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TPOG Third Poi. ??

1,510.00
0.00 (0.00%)
28 Mar 2024 - Closed
Delayed by 15 minutes
Share Name Share Symbol Market Type Share ISIN Share Description
Third Poi. ?? LSE:TPOG London Ordinary Share GG00B1YQ6R97 ORD NPV £
  Price Change % Change Share Price Bid Price Offer Price High Price Low Price Open Price Shares Traded Last Trade
  0.00 0.00% 1,510.00 1,490.00 1,530.00 0.00 00:00:00
Industry Sector Turnover Profit EPS - Basic PE Ratio Market Cap
0 0 N/A 0

Third Point Offshore Investors Ltd - Annual Financial Report

28/04/2017 7:00am

PR Newswire (US)


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Third Point Offshore Investors Limited (the "Company")
(a closed-ended investment company incorporated with limited liability under the laws of Guernsey with registered number 47161)

28 April 2017

FULL YEAR Results for the TWELVE months ended 31 DECEMBER 2016

Third Point Offshore Investors Limited (“TPOIL” or the “Company”), the closed-end, London listed event-driven, value-oriented hedge fund managed by Daniel S. Loeb’s Third Point LLC (the “Investment Manager”) announces its full year results for the twelve months ended 31 December 2016.

Financial Highlights (as at 31 December 2016, unless otherwise stated)

- Net Asset Value (“NAV”) growth in USD class of 6.1% and GBP class of 5.6%

Ticker Tranche NAV FY16 NAV FY15 Return
TPOU USD Class $ $17.63 $16.62 6.1%
TPOG GBP Class £ £16.84 £15.95 5.6%

- The Company’s NAV increased 5.2% to $879.2 million (FY15:$835.9 million)

- On 10 January 2017, an annual distribution was declared equivalent to 4% of the NAV of the Company in respect of the year to 31 December 2016, amounting to $0.71 per USD share and £0.62 per GBP share

Portfolio Performance of the Master Fund

- The Investment Manager combined bottom up security selection with a top down macroeconomic overlay throughout the year. The combination afforded Third Point the ability to adjust exposures opportunistically around key macroeconomic and political events globally

- The net investment results for the year were driven by contribution from most strategies and sectors in the portfolio. Credit contributed the largest share of profits with modest losses in structured credit greatly outweighed by gains in corporate and sovereign credit

- Investments in the energy sector were the primary driver of returns for the year in corporate credit. Within equities, strong performance from investments in the financials and industrials sectors countered negative attribution from two large healthcare positions

Outlook

- The Investment Manager shifted the portfolio throughout 2016 and ended the year with more net exposure but less gross exposure relative to the beginning of the year

- In the near term, the Investment Manager expects to see accelerating growth in the U.S. and globally and fiscal stimulus in the U.S. The combination could cause earnings to rise and a very different investing environment. A reflationary market can create favorable conditions for Third Point’s investment strategies including event driven and value investing, risk arbitrage, and activism. The Investment Manager has increased exposure to equities across sectors and decreased investments in corporate and structured credit

Marc Antoine Autheman, Chairman of Third Point Offshore Investors Limited, commented: “I am pleased to report a solid growth in NAV from Third Point Offshore Investors for 2016, with the Investment Manager’s ability to allocate across both the capital structure and strategies contributing to a positive return in a volatile year.”

“Despite the positive NAV performance, the discount between NAV and the share price for each class widened during the year. The Board believes that this shift is driven primarily by investor sentiment about market conditions. The Board has been proactive in looking to address investor concerns, initiating a series of share buybacks in February 2016 and we are pleased to have been able to recently announce a dividend for 2016.

“Looking forward, the Investment Manager believes that a reflationary market can create favorable conditions for Third Point’s investment strategies including event driven and value investing, risk arbitrage, and activism. As such, the Investment Manager has increased exposure to equities across sectors and decreased investments in corporate and structured credit as it continues to look to identify compelling risk-adjusted opportunities for investment across the capital structure.”

Enquiries:

Third Point Offshore investors
Investor Relations

+1 212 715 6707
FTI Consulting
Ed Berry
Tom Blackwell

+44 (0)20 3727 1046
+44 (0)20 3727 1051
 

Notes to Editors

TPOIL is a feeder fund that invests in Third Point Offshore Fund Ltd. (the “Master Fund”), with the investment objective of achieving uncorrelated, long term, attractive risk-adjusted returns.  The Company has two share classes which differ by denomination (LSE: TPOU, TPOG).

Chairman’s Statement

I am pleased to present the Tenth Annual Report for Third Point Offshore Investors (“the Company”) for the year ended 31 December 2016.

The Company was established as a closed-end investment company, registered and incorporated in Guernsey on 19 July 2007. The Company invests its assets in Third Point Offshore Master Fund L.P. (the “Master Partnership”) via Third Point Offshore Fund, Ltd. (the “Master Fund”), which pursues an opportunistic investment approach based on event-driven fundamental value analysis across the capital structure. The Master Fund is managed on a discretionary basis by Third Point LLC (“the Investment Manager”).

The Company’s net asset value (the “NAV”) appreciated 6.1% for the U.S. Dollar and 5.6% for the Sterling share classes, respectively, in 2016. The performance was driven primarily by positive returns in the Master Fund’s corporate and sovereign credit positions. Gains were counterbalanced by losses in several large equity positions in the healthcare sector. The ability to allocate across the capital structure and across strategies is an important characteristic of the Third Point investment approach.

The Investment Manager combined bottom up security selection with a top down macroeconomic overlay throughout the year. The combination afforded Third Point the ability to adjust exposures opportunistically around key macroeconomic and political events globally. The Investment Manager shifted the investment portfolio meaningfully following the U.S. Presidential election. The shift resulted in an equity book with higher net exposure and a more balanced portfolio across sectors. The Investment Manager is less focused on credit opportunities in the current investment environment. The Investment Manager increased exposure to risk arbitrage transactions and generated positive returns from several merger-related investments in 2016.

The discount between NAV and the share price for each class widened substantially during the year despite positive NAV results. We believe this shift was led primarily by investor sentiment about market conditions and disappointment that the Company was unable to issue a dividend for 2015 due to insufficient performance in the Master Fund. To address investor concerns, we initiated a series of share buybacks in February 2016 through the Master Partnership and were pleased to recently announce a dividend for 2016. We will continue to abide by the discount policy introduced in the Fourth Quarter of 2012 and maintain a proactive approach to communications.

We believe in the importance of transparent communications with shareholders and aim to be responsive to your inquiries. To this end, the Company’s website (www.thirdpointpublic.com) publishes monthly NAVs, a monthly shareholder report, a narrative quarterly letter from the Investment Manager, and other relevant information about the Company.

In corporate governance matters, the independent Board of Directors and Audit Committee have met regularly.

My fellow Directors and I are honoured to serve our shareholders.

Marc Antoine Autheman

27 April 2017

Directors’ Report

The Directors submit their Report together with the Company’s Statements of Assets and Liabilities, Statements of Operations, Statements of Changes in Net Assets, Statements of Cash Flows and the related notes for the year ended 31 December 2016, “Audited Financial Statements”. These Audited Financial Statements have been properly prepared, in accordance with accounting principles generally accepted in the United States of America, any relevant enactment for the time being in force, and are in agreement with the accounting records and have been properly prepared in all material aspects. The Audited Financial Statements give a true and fair view of the financial position of the Company.

The Company

The Company was incorporated in Guernsey on 19 June 2007 as an authorised closed-ended investment scheme and was admitted to a secondary listing (Chapter 14) on the Official List of the London Stock Exchange on 23 July 2007. The proceeds from the initial issue of shares on listing amounted to approximately US$523 million. Following changes to the Listing Rules on 6 April 2010, the secondary listing became a standard listing.

The Company is a member of the Association of Investment Companies (“AIC”).

Investment Objective and Policy

The Company’s investment objective is to provide its Shareholders with consistent long term capital appreciation utilising the investment skills of Third Point LLC (the “Investment Manager”) through investment of all of its capital (net of short term working capital requirements) in Class E Shares of Third Point Offshore Fund, Ltd (the “Master Fund”), an exempted company formed under the laws of the Cayman Islands on 21 October 1996.

The Master Fund is a limited partner of Third Point Offshore Master Fund L.P. (the “Master Partnership”), an exempted limited partnership organised under the laws of the Cayman Islands, of which Third Point Advisors II L.L.C., an affiliate of the Investment Manager, is the general partner. Third Point LLC is the Investment Manager to the Company, the Master Fund and the Master Partnership. The Master Fund and the Master Partnership have the same investment objectives, investment strategies and investment restrictions.

The Master Fund and Master Partnership’s investment objective is to seek to generate consistent long term capital appreciation, by using an event driven, bottom-up, fundamental approach to evaluate various types of securities throughout companies’ capital structures. The Investment Manager’s implementation of the Master Fund and Master Partnership’s investment policy is the main driver of the Company’s performance.

The Investment Manager’s fundamental approach to investing begins with analysing a company’s financial performance, its management and competitive advantages, its position within its industry and the overall economy. This analysis is performed on historical and current data with the ultimate goal of producing a set of projected financial results for the company. Once the projections are established, the Investment Manager compares the current valuation of the company in question relative to its historical valuation range, the valuation range of its peers and the overall market in general to determine whether the markets are mis-pricing the company. The Investment Manager ultimately invests in situations where it believes mis-pricing exists because this fundamental analysis indicates that such a disconnection will correct itself over the long term.

The Investment Manager’s bottom-up approach attempts to identify individual companies that would make attractive investment targets based on their growth and profitability characteristics. This approach differs from a top-down methodology which first evaluates macro-economic, sector, industry or geographic factors to select the best sectors or industries for investment.

The Investment Manager seeks to identify Event Driven situations in which it can take either a long or short investment position where it can identify a near or long-term catalyst that would unlock value.

Results and Dividends

The results for the year are set out in the Statements of Operations. Except in unusual circumstances, it is anticipated that the Board of Directors of the Company (the “Board”), following discussions with the Investment Manager, will declare an annual cash dividend equivalent to 4-5% of the Net Asset Value (“NAV”) of the Company, to the extent that the positive NAV performance of the Company is sufficient to support such dividends. There were no distributions declared during the year (31 December 2015: $Nil). On 10 January 2017, an annual distribution was declared equivalent to 4% of the NAV of the Company in respect of the year to 31 December 2016, amounting to $0.71 per USD share and £0.62 per GBP share (31 December 2015: $Nil) and paid on 14 February 2017.

Share Capital

Share Capital Conversions took place during the year ended 31 December 2016. A summary and the number of shares in issue at the year-end are disclosed in Note 6 to the Audited Financial Statements.

Key performance indicators (“KPI’s”)

At each Board meeting, the Board considers a number of performance measures to assess the Company’s success in achieving its objectives. Below are the main KPI’s which have been identified by the Board for determining the progress of the Company:

• Net asset value;

• Share price; and

• Ongoing charges.

Directors

The Directors of the Company during the year and to the date of this report are as listed on this Annual Report.

Directors’ Interests

Mr. Targoff holds the position of Chief Operating Officer, Partner and General Counsel of Third Point LLC.

