912,806 US$36,600,000 29 January 2010 GBP260,727
GBP18,024,289 US$28,792,000 29 January 2010 GBP204,654
15. Fair Value information
Many of the Company's financial instruments are carried at fair
value in the Statement of Financial Position. Usually the fair
value of the financial instruments can be reliably determined
within a reasonable range of estimates. For certain other financial
instruments including sales amounts due from/to brokers, accounts
payable and accrued expenses, the carrying amounts approximate the
fair value due to the immediate or short-term nature of these
financial instruments.
At 31 December 2010, the carrying amounts of hedge funds which
fair values are valued at the NAVs provided by underlying managers
or their administrators amounted to GBP46,296,000 (31 December
2009: GBP54,464,000).
At 31 December 2010, the carrying amounts of derivative
financial assets amounted to GBP545,000 (2009: GBP469,000) and
derivative financial liabilities GBPNil (2009: GBP1,000) which fair
values are valued using valuation techniques.
The major methods and assumptions used in estimating fair values
are disclosed in note 2 e) of the significant accounting policies
section. Actual results may differ from these estimates.
16. Exchange rates
The exchange rates to sterling at 31 December 2010 and 31
December 2009 were as follows:
2010 2009
----------- ------- -------
US Dollar 1.5613 1.6160
Euro 1.1643 1.1275
17. Ultimate Controlling Party
In the opinion of the Directors on the basis of the
shareholdings advised to them, the Company has no ultimate
controlling party.
18. Events Occurring After Statement of Financial Position
Date
Subsequent to 31 December 2010, the Board issued a Shareholder
Circular on 3 March 2011. The circular set out details of the
proposed realisation and liquidation process and gave notice of two
Extraordinary General Meetings at which the Shareholders should
consider the approval to implement the proposal. On 25 March 2011,
Shareholders approved the winding down of the Company, pursuant to
which the investment objective and policy of the Company were
amended to realise the investments in the Continuing Portfolio in
an orderly and timely manner, with a view to distributing cash to
Shareholders. On 11 April 2011, a Second Extraordinary General
Meeting will be convened to consider the Winding Up Resolution for
the winding up of the Company and to appoint a liquidator.
Pursuant to approval of the Winding Up of the Company, at the
time the Liquidator is appointed, the assets of the Company are
likely to comprise the cash attributable to the realized
investments of the Continuing Portfolio together with the illiquid
investments of both the Continuing and Redemption Portfolios, and
an amount of cash of approximately GBP200,000. The cash is provided
as working capital for the Liquidator, and is also intended to
cover the cost and expenses of the Winding Up. The Directors deemed
that the expenses relating to the winding up are not significant
hence these have not been accrued in these financial
statements..
19. Reconciliation of net asset value attributable to equity
Shareholders to the published net asset value
As at 31 December 2010 and 31 December 2009, there is no
difference between the net asset value attributable to equity
Shareholders to the published net asset value.
Enquiries:
Carol Kilby
Dexion Capital (Guernsey) Limited
Tel: +44 (0)1481 743943
This information is provided by RNS
The company news service from the London Stock Exchange
END
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