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Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
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Castle Asia | LSE:CASA | London | Ordinary Share | GB00B0MSVZ38 | RED PTG PREF SHS NPV KGR ASIA DYNAMIC1 £ |
Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 101.25 | 0.00 | 01:00:00 |
Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
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0 | 0 | N/A | 0 |
TIDMCASA CASTLE ASIA ALTERNATIVE PCC LIMITED (Registered in Guernsey - Number 43789) Registered Office: MARTELLO COURT, ADMIRAL PARK, ST PETER PORT, GUERNSEY, GY1 3HB __________________________ TELEPHONE: +44 1481 211000 FACSIMILE: +44 1481 211001 e-mail: fundcosec@intertrustgroup.com For immediate release 24 March 2011 CASTLE ASIA ALTERNATIVE PCC LIMITED - STERLING CLASS (a closed-ended protected cell company incorporated in Guernsey with registration number 43789) For the year ended 31 December 2010 The financial information attached does not constitute the Company's statutory accounts for the year ended 31 December 2010, but is derived from those accounts. Statutory accounts for 2010 are available on the Company's website www.castleaa.com. Ernst & Young as auditors have reported on the accounts and their report was unqualified. In accordance with the prospectus, the Directors have not declared an interim dividend and do not recommend the payment of a final dividend for the year. The Extraordinary General Meeting of the Company will be held on 18 April 2011, to give Shareholders the opportunity to vote on the future of the Company. Further details can be found in the Circular dated 14 March 2011. Company Secretary Intertrust Fund Services (Guernsey) Limited Annual Report 2010 castle ASIA ALTERNATIVE PCC LIMITED Contents 1 Castle Asia Alternative PCC Limited 2010 Contents 2 Company profile 3 Financial summary 4 Chairman's statement 5 Investment adviser's review 6 Directors' report 14 Directors' responsibilities 15 Independent auditor's report to the members of Castle Asia Alternative PCC Limited 17 Income statement 18 Statement of financial position 19 Statement of changes in equity 20 Statement of cash flows 21 Notes to the financial statements 42 Investment portfolio 43 Investor information 2 Company profile Castle Asia Alternative PCC Limited 2010 Company profile General information Castle Asia Alternative PCC Limited (the "Company") was registered on 13 October 2005 in Guernsey, Channel Islands, as a closed-ended protected cell company in accordance with the provisions of The Protected Cell Companies Ordinance, 1997 and The Companies (Guernsey) Law, 1994. The Fund's redeemable participating preference shares were listed on the Official List of the UK Listing Authority and commenced trading on the London Stock Exchange on 22 November 2005. The annual report and audited financial statements cover the year ended 31 December 2010. Redemption facility As referred to in the Chairman's Statement on page 4, the Company issued a circular on 14 March 2011 convening an Extraordinary General Meeting for 18 April 2011, to give Shareholders the opportunity to vote on the future of the Company. In the event that Shareholders do not vote to continue the Company they will be given, at the same meeting, the opportunity to vote to place the Company in voluntary liquidation. Notwithstanding those proposals, and subject to certain limitations and the Directors exercising their discretion to operate the redemption facility on any relevant occasion, Shareholders may request bi-annually on 30 June or 31 December for the redemption of all or part of their holdings of Shares for cash. Any redemption will be effected at the estimated prevailing Net Asset Value per Share on the redemption date (less the costs of redemption, which may include early redemption penalties in respect of investee funds). If the Directors choose to operate the redemption facility on any given occasion, they will make an announcement to that effect through a Regulatory Information Service provider. Notice of intention to redeem must then be given to the Secretary and Administrator by Shareholders not less than 70 days prior to the proposed redemption date. Further details of this facility are set out within the Registration document dated 26 June 2008. Investment objective The Fund is a fund of hedge funds. Its objective is to seek long term capital appreciation through investment in a diversified multi-manager, multi-strategy portfolio of hedge funds investing predominantly in Asia. Investment policy The Investment Adviser aims to capture a significant part of the performance of Asia markets over the investment cycle whilst mitigating a substantial proportion of the volatility of those markets. Returns are expected to be significantly influenced by the performance of equity markets in particular. At 31 December 2010 the Fund was invested in 22 underlying funds spread across 14 hedge fund strategies and across 6 jurisdictions. The underlying portfolio managers' investment strategies include, but are not limited to, convertible/capital structure arbitrage, credit based, event driven, fixed income arbitrage and long/short equity. The Fund's policy has been to remain substantially fully invested at all times, whilst retaining modest amounts of liquid resources to cover short term liquidity requirements. However, in view of the proposals referred to above, redemption instructions have been issued in relation to the less liquid constituents of the Company's portfolio. Financial highlights 3 Castle Asia Alternative PCC Limited 2010 Financial summary for the year ended 31 December 2010 At At 31 31 December December % 2010 2009 movement Net Asset Value per redeemable participating preference share 105.62p 108.21p -2.4 Share price 96.00p 90.50p +6.1 Redeemable participating preference shares in issue 48,115,362 54,458,427 -11.6 Total cellular net assets GBP50,818,024 GBP58,930,515 -13.8 Market capitalisation GBP46,190,748 GBP49,284,876 -6.3 Share price discount to net asset value per share 9.1% 16.4% - Total expense ratio (TER) + 1.5% 1.4% - + The TER has been calculated by taking the operating costs of the Company, (excluding liquidation cost provisions and loan interest) divided by the average net asset value during the year. 4 Chairman's statement Castle Asia Alternative PCC Limited 2010 Chairman's statement In the Chairman's statement contained in the Company's half yearly report for the period from 1 January 2010 to 30 June 2010 the Board stated that: "...we recognise that if Asian hedge funds, as an asset class, continue to have difficulties in delivering satisfactory performance, shareholders may wish to seek those returns through other means. Accordingly, the Board has decided it will propose the introduction of a continuation vote. It is proposed that the first such vote be tabled at the Company's next Annual General Meeting expected to be held in June 2011, with further opportunities to vote on the Company's continuation at the two subsequent Annual General Meetings." This proposal was formulated after discussions with the Company's larger Shareholders which led the Board to conclude that the timing proposed would both allow a reasonable period of time for the positive actions undertaken by the Investment Adviser to improve performance to take effect and balance the interests of Shareholders with different time horizons. Following the receipt of correspondence from the Company's largest Shareholder, whose holding was acquired after the discussions referred to above had taken place, the Board decided to conduct a further round of Shareholder consultations in January 2011 as to the future direction of the Company. As announced on 31 January 2011, as a result of the views expressed by Shareholders in the second round of consultations, the Board concluded that a continuation vote should be put to Shareholders earlier than the June 2011 Annual General Meeting, and, should the continuation vote not be passed, Shareholders would be given the opportunity at the same meeting to wind up the Company voluntarily. The Proposals are described in greater detail in the Circular dispatched to Shareholders on 14 March 2011. They will allow Shareholders to vote on the Company's continuation at an Extraordinary General Meeting (EGM) on 18 April 2011. If this continuation vote is not passed, proposals will be put to Shareholders at this same meeting, together with the Class Meeting for the voluntary liquidation of the Company. The Board considers that it is still appropriate to put a continuation vote to Shareholders, albeit at an earlier date than originally intended, given their earlier commitment to do so. However, the Board acknowledges that, regardless of its own views as to the future prospects for the Company, given the sentiments expressed by Shareholders in the second round of consultations, the continuation vote is unlikely to be passed. As a result of this, redemption instructions have been issued in relation to the less liquid constituents of the Company's portfolio. It is currently expected that the Company's currency hedging programme will remain in place until the Company is placed into voluntary liquidation. Following this, the Company's assets will be subject to movements of the Sterling/US Dollar exchange rate. I would like to thank Shareholders for their support during the life of the Company. As a Board, we continue to believe that the Asian region will deliver superior investment returns to the long term investor. However, we recognise that while Asian hedge funds, as an asset class, continue to have difficulties delivering satisfactory performance, Shareholders may wish to seek those returns through other means. Rupert Dorey Chairman 24 March 2011 Investment adviser's review 5 Castle Asia Alternative PCC Limited 2010 Investment adviser's review The year 2010 has provided a challenging market environment for Asian hedge funds as a whole. Whilst the leading Pan-Asia equity indices posted double-digit returns for the year, most of this performance has been achieved in the more 'insulated' markets of South-East Asia, India and Chinese B-Shares, areas where hedge fund portfolios tend to have little representation due to liquidity and access limitations. In contrast, in the markets where most exposure is concentrated, namely Japan, Hong Kong and China, returns from the leading indices ranged from -3% for