Pursuant to an instrument of indemnity entered into between the Company and each Director, the Company has undertaken, subject to certain limitations, to indemnify each Director out of the assets and profits of the Company against all costs, charges, losses, damages, expenses and liabilities arising out of any claims made against them in connection with the performance of their duties as a Director of the Company.

Christopher Legge and Keith Dorrian held 4,500 and 2,500 U.S. Dollar shares respectively as at 31 December 2016 (31 December 2015: Nil). No other Directors held shares in the Company during the year.

Corporate Governance Policy

The Board has considered the principles and recommendations of the Association of Investment Companies Code of Corporate Governance (“AIC Code”) by reference to the Association of Investment Companies Corporate Governance Guide for Investment Companies (“AIC Guide”). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code, as well as setting out additional principles and recommendations on issues that are of specific relevance.

The Board has determined that reporting against the principles and recommendations of the AIC Code, and by reference to the AIC Guide (which incorporates the UK Corporate Governance Code), will provide better information to Shareholders. The Company has complied with all the recommendations of the AIC Code and the relevant provisions of the UK Corporate Governance Code, except as set out below.

The UK Corporate Governance Code includes provisions relating to:

• the role of the chief executive;

• executive directors’ remuneration; and

• the need for an internal audit function.

For the reasons set out in the AIC Guide, the Board considers these provisions are not relevant to the position of the Company, being an externally advised investment company with no executive directors or employees. The Company has therefore not reported further in respect of these provisions.

The AIC Code provides a “comply or explain” code of corporate governance designed especially for the needs of investment companies. The AIC published the code of corporate governance and the Company has reviewed its compliance with these standards. The UK Financial Reporting Council (“FRC”) has confirmed that so far as investment companies are concerned it considers that companies which comply with the AIC Code will be treated as meeting their obligations under the UK Corporate Governance Code (“The UK Code”) and Section 9.8.6 of the Listing Rules. The AIC Code is publicly available at: http://www.theaic.co.uk/sites/default/files/hidden-files/AICCodeofCorporateGovernanceJUL16_0.pdf

The Company does not have employees, hence no whistle-blowing policy is necessary. However, the Directors have satisfied themselves that the Company’s service providers have appropriate whistleblowing policies and procedures and confirmation has been sought from the service providers that nothing has arisen under those policies and procedures which should be brought to the attention of the Board. The UK Code is publicly available at: https://www.frc.org.uk/Our-Work/Publications/Corporate-Governance/UK-Corporate-Governance-Code-2014.pdf

The Code of Corporate Governance (the “Guernsey Code”) provides a framework that applies to all entities licensed by the Guernsey Financial Services Commission (“GFSC”) or which are registered or authorised as a collective investment scheme. Companies reporting against the UK Code or the AIC Code are deemed to comply with the Guernsey Code. It is the Company’s policy to comply with the AIC Code.

The Board confirms that throughout the period covered in the financial statements, the Company complied with the Guernsey Code issued by the GFSC, to the extent it was applicable based upon its legal and operating structure and its nature, scale and complexity.

Board Structure

The Board currently consists of five non-executive Directors. As the Chairman of the Board is an independent non-executive, the Board considers it unnecessary to appoint a senior independent Director.

Name Position Independent Date Appointed
Marc Antoine Autheman Non-Executive  Chairman Yes 21 June 2007
Christopher Legge Non-Executive  Director Yes 19 June 2007
Keith Dorrian Non-Executive  Director Yes 19 June 2007
Christopher Fish Non-Executive  Director Yes 19 June 2007
Joshua L Targoff Non-Executive  Director No 29 May 2009

One third of the Directors retire by rotation at every Annual General Meeting (“AGM”) with the exception of Mr. J Targoff, who as the Chief Operating Officer, General Counsel and Partner of the

Investment Manager, is not considered independent and will therefore be subject to annual re-election by Shareholders. All other Directors are considered by the Board to be independent of the Company’s Investment Manager. Any Directors appointed to the Board since the previous AGM also retire and stand for re-election. The Independent Directors take the lead in any discussions relating to the appointment or re-appointment of directors. The Independent Directors consider it important that the Board includes a representative of the Investment Manager.

The Board meets at least four times a year and in addition there is regular contact between the Board, the Investment Manager and Northern Trust International Fund Administration Services (Guernsey) Limited (the “Administrator”), and the Board requires to be supplied in a timely manner with information by the Investment Manager, the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited (the “Company Secretary”) and other advisors in a form and of a quality appropriate to enable it to discharge its duties. The Board, excluding Mr. Targoff, regularly reviews the performance of the Investment Manager and the Master Fund to ensure that performance is satisfactory and in accordance with the terms and conditions of the relative appointments and Prospectus. It carries this review out through consideration of a number of objective and subjective criteria and through a review of the terms and conditions of the advisors’ appointment with the aim of evaluating performance, identifying any weaknesses and ensuring value for money for the Company’s Shareholders.

New Directors will receive an induction from the Investment Manager on joining the Board, and all Directors undertake relevant training as necessary.

The Company has no executive directors or employees. All matters, including strategy, investment and dividend policies, gearing and corporate governance procedures are reserved for approval by the Board of Directors. The Board receives full information on the Company’s investment performance, assets, liabilities and other relevant information in advance of Board meetings.

Board Tenure and Succession planning

The Board notes the AIC Code and UK Code suggest it would be good practice for all Directors to be offered for re-election at regular intervals subject to continued satisfactory performance. In accordance with the Company’s articles of incorporation, at least one third of the Independent Directors and Mr. Targoff (treated for the purposes of the AIC Code as a Non-Independent Director) will retire at each Annual General Meeting (Principle 3 - AIC Code). The Company considers that putting forward all Independent Directors for re-election more frequently would not be in the best interests of Shareholders.

The Board believes that benefits to Shareholders arise from the Directors’ long-term knowledge and experience of the Company and its management including their ongoing ability to independently review the performance of the Investment Manager.

The majority of the Board have been in office since the company was incorporated in 2007 and have served longer than nine years. The Board however, takes the view that independence is not necessarily compromised by the length of tenure on the Board and experience can add significantly to the Board’s strength.

The Directors undertake an annual evaluation of the Board’s performance and continuing independence and during this evaluation (which includes a review of the diversity of experience within the Board to ensure that it remains appropriate) all Directors are asked to confirm their future intentions. At the recent review Mr. Fish indicated his intention to retire from the Board at the 2017 AGM. The Board has robust procedures for the identification of prospective Non-Executive Director candidates, and as part of the selection process, due regard is paid to the recommendations for board diversity, however, ability and experience will be the prime considerations. During the last 6 months the Board has sought nominations from the Directors and from other relevant parties. A shortlist of well qualified candidates was produced who were then interviewed by an ad-hoc committee of independent Directors. The Board expects to be in a position to appoint a successor to Mr. Fish following approval of these Audited Financial Statements.

Directors’ Biographies

Marc Antoine Autheman

Marc Antoine Autheman, is a resident of France. He has over 38 years of experience in the public and private finance sectors. Mr. Autheman is currently Chairman of Euroclear S.A. and Chairman of Cube Infrastructure Fund. He worked in the French Treasury for ten years from 1978 to 1988, prior to joining the Minister of Finance’s private office, Minister Beregovoy, as advisor for monetary and financial affairs between 1988 and 1993. From 1993 to 1997, he worked as Executive Director for France for the International Monetary Fund and the World Bank and chaired the audit committee of the World Bank during this time. From 1997 to 2004, he worked in a number of roles at Credit Agricole S.A. (‘‘CASA’’), mainly as CEO of Credit Agricole Indosuez. He holds Master’s degrees in Law and Economics from the University of Paris.

Keith Dorrian

Keith Dorrian, is a Guernsey resident and has over 43 years’ experience in the offshore finance industry. Joining Manufacturers Hanover in 1973 he moved to First National Bank of Chicago in 1984 where he was appointed Vice President and Company Secretary. In 1989 he joined ANZ Bank (Guernsey) where, as a Director of the Bank and Fund Management company, he was closely involved in the banking and fund management services of the Group. He took up the position of Manager Corporate Clients in Bank of Bermuda Guernsey in 2000 and was appointed local Head of Global Fund Services and Managing Director of the Guernsey Bank’s Fund Administration company Management International (Guernsey) Limited in Guernsey in 2001, retiring on 31 December 2003. He is currently a member of the Guernsey Investment Fund Association, the Institute of Financial Services, the Institute of Directors and is a Director of a number of funds and fund management companies and holds the Institute of Directors Diploma in Company Direction. Mr. Dorrian was elected a Fellow of the Institute of Directors.

Christopher Fish

Christopher Fish, is Guernsey resident and is a director of a UK listed fund as well as three Guernsey based financial companies. During the past 42 years he has held executive positions as a director of the Royal Bank of Canada (Channel Islands) Limited and as the Americas Offshore Head of Coutts where he was responsible for the Bahamas, Bermuda, Cayman and Uruguay offices. In 1997 he was appointed the Senior Client Partner for Coutts Offshore before taking up the position of Managing Director of Close International Private Banking in 1999 from where he retired in 2005.

Christopher Legge

Christopher Legge, is a Guernsey resident and worked for Ernst & Young in Guernsey from 1983 to 2003. Having joined the firm as an audit manager in 1983, he was appointed a partner in 1986 and managing partner in 1998. From 1990 to 1998, he was head of Audit and Accountancy and was responsible for the audits of a number of insurance, banking, investment fund and financial services clients. He also had responsibility for the firm’s training, quality control and compliance functions. He was appointed managing partner of Ernst & Young for the Channel Islands region in 2000. Since his retirement from Ernst & Young in 2003, Mr. Legge has held a number of non-executive directorships in the financial sector. He is an FCA and holds a BA (Hons) in Economics from the University of Manchester.

Joshua L. Targoff

Joshua L. Targoff has been the Chief Operating Officer of the Investment Manager since May 2009. He joined as General Counsel in May 2008. Previously, Mr. Targoff was the General Counsel of the Investment Banking Division of Jefferies & Co. Mr. Targoff spent seven years doing M & A transactional work at Debevoise & Plimpton LLP. Mr. Targoff graduated with a J.D. from Yale Law School, and holds a B.A. from Brown University. In 2012, Mr. Targoff was made a Partner of the Investment Manager.

Meeting Attendance Records

The table below lists Directors’ attendance at meetings during the year, to the date of this report.

Scheduled
Board
Audit Committee
Meetings Meetings
Attended Attended
Marc Antoine Autheman 4 of 4 3 of 3
Christopher Legge 4 of 4 3 of 3
Keith Dorrian 4 of 4 3 of 3
Christopher Fish 4 of 4 3 of 3
Joshua L Targoff1,2 3 of 4 N/A

1 Mr. Targoff is not a member of the Audit Committee.

2 Mr. Targoff does not attend Meetings as a director where recommendations from the Investment Manager are under consideration.

Committees of the Board

The AIC Code requires the Company to appoint nomination, remuneration and management engagement committees. The Board has not deemed this necessary as, being comprised wholly of non-executive Directors, the whole Board considers these matters. The Directors have included a Directors’ Remuneration Report on these Financial Statements.

Following the “Women on Boards” review conducted by Lord Davies’ of Abersoch in February 2011, the Board has examined Lord Davies’ recommendations and noted that it was consistently reviewing its policy and future appointments to the Board would continue to be based on the individual’s skills and experience regardless of gender.

The Investment Manager has wide experience in managing and administering fund vehicles and has access to extensive investment management resources. The Board considers that the continued appointment of the Investment Manager on the terms agreed would be in the interests of the Company’s Shareholders as a whole.

Audit Committee

The Company’s Audit Committee conducts formal meetings at least three times a year for the purpose, amongst others, of considering the appointment, independence, effectiveness of the audit and remuneration of the auditors and to review and recommend the annual statutory accounts and interim report to the Board of Directors. Full Details of its functions and activities are set out in the Report of the Audit Committee on these Financial Statements.

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;

• Board composition and accountability to Shareholders;

• Risk assessment and management, including reporting, compliance, monitoring, governance and control; and

• Other matters having material effects on the Company.

These Reserved Powers of the Board have been adopted by the Directors to clearly demonstrate the seriousness with which the Board takes its fiduciary responsibilities and as an ongoing means of measuring and monitoring the effectiveness of its actions.

The Directors are responsible for the overall management and direction of the affairs of the Company. The Company has no Executive Directors or employees. The Company invests all of its assets in shares of the Master Fund and Third Point LLC acts as Investment Manager to the Master Fund and is responsible for the discretionary investment management of the Master Fund’s investment portfolio under the terms of the Master Fund Prospectus.

Northern Trust International Fund Administration Services (Guernsey) Limited (“NT”) acts as Administrator and Company Secretary and is responsible to the Board under the terms of the Administration Agreement. The Administrator is also responsible to the Board for ensuring compliance with the Rules and Regulations of The Companies (Guernsey) Law, London Stock Exchange listing requirements and observation of the Reserved Powers of the Board and in this respect the Board receives detailed quarterly reports.

The Directors have access to the advice and services of the Company Secretary who is responsible to the Board for ensuring that Board procedures are followed and that it complies with applicable rules and regulations of The Companies (Guernsey) Law, the GFSC and the London Stock Exchange. Individual Directors may, at the expense of the Company, seek independent professional advice on any matter that concerns them in the furtherance of their duties. The Company maintains appropriate Directors’ and Officers’ liability insurance in respect of legal action against its Directors on an ongoing basis and the Company has maintained appropriate Directors’ Liability Insurance cover throughout the year.

The Board is also responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other irregularities.

Internal Control and Financial Reporting

The Directors acknowledge that they are responsible for establishing and maintaining the Company’s system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss.

The Directors review all controls including operations, compliance and risk management. The key procedures which have been established to provide internal control are:

• Investment advisory services are provided by the Investment Manager. The Board is responsible for setting the overall investment policy, ensuring compliance with the Company’s Investment Strategy and monitors the action of the Investment Manager and Master Fund at regular Board meetings. The Board has also delegated administration and company secretarial services to NT; however it retains accountability for all functions it has delegated.

• The Board considers the process for identifying, evaluating and managing any significant risks faced by the Company on an on-going basis. It ensures that effective controls are in place to mitigate these risks and that a satisfactory compliance regime exists to ensure all local and international laws and regulations are upheld. Particular attention has been given to the effectiveness of controls to monitor liquidity risk, asset values, counterparty exposure and credit availability.

• The Board clearly define the duties and responsibilities of their agents and advisors and appointments are made by the Board after due and careful consideration. The Board monitors the ongoing performance of such agents and advisors.

• The Investment Manager and NT maintain their own systems of internal control, on which they report to the Board. The Company, in common with other investment companies, does not have an internal audit function. The Audit Committee has considered the need for an internal audit function, but because of the internal control systems in place at the Investment Manager and NT, has decided it appropriate to place reliance on their systems and internal control procedures.

• The systems are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

Board Performance

The Board and Audit Committee undertake a formal annual evaluation of their own performance and that of their committees and individual Directors. In order to review their effectiveness, the Board and Audit Committee carry out a process of formal self-appraisal. The Directors and Committee consider how the Board and Audit Committee functions as a whole and also review the individual performance of its members. This process is conducted by the respective Chairman reviewing individually with each of the Directors and members of the Committee their performance, contribution and commitment to the Company. The performance of the Chairman is evaluated by the other independent Directors.

Management of Principal Risks and Uncertainties

As noted in the Statement of Directors’ Responsibilities in respect of the Audited Financial Statements, the Directors are required to provide a description of the principal risks and uncertainties facing the Company. The Directors have considered the risks and uncertainties facing the Company and have prepared and review regularly a risk matrix which documents the significant risks faced by the Company.

This process has been in place for the year under review and up to the date of approval of this Annual Report and Financial Statements and is reviewed by the Board and is in accordance with the Guidance on Risk Management, Internal Control and Related Financial and Business Reporting.

This document considers the following information:

• Identifying and reporting changes in the risk environment;

• Identifying and reporting changes in the operational controls;

• Identifying and reporting on the effectiveness of controls and remediation of errors arising; and

• Reviewing the risks faced by the Company and the controls in place to address those risks.

The Directors have acknowledged they are responsible for establishing and maintaining the Company’s system of internal control and reviewing its effectiveness by focusing on four key areas:

• Consideration of the investment advisory services provided by the Investment Manager;

• Consideration of the process for identifying, evaluating and managing any significant risks faced by the Company on an ongoing basis;

• Clarity around the duties and responsibilities of the agents and advisors engaged by the Directors; and

• Reliance on the Investment Manager and Administrator maintaining their own systems of internal controls.

Further discussion on Internal Control is documented in the Directors’ Report under “Internal Control and Financial Reporting”.

The main risks and uncertainties that the Directors consider to apply to the Company are as follows:

• Underlying investment performance of the Master Fund. To mitigate this risk the Directors receive regular updates from the Investment Manager on the performance of the Master Fund. The Board reviews quarterly performance updates on the Master Fund and has access to the Investment Manager on any potential question raised;

• Concentration of Investor Base. The Directors receive quarterly investor reports from Jefferies International Limited (“Corporate Broker”) and there is regular communication between the Directors and Broker to identify potential significant changes in the shareholder base;

• Discount/Premium to the NAV. The Investment Manager, Corporate Broker and, when considered necessary, the Board of Directors, maintain regular contact with the significant Shareholders in the Company. As part of the ongoing process to seek to narrow the discount to NAV per Share at which the Shares are traded, the Directors introduced an annual dividend policy and a share repurchase programme which is outlined in Note 6. Under the dividend policy it was anticipated that the Company would pay a cash dividend of 4-5% of NAV to the extent that the positive NAV performance of the Company would support such a dividend and absent other, exigent circumstances relating to the Investment Manager and/or otherwise. There was no dividend declared during the year ended 31 December 2016. An annual distribution equivalent to 4% of the NAV of the Company was declared on 10 January 2017 amounting to $35,416,482 (31 December 2015: $Nil) and paid on 14 February 2017. The Board monitors the discount/premium to the NAV on a regular basis and continually maintains regular contact with significant Shareholders and the Investment Manager when necessary.

• Performance of the Investment Manager. The Directors review the performance of the Investment Manager on an annual basis and Board representatives conduct annual visits to the Investment Manager;

• Failure of appointed service providers to the Company. The Directors conduct a formal review of each service provider annually in addition to receiving regular updates from each service provider and ensuring that there is ongoing communication between the Board and the various service providers to the Company;

• Financial Risk. The Board employs independent administrators to prepare the Financial Statements of the Company and meets with the independent auditors at least twice a year to discuss all financial matters including the appropriateness of the accounting policies.

• Liquidity Risk. Shares of the Master Fund may be redeemed quarterly on 60 days’ prior written notice or at other times with the consent of the Master Fund’s Board of Directors in order to pay Company expenses. The majority of the investments held by the Master Fund are held in cash and securities with quoted prices available in active markets/exchanges.

Viability Statement

In accordance with provision C.2.2 of the UK Corporate Governance Code, published by the Financial Reporting Council in September 2014 (“The Code”), the Directors have assessed the prospects of the Company over the three year period to 31 December 2019. The Directors consider that three years is an appropriate period based on a review of the Company’s investment horizon, anticipated cash flows, management arrangements as well as the liquidity of the Company’s investment in the Master Fund.

The investment objective of the Company is to invest all of its investable capital, net of short-term working capital requirements, in Class E Shares of Third Point Offshore Fund Limited (the “Master Fund”). The Company’s performance and operations therefore depend upon the performance of the Master Fund and the Directors in assessing the viability of the Company pay particular attention to the risks facing the Master Fund. The Investment Manager’s Review sets out details of the Company’s financial performance, and outlook.

In its assessment of the viability of the Company, the Directors have considered each of the Company’s principal risks and uncertainties as well as the internal control and financial reporting processes detailed above and in particular the underlying investment performance of the Master Fund and share price discount to NAV.

The Directors acknowledge the two year notice period of the Investment Manager serving notice under the Management Agreement. To mitigate against this risk, the Directors meet regularly with the Investment Manager to review the Company’s performance, and closely monitor the relationship with the Investment Manager. The Directors confirm their belief that the Company will remain viable for the period to 31 December 2019.

Going Concern

During 2016, the Directors have carried out a robust assessment of the principal risks facing the Company, including those that would threaten its business model, future performance, solvency or liquidity. The Directors believe that the Company is well placed to manage its business risks successfully, having taken into account the current economic outlook.

The Directors, having considered the above risks and reviewed ongoing budgeted expenses, have a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due.

After making enquiries and given the nature of the Company and its investment, the Directors are satisfied that it is appropriate to continue to adopt the going concern basis in preparing these Audited Financial Statements. The Master Fund Shares are liquid and can be converted to cash to meet liabilities as they fall due. After due consideration, the Directors consider that the Company is able to continue for the foreseeable future.

Significant Events During The Year

There were no significant events during the year.

Relations with Shareholders

The Board welcomes Shareholders’ views and places great importance on communication with its Shareholders. The Board receives regular reports on the views of shareholders and the Chairman and other Directors are available to meet shareholders if required. Shareholders who wish to communicate with the Board should, in the first instance contact the Administrator, whose contact details can be found on the Company’s website. The Annual General Meeting of the Company provides a forum for shareholders to meet and discuss issues with the Directors of the Company. The ninth Annual General Meeting was held on 22 June 2016 with all proposed resolutions being passed by the Shareholders.

Foreign Account Tax Compliance Act and International Tax Reporting

The Foreign Account Tax Compliance Act (“FATCA”) legislation is aimed at determining the ownership of US assets in foreign accounts and improving US tax compliance with respect to those assets. On 13 December 2013, The States of Guernsey signed an intergovernmental agreement (“IGA”) with US Treasury in order to facilitate the requirements under FATCA. The US-Guernsey IGA came into effect on 30 June 2014. In accordance with FATCA, the Company has registered with the US Internal Revenue Services (“IRS”) as a Guernsey reporting Foreign Financial Institution (“FFI”) and has received a Global Intermediary Identification Number (“GIIN”) which can be found on the IRS FFI list.