NKY225 to +5% for HSI. In addition to the limited support from markets generally, variable-biased long/short equity managers in particular, which were overrepresented in the portfolio, struggled with the fast rotation between 'risk on' and 'risk off' mode, leading to low net exposures in market rallies and higher allocations during corrections. The most extreme example of this was seen over the month of May 2010. As the inability of some managers to cope with this new market regime became apparent over the first half of 2010, we shifted capital away from variable-biased managers to either market-neutral or more consistently directional strategies with less active net exposure management. This worked well for the portfolio, with newly added managers contributing strongly over the second half of the year. Long/short equity strategies ended the year marginally down as managers struggled to capture the rapid rotation between risk on/risk off mode in the market. The allocation to these strategies rose from 64% at the beginning of the year to 74% by year end. While the majority of holdings ended the year in positive territory, two aggressive Pan-Asia managers in particular delivered disappointing results. Relative value managers as a group contributed positively to the Fund. Led by a multi-strategy fund, all but one managers were up with the negative outlier being a volatility arbitrage trader. The portfolio maintained low exposures to event driven strategies, with two funds ending the year up whilst one manager was redeemed after causing losses to the portfolio over the first half of 2010. Collectively, event driven managers had a marginally negative contribution to the NAV. The number of managers was increased to 22 by the end of December 2010 from 21 managers at the end of December 2009 with 6 subscriptions to new managers and complete exits from 5 managers. While some of these transactions have been replacements of existing managers, the portfolio has also shifted exposure from less promising strategies into more niche, alpha-generative areas. One of the new additions is a managed account on the LGT Capital Partners platform, which offers the benefits of increased transparency and control of assets. Exposure levels have decreased from approximately 180% at the beginning of the year to 166% at year end, with a meaningful reduction in risk over November/ December. LGT Capital Partners (Asia-Pacific) Limited 24 March 2011 6 Directors' report Castle Asia Alternative PCC Limited 2010 Directors' report The Directors have pleasure in submitting their Annual Report and the Audited Financial Statements for the year ended 31 December 2010. In view of the proposals set out in the circular dated 14 March 2011, and as referred to in the Chairman's Statement on page 4, the accounts have been prepared on a break-up basis. Principal Activities The Company is a Guernsey registered closed-ended Protected Cell Company established with one Cell known as Sterling Class (the "Cell" or the "Fund"). The Cell's redeemable participating preference shares are listed on the London Stock Exchange. The Cell's objective is to seek long-term capital appreciation through investment in a diversified multi-manager, multi-strategy portfolio of hedge funds investing predominantly in Asia. The Cell's Investment Adviser seeks to achieve a Sterling net annualised return in excess of 12%, with a volatility of less than 10% over the course of an investment cycle (typically five years). Revenue and dividends The income statement on page 17 shows a revenue account loss for the year amounting to GBP1,230,924 (2009: loss of GBP769,435) which has been transferred from revenue reserves. It also shows a net capital loss of GBP534,034 (2009: gain of GBP4,465,334) comprising gains on investments of GBP2,119,803 (2009: gain of GBP 296,787) and capital loss on currency and derivative movements of GBP2,653,837 (2009: gain of GBP4,168,547) which have been transferred from capital reserves. The Directors have not paid an interim dividend and do not recommend the payment of a final dividend for the year (2009: nil). Assets At the year end the net assets attributable to the redeemable participating preference shares were GBP50,818,024 (31 December 2009: GBP58,930,515). Based on this figure the net asset value of a redeemable participating preference share in the Cell was 105.62p (31 December 2009: 108.21p). Share capital As at 31 December 2010 the Company had 50,028,540 shares in issue in relation to the Cell of which 1,913,178 shares were held in treasury (31 December 2009: 59,649,105 in issue of which 5,190,678 shares were held in treasury). During the year the Company cancelled 4,215,000 treasury shares. Further details of these transactions are disclosed in note 11 to the financial statements. Directors' report 7 Castle Asia Alternative PCC Limited 2010 Substantial shareholdings in the Cell At 1 March 2011 the holders of redeemable participating preference shares in excess of 3% were as follows: Registered Holder Percentage of total Number of issued Participating participating preference preference shares shares Vidacos Nominees Ltd 14,383,951 29.3% CSFBI HSBC Global Custody 5,349,275 10.9% Nominee (UK) BNP Paribas Arbitrage 5,210,000 10.6% Vidacos Nominees Ltd DMG7 3,093,936 6.3% HSBC Global Custody 3,042,638 6.2% Nominee The Bank of New York 2,500,000 5.1% (Nominees) Ltd JP Morgan Clearing Corp 2,050,000 4.2% So far as the Directors are aware there is no other interest of 3% or more in the shares of the Cell. Crest registration The Cell trades its Shares by way of Crest registration and Shareholders have the option to hold stock in either certified or uncertificated form. Directors The Directors who served on the Board during the year, together with their beneficial interests and those of their families at 31 December 2010, were as follows: Redeemable Participating Preference Shares 31.12.2010 31.12.2009 Rupert Dorey 50,000 50,000 (Chairman) Nigel Rich 20,000 20,000 Chris Russell 20,000 20,000 Alan Smith nil nil As at 24 March 2011 there had been no changes in the above details. 8 Directors' report Castle Asia Alternative PCC Limited 2010 The Directors are: Rupert Dorey (Chairman) Rupert Dorey has over 22 years' experience in debt capital markets, specialising in credit related products, including derivative instruments. Mr Dorey's expertise is principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt. He was at Credit Suisse First Boston for 17 years from 1988 to 2005, and from 2000 until he left was head of sterling credit sales. Previously, he held a number of positions at Credit Suisse First Boston, including establishing Credit Suisse First Boston's high yield debt distribution business in Europe, fixed income credit product coordinator for European offices and head of UK Credit and Rates Sales. Mr Dorey currently sits on a number of Boards of alternative investment companies, including International Public Partnerships Ltd, Partners Group Global Opportunities Ltd and CQS Diversified Fund Ltd. Nigel Rich CBE, FCA Nigel Rich is Chairman of SEGRO plc, Chairman of Xchanging plc, a non-executive Director of Bank of Philippine Islands (Europe) plc, Pacific Assets Trust plc and of Matheson and Co. He was previously Chairman of Exel plc and CP Ships Limited, and earlier in his career he was Managing Director of Jardine Matheson Holdings. His other activities include being Co-Chairman of the Philippine British Business Council. He is a Fellow of the Institute of Chartered Accountants in England and Wales. Chris Russell, FCA Chris Russell was appointed to the board in June 2009. He is deputy chairman of F&C Commercial Property Trust Ltd and of the Association of Investment Companies (AIC) and a non-executive director of Enhanced Index Funds pcc, Hanseatic Asset Management Ltd, HSBC Infrastructure Company Ltd, JP Morgan Japan Smaller Companies Trust plc, The Korea Fund Inc. and Schroders (C.I.) Ltd. He was formerly Head of Overseas Businesses at Gartmore Investment Management plc. Prior to Gartmore, he was a holding board director of the Jardine Fleming Group in Asia. He is a Fellow of the Institute of Chartered Accountants in England and Wales and a Fellow of the Society of Investment Professionals. Alan Smith Alan Smith was the Vice Chairman, Pacific Region, of Credit Suisse First Boston from 1997 until he retired in December 2001. Prior to joining Credit Suisse First Boston, he was Chief Executive of the Jardine Fleming Group from 1983 to 1994 and then Chairman from 1994 to 1996. He has over 28 years' banking experience in Asia. He was twice elected as a council member of The Stock Exchange of Hong Kong and was a member of the Hong Kong Special Administrative Region Government's Economic Advisory Committee. He holds a law degree from Bristol University and was admitted as a solicitor in England in 1967 and in Hong Kong in 1970. He was a member of the Hong Kong Government's Standing Committee on Company Law Reform for 10 years. Mr Smith is a Director of Asia Credit Hedge Fund, Global Investment House, KSC, Kingway Brewery Holdings Limited, Noble Group Limited, Genting Hong Kong Limited, United International Securities Limited and VXL Capital Limited. Directors' report 9 Castle Asia Alternative PCC Limited 2010 Corporate Governance Since the Company has a London Stock Exchange listing, the Annual Report and Audited Financial Statements must disclose: (a) whether or not it complies with the corporate governance regime of the Company's country of incorporation; (b) the significant ways in which its actual corporate governance practices differ from those set out in the Combined Code; and (c) the unexpired term of service contract of any Director proposed for election or re-election at the forthcoming Annual General Meeting and, if any Director for election or re-election does not have a service contract, a statement to that effect. The Board of Directors believe that the principles of the revised AIC Code of Corporate Governance ("the AIC Code") issued by the Association of Investment Companies ("AIC") in February 2006 and amended in May 2007 and March 2009, are appropriate to its circumstances and the following statement details how this has been applied to the affairs of the Company. In February 2006, the Financial Reporting Council (the "FRC") confirmed that investment companies who report in accordance with the AIC Code will be deemed to have met their obligations under