The Common Reporting Standard (“CRS”) is a global standard for the automatic exchange of financial account information developed by the Organisation for Economic Co-operation and Development (“OECD”), which has been adopted by Guernsey and which came into effect on 1 January 2016. The CRS replaced the intergovernmental agreement between the UK and Guernsey to improve international tax compliance that had previously applied in respect of 2014 and 2015.

Significant Shareholdings

As at 17 April 2017, the Company have been notified that the following had significant shareholdings in excess of 5% in the Company:

Total Shares Held % Holdings in Class
Significant Shareholders
US Dollar Shares
Vidacos Nominees Limited 10,397,552 21.87%
Goldman Sachs Securities (Nominees) Limited 10,027,304 21.09%
HSBC Global Custody Nominee (UK) 3,311,542 6.97%
Nortrust Nominees Limited 2,960,486 6.23%
Lynchwood Nominees Limited 2,854,534 6.00%
Sterling Shares
Vidacos Nominees Limited 390,662 19.26%
HSBC Global Custody Nominee (UK) 251,428 12.67%
Nortrust Nominees Limited 201,598 10.16%
Alliance Trust Savings Nominees 165,212 8.33%
Hargreaves Lansdown (Nominees) 124,485 6.27%
The Bank of New York Nominees Limited 116,024 5.85%
Lawshare Nominees Limited 99,593 5.02%

The Directors confirm to the best of their knowledge:-

• there is no relevant audit information of which the Company’s Auditor is unaware of, and each Director has taken steps he ought to have taken as a Director to make himself aware of any relevant information and to establish that the Company’s Auditor is aware of that Information;

• these Annual Report and Audited Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America and give a true and fair view of the financial position of the Company;

• these Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for the shareholder to assess the Company’s performance, business model and strategy; and

• these Annual Report and Audited Financial Statements include information detailed in the Directors’ Report, the Investment Manager’s Review and Notes to the Audited Financial Statements, which provide a fair review of the information required by:-

a)     DTR 4.1.8 of the Disclosure and Transparency Rules (“DTR”), being a fair review of the Company business and a description of the principal risks and uncertainties facing the Company; and

b)    DTR 4.1.11 of the DTR, being an indication of important events that have occurred since the ending of the financial year and the likely future development of the Company.

Signed on behalf of the Board by:

Marc Antoine Autheman

Chairman

Christopher Legge

Director

27 April 2017

Disclosure of Directorships in Public Listed Companies

The following summarises the Directors’ directorships in public companies:

Company Name Exchange

   

Christopher Legge
Ashmore Global Opportunities Limited

London
John Laing Environmental Assets Group Limited London
Sherborne Investors (Guernsey) B Limited London
TwentyFour Select Monthly Income Fund Limited London

Keith Dorrian

Keith Dorrian
AB Alternative Strategies PCC Limited

Channel Islands
AB International Fund PCC Limited Channel Islands
DW Catalyst Fund Limited London
IIAB PCC Limited Channel Islands
MasterCapital Fund Limited Ireland

   

Christopher Fish
Boussard & Gavaudan Holding Limited

Euronext and London

Statement of Directors’ Responsibilities in Respect of the Audited Financial Statements

The Directors are responsible for preparing the Audited Financial Statements in accordance with applicable Guernsey Law and generally accepted accounting principles. Guernsey Company Law requires the Directors to prepare Financial Statements for each financial year which give a true and fair view of the state of affairs of the Company and of the net income or expense of the Company for that year.

In preparing these Audited Financial Statements the Directors should:

• select suitable accounting policies and then apply them consistently;

• make judgements and estimates that are reasonable and prudent;

• state whether the applicable accounting standards have been followed subject to any material departures disclosed and explained in the Audited Financial Statements; and

• prepare the Audited Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Audited Financial Statements comply with The Companies (Guernsey) Law, 2008. They are also responsible for the system of internal controls, safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The Directors have responsibility to confirm that:

• there is no relevant audit information of which the Company’s Auditor is unaware of, and each Director has taken all the steps he ought to have taken as a Director to make himself aware of any relevant information and to establish that the Company’s Auditor is aware of that information; • these Annual Report and Audited Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America and give a true and fair view of the financial position of the Company;

• these Annual Report and Audited Financial Statements, taken as a whole, are fair, balanced and understandable and provide information necessary for the shareholder to assess the Company’s performance, business model and strategy; and

• these Annual Report and Audited Financial Statements include information detailed in the Directors’ Report, the Investment Manager’s Review and Notes to the Audited Financial Statements, which provide a fair review of the information required by:-

a)      DTR 4.1.8 of the Disclosure and Transparency Rules (“DTR”), being a fair review of the Company business and a description of the principal risks and uncertainties facing the Company; and

b)      DTR 4.1.11 of the DTR, being an indication of important events that have occurred since the ending of the financial year and the likely future development of the Company.

Signed on behalf of the Board by:

Marc Antoine Autheman
Chairman

Christopher Legge
Director

27 April 2017

Directors’ Remuneration Report

Introduction

The Board has prepared this report as part of its framework for corporate governance which, as described in the Directors’ Report, enables the Company to comply with the main requirements of the UK Corporate Governance Code published by the Financial Reporting Council.

An ordinary resolution for the approval of this report will be put to the shareholders at the forthcoming Annual General Meeting.

Remuneration policy

All Directors are non-executive and a Remuneration Committee has not been established. The Board as a whole considers matters relating to the Directors’ remuneration. No advice or services were provided by any external person in respect of its consideration of the Directors’ remuneration.

The Company’s policy is that the fees payable to the Directors should reflect the time spent by the Directors on the Company’s affairs and the responsibilities borne by the Directors and be sufficient to attract, retain and motivate Directors of a quality required to run the Company successfully. The Chairman of the Board is paid a higher fee in recognition of his additional responsibilities, as is the Chairman of the Audit Committee. The policy is to review fee rates periodically, although such a review will not necessarily result in any changes to the rates, and account is taken of fees paid to Directors of comparable companies.

There are no long term incentive schemes provided by the Company and no performance fees are paid to Directors.

No Director has a service contract with the Company but each of the Directors is appointed by a letter of appointment which sets out the main terms of their appointment. Director appointments can also be terminated in accordance with the Articles. Should shareholders vote against a Director standing for re-election, the Director affected will not be entitled to any compensation.

Directors are remunerated in the form of fees, payable quarterly in arrears, to the Director personally. No other remuneration or compensation was paid or payable by the Company during the year to any of the Directors apart from the reimbursement of allowable expenses.

Directors’ fees

Due to an inflationary rise since the last director fee increase on 6 June 2014, it was resolved to approve the following director fee increases with effect from 1 January 2017:

Marc Antoine Autheman – £63,000 (increase of £3,000)

Chris Legge – £46,000 (increase of £2,000)

Keith Dorrian – £38,000 (increase of £2,000)

Chris Fish – £38,000 (increase of £2,000)

The fees payable by the Company in respect of each of the Directors who served during 2016 and 2015, were as follows:

2016 2015
£ £
Marc Antoine Autheman (Chairman) 60,000 60,000
Christopher F L Legge (Audit Committee Chairman) 44,000 44,000
Keith Dorrian 36,000 36,000
Christopher N Fish 36,000 36,000
Joshua L Targoff *
Total 176,000 176,000
USD equivalent US$228,783 US$267,271

*As a non-independent Director and Partner of the Investment Manager Joshua L Targoff waived his Directors fee.

Performance table

The table details the share price returns over the year.

Signed on behalf of the Board by:

Marc Antoine Autheman
Chairman

Christopher Legge
Director

27 April 2017

Report of the Audit Committee

On the following pages, we present the Audit Committee (the “Committee”) Report for the year ended 31 December 2016, setting out the Committee’s structure and composition, principal duties and key activities during the year. As in previous years, the Committee has reviewed the Company’s financial reporting, the independence and effectiveness of the independent auditor and the internal control and risk management systems of service providers.

The Board is satisfied that for the year under review and thereafter the committee has recent and relevant commercial and financial knowledge sufficient to satisfy the provisions of The Code.

Structure and Composition

The Committee is chaired by Christopher Legge and its other members are Marc Antoine Autheman, Keith Dorrian and Christopher Fish. The Committee operates within clearly defined terms of reference and comprises all the Directors except the Investment Manager’s representative.

On 18 November 2016, the Board agreed to amend the Audit Committee Terms of Reference to indicate that appointments to the Audit Committee shall be for a period of up to three years, which may be extended for two further three year periods, and thereafter annually, provided that the Director whose appointment is being considered remains an Independent Director for the period of extension.

Name of Audit Committee Member Date of Appointment to Audit Committee Next Date for Review

Chris Legge

19 June 2007
– 17 April 2013 *
– 18 April 2016
– April 2019

Marc-Antoine Autheman

21 June 2007
– 17 April 2013 *
– 18 April 2016
– April 2019

Keith Dorrian

19 June 2007
– 17 April 2013 *
– 14 April 2015
– April 2018

Chris Fish

19 June 2007
– 17 April 2013 *
– 16 April 2014
– April 2017

* Date specific tenure introduced on 17 April 2013.

The Committee conducts formal meetings at least three times a year. The table under Director Meeting Attendances  sets out the number of Committee meetings held during the year ended 31 December 2016 and the number of such meetings attended by each committee member. The independent auditor is invited to attend those meetings at which the annual and interim reports are considered. The independent auditor and the Committee will meet together without representatives of either the Administrator or Investment Manager being present if either considers this to be necessary.

Principal Duties

The role of the Committee includes:

• monitoring the integrity of the published financial statements of the Company;

• keeping under review the consistency and appropriateness of accounting policies on a year to year basis. Satisfying itself that the annual accounts, the interim statement of financial results and any other major financial statements issued by the Company follow generally accepted accounting principles and give a true and fair view of the Company and any associated undertakings’ affairs; matters raised by the external auditors about any aspect of the accounts or, of the Company’s control and audit procedures, are appropriately considered and, if necessary, brought to the attention of the Board, for resolution.

• monitoring and reviewing the quality and effectiveness of the independent auditors and their independence;

• considering and making recommendations to the Board on the appointment, reappointment, replacement and remuneration of the Company’s independent auditor;

• monitoring and reviewing the internal control and risk management systems of the service providers; and

• considering at least once a year whether there is a need for an internal audit function.

The complete details of the Committee’s formal duties and responsibilities are set out in the Committee’s terms of reference, which can be obtained from the Company’s website.

Independent Auditor

The Committee is also the forum through which the independent auditor (the “auditor”) reports to the Board of Directors. The objectivity of the auditor is reviewed by the Committee which also reviews the terms under which the auditor is appointed to perform non-audit services. The Committee reviews the scope and results of the audit, its cost effectiveness and the independence and objectivity of the auditor, with particular regard to non-audit fees. The Committee has established pre-approval policies and procedures for the engagement of Ernst & Young LLP to provide non-audit services.

Ernst & Young LLP has been the independent auditor from the date of the initial listing on the London Stock Exchange.

The audit fees proposed by the auditors each year are reviewed by the Committee taking into account the Company’s structure, operations and other requirements during the year and the Committee makes recommendations to the Board.

There were no non-audit fees paid to Ernst and Young LLP during the year other than in respect of the interim review of the Company’s condensed accounts to 30 June 2016. The Committee considers Ernst & Young LLP to be independent of the Company. The Committee also met with the external auditors without the Investment Manager or administrator being present so as to provide a forum to raise any matters of concern in confidence.

Evaluations or Assessments Made During the Year

The following sections discuss the assessments made by the Committee during the year:

Significant Areas of Focus for the Financial Statements’

The Committee’s review of the interim and annual financial statements focused on the following area:

The Company’s investment in the Master Fund represents substantially all the net assets of the Company and as such is the biggest factor in relation to the accuracy of the Financial Statements. The holding in the Master Fund has been confirmed with the Company’s administrator and the Master Fund. This investment has been valued in accordance with the Accounting Policies set out in Note 3 to the Audited Financial Statements. The Audit Committee has reviewed the Financial Statements of the Master Fund and their Accounting Policies and determined the fair value of the investment as at 31 December 2016 is reasonable. The Financial Statements of the Master Fund for the year ended 31 December 2016 were audited by Ernst & Young who issued an unmodified audit opinion dated 17 March 2017.

Effectiveness of the Audit

The Committee had formal meetings with Ernst & Young LLP during the course of the year: 1) before the start of the audit to discuss formal planning, discuss any potential issues and agree the scope that will be covered and 2) after the audit work was concluded to discuss any significant matters such as those stated above.

The Board considered the effectiveness and independence of Ernst & Young LLP by using a number of measures, including but not limited to:-

• the audit plan presented to them before the start of the audit;

• the audit results report including where appropriate, explanation for any variations from the original plan;

• changes to audit personnel;

• the auditor’s own internal procedures to identify threats to independence;

• feedback from both the Investment Manager and the Administrator; and

• the Committee obtains confirmation from Ernst & Young LLP on their independence as additional comfort for the Committee.

Further to the above, at the conclusion of the 2016 audit, the Committee performed a specific evaluation of the performance of the independent auditor. This is supported by the results of questionnaires completed by the Committee covering areas such as quality of audit team, business understanding, audit approach and management. This questionnaire was part of the process by which the Committee assessed the effectiveness of the audit.

There were no adverse findings from this evaluation.

The outsourcing of any non-audit services such as interim review, tax compliance, tax structuring, private letter rulings, accounting advice, quarterly reviews and disclosure are normally permitted but should be pre-approved by the Committee, or two non-executive Directors.

The annual budget for both the audit and audit related services was presented to the Committee for pre-approval.

Audit fees and Safeguards on Non-Audit Services

The tables below summarises the remuneration payable by the Company to Ernst & Young LLP during the years ended 31 December 2016 and 31 December 2015.

31 December 2016 31 December 2015
US$ US$
Interim review
Ernst & Young LLP 50,183 53,111
Annual audit – the Company
Ernst & Young LLP 37,032 44,172
Total Fees 87,215 97,283
Annual Audit – Third Point Offshore Independent Voting Company Limited
Ernst & Young LLP 8,417 9,718

The independence of Ernst & Young LLP is in the Committee’s opinion not compromised by Ernst & Young performing the interim review.

Internal Control

The Committee has examined the need for an internal audit function. The Committee considered that the systems and procedures employed by the Investment Manager and the Administrator, including their internal audit functions, provided sufficient assurance that a sound system of internal control, which safeguards the Company’s assets, has been maintained. An internal audit function specific to the Company is therefore considered unnecessary.

The Committee has requested and received SOC1 or equivalent reports such as service provider assessment reports from the Investment Manager, the Company’s Administrator and Master Fund’s Administrators to enable it to fulfil its duties under its terms of reference. Representatives of the auditors, Investment Manager and the Administrator attend the meetings as a matter of practice and presentations are made by those attendees as and when required.

The Committee also attended the Investment Manager’s operational due diligence presentation which occurs every two years in February 2016.

Conclusion and Recommendation

After reviewing various reports such as the operational and risk management framework and performance reports from management, liaising where necessary with Ernst & Young LLP, and assessing the significant areas of focus for financial statement issues listed, the Committee is satisfied that the financial statements appropriately address the critical judgements and key estimates (both in respect to the amounts reported and the disclosures).

The Committee is also satisfied that the significant assumptions used for determining the value of assets and liabilities have been appropriately scrutinised, challenged and are sufficiently robust.

The Independent Auditor reported to the Committee that no material misstatements were found in the course of its work. Furthermore, both the Investment Manager and the Administrator confirmed to the Committee that they were not aware of any material misstatements including matters relating to presentation. The Committee confirms that it is satisfied that the Independent Auditor has fulfilled its responsibilities with diligence and professional scepticism.

Consequent to the review process on the effectiveness of the independent audit and the review of audit services, the Committee has recommended that Ernst & Young LLP be reappointed for the coming financial year.

For any questions on the activities of the Committee not addressed in the foregoing, a member of the Committee remains available to attend each Annual General Meeting to respond to such questions.

The UK Corporate Governance Code issued by the Financial Reporting Council (“FRC”) included a recommendation to put audits out to tender at least every ten years. The EU Competition Commission have also issued draft proposals in respect of audit tendering and mandatory rotation of auditors. The Company is not required to apply this EU Directive as they are not an EU Public Interest Entity (“PIE”), due to being incorporated in Guernsey. However, the Audit Partner rotates every five years and the Company will consider putting the audit out to tender every ten years in line with the FRC’s suggestions on audit tendering. This will be considered further when the audit partner next rotates. The Audit Committee will continue to monitor developments around these proposals and will formulate a policy in respect to audit tendering and rotation at the appropriate time.

Christopher Legge
Audit Committee Chairman

27 April 2017

Investment Manager’s Review

Performance Summary¹

USD Class
31-Dec-16 31-Dec-15 % Return
Share Price 14.38 14.70 (2.2%)
Net asset value per share 17.63 16.62 6.1%
Premium/(discount) (18.4%) (11.6%)
GBP Class 31-Dec -16 31-Dec-15 % Return
Share Price 14.15 15.05 (6.0%)
Net asset value per share 16.84 15.95 5.6%
Premium/(discount) (16.0%) (5.6%)

¹ For the period 1 January 2016 to 31 December 2016.

Strategy Performance

For the twelve months ended 31 December 2016, the net asset value per share increased by 6.1% and 5.6% in the U.S. Dollar and Sterling share classes, respectively.

The investment market in 2016 was extremely volatile. Several key events had a profound impact on market movements including the lack of swift currency devaluation in China during the First Quarter, the Brexit vote in June, and the U.S. Presidential election in November. Correct interpretation of the events, proactive positioning, and a nimble portfolio were vital aspects to successful investing.

The net investment results for the year were driven by contribution from most strategies and sectors in the portfolio. Credit contributed the largest share of profits with modest losses in structured credit greatly outweighed by gains in corporate and sovereign credit. Investments in the energy sector were the primary driver of returns for the year in corporate credit. Within equities, strong performance from investments in the financials and industrials sectors countered negative attribution from two large healthcare positions.

Risk Outlook

The Investment Manager shifted the portfolio throughout 2016 and ended the year with more net exposure but less gross exposure relative to the beginning of the year. In the near term, the Investment Manager expects to see accelerating growth in the U.S. and globally and fiscal stimulus in the U.S. The combination could cause earnings to rise and a very different investing environment. A reflationary market can create favorable conditions for Third Point’s investment strategies including event driven and value investing, risk arbitrage, and activism. The Investment Manager has increased exposure to equities across sectors and decreased investments in corporate and structured credit

.

At 31 December 2016, exposure in the Investment Manager’s portfolio across four funds and three managed accounts was as follows1:

Long Short Net
Equities 64.3% (6.0%) 58.3%
Credit 33.2% (6.9%) 26.3%
Other 18.7% (19.1%) (0.4%)

1Relates to the Third Point Offshore Master Fund L.P.

Net equity exposure is defined as the long exposure minus the short exposure of all equity positions (including long/short, arbitrage, and other strategies), and can serve as a rough measure of the exposure to fluctuations in overall market levels. The Investment Manager continues to closely monitor the liquidity of the portfolio, and is comfortable that the current composition is aligned with the redemption terms of the fund.

Third Point LLC

27 April 2017

Independent Auditor’s Report

to the members of Third Point Offshore Investors Limited

Our opinion on the financial statements

In our opinion:

• the financial statements of Third Point Offshore Investors Limited (the “Company”) give a true and fair view of the state of affairs of the Company as at 31 December 2016 and of its results for the year then ended;

• the financial statements have been properly prepared in accordance with accounting principles generally accepted in the United States of America; and

• the financial statements have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008.

What we have audited

The Company’s financial statements comprise:

• Statements of Assets and Liabilities;

• Statements of Operations;

• Statements of Changes in Net Assets;

• Statements of Cash Flows;

• Related notes 1 to 13 to the financial statements;

The financial reporting framework that has been applied in their preparation is applicable law and accounting principles generally accepted in the United States of America.

Overview of our audit approach

Risks of material misstatement:

• valuation of investments; and

• existence and ownership of investments.

Audit scope:

• We performed an audit of the complete financial statements of the Company for the year ended 31 December 2016;

• Procedures were performed on the audit team’s behalf by EY New York, under our instruction and supervision, in respect of the Company’s share of the Master Fund’s income and expenses as reported in the Statement of Operations.

Materiality:

• overall materiality of US$17.6 million which represents 2% of total equity.

Our assessment of risks of material misstatement

We identified the risks of material misstatement described below as those that had the greatest effect on our overall audit strategy, the allocation of resources in the audit and the direction of the efforts of the audit team. In addressing these risks, we have performed the procedures below which were designed in the context of the financial statements as a whole and, consequently, we do not express any opinion on these individual areas.

Risk Our response to the risk What we concluded to the Audit
Committee
Valuation of investments ($879m, PY comparative $836m)

Refer to the Audit Committee Report and Accounting Policies

The investments held are measured at fair value through profit or loss, and their fair value is determined by reference to the published NAV per share of the investee fund, as calculated by its independent administrator.

The valuation risk considers the risk of an error in the application of the published NAV per share, obtained from the independent administrator of the investee fund, when calculating the fair value of the Company’s investments.
Our response comprised of substantive audit testing of investment valuation, including:

• Agreeing the valuation per share of the Company’s investments in the investee fund to the NAV per share of the investee fund published by its independent administrator; and

• Agreeing the valuation per share of the Company’s investments in the investee fund to the NAV per share of the investee fund per its audited financial statements for the year ended 31 December 2016, which were approved on 17 March 2017.
We confirmed there were no matters identified during our audit work on valuation of investments that we wanted to bring to the attention of the Audit Committee.
Existence and ownership of investments ($879m, PY comparative $836m)

Refer to the Audit Committee Report and Accounting Policies .

Risk that investments presented in the financial statements do not exist or the Company does not have the rights to cash flows derived from them. Failure to obtain good title exposes the Company to significant risk of loss.
Our response comprised performance of substantive audit testing of investment existence and ownership including:

• Obtaining a confirmation, as at 31 December 2016, of the Company’s holdings in the investee fund into which the Company invests, from the independent administrator of the investee fund, and agreeing it to the accounting records of the Company; and

• Obtaining contracts/ supporting documentation for additions and disposals of holdings in the investee fund that took place during the year ended 31 December 2016, and agreeing the details to the accounting records of the Company, on a sample basis.
We confirmed there were no matters identified during our audit work on existence and ownership of investments that we wanted to bring to the attention of the Audit Committee.