the Combined Code on Corporate Governance. Details of the AIC Code are publicly available and can be found on their website at www.theaic.co.uk. The principles laid down by the two Codes are similar but there are some areas where the AIC Code is more specifically applicable to investment companies. The Directors attach importance to the matters set out in the AIC Code, and the Directors believe that the Company was fully compliant with all of the principles of the AIC Code in 2010. The Board The Company is led and controlled by a Board comprising four non-executive Directors, all of whom have wide experience and are considered to be independent. The Company does not have any employees. The Board believes that it is in the shareholders' best interests for the Chairman to be the point of contact for all matters relating to the governance of the Company and as such has not appointed a senior independent non-executive Director. Nomination Committee The Nomination Committee is chaired by Rupert Dorey and is responsible for the Board appraisal process and for making recommendations to the Board on the appointment of new Directors. Remuneration and Management Engagement Committee The Remuneration and Management Engagement Committee is responsible for reviewing the remuneration of Directors and for reviewing the terms of the contracts of key service providers. The committee is chaired by Chris Russell. Audit Committee The Board has an Audit Committee which is chaired by Nigel Rich which meets at least twice a year to review the interim and full year financial statements. The Company's external auditors are invited to attend the meeting regarding the full year financial statements. In addition the Board reviews the independence and objectivity of the auditors. 10 Directors' report Castle Asia Alternative PCC Limited 2010 In the event that Shareholders vote to continue the Company in its current form it is intended that one-third, or the number nearest to but not exceeding one third, of the Directors shall retire and offer themselves for reappointment at each Annual General Meeting (AGM) in accordance with the Articles of Association. The Directors are kept up-to-date on Corporate Governance issues through bulletins and training materials provided both from time to time by the Company Secretary, the Board Adviser and the AIC, and through externally sourced training events and materials. The Board meets at least quarterly to review the overall business of the Company and to consider matters specifically reserved for its review. At these meetings the Board monitors the investment performance of the Fund. The Directors also review the Company's activities every quarter to ensure that it adheres to the Fund's investment policies or, if appropriate, to make any changes to those policies. Additional ad hoc reports are received as required and Directors have access at all times to the advice and services of the Company Secretary, who assists the Board in ensuring that Board procedures are followed and that applicable rules and regulations are complied with. The Board met during the year to review its performance and composition and was satisfied on both subjects. In addition, following the informal evaluation of performance of the Board, its committees and individual Directors, it is considered that the performance of all Directors continues to be effective and they have demonstrated commitment to their roles. The Company maintains Directors' and Officers' liability insurance which provides insurance cover for Directors against certain personal liabilities which they may incur by reason of their duties as Directors. The Company has a procedure whereby the Board is entitled to obtain independent advice where relevant at the expense of the Company. Meeting Attendance The table below sets out the number of Board and Committee meetings held during the year and the number of meetings attended by each Director. Remuneration and Management Board Audit Nomination Engagement Meetings Committee Committee Committee Number of meetings 4 3 1 1 Meetings attended Rupert Dorey 4 3 1 1 Nigel Rich 4 3 1 1 Chris Russell 4 2 1 1 Alan Smith 4 N/A N/A N/A Directors' report 11 Castle Asia Alternative PCC Limited 2010 The emoluments of the Directors for the years ended 31 December 2010 and 2009 were as follows: 2010 2009 Director fees GBP fees GBP Rupert Dorey (Chairman) 28,000 24,000 Dennis Phillips (retired 16 June 2009) - 6,884 Nigel Rich| 22,000 19,500 Alan Smith 18,500 16,750 Chris Russell (appointed 16 June 2009) 18,500 9,866 Total 87,000 77,000 With effect from 1 July 2009, the Chairman's fee increased to GBP28,000, the Audit Committee Chairman's fee increased to GBP22,000 and the Directors' fees increased to GBP18,500 each. | Audit Committee Chairman. The Company has no formal service contracts with the Directors. The Secretary and Administrator Intertrust Fund Services (Guernsey) Limited ("the Administrator") was appointed Administrator and Secretary under an agreement dated 22 September 2008. The agreement may be terminated by either party giving no less than six months' notice. The Administrator is entitled to a fee payable by the Company quarterly in arrears at a rate of 10 basis points of the Net Asset Value (NAV) of the Fund up to the value of GBP75 million, and then 5 basis points on the balance of any NAV over GBP75 million, calculated over the relevant quarter period, and subject to a minimum fee of GBP60,000 per annum. Administration fees due to Intertrust Fund Services (Guernsey) Limited for the year ended 31 December 2010 totalled GBP 65,000 of which GBP5,000 is in relation to estimated liquidation costs (2009: GBP 62,972). Investment Adviser The Directors are responsible for the determination of the Company's investment policy and have overall responsibility for the Company's activities. The Directors have contractually delegated the overall responsibility for the management of the Cell's investment portfolio to LGT Capital Partners (Asia-Pacific) Limited, subject to the overriding supervision of the Directors. The Investment Adviser is entitled to a fee payable by the Cell monthly in arrears at a rate of 77.5 basis points of the Net Asset Value of the Cell. Investment Adviser fees payable for the year totalled GBP413,333 (2009: GBP 416,750). In addition the Investment Adviser is entitled to a performance fee, details of which can be found in note 12 (beginning on page 29). The agreement may be terminated by either party giving no less than six months' notice. In the event that Shareholders vote to continue the Company in its current form the Directors are of the opinion that the continuing appointment of the Investment Adviser, pursuant to the terms of the Investment Advisory agreement, is beneficial to the interests of shareholders as a whole. 12 Directors' report Castle Asia Alternative PCC Limited 2010 Board Adviser Frostrow Capital LLP as Board Adviser, is engaged to oversee, on behalf of the Board, the accounting, administrative and company secretarial services provided to the Company by its service providers. During the year the Board Adviser was contracted to receive 12.5 basis points of the Net Asset Value of the Cell, payable monthly in arrears. Board Adviser fees payable for the year totalled GBP 66,160 (2009: GBP72,928). The agreement may be terminated by either party giving no less than six months' notice. Details of all fee arrangements can be found in note 12 (beginning on page 29) of these financial statements. Relations with Shareholders In conjunction with the Board, the Investment Adviser keeps under review the register of members of the Cell and has established a pro active marketing and investor relations programme whereby shareholders are kept up to date with the performance of the Company. In addition, the Investment Adviser maintains the Company's website at www.castleaa.com. Accountability and audit a) Statement of going concern Following the announcement on 31 January 2011 as a result of the views expressed by the Company's largest shareholders, the Board concluded that a continuation vote should be put to shareholders earlier than the June 2011 Annual General Meeting. Should the continuation vote not be passed, shareholders will be given the opportunity to wind up the Company voluntarily. Given the sentiments expressed by shareholders, the Board believes the continuation vote at the EGM scheduled to take place on 18 April 2011, is unlikely to be passed. As a result the financial statements are prepared on a break-up basis, as the Company is no longer deemed to be a going concern. Further details can be found in the Chairman's statement on page 4 and in the Circular dated 14 March 2011. b) Internal control The Board is responsible for establishing and maintaining the Company's system of internal control and reviewing its effectiveness. The Administrator is responsible for all the operational aspects of the Company's business and therefore the Board is reliant on the Administrator's internal control systems including the financial, operational and compliance controls and risk management. The Audit Committee has received assurance from the Administrator that it has in place robust financial controls in respect of the Company and that these controls are subject to audit by the Administrator's compliance and internal audit functions and, in addition, that these controls are subject to external audit. The Board has received assurance that no weaknesses or breaches in those controls have been identified which might have affected the Company during the year. The Administrator's procedures are designed to manage rather than eliminate risk and by their nature can only provide reasonable but not absolute assurance against material misstatement or loss. The Board has reviewed the need for an internal audit function. The Board has decided that the systems and procedures employed by the Administrator, including its internal audit function and the review of its annual financial report by a firm of independent auditors, adequately safeguards the Company's assets. An internal audit function specific to the Company is therefore considered unnecessary. Directors' report 13 Castle Asia Alternative PCC Limited 2010 c) Audit So far as each Director is aware, there is no relevant audit information of which the Company's auditor is unaware. Each Director has taken all the steps he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information. On