Addressing the risk of management override is a requirement of auditing standards, and we concluded that this risk is most likely to occur in the risk areas identified above. As a result, we have not provided separate responses to the risk of management override, and have instead reflected this consideration of risk as part of our responses to the specific risks set out above.

The scope of our audit

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope. Taken together, this enables us to form an opinion on the financial

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the audit and in forming our audit opinion.

Materiality

“Materiality” is the magnitude of an omission or misstatement that, individually or in aggregate, could reasonably be expected to influence the economic decisions of the users of the financial statements.

Materiality provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Company to be US$17.6 million (2015: US$16.7 million) which is approximately 2% (2015: 2%) of net assets. We used net assets as a basis for determining materiality because the Company’s primary performance measures for internal and external reporting are based on net assets.

During the course of our audit we reassessed initial materiality and noted no factors leading us to amend materiality levels from those originally determined at the audit planning stage.

Performance materiality

“Performance materiality” is the application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Company’s overall control environment our judgment was that performance materiality was 75% (2015: 75%) of materiality, namely US$13.2 million (2015: US$12.5 million).

We have set performance materiality at this percentage due to investment strategy remaining consistent with our previous experience and limited identification of audit findings in previous periods.

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of US$0.88million (2015:US$0.84million) which is set at 5% of planning materiality, as well as differences below that threshold, that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other relevant qualitative considerations in forming our opinion.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error.

This includes an assessment of:

• whether the accounting policies are appropriate to the Company’s circumstances and have been consistently applied and adequately disclosed;

• the reasonableness of significant accounting estimates made by the directors; and

• the overall presentation of the financial statements.

In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implication for our report.

Respective responsibilities of directors and auditor

As explained more fully in the Directors’ Responsibilities Statement, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

This report is made solely to the Company’s members, as a body, in accordance with Section 262 of the Companies (Guernsey) Law, 2008. Our audit work has been undertaken so that we might state to the Company’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Matters on which we are required to report by exception

Under the ISAs (UK and Ireland) reporting We are required to report to you if, in our opinion, financial and non-financial information in the annual report is:
• materially inconsistent with the information in the audited financial statements; or
• apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Group acquired in the course of performing our audit; or
• otherwise misleading.

In particular, we are required to report whether we have identified any inconsistencies between our knowledge acquired in the course of performing the audit and the directors’ statement that they consider the annual report and accounts taken as a whole is fair, balanced and understandable and provides the information necessary for shareholders to assess the entity’s performance, business annual report appropriately addresses those matters that we communicated to the audit committee that we consider should have been disclosed. model and strategy; and whether the annual report appropriately addresses those matters that we communicated to the audit committee that we consider should have been disclosed
We have no exceptions to report.
Listing Rules review requirements We are required to review:
• the directors’ statement in relation to going concern, and longer-term viability, and
• the part of the Corporate Governance Statement relating to the company’s compliance with the provisions of the UK Corporate Governance Code specified for our review.
We have no
exceptions to
report.
The Companies (Guernsey) Law, 2008 We are required to report to you if, in our opinion:
• adequate accounting records have not been kept; or
• the financial statements are not in agreement with the accounting records and returns; or
• we have not received the information and explanations required for our audit.
We have nothing material to add or to draw attention to.

   

ISAs (UK and Ireland) reporting We are required to give a statement as to whether we have anything material to add or to draw attention to in relation to:
• the directors’ confirmation in the annual report that they have carried out a robust assessment of the principal risks facing the entity, including those that would threaten its business model, future performance, solvency or liquidity;
• the disclosures in the annual report that describe those risks and explain how they are being managed or mitigated;
• the directors’ statement in the financial statements about whether they considered it appropriate to adopt the going concern basis of accounting in preparing them, and their identification of any material uncertainties to the entity’s ability to continue to do so over a period of at least twelve months from the date of approval of the financial statements; and
• the directors’ explanation in the annual report as to how they have assessed the prospects of the entity, over what period they have done so and why they consider that period to be appropriate, and their statement as to whether they have a reasonable expectation that the entity will be able to continue in operation and meet its liabilities as they fall due over the period of their assessment, including any related disclosures drawing attention to any necessary qualifications or assumptions.
We have
nothing
material to add
or to draw
attention to.

Christopher James Matthews FCA
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
27 April 2017

1.   The maintenance and integrity of the Third Point Offshore Investors Limited web site is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website.

2.   Legislation in Guernsey governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Statements of Assets and Liabilities

As at As at
31 December 2016 31 December 2015
(Stated in United States Dollars) US$ US$
Assets
Investment in Third Point Offshore Fund Ltd at fair value
(Cost: US$451,424,093 31 December 2015: US$451,964,939)

879,180,943

835,871,318
Cash 88,845 99,015
Redemption receivable 132,000 174,000
Other assets 16,782 30,260
Total assets 879,418,570 836,174,593
Liabilities
Accrued expenses and other liabilities 118,217 156,305
Directors’ fees payable (Note 5) 70,549 66,649
Administration fee payable (Note 4) 43,858 40,894
Total liabilities 232,624 263,848
Net assets 879,185,946 835,910,745
Number of Ordinary Shares in issue (Note 6)
US Dollar Shares 47,500,847 47,655,833
Sterling Shares 2,014,842 1,868,055
Net asset value per Ordinary Share (Notes 8 and 11)
US Dollar Shares $17.63 $16.62
Sterling Shares £16.84 £15.95
Number of Ordinary B Shares in issue (Note 6)
US Dollar Shares 31,667,254 31,770,577
Sterling Shares 1,343,242 1,245,382

The financial statements were approved by the Board of Directors on 27 April 2017 and signed on its behalf by:

Marc Antoine Autheman
Chairman

Christopher Legge
Director

See accompanying notes and attached Audited Financial Statements of Third Point Offshore Fund Ltd. and Third Point Offshore Master Fund L.P.

Statements of Operations

For the year ended For the year ended
31 December 2016 31 December 2015
(Stated in United States Dollars) US$ US$
Realised and unrealised gain/(loss) from investment transactions allocated from Master Fund
Net realised gain from securities, derivative contracts and foreign
currency translations

18,699,871

17,074,389
Net change in unrealised gain/(loss) on securities, derivative
contracts and foreign currency translations

29,019,101

(34,520,795)
Net gain/(loss) from currencies allocated from Master Fund 879,489 (839,993)
Total net realised and unrealised gain/(loss) from investment
transactions allocated from Master Fund

48,598,461

(18,286,399)
Net investment income / (loss) allocated from Master Fund
Interest income 19,186,554 11,706,015
Dividends, net of withholding taxes of US$2,264,844
(31 December 2015: US$2,149,987)

6,307,813

5,318,091
Other income 333,666 323,867
Stock borrow fees (419,877) (253,056)
Incentive allocation (Note 2) (6,384,420) (6,342)
Investment Management fee (16,996,235) (17,541,615)
Dividends on securities sold, not yet purchased (768,064) (518,764)
Interest expense (2,500,010) (1,680,569)
Other expenses (2,896,563) (2,542,826)
Total net investment loss allocated from Master Fund (4,137,136) (5,195,199)
Company expenses
Administration fee (Note 4) (159,895) (170,079)
Directors’ fees (Note 5) (228,783) (267,271)
Other fees (700,217) (761,926)
Expenses paid on behalf of Third Point Offshore Independent Voting Company Limited (Note 4)
(97,229)

(121,320)
Total Company expenses (1,186,124) (1,320,596)
Net loss (5,323,260) (6,515,795)
Net increase/(decrease) in net assets resulting from operations 43,275,201 (24,802,194)

See accompanying notes and attached Audited Financial Statements of Third Point Offshore Fund Ltd. and Third Point Offshore Master Fund L.P.

Statements of Changes in Net Assets

For the year ended For the year ended
31 December 2016 31 December 2015
(Stated in United States Dollars) US$ US$
Increase in net assets resulting from operations
Net realised gain from securities, commodities, derivative contracts and foreign currency translations allocated from Master Fund
18,699,871

17,074,389
Net change in unrealised gain/(loss) on securities, derivative contracts and foreign currency translations allocated from Master Fund

29,019,101


(34,520,795)
Net gain/(loss) from currencies allocated from Master Fund 879,489 (839,993)
Total net investment loss allocated from Master Fund (4,137,136) (5,195,199)
Total Company expenses (1,186,124) (1,320,596)
Net increase/(decrease) in net assets resulting from operations 43,275,201 (24,802,194)
Net assets at the beginning of the year 835,910,745 860,712,939
Net assets at the end of the year 879,185,946 835,910,745

See accompanying notes and attached Audited Financial Statements of Third Point Offshore Fund Ltd. and Third Point Offshore Master Fund L.P.

Statements of Cash Flows

For the year ended For the year ended
31 December 2016 31 December 2015
(Stated in United States Dollars) US$ US$
Cash flows from operating activities (682,827) (938,824)
Operating expenses (224,883) (267,679)
Directors’ fees (156,931) (172,917)
Administration fee (97,229) (121,320)
Third Point Offshore Independent Voting Company Limited¹ 1,151,700 46,855,500
Redemption from Master Fund
Cash (outflow)/inflow from operating activities (10,170) 45,354,760
Cash flows from financing activities
Dividend distribution (45,347,221)
Net (decrease)/increase in cash (10,170) 7,539
Cash at the beginning of the year 99,015 91,476
Cash at the end of the year 88,845 99,015

¹Third Point Offshore Independent Voting Company Limited consists of Director Fees, Audit Fee and General Expenses.

See accompanying notes and attached Audited Financial Statements of Third Point Offshore Fund Ltd. and Third Point Offshore Master Fund L.P.

Notes to the Audited Financial Statements
For the year ended 31 December 2016

1. The Company

Third Point Offshore Investors Limited (the “Company”) is an Authorised closed-ended investment company incorporated in Guernsey on 19 June 2007 for an unlimited period, with registration number 47161.

2. Organisation

Investment Objective and Policy

The Company’s investment objective is to provide its Shareholders with consistent long term capital appreciation, utilising the investment skills of the Investment Manager, through investment of all of its capital (net of short-term working capital requirements) in Class E shares of Third Point Offshore Fund, Ltd. (the “Master Fund”), an exempted company formed under the laws of the Cayman Islands on 21 October 1996. The Master Fund’s investment objective is to seek to generate consistent long-term capital appreciation, by using an event driven, bottom-up, fundamental approach to evaluate various types of securities throughout companies’ capital structures. The Master Fund is managed by the Investment Manager and the Investment Manager’s implementation of the Master Fund’s investment policy is the main driver of the Company’s performance. The Master Partnership invests all of its investable assets in a corresponding open-end management investment company having the same investment objective as the Master Partnership.

The Master Fund is a limited partner of Third Point Offshore Master Fund L.P. (the “Master Partnership”), an exempted limited partnership organised under the laws of the Cayman Islands, of which Third Point Advisors II L.L.C., an affiliate of the Investment Manager, is the general partner. Third Point LLC is the Investment Manager to the Company, the Master Fund and the Master Partnership. The Master Fund and the Master Partnership share the same investment objective, strategies and restrictions as described above.

The Audited Financial Statements of the Master Fund and the Audited Financial Statements of the Master Partnership, should be read alongside the Company’s Annual Report and Audited Financial Statements.

Investment Manager

The Investment Manager is a Limited Liability Company formed on 28 October 1996 under the laws of the State of Delaware. The Investment Manager was appointed on 27 June 2007 and is responsible for the management and investment of the Company’s assets on a discretionary basis in pursuit of the Company’s investment objective, subject to the control of the Company’s Board and certain borrowing and leveraging restrictions.

The Company does not pay the Investment Manager for its services as the Investment Manager is paid a management fee of 2 per cent per annum of the Company’s share of the Master Fund’s net asset value (the “NAV”) and a general partner incentive allocation of 20 per cent of the Master Fund’s NAV growth (“Full Incentive Fee”) invested in the Master Partnership, subject to certain conditions and related adjustments, by the Master Fund. If a particular series invested in the Master Fund depreciates during any fiscal year and during subsequent years there is a profit attributable to such series, the series must recover an amount equal to 2.5 times the amount of depreciation in the prior years before the Investment Manager is entitled to the Full Incentive Fee. Until this occurs, the series will be subject to a reduced incentive fee equal to half of the Full Incentive Fee. The Company was allocated US$6,384,420 (31 December 2015: US$6,342) of incentive fees for the year ended 31 December 2016.

3. Significant Accounting Policies

Basis of Presentation

These Audited Financial Statements have been prepared in accordance with relevant accounting principles generally accepted in the United States of America (“US GAAP”). The functional and presentational currency of the Company is United States Dollars.

Management has determined that the Fund is an investment company in conformity with US GAAP. Therefore the Fund follows the accounting and reporting guidance for investment companies in the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 946, Financial Services – Investment Companies (“ASC 946”).

The following are the significant accounting policies adopted by the Company:

Cash and Cash Equivalents

Cash in the Statements of Assets and Liabilities comprises cash at bank and on hand. Usually this is short term cash that settles between 0-3 months.

Valuation of Investments

The Company records its investment in the Master Fund at fair value. Fair values are generally determined utilising the net asset value (“NAV”) provided by, or on behalf of, the underlying Investment Managers of each investment fund. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 820 “Fair Value Measurement”, fair value is defined as the price the Company would receive upon selling a security in a timely transaction to an independent buyer in the principal or most advantageous market of the security. For further information refer to the Master Partnership’s Audited Financial Statements.

The valuation of securities held by the Master Partnership, which the Master Fund directly invests in, is discussed in the notes to the Master Partnership’s Audited Financial Statements. The net asset value of the Company’s investment in the Master Fund reflects its fair value. At 31 December 2016, the Company’s US Dollar and Sterling shares represented 12.26% and 0.61% (31 December 2015: 10.94% and 0.61%) respectively of the Master Fund’s net asset value.

Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its equivalent) (“ASU 2015-07”), in which certain investments measured at fair value using the net asset value per share method (or its equivalent) as a practical expedient are not required to be categorised in the fair value hierarchy.

Uncertainty in Income Tax

ASC Topic 740 “Income Taxes” requires the evaluation of tax positions taken or expected to be taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more likely- than-not” of being sustained by the applicable tax authority based on the technical merits of the position. Tax positions not deemed to meet the more-likely-than-not threshold would be recorded as a tax benefit or expense in the year of determination. Management has evaluated the implications of ASC 740 and has determined that it has not had a material impact on these Audited Financial Statements.

Income and Expenses

The Company records its proportionate share of the Master Fund’s income, expenses and realised and unrealised gains and losses on a monthly basis. In addition, the Company accrues interest income, to the extent it is expected to be collected, and other expenses.

Use of Estimates

The preparation of Audited Financial Statements in conformity with US GAAP may require management to make estimates and assumptions that affect the amounts and disclosures in the financial statements and accompanying notes. Actual results could differ from those estimates. Other than what is underlying in the Master Fund and the Master Partnership, the Company does not use any estimates in respect of amounts that are material to the Audited Financial Statements.

Foreign Exchange

Investment securities and other assets and liabilities denominated in foreign currencies are translated into United States Dollars using exchange rates at the reporting date. Purchases and sales of investments and income and expense items denominated in foreign currencies are translated into United States Dollars at the date of such transaction. All foreign currency translation gains and losses are included in the Statement of Operations.

Recent accounting pronouncements

In August 2014, the FASB issued ASU 2014-15 – Presentation of Financial Statements – Going Concern (Subtopic 205-40)(“ASU 2014-15”). The pronouncement defined management’s responsibility regarding the assessment of the Company’s ability to continue as a going concern, even if the Company’s liquidation is not imminent. Currently, no similar guidance exists for manager representation of going concern. Under this guidance, during each period on which financial statements are prepared, management needs to evaluate whether there are conditions or events that, in the aggregate, raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are issued. Substantial doubt exists if these conditions or events indicate that the Company will be unable to meet its obligations as they become due. If such conditions or events exist, management should develop a plan to mitigate or alleviate these conditions or events. Regardless of management’s plan to mitigate, certain disclosures must be made in the financial statements. ASU 2014- 15 is effective for annual periods ending after 15 December 2016. The Company has adopted the pronouncement in the current year. Having reassessed the principal risks; the Directors considered it appropriate to adopt the going concern basis of accounting in preparing the Audited Financial Statements.

In May 2015, the FASB issued ASU 2015-07, Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or its equivalent) (“ASU 2015-07”), in which certain investments measured at fair value using the net asset value per share method (or its equivalent) as a practical expedient are not required to be categorised in the fair value hierarchy. This guidance is effective for annual reporting periods, including interim periods, beginning after 15 December 2016. The Company and the Master Partnership have adopted ASU 2015-07 and accordingly have not levelled applicable positions.

In January 2016, the FASB issued Accounting Standards Update No. 2016-01 (ASU 2016-01) “Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities.” ASU 2016-01 amends various aspects of the recognition, measurement, presentation, and disclosure for financial instruments. ASU 2016-01 is effective for annual reporting periods, and interim periods within those years beginning after 15 December 2017. We do not expect that this standard will have a material effect on our financial statements.

4. Material Agreements

Management and Incentive fees

The Investment Manager was appointed by the Company to invest its assets in pursuit of the Company’s investment objectives and policies. As disclosed in Note 2, the Investment Manager is remunerated by the Master Fund by way of management fees and incentive fees.

Administration fees

Under the terms of an Administration Agreement dated 29 June 2007, the Company appointed Northern Trust International Fund Administration Services (Guernsey) Limited as Administrator (the “Administrator”) and Corporate Secretary.

The Administrator is paid fees based on the NAV of the Company, payable quarterly in arrears. The fee is at a rate of 2 basis points of the NAV of the Company for the first £500 million of NAV and a rate of 1.5 basis points for any NAV above £500 million. This fee is subject to a minimum of £4,250 per month.

The Administrator is also entitled to an annual corporate governance fee of £30,000 for its company secretarial and compliance activities.

In addition, the Administrator is entitled to be reimbursed out-of-pocket expenses incurred in the course of carrying out its duties, and may charge additional fees for certain other services.

Total Administrator expenses during the year amounted to US$159,895 with US$43,858 outstanding (31 December 2015: US$170,079 with US$40,894 outstanding).

Related Party

The Company has entered into a support and custody agreement with Third Point Offshore Independent Voting Company Limited (“VoteCo”) whereby, in return for the services provided by VoteCo, the Company will provide VoteCo with funds from time to time in order to enable VoteCo to meet its obligations as they fall due. Under this agreement, the Company has also agreed to pay all the expenses of VoteCo, including the fees of the directors of VoteCo, the fees of all advisors engaged by the directors of VoteCo and premiums for directors and officers insurance. The Company has also agreed to indemnify the directors of VoteCo in respect of all liabilities that they may incur in their capacity as directors of VoteCo. The expense paid by the Company on behalf of Voteco during the year is outlined in the Statement of Operations and amounted to US$97,229 (31 December 2015: US$121,320).

5. Directors’ Fees

The Chairman is entitled to a fee of £60,000 per annum. All other independent Directors are entitled to receive £36,000 per annum with the exception of Mr. Legge who receives £44,000 per annum as the audit committee chairman. Mr. Targoff has waived his fees. The Directors are also entitled to be reimbursed for expenses properly incurred in the performance of their duties as Director. The Directors’ fees during the year amounted to US$228,783 with US$70,549 outstanding (31 December 2015:US$267,271 with US$66,649 outstanding).

6. Share Capital

The Company was incorporated with the authority to issue an unlimited number of Ordinary Shares (the “Shares”) with no par value and an unlimited number of Ordinary B Shares (“B Shares”) of no par value. The Shares may be divided into at least two classes denominated in US Dollar and Sterling.

The Company has issued approximately 40 per cent of the aggregate voting rights of the Company to VoteCo in the form of B Shares. The B Shares are unlisted and except for an entitlement to receive a fixed annual dividend at a rate of 0.0000001 pence (Sterling) do not carry any other economic interests and at all times will represent approximately 40 per cent of the aggregate issued capital of the Company. The Articles of Association provide that the ratio of issued US Dollar B Shares to Sterling B Shares shall at all times approximate as closely as possible the ratio of issued US Dollar Shares to Sterling Shares in the Company.

US Dollar Shares Sterling Shares
Number of Ordinary Shares 47,655,833 1,868,055
Shares issued 1 January 2016
Shares Converted
Total shares transferred to share class during the year 225,301 311,571
Total shares transferred out of share class during the year (380,287) (164,784)
Shares in issue at end of year 47,500,847 2,014,842

   

US Dollar Sterling Shares
Shares US$ US$
Share Capital Account
Share capital account at 1 January 2016 369,431,423 33,311,828
Shares Converted
Total share value transferred to share class during the year 3,731,924 6,673,612
Total share value transferred out of share class during the year (6,673,612) (3,731,924)
Share capital account at end of year 366,489,735 36,253,516

   

US Dollar Shares Sterling Shares
Number of Ordinary B Shares
Share capital account at 1 January 2016 31,770,577 1,245,382
Shares Converted
Total shares transferred to share class during the year 150,201 207,715
Total shares transferred out of share class during the year (253,524) (109,855)
Shares in issue at end of year 31,667,254 1,343,242

In respect of each class of Shares a separate class account has been established in the books of the Company. An amount equal to the aggregate proceeds of issue of each Share Class has been credited to the relevant class account. Any increase or decrease in the NAV of the Master Fund, as calculated by the Master Fund, is allocated to the relevant class account in the Company according to the number of shares held by each class.

Each class account is allocated those costs, expenses, losses, dividends, profits, gains and income which the Directors determine in their sole discretion relate to a particular class. Expenses which relate to the Company as a whole rather than specific classes are allocated to each class in the proportion that its NAV bears to the Company as a whole.

Voting Rights

Ordinary Shares carry the right to vote at general meetings of the Company and to receive any dividends, attributable to the Ordinary Shares as a class, declared by the Company and, in a winding-up will be entitled to receive, by way of capital, any surplus assets of the Company attributable to the Ordinary Shares as a class in proportion to their holdings remaining after settlement of any outstanding liabilities of the Company. B Shares also carry the right to vote at general meetings of the Company but carry no rights to distribution of profits or in the winding-up of the Company.

As prescribed in the Company’s Articles, each Shareholder present at general meetings of the Company shall, upon a show of hands, have one vote. Upon a poll, each Shareholder shall, in the case of a separate class meeting, have one vote in respect of each Share or B Share held and, in the case of a general meeting of all Shareholders, have one vote in respect of each US Dollar Share or US Dollar B Share held, and two votes in respect of each Sterling Share or Sterling B Share held. Fluctuations in currency rates will not affect the relative voting rights applicable to the Shares and B Shares. In addition all of the Company’s Shareholders have the right to vote on all material changes to the Company’s investment policy.

Repurchase of Shares and Discount Control

The Directors of the Company were granted authority to purchase in the market up to 14.99 per cent of each class of Shares in issue at the Annual General Meeting on 22 June 2016, and they intend to seek annual renewal of this authority from Shareholders. The Directors propose to utilise this share repurchase authority to address any imbalance between the supply of and demand for shares. Pursuant to the Director’s share repurchase authority, the Company, through the Master Fund, commenced a share repurchase program in December 2007. The Shares are being held by the Master Partnership. The Master Partnership’s gains or losses and implied financing costs related to the shares purchased through the share purchase programme are entirely allocated to the Company’s investment in the Master Fund. The Master Partnership has an ownership of 11.87% of the USD shares outstanding at 31 December 2016 (31 December 2015: 10.66%). In addition, the Company, the Master Fund, the Investment Manager and its affiliates have the ability to purchase Shares in the after-market at any time the Shares trade at a discount to NAV. The Master Partnership purchased 600,000 US Dollar Shares during the year ended 31 December 2016.

At 31 December 2016 and 31 December 2015 the Master Partnership held the following Shares in the Company in the after-market:

Number of Average Cost
31 December 2016 Currency Shares Cost per Share
US Dollar Shares USD 5,879,753 US$65,025,532 US$11.06

   

Number of Average Cost
31 December 2015 Currency Shares Cost per Share
US Dollar Shares USD 5,279,753 US$56,710,193 US$10.74

Further issue of Shares

Under the Articles, the Directors have the power to issue further shares on a non-pre-emptive basis. If the Directors issue further Shares, the issue price will not be less than the then-prevailing estimated weekly NAV per Share of the relevant class of Shares.

Share Conversion Scheme

The Company’s Articles incorporate provisions to enable Shareholders of any one Class of Ordinary Shares to convert all or part of their holding into any other Currency Class of Ordinary Share on a monthly basis on the following terms:

(1) the right of conversion is exercisable by the said holder giving to the Company or its authorized agent at least 10 business days notice;

(2) the notice shall specify the number and Currency Class to be converted from and the Currency Class of Ordinary Shares into which they are to be converted.

(3) the notice shall be submitted either through submission of the relevant instruction mechanism or through the return of the relevant Ordinary Share Certificate.

Upon conversion a corresponding number of B Shares will be converted in a similar manner.

If the aggregate NAV of any Currency Class at any month-end falls below the equivalent of US$50 million, the Shares of that Class may be converted compulsorily into Shares of the Currency Class with the greatest aggregate value in US Dollar terms at the time. Each conversion will be based on NAV (Note 8) of the share classes to be converted. At this time the Board has no intention to compulsorily convert the Sterling Shares into US Dollar Shares.

7. Taxation

The Fund is exempt from taxation in Guernsey under the provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance 1989.

8. Calculation of Net Asset Value

The NAV of the Company is equal to the value of its total assets less its total liabilities. The NAV per Share of each class is calculated by dividing the NAV of the relevant class account by the number of Ordinary Shares of the relevant class in issue on that day.

9. Related Party Transactions

At 31 December 2016 other investment funds owned by or affiliated with the Investment Manager owned 5,630,444 (31 December 2015: 5,630,444) US Dollar Shares in the Company. Refer to note 4 and note 5 for additional Related Party Transaction disclosures.

10. Significant Events

There were no significant events during the year.

11. Financial Highlights

The following tables include selected data for a single Ordinary Share of each of the Ordinary Share classes in issue at the period end and other performance information derived from the Audited Financial Statements.

US Dollar Shares Sterling Shares
31 December 2016 31 December 2016
US$ £
Per Share Operating Performance
Net Asset Value beginning of the year 16.62 15.95
Income from Operations
Net realised and unrealised gain from investment
transactions allocated from Master Fund¹

1.12

0.98
Net loss (0.11) (0.09)
Total Return from Operations 1.01 0.89
Net Asset Value, end of the year 17.63 16.84
Total return before incentive fee allocated from Master Fund 6.81% 6.29%
Incentive allocation from Master Fund (0.73%) (0.71%)
Total return after incentive fee allocated from Master Fund 6.08% 5.58%

Total return from operations reflects the net return for an investment made at the beginning of the year and is calculated as the change in the NAV per Ordinary Share during the year ended 31 December 2016. An individual Shareholder’s return may vary from these returns based on the timing of their purchases and sales of shares on the market.

US Dollar Shares Sterling Shares
31 December 2015 31 December 2015
US$ £
Per Share Operating Performance
Net Asset Value beginning of the year 17.06 16.43
Income from Operations
Net realised and unrealised loss from investment
transactions allocated from Master Fund¹

(0.31)

(0.34)
Net loss (0.13) (0.14)
Total Return from Operations (0.44) (0.48)
Net Asset Value, end of the year 16.62 15.95
Total return before incentive fee allocation from Master Fund (2.58%) (2.91%)
Incentive allocation from Master Fund 0.00% (0.01%)
Total return after incentive fee allocated from Master Fund (2.58%) (2.92%)

Total return from operations reflects the net return for an investment made at the beginning of the year and is calculated as the change in the NAV per Ordinary Share during the year ended 31 December 2015 and is not annualised. An individual Shareholder’s return may vary from these returns based on the timing of their purchases and sales of shares on the market.

US Dollar Shares Sterling Shares
31 December 2016 31 December 2016
US$ £
Supplemental data
Net Asset Value, end of the year 837,302,043 33,930,578
Average Net Asset Value, for the year ² 809,147,678 29,903,025
Ratio to average net assets
Operating expenses ³ (2.91%) (2.93%)
Incentive fee allocated from Master Fund (0.76%) (0.64%)
Total operating expense ³ (3.67%) (3.57%)
Net loss (0.63%) (0.51%)

   

US Dollar Shares Sterling Shares
31 December 2015 31 December 2015
US$ £
Supplemental data
Net Asset Value, end of the year 792,037,489 29,797,104
Average Net Asset Value, for the year ² 819,575,868 32,663,696
Ratio to average net assets
Operating expenses ³ (2.72%) (2.85%)
Incentive fee allocated from Master Fund 0.01% (0.24%)
Total operating expense ³ (2.71%) (3.09%)
Net loss (0.74%) (0.81%)

1. Includes foreign currency translation of profit/(loss) with respect to Sterling share class.

2. Average Net Asset Value for the year is calculated based on published monthly estimates of NAV.

3. Operating expenses are Company expenses together with operating expenses allocated from the Master Fund.

12. Ongoing Charge Calculation

Ongoing charges for the year ended 31 December 2016 and 31 December 2015 have been prepared in accordance with the AIC recommended methodology. Performance fees were charged to the Master Fund. In line with AIC guidance, an Ongoing Charge has been disclosed both including and excluding performance fees. The Ongoing charges for the year ended 31 December 2016 and 31 December 2015 excluding performance fees and including performance fees are based on Company expenses and allocated Master Fund expenses outlined below.

(excluding performance fees) 31 December 2016 31 December 2015
US Dollar Shares 2.30% 2.45%
Sterling Shares 2.32% 2.46%

   

(excluding performance fees) 31 December 2016 31 December 2015
US Dollar Shares 3.05% 2.44%
Sterling Shares 2.95% 2.70%

13. Subsequent Events

An annual distribution equivalent to 4% of the NAV of the Company in respect of the year to 31 December 2016 was declared on 10 January 2017 amounting to $35,416,482 (31 December 2015: $Nil) and paid on 14 February 2017.

After due consideration, it was resolved to approve the following director fee increases with effect from 1 January 2017:

Marc Antoine Autheman – £63,000 (increase of £3,000)
Chris Legge – £46,000 (increase of £2,000)
Keith Dorrian – £38,000 (increase of £2,000)

Chris Fish – £38,000 (increase of £2,000)

Management and Administration

Directors Christopher Legge*
Marc Antoine Autheman (Chairman)* PO Box 255, Trafalgar Court, Les Banques,
PO Box 255, Trafalgar Court, Les Banques, St Peter Port, Guernsey,
St Peter Port, Guernsey,
Channel Islands, GY1 3QL
Channel Islands, GY1 3QL.

   

Keith Dorrian* Joshua L Targoff
PO Box 255, Trafalgar Court, Les Banques, PO Box 255, Trafalgar Court, Les Banques,
St Peter Port, Guernsey, St Peter Port, Guernsey,
Channel Islands, GY1 3QL. Channel Islands, GY1 3QL.
* These Directors are independent

Christopher Fish*
PO Box 255, Trafalgar Court, Les Banques,
St Peter Port, Guernsey,
Channel Islands, GY1 3QL.

Investment Manager Registered Office
Third Point LLC PO Box 255, Trafalgar Court, Les Banques,
18th Floor, 390 Park Avenue, St Peter Port, Guernsey,
New York, NY 10022,
United States of America.
Channel Islands, GY1 3QL.

   

Auditors Administrator and Secretary
Ernst & Young LLP Northern Trust International Fund
PO Box 9, Royal Chambers Administration Services (Guernsey) Limited,
St Julian’s Avenue, PO Box 255, Trafalgar Court, Les Banques,
St Peter Port, Guernsey, St Peter Port, Guernsey,
Channel Islands, GY1 4AF. Channel Islands, GY1 3QL.

   

Legal Advisors (UK Law) Legal Advisors (Guernsey Law)
Herbert Smith Freehills LLP Mourant Ozannes
Exchange House, Primrose Street, PO Box 186, Le Marchant Street,
London, EC2A 2HS, St Peter Port, Guernsey,
United Kingdom. Channel Islands, GY1 4HP.

   

Legal Advisors (US Law) Receiving Agent
Cravath, Swaine & Moore, LLP Capita Registrars
825 Eighth Avenue, Worldwide Plaza, The Registry,
New York, NY 10019-7475, 34 Beckenham Road,
United States of America. Beckenham, Kent BR3 4TU,
United Kingdom.

   

Registrar and CREST Service Provider Corporate Broker
Capita Registrars (Guernsey) Limited Jefferies International Limited
2nd Floor, No.1 Le Truchot, Vintners Place,
St Peter Port, Guernsey, 68 Upper Thames Street,
Channel Islands, GY1 1WO. London EC4V 3BJ,
United Kingdom

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