behalf of the Board. R O Dorey Chairman 24 March 2011 14 Directors' responsibilities Castle Asia Alternative PCC Limited 2010 Directors' responsibilities The Directors are responsible for preparing the 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 profit or loss of the Company for that period. In preparing the financial statements the Directors are required to: (a) select suitable accounting policies and apply them consistently; (b) make judgements and estimates that are reasonable and prudent; (c) state whether applicable accounting standards have been followed; and The Directors confirm that the financial statements comply with the above requirements. They also confirm that they have been prepared on a break-up basis. Further details can be found in the Director's report starting on page 6 and note 2 beginning on page 21. The Directors are also responsible for keeping proper accounting records that disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements comply with the requirements of The Companies (Guernsey) Law, 2008. They are also responsible for safeguarding the assets of the Company and for taking reasonable steps for the protection against, and the detection of, fraud and other irregularities. Directors' responsibility statement We confirm that to the best of our knowledge: 1. the financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profit or loss of the Company; and 2. the Investment Adviser's review includes a fair review of the development, performance and position of the Company, together with a description of the principal risks and uncertainties faced by the Company. On behalf of the Board R O Dorey Chairman 24 March 2011 Independent auditor's report to the members of Castle Asia Alternative PCC 15 Limited Castle Asia Alternative PCC Limited 2010 Independent auditor's report to the members of Castle Asia Alternative PCC Limited We have audited the financial statements of Castle Asia Alternative PCC Limited for the year ended 31 December 2010 which comprise the Income statement, Statement of financial position, Statement of changes in equity, Statement of cash flows and the related notes 1 to 22. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. The financial statements have been prepared on a break up basis. 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. Respective responsibilities of directors and auditor As explained more fully in the Directors' Responsibilities Statement set out on page 14, 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. 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. Opinion on financial statements In our opinion the financial statements: · give a true and fair view of the state of the Company's affairs as at 31 December 2010 and of its loss for the year then ended; · have been properly prepared in accordance with IFRSs as adopted by the European Union; and · have been prepared in accordance with the requirements of the Companies (Guernsey) Law, 2008. 16 Independent auditor's report to the members of Castle Asia Alternative PCC Limited Castle Asia Alternative PCC Limited 2010 Matters on which we are required to report by exception We have nothing to report in respect of the following: under the Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion: · proper accounting records have not been kept; or · the financial statements are not in agreement with the accounting records; or · we have not received all the information and explanations we require for our audit. under the Listing Rules we are required to review: · the part of the Corporate Governance Statement relating to the Company's compliance with the nine provisions of the June 2008 Combined Code specified for our review. Michael Bane for and on behalf of Ernst & Young LLP Guernsey, Channel Islands Date: 24 March 2011 Financial statements 17 Castle Asia Alternative PCC Limited 2010 Income statement for the year ended 31 December 2010 Year ended 31 December 2010 Year ended 31 December 2009 Revenue Capital Total Revenue Capital Total Notes GBP GBP GBP GBP GBP GBP Operating income Net gains on investments 9c - 2,119,803 2,119,803 - 296,787 296,787 Net (losses)/ gains on derivatives 5 - (2,736,660) (2,736,660) - 4,871,589 4,871,589 Other foreign exchange gains/ (losses) 5 - 82,823 82,823 - (703,042) (703,042) Interest and similar income 3 188 - 188 77,653 - 77,653 188 (534,034) (533,846) 77,653 4,465,334 4,542,987 Operating expenses Investment advisory, Board advisory and Administrator fees 6 (539,493) - (539,493) (552,650) - (552,650) Custodian fee (51,459) - (51,459) (39,286) - (39,286) Directors' fees (87,000) - (87,000) (77,000) - (77,000) Other expenses 4 (161,464) - (161,464) (165,842) - (165,842) Total operating expenses (839,416) - (839,416) (834,778) - (834,778) Operating (loss)/profit before liquidation expenses and finance costs (839,228) (534,034) (1,373,262) (757,125) 4,465,334 3,708,209 Liquidation expenses 10 (129,950) - (129,950) - - - Termination general expenses in relation to the anticipated liquidation 10 (241,300) - (241,300) - - - Finance costs Loan interest - - - (12,068) - (12,068) Bank loan/ overdraft interest (20,446) - (20,446) (242) - (242) Net (loss)/ profit for year (1,230,924) (534,034) (1,764,958) (769,435) 4,465,334 3,695,899 Basic and diluted (loss)/ earnings per redeemable participating preference share 17 (2.41)p (1.05)p (3.46)p (1.36)p 7.91p 6.55p The Company does not have any income or expenses which are not included in the loss for the year. Accordingly the "loss for the year" is also the "total comprehensive income" for the year; as defined in IAS 1 (revised) and no separate Statement of Comprehensive Income has been presented. All of the profit and total comprehensive income for the year is attributable to the owners of the Company. There are zero earnings attributable to the management shares. The total column of this Income Statement is prepared in accordance with International Financial Reporting Standards (IFRS). The revenue and capital columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies. The notes 1 to 22 are an integral part of these financial statements. 18 Financial statements Castle Asia Alternative PCC Limited 2010 Statement of financial position as at 31 December 2010 31 December 31 December 2010 2009 Notes GBP GBP Non-current assets Financial assets held at fair value through profit or loss 9 - 57,257,981 - 57,257,981 Current assets Financial assets held at fair value through profit or loss 9 51,923,847 - Cash and cash equivalents 99,671 2,106,889 Amounts due from redemptions awaiting settlement - 48,183 Other receivables 14,767 21,258 Total current assets 52,038,285 2,176,330 Total assets 52,038,285 59,434,311 Current liabilities Bank loan 15(d) 622,199 - Other payables 10 550,574 228,487 Fair value of derivative financial 9(d), instruments 19 47,486 275,307 Total liabilities 1,220,259 503,794 Net assets 50,818,026 58,930,517 Shareholders funds Management shares 11 2 2 Share premium account 51,679,925 60,680,018 Reserves 16 (861,901) (1,749,503) Total equity 50,818,026 58,930,517 Net asset value per redeemable participating preference share 18 105.62p 108.21p Net asset value per management share 100.00p 100.00p These financial statements were approved by the Board of Directors on 24 March 2011. Signed on behalf of the Board R O Dorey Chairman Company Registration Number 43789 (Registered in Guernsey) The notes 1 to 22 are an integral part of these financial statements. Financial statements 19 Castle Asia Alternative PCC Limited 2010 Statement of changes in equity for the year ended 31 December 2010 for the year ended Shares held 31 Management Share in Capital Revenue December Shares Premium Treasury Reserve Reserve Total 2010 GBP GBP GBP GBP GBP GBP Balance at 31 December 2009 2 60,680,018 (4,351,037) 6,377,176 (3,775,642) 58,930,517 Treasury shares cancelled - (3,498,308) 3,498,308 - - - Shares purchased for treasury - - (845,748) - - (845,748) Shares redeemed during the year - (5,447,188) - (5,447,188) Redemption expenses - (54,597) - - - (54,597) Loss for the year - - - (534,034) (1,230,924) (1,764,958) Balance at 31 December 2010 2 51,679,925 (1,698,477) 5,843,142 (5,006,566) 50,818,026 for the year ended Shares held 31 Management Share in Capital Revenue December Shares Premium Treasury Reserve Reserve Total 2009 GBP GBP GBP GBP GBP GBP Balance at 31 December 2008 2 60,730,018 (50,000) 1,911,842 (3,006,207) 59,585,655 Treasury shares cancelled - (50,000) 50,000 - - - Shares purchased for treasury - - (4,351,037) - - (4,351,037) Profit/ (loss) for the year - - - 4,465,334 (769,435) 3,695,899 Balance at 31 December 2009 2 60,680,018 (4,351,037) 6,377,176 (3,775,642) 58,930,517 The notes 1 to 22 are an integral part of these financial statements. 20 Financial statements Castle Asia Alternative PCC Limited 2010 Statement of cash flows For the year ended 31 December 2010 31 December 31 December 2010 2009 GBP GBP Cash flows from operating activities Net (loss)/profit for year (1,764,958) 3,695,899 Add back: interest payable 20,446 12,310 Losses/(gains) on investments held at fair value 534,034 (4,465,334) through profit or loss and foreign exchange gains /(losses) Dividends - (76,311) Bank interest - (1,342) Decrease/(increase) in other receivables 6,491 (11,734) Increase/(decrease) in other payables 322,087 (28,642) Purchases of investments held at fair value (38,244,883) (31,157,673) through profit or loss Sales of investments held at fair value through 45,747,002 41,018,928 profit or loss Short term interest - 2,870 Net settlement on derivatives (2,964,480) 4,262,979 Net cash inflow from operating activities before 3,655,739 13,251,950 interest Interest paid (20,446) (12,310) Net cash inflow from operating activities 3,635,293 13,239,640 Financing activities Shares redeemed (5,447,188) - Redemption expenses (54,597) - Repurchase of treasury shares (845,748) (4,272,038) Credit facility drawdown/(repayment) 622,199 (6,967,667) Net cash outflow from financing activities (5,725,334) (11,239,705) (Decrease)/increase in cash and cash equivalents (2,090,041) 1,999,935 during the year Reconciliation of cash flow to movement in net cash (Decrease)/increase in cash and cash equivalents (2,090,041) 1,999,935 during the year Cash and cash equivalents at beginning of year 2,106,889 809,996 Effect of foreign exchange rate changes 82,823 (703,042) Cash and cash equivalents at end of year 99,671 2,106,889 Cash and cash equivalents consist of: Cash and cash equivalents 99,671 2,106,889 99,671 2,106,889 The notes 1 to 22 are an integral part of these financial statements. Notes to the financial statements 21 Castle Asia Alternative PCC Limited 2010 Notes to the financial statements for the year ended 31 December 2010 1. Organisation and principal activity The Company is a Guernsey incorporated, closed-ended, Protected Cell Company with an unlimited life, governed by the provisions of The Companies (Guernsey) Law, 2008 and The Protected Cell Companies Ordinance, 1997 (the "Ordinance"). The Company has initially been established with one Cell in accordance with the Ordinance: Sterling Class. The Sterling Class Cell was listed on 22 November 2005 on the London Stock Exchange. 2. Principal Accounting Policies a) Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") as adopted by the EU issued by the International Accounting Standards Board (IASB) and with the Statement of Recommended Practice "Financial Statements of Investment Trust Companies" (AIC SORP) issued in January 2009, insofar as it is not inconsistent with IFRS. The financial statements have been prepared on a total company basis and not on a cell-by-cell basis as there is currently only one cell. The only non-cellular assets and liabilities are in respect of the two management shares of no par value issued at GBP1 each fully paid and represented by cash and cash equivalents. The financial statements have not been prepared on a going concern basis, as given the sentiments of the Company's largest Shareholders, the Board concluded that a continuation vote should be put to Shareholders at an Extraordinary General Meeting (EGM) on 18 April 2011. If this continuation vote is not passed, proposals will be put to Shareholders at this same meeting, together with the Class Meeting for the voluntary liquidation of the Company. The Board believes that the continuation vote at the EGM is unlikely to be passed. As a result, the financial statements have been prepared on a break-up basis, with the financial assets being reclassified in current assets and provision made for the costs of winding up the Company. Further details can be found in note 10 on page 28. b) IASB and IFRIC have issued the following standards and interpretations which are not yet effective and have not been adopted: Effective date IAS Classification of Rights Issues 1 32 February 2010 IFRS Financial Instruments: 1 January 9 Classification and Measurement 2013 IAS Related Party Disclosures 1 January 24 2011 IFRIC Prepayments of a Minimum Funding 1 January 14 Requirement 2011 IFRIC Extinguishing Financial Liability 1 July 19 with Equity Instruments 2010 IFRS Limited Exemption from Complying 1 July 1 with IFRS 7 disclosure 2010 We have not performed any analysis to assess the impact of these changes. 22 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 c) Operating segments IFRS 8 requires entities to define operating segments and segment performance in the financial statements based on information used by the Board of Directors. The Board is considered to be the chief operating decision maker. An operating segment is a group of assets and operations engaged in providing products or services that are subject to risks and returns that are different from those of other operating segments. The sole operating segment of the Company is investing in hedge funds. The results published in this Annual Report therefore correspond to the sole operating segment of investing in hedge funds. d) Use of estimates The preparation of financial statements in conformity with IFRS requires the Company to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates. See also note 2 g (iii). Fair value of investments The investments have been valued based on information supplied by the Fund Administrator of the Cell's underlying investments. e) Foreign exchange Transactions in foreign currencies are recorded at the exchange rate prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are revalued into sterling at the exchange rates prevailing at the Statement of financial position date. Realised and unrealised exchange gains and tosses are included in the statement of income. Translation differences on non-monetary items, such as financial assets held at fair value through profit or loss, are reported as part of the fair value gain or loss. f) Cash and cash equivalents Cash and cash equivalents comprise demand, call and term deposits with a maturity of three months or fewer. For the purpose of the cash flow statement, cash and cash equivalents comprise all cash, short-term deposits and other money market instruments with an original maturity of three months or fewer, net of bank overdrafts on demand. g) Financial instruments Under IAS 39, the Company has designated all its investments and securities into the financial assets held at fair value through the profit or loss category. This category was chosen as it reflects the business of an investment fund: the assets are managed and their performance evaluated on a fair value basis and management decisions are therefore reflected in the Income Statement. The Company's policy is for the Investment Adviser and the Board of Directors to evaluate the information about these financial assets on a fair value basis together with other related financial information. The category of financial assets and liabilities held at fair value through profit or loss comprises: · Financial instruments designated at fair value through profit or loss upon initial recognition. · Financial assets other than those held at fair value through profit or loss are classified as loans and receivables and are carried at amortised cost, less impairment losses, if any. · Financial liabilities that are not designated at fair value through profit or loss include payables under repurchase agreements and accounts payable. Notes to the financial statements 23 Castle Asia Alternative PCC Limited 2010 (i) Recognition The Company recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognised on a trade date basis. From this date any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded. (ii) Measurement Financial instruments are measured initially at fair value (transaction price). Transaction costs on financial assets and financial liabilities held at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments classified at fair value through profit or loss are measured at fair value with changes in their fair value recognised under net gains in the Income Statement. Financial assets classified as loans and receivables are carried at amortised cost, less impairment losses, if any. Financial liabilities, other than those held at fair value through profit or loss, are measured at amortised cost. (iii) Fair value measurement principles Fund investments for which market quotations are not readily available are valued at their fair values as described in the process below. The Fund investments are normally valued at the underlying net asset value as advised by the managers/administrators of these funds, unless the Directors are aware of good reason why such a valuation would not be the most appropriate indicator of fair value. The responsibility for determining the fair value lies exclusively with the Board of Directors. In estimating the fair value of fund investments, the Board of Directors considers all appropriate and applicable factors relevant to their value, including but not limited to the following: · Reference to the investment vehicle's reporting information; · Reference to transaction prices; and · Results of operational and environmental assessments. All fair valuations may differ significantly from values that would have been used had ready markets existed and the differences could be material. (iv) Realised gains and de-recognition Realised gains on financial investments and securities are shown on a net basis in the Income Statement. Realised gains are recognised as being the difference between the cost value of an investment and the proceeds received upon the sale of the investment in the year that the investment was sold. The Company ceases to recognise a financial asset when the contractual rights to the cash flows from the financial asset expire. A financial liability ceases to be recognised when the obligation specified in the contract is discharged, cancelled or expired. (v) Offsetting of financial instruments Financial assets and liabilities are offset and the net amount is reported in the Statement of financial position when there is a legally enforceable right to set off the recognised amounts. (vi) Income Bank deposit interest is accounted for on an accruals basis. Dividends are accounted for when the right to receive them arises. 24 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 h) Derivative financial investments - forward currency contracts A forward currency contract obligates the Company to receive or deliver a fixed quantity of foreign currency at a specified price on an agreed basis. These contracts are accounted for when any contract becomes binding and are valued in the Statement of financial position at the period end forward rate. Realised and unrealised gains and losses are included in the Income Statement. i) Share capital Redeemable participating preference shares are classified as equity. Management shares are issued in accordance with Guernsey Law in order that the redeemable participating preference shares may be issued, as there must be non redeemable shares. Incremental costs directly attributable to the issue of new shares are shown in equity as a deduction from the proceeds. Further details are disclosed in note 11. j) Treasury shares Shares held in treasury are deducted from equity, are shown within the reserves on the Statement of financial position and are recognised at cost. Consideration received from the sale of such shares is also recognised in equity with any difference between the proceeds from sale and the original cost being taken to capital reserves. k) Functional and presentational currency The financial information is shown in sterling, being the Company's presentational currency. In arriving at the functional currency the Directors have considered the following: (i) the primary economic environment of the Company; (ii) the currency in which the original capital was raised; (iii) the currency in which distributions are made; (iv) the currency in which performance is evaluated; and (v) the currency in which the capital would be returned to Shareholders on a break up basis. The Directors have also considered the currency to which the underlying investments are exposed and liquidity is managed. The Directors are of the opinion that sterling best represents the functional currency. 3. Interest and similar income 2010 2009 GBP GBP Dividends - 76,311 Bank interest 188 1,342 Total income 188 77,653 Notes to the financial statements 25 Castle Asia Alternative PCC Limited 2010 4. Other operating expenses Other operating expenses are composed as follows: 2010 2009 GBP GBP Board expenses* 7,838 32,441 Registrar's fees 28,281 12,447 Legal and professional fees 34,291 34,711 Auditor's remuneration 20,153 27,379 LGT bank commitment fees 28,141 25,374 Sundry expenses 42,760 33,490 Total 161,464 165,842 *During the year ended 31 December 2009, a Board meeting was held in Hong Kong. 5. Foreign exchange and derivative (losses)/gains 2010 2009 Net (losses)/gains on GBP GBP derivatives Realised (losses)/gains on (2,964,480) 5,146,896 forward currency contracts Unrealised gains/(losses) on 227,820 (275,307) forward currency contracts (2,736,660) 4,871,589 2010 2009 Other foreign exchange and GBP GBP derivatives (losses)/gains Realised currency gains/ 82,730 (915,085) (losses) Unrealised currency gains 93 212,043 82,823 (703,042) Total foreign exchange and (2,653,837) 4,168,547 derivatives (losses)/gains 6. Investment advisory, Board advisory and Administrator fees Investment advisory, Board advisory and Administrator fees are composed as follows: 2010 2009 GBP GBP Investment Adviser 413,333 416,750 Board Adviser fees 66,160 72,928 Administrator fees 60,000 62,972 Total 539,493 552,650 7. Finance costs 2010 2009 GBP GBP Loan interest - 12,068 Bank loan/overdraft interest 20,446 242 Total 20,446 12,310 26 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 8. Taxation During the year the Company was exempt from Guernsey Income Tax under theIncome Tax (Exempt Bodies) (Guernsey) Ordinance 1989 and was charged an annual exemption fee of GBP600. 9. Financial assets and liabilities a. Categories of Investments 2010 2009 Designated at Fair % of Fair % of fair value value net value net through profit assets assets or loss GBP GBP - Listed - - 6,356,919 10.8 securities - Non listed 51,923,847 102.2 50,901,062 86.4 investment funds 51,923,847 102.2 57,257,981 97.2 Financial liabilities at fair value through profit or loss Held for trading - Derivative (47,486) 0.1 (275,307) 0.5 financial instrument (47,486) 0.1 (257,307) 0.5 b. Movement on Investments 2010 2009 GBP GBP Opening valuation 57,257,981 59,571,860 Purchases at cost 38,244,883 34,650,325 Sales proceeds (45,698,820) (37,260,991) Realised gains on sales 4,627,306 5,547,151 Movement in unrealised (2,507,503) (5,250,364) appreciation on revaluations on investments Closing valuation 51,923,847 57,257,981 Investments as shown on 51,923,847 57,257,981 Statement of financial position Comprising: Closing book cost 47,001,087 49,851,257 Closing unrealised 4,922,760 7,406,724 appreciation Closing valuation 51,923,847 57,257,981 Investments as shown on 51,923,847 57,257,981 Statement of financial position Notes to the financial statements 27 Castle Asia Alternative PCC Limited 2010 9. Financial assets and liabilities (continued) c. Net gains on financial assets at fair value through profit or loss 2010 2009 GBP GBP Net movement in gains on financial assets at fair value through profit or loss Realised gains on sales 4,627,306 5,547,151 Movement in unrealised (2,507,503) (5,250,364) appreciation on revaluation of investments 2,119,803 296,787 Forward foreign exchange contracts d. Outstanding contracts to buy and sell GBP As at 31 Financial December Closing Contract Contract asset/ 2010 Contracted Contract rate value value (liability) rate Maturity USD GBP GBP date 31 1.5751 buy 1.5587 26,990,000 17,135,420 (180,339) January 2011 28 1.5656 buy 1.5584 25,500,000 16,287,789 (75,344) February 2011 31 March 1.5396 buy 1.5580 27,940,000 18,148,160 214,682 2011 31 March 1.5378 sell 1.5580 (770,000) (500,715) (6,485) 2011 51,070,654 (47,486) Financial Closing Contract Contract asset/ Contracted Contract rate value value (liability) rate As at 31 December 2009 Maturity USD GBP GBP date 29 1.6401 buy 1.6168 31,480,000 19,193,835 (277,038) January 2010 26 1.6345 buy 1.6165 32,490,000 19,878,247 (221,305) February 2010 31 March 1.5972 buy 1.6161 30,360,000 19,008,741 223,036 2010 58,080,823 (275,307) In accordance with the Company's investment objectives and policies the Company may enter into forward foreign exchange contracts traded over the counter to hedge specific foreign currency payments. As there is no assurance that these hedges will be effective in achieving the offsetting of changes in the cash flows attributable to the currency risk on these specific foreign currency payments it is the policy of the Company not to apply hedge accounting. 28 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 10. Other payables 2010 2009 GBP GBP Directors' fees 21,750 - Auditor's remuneration 18,000 15,050 Treasury shares purchase awaiting - 78,999 settlement Custodian fees 5,673 8,897 Investment Adviser's fees 66,844 76,016 Board Adviser's fees 10,661 12,470 Administrator's fees 14,901 16,874 Broker settlement - 8,682 Other creditors and accruals 41,495 11,499 Liquidation expenses* 129,950 - Termination general expenses in 241,300 - relation to the anticipated liquidation* 550,574 228,487 * Liquidation and termination general expenses represent a provision for liquidation fees expected to be incurred to the estimated winding up date of the Company. The estimated liquidation expenses to the anticipated liquidation amount to GBP 129,950, which represents 0.3% of the Company's net asset value. The estimated termination general expenses in relation to the anticipated liquidation amount to GBP241,300 which represents 0.5% of the Company's net asset value. These expenses represent the Company's management and general expenses for the period 1 January 2011 to the expected date of liquidation of 18April 2011. In view of the fact that these accounts have been prepared on a break-up basis, provisions have been made for these expenses as at 31 December 2010. 11. Shareholders' equity Share Capital The authorised share capital of the Company is GBP2 divided into 2 management shares of GBP1 each and an unlimited number of no par value shares that may be issued as cell shares. The cell shares are issued as redeemable participating preference shares ("Shares"). 2010 2009 Management shares - Issued 2 2 and fully paid Redeemable participating preference shares Opening balance 54,458,427 59,649,105 Shares transferred to (937,500) (5,190,678) treasury Shares redeemed (5,405,565) - 48,115,362 54,458,427 Treasury shares Opening balance 5,190,678 50,000 Shares transferred from 937,500 5,190,678 preference shares Shares cancelled (4,215,000) (50,000) 1,913,178 5,190,678 Notes to the financial statements 29 Castle Asia Alternative PCC Limited 2010 11. Shareholders' equity (continued) Management shares Two Management Shares of GBP1 each in issue are beneficially owned by two Intertrust Fund Services (Guernsey) Limited (formerly Fortis Fund Services (Guernsey) Limited) nominee companies. The Management Shares were created to comply with Guernsey Company Law, under which there must be a class of non-redeemable shares in issue in order that the cellular shares may be redeemable participating preference shares in accordance with Guernsey Company Law. The sums paid up on the management shares are credited to the non-cellular assets of the Company. The management shares do not carry any rights to dividends and holders of management shares are only entitled to participate in the non-cellular assets of the Company on a winding-up. Redeemable participating preference shares The holders of the Shares attributable to a particular cell will only be entitled to participate in the income, profits and assets attributable to that cell. On a winding up the holders of the Shares are only entitled to participate in the assets of the cell and have no entitlement to participate in the distribution of any assets attributable to any other cell. Holders of Shares are entitled to attend and vote at general meetings of the Company. Under the discretionary redemption facility the Directors may at their sole discretion offer the holders of Shares an opportunity to redeem all or part of their holdings on a bi-annual basis. Although Shares are redeemable, redemption is at the sole discretion of the Directors. Treasury shares As at 31 December 2010 the total number of Shares held in Treasury was 1,913,178 representing 3.82% of the issued share capital. As at 31 December 2009 the total number of Shares held in Treasury was 5,190,678 representing 8.70% of the issued Share capital. Subsequent to the Company's year end, on the 7 January 2011, 975,678 Shares which were bought back in December 2009 to be held in Treasury, were cancelled. 12. Fee arrangements in place during the year ended 31 December 2010 In relation to its investment and administration activity the Company has entered into the following fee arrangements: Investment Advisory Fee (payable to LGT Capital Partners (Asia-Pacific) Limited) Under an Investment Advisory Agreement dated 22 September 2008, the basis for Investment Advisory Fees, payable to the Investment Adviser, LGT Capital Partners (Asia-Pacific) Limited, was 77.5 basis points of the Net Asset Value of the Cell, payable quarterly in arrears. Following amendment to the Investment Advisory Agreement, effective from 1 July 2009, the Investment Advisory fee is payable monthly as calculated on the last business day of each month. Performance fee The Investment Adviser is also entitled to a performance fee in respect of any financial year in which the Net Asset Value (NAV) of the Fund increases by more than 3% over the higher of 98.25 pence and the NAV at which a performance fee was last paid of 121.14p (the "High Water Mark").The performance fee is equal to 10% of any increase in the NAV over the High Water Mark during the financial year over and above 3%. The aggregate Investment Advisory and performance fees payable in any one year are capped at 4% of NAV. No performance fee is due for the year ended 31 December 2010 (2009: nil). 30 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 12. Fee arrangements in place during the year ended 31 December 2010 (continued) Board Advisory Fee (payable to Frostrow Capital LLP) On 1 January 2008 Frostrow Capital LLP was appointed as the Board Adviser, to oversee, on behalf of the Board, the accounting, administrative and company secretarial services provided to the Company by its service providers. During the year the Board Adviser was entitled to a fee of 12.5 basis points per annum of the Net Asset Value of the Cell, accrued daily and payable monthly in arrears. Administration Fee (payable to Intertrust Fund Services (Guernsey) Limited) On 22 September 2008, Intertrust Fund Services (Guernsey) Limited, (formerly Fortis Fund Services (Guernsey) Limited), ("the Administrator") was appointed as Company Secretary and Administrator to the Company. Under the Administration Agreement of this date the Administrator is entitled to receive a fee of 10 basis points of the Net Asset Value of the Cell, up to a value of GBP75 million and 5 basis points on any amounts of the Net Asset Value over GBP75 million, subject to a minimum of GBP60,000 per annum. This fee is payable quarterly in arrears. Custodian Fee (payable to ABN AMRO Custodial Services (Ireland) Limited) On 1 February 2010 the Company appointed ABN AMRO Custodial Services (Ireland) (formerly Fortis Prime Fund Solutions Custodial Services (Ireland) Limited) as its Custodian. The Company pays to the Custodian an annual fee of 0.03% per annum of the Fund's Net Asset Value, subject to a minimum annual fee of GBP 17,000. The Custodian is also entitled to receive transaction charges of EUR300 per subscription, redemption, conversion or transfer and EUR20 per cash transaction. 13. Related parties LGT Capital Partners (Asia-Pacific) Limited, (the "Investment Adviser"), Crown China Segregated Portfolio, (formerly KGR Capital China Absolute Return SP) (which is held as an investment and managed by LGT Capital Partners) and the Directors are regarded as related parties. The only related party transactions are described below: The Loan from LGT Bank, amounting to GBP622,199 which was repaid on 14 January 2011, is a related party transaction by virtue of the fact that LGT Bank and the Investment Adviser, LGT Capital Partners (Asia-Pacific) Limited, are both members of the LGT group. The fees and expenses payable to the Investment Adviser are as disclosed in note 6 and 12. The outstanding Investment Adviser fee due at the year end was GBP 66,844 (2009: GBP76,016). Fees earned by the Directors of the Company, all of which comprise short term benefits under Directors' remuneration agreements during the year were GBP87,000 (2009: GBP77,000) a further breakdown of which is provided in the Directors' report on page 11. GBP21,750 was outstanding as at the year end (2009: nil). During the year the Company held shares in Crown China Segregated Portfolio Series 7 which was managed by the Investment Adviser to the Company. An agreement is in place to ensure that any fees received by the Investment Adviser in relation to this investment will be rebated back to the Company so as to avoid double charging. Any rebate due is deducted from the fee payable to the Investment Adviser as disclosed above. The Company continued to hold positions in Crown Managed Accounts - Nezu and Crown Managed Accounts - Penta both of which are also managed by the Investment Adviser. Also during the year, the Company invested in one new Fund - Crown Amazon Segregated Portfolio also managed by the Investment Adviser. Investment in these funds is made on an arms-length basis, with the Company's terms of investment being identical to that of other investors with no association to the Investment Adviser. Notes to the financial statements 31 Castle Asia Alternative PCC Limited 2010 14. Operating segment reporting The following table analyses the Fund's operating income per geographical location. The basis for attributing the operating income is the place of incorporation of the instrument's counterparty. 2010 2009 GBP GBP Asia 1,708,400 373,098 Europe (2,653,649) 4,168,547 Guernsey - 1,342 Cayman Islands 411,403 - (533,846) 4,542,987 The following table analyses the Fund's operating income per investment type. 2010 2009 GBP GBP Investments in funds 2,119,803 373,098 Derivative financial instruments (2,736,660) 4,871,589 Interest income 188 1,342 Other foreign exchange gain/ (loss) 82,823 (703,042) (533,846) 4,542,987 15. Financial risk management objectives and policies The Company's principal activity and primary investment objective is to seek long-term capital appreciation through investment in a diversified multi-manager, multi-strategy portfolio of hedge funds investing in Asia. The Investment Adviser seeks to accomplish the investment objective by investing the assets of the Company predominantly in hedge funds worldwide, which invest in Asia, whose managers employ a variety of investment strategies. The underlying portfolio managers' investment methods may include, but are not limited to, convertible/capital structure arbitrage, credit based, event driven, fixed income arbitrage and hedged equity. The Investment Adviser's investment process constitutes a three stage procedure comprising manager selection, portfolio construction and ongoing portfolio management. Manager selection involves a screening of participants within the hedge fund universe in Asia in order to identify suitable candidates for consideration.The analysis and screening methodology undertaken involves quantitative analysis of all funds within each investment strategy, use of a proprietary quantitative ranking model, meetings with managers, discussions with prime brokers and newsletter reviews. This process results in the construction of a 'top tier focus list' of managers which is then subject to detailed due diligence, with the intention of selecting managers with, inter alia, a clear and successful 'edge' in investment strategy, a sensible and well executed investment process and appropriate and sufficient operational risk controls. Portfolio construction involves the adoption of a 'top down' approach underpinned by risk analytics. The Investment Adviser combines the benefit of its experience in hedge fund markets in Asia with macro economic and strategy analysis and quantitative analytics (e.g. risk/diversification measurements, calculation of management exposure) in order to construct an appropriate portfolio. Factors which the Investment Adviser will consider include portfolio diversification (in terms of manager, strategy and style), liquidity profile of the underlying investment and value at risk monitoring. 32 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) Ongoing portfolio management focuses on all areas which could impact on the construction of the portfolio or its risk profile. This involves a number of actions, including monitoring of underlying managers and portfolio risk, trailing performance analysis, the creation of watch lists and efficient portfolio management. The processes above and the following policies and procedures to mitigate risk have been in place throughout the year. The main risks to which the Company is exposed are market risk (including currency risk, price risk and interest rate risk), credit risk and liquidity risk. (a) Market risk The Company's exposure to market risk is comprised mainly of movements in the net asset value of investee hedge funds making up the Company's investment portfolio, which are mainly denominated in currencies other than sterling, and, to the extent that the Company incurs indebtedness, changes in interest rates that change its cost of borrowings.The exposure to market risk is made up of changes in foreign currency exchange rates, interest rates and market prices. Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign currency exchange rates. The Cell invests in underlying funds which are predominantly denominated in US dollars. From time to time, funds denominated in other currencies may be selected. The Company has had exposure to fluctuations in the exchange rate between Sterling and the US dollar. In an attempt to reduce the impact on the Company of currency fluctuations, under normal circumstances, the Company enters into a contract or contracts involving the forward sale of the total value of all investments in their currency of denomination for sterling delivery. These contracts are then closed out at the end of each period with a further foreign exchange transaction and a new forward contract established. A consequence of this hedging strategy is that any changes in the value of the investments between the periods of each contract will not be hedged. In view of the hedges entered into by the Company during the year, and the recent movements in the exchange rate between sterling and the US dollar, the Directors consider that the currency risk of the denomination of the underlying funds is mitigated. The Company's investments themselves are exposed to currency risk but this is reflected in their valuation and forms part of price risk. At 31 December 2010 the Company's net currency exposure was as follows: 2010 2009 GBP GBP Euro 411 - US dollar 36,219 2,070,593 The above analysis includes amounts due from redemptions awaiting settlement and excludes short term other receivables and other payabies. The analysis excludes the forward foreign exchange contracts disclosed in note 9. At 31 December 2010, should the US dollar and Euro have strengthened, or weakened, by 10% against sterling and all other variables, including the price of the Company's investments, had held constant, Notes to the financial statements 33 Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) the net assets attributable to shareholders would have decreased, or increased, by GBP9,967 (2009: GBP187,977). Price risk Price risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market prices (other than those arising from currency risk or interest rate risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded on the market. The Company is exposed to market price risk arising from its investment in a variety of hedge funds. The Company's exposure to market price risk is managed by the Investment Adviser, which has a robust monitoring process through which the investment performance of the funds within the portfolio is assessed. Investment performance is monitored on a weekly basis to ensure that NAV movements in the underlying funds are consistent with the Company's strategy. In addition, the Investment Adviser holds a detailed monthly investment committee meeting at which the performance of the portfolio is monitored. The Company's exposure to price risk takes the form of net asset value movements delivered by the underlying hedge fund investments. The Directors consider that the Investment Adviser manages the Company's exposure to price risk by way of its rigorous investment process, as described. If the price of the underlying hedge funds as at 31 December increased, or decreased, by 10% the net asset value of the Company would increase/decrease by GBP5,192,385 (2009: GBP5,725,798). The Company has classified its financial assets designated at fair value through profit or loss and the Fair Value of derivative financial instruments using a fair value hierarchy that reflects the significance of the inputs used in making the fair value measurements. The hierarchy has the following levels: · Level 1 - quoted prices (unadjusted) in active markets for identical assets or liabilities; · Level 2 - inputs other than quoted prices included with Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and · Level 3 - inputs for the asset or liability that are not based on observable market data (unobservable inputs), such as assets which are Gated, Side Pocketed and Redemption Suspended. Level As of 31 1 Level 2 Level 3 Total December 2010 GBP GBP GBP GBP Assets/ (liabilities) Financial investments designated at fair value through profit or loss - 51,768,347 155,500 51,923,847 Fair value of derivative financial instruments - (47,486) - (47,486) Assets measured at fair value - 51,720,861 155,500 51,876,361 34 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) As at 31 December 2010, Eastern Advisor Fund and Bennelong Asia Pacific (both classed as side-pocketed) have been classified as level three. All of the remaining investments have been classified as level two as the inputs for the assets are based on observable market data which has been obtained from the underlying Managers of the funds. As of 31 Level 1 Level 2 Level 3 Total December 2009 GBP GBP GBP GBP Assets/ (liabilities) Financial investments designated at fair value through profit or loss 6,356,919 50,529,985 371,077 57,257,981 Fair value of derivative financial instruments - (275,307) - (275,307) Assets measured at fair value 6,356,919 50,254,678 371,077 56,982,674 As at 31 December 2009, Akamatsu Fund and Artradis Barracuda had been classified as level one as they were quoted on a recognised exchange and Eastern Advisor Fund (side-pocketed) and Bennelong Asia Pacific (side-pocketed) had been classified as level three. All of the remaining investments have been classified as level two. Level 3 Reconciliation A reconciliation disclosing the changes during the year for the financial assets and liabilities designated at fair value through profit or loss classified as being level three is set out below. 2010 2009 GBP GBP Assets As at 1 January 371,077 9,062,853 Total losses during the year (215,577) (649,561) Acquisitions - 1,942,365 Disposals - (7,213,935) Transfers in - 137,986 Transfers out - (2,908,631) Assets as at 31 December 155,500 371,077 During the year ended 31 December 2010, no investments were transferred into or from level three. Notes to the financial statements 35 Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) Interest rate risk Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company's interest-bearing financial assets and liabilities expose it to risks associated with the effects of fluctuations in the prevailing levels of market interest rates on its financial position and cash flows. The Company holds only modest amounts of cash on deposit and therefore exposure to interest rate changes is limited to the effect on cash. The following table details the Company's exposure to interest rate risk as at 31 December 2010. Financial Floating rate Total assets/ financial 2010 (liabilities) assets/ on which no (liabilities) interest is 2010 paid 2010 GBP GBP GBP Euro - 411 411 Sterling (47,486) 63,041 15,555 US Dollars 51,923,847 (585,980) 51,337,867 51,876,361 (522,528) 51,353,833 Financial Floating rate Total assets/ financial 2009 (liabilities) assets/ on which no (liabilities) interest is 2009 paid 2009 GBP GBP GBP Sterling (275,307) 84,479 (190,828) US Dollars 57,257,981 1,991,594 59,249,575 56,982,674 2,076,073 59,058,747 The above analysis includes all loans, but excludes short term other receivables and other payables as all the material amounts are non-interest bearing. At 31 December 2010, should interest rates have increased by 100 basis points with all other variables held constant, the increase in net assets attributable to redeemable participating preference shareholders for the year would amount to approximately GBP7,219 (at 31 December 2009: GBP20,761 offset by a decrease in the net assets attributable to redeemable participating preference shareholders by approximately GBP19,916). A decrease of 100 basis points would have had an equal but opposite effect. (b) Credit risk Credit risk is the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. In addition there is the risk that an investee hedge fund is unable to satisfy valid redemption instructions delivered by the Company. The Directors consider that the Investment Adviser manages the Company's exposure to this credit risk by way of its rigorous investment process, as described above. 36 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) The Company manages its exposure to credit risk by hedging. The counterparty for the hedging transactions, the loan held at year end, in addition to the maintenance of cash deposit accounts, is LGT Bank who hold a Moody's credit rating of Aa3. The Company also holds cash deposits with ABN AMRO Custodial Services (Ireland) Limited who have a Moody's credit rating of A1. The Company's maximum exposure to credit risk is the carrying value of the assets on the Statement of financial position. As at 31 December 2010 the exposure to credit risk was as follows: 2010 2009 GBP GBP Financial assets at fair value 51,923,847 57,257,981 through profit or loss Amounts due from redemptions - 48,183 awaiting settlement Other receivables 14,767 21,258 Cash and cash equivalents 99,671 2,106,889 52,038,285 59,434,311 (c) Liquidity risk Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with its financial liabilities. The Company's exposure to liquidity risk mainly arises through the inability to recover funds invested in an underlying portfolio fund through the usual fund redemption process. Investee hedge funds typically require notice of redemption of between 30 and 90 days and have either monthly or quarterly dealing days. The liquidity of the Company's portfolio of investments remains under close review by the Investment Adviser and the Board. The investments within the investment portfolio can be broken down into the following categories, describing their current position regarding their ability to make redemptions; Normal redemption - no change from that as laid out in their prospectus. Side-pocketed - illiquid investments within an investee company are placed in a separate fund and any redemptions receive only their share of the liquid investments at the current time with the balance being held until such time, if at all, that the illiquid investments can be redeemed. The investments which fall into this category are: % of Net Assets Bennelong Asia Pacific 0.2% Eastern Advisor 0.1% 0.3% Notes to the financial statements 37 Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) As at 31 December 2010 the redemption status of the investment portfolio of the Company can be summarised as follows: At 31 December 2010 Normal Side redemption pocketed % of fair value of financial 99.7% 0.3% assets At 31 December 2009 % of fair value of financial 99.4% 0.6% assets The Investment Adviser adopts a rigorous fund selection process which is designed to include management of the Company's exposure to liquidity risk. Once a fund is selected for inclusion within the investment portfolio, all operational aspects of the investee fund are closely monitored on a continuous basis by the Investment Adviser, including the ability to make redemptions. The Board receives a report on a quarterly basis from the Investment Adviser which includes reference to the redemption status of each fund. These procedures were in place throughout the year. The maturity profile of the Company's assets and liabilities as at 31 December 2010 was as follows: 1 month or 1 to 3 3 to 6 less months months Total GBP GBP GBP GBP Assets: Financial assets at fair value through profit or loss - 48,256,269 3,667,578 51,923,847 Other receivables 14,767 - - 14,767 Cash and cash equivalents 99,671 - - 99,671 114,438 48,256,269 3,667,578 52,038,285 Liabilities: Loan payable (622,199) - - (622,199) Other payables - (550,574) - (550,574) Unrealised positions on forward foreign exchange contracts (180,338) 132,852 - (47,486) (802,537) (417,722) - (1,220,259) 38 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) The maturity profile of the Company's assets and liabilities as at 31 December 2009 was as follows: 1 month or less 1 to 3 3 to 6 Total months months GBP GBP GBP GBP Assets: Financial assets at fair value through profit or loss - 57,257,981 - 57,257,981 Amounts due from redemptions awaiting settlement 48,183 - - 48,183 Other receivables 21,258 - - 21,258 Cash and cash equivalents 2,106,889 - - 2,106,889 2,176,330 57,257,981 - 59,434,311 Liabilities: Other payables - (228,487) - (228,487) Unrealised positions on forward foreign exchange contracts (277,038) 1,731 - (275,307) (277,038) (226,756) - (503,794) 1,899,292 57,031,225 - 58,930,517 (d) Management of capital The Board, with the assistance of the Investment Adviser, manages the capital of the Company in accordance with the Company's investment objectives and policies. During the year ended 31 December 2010, the Company's overall strategy remained unchanged from 2009. The capital structure of the Company consists of proceeds from the issue of preference shares and the reserve accounts, as disclosed on the Statement of financial position. The Board, with the assistance of the Investment Adviser reviews the capital structure on an ongoing basis. The Company does not have any externally imposed capital requirements. The loan facility provided by LGT Bank is to be used for hedging purposes and to assist in maintaining liquidity. LGT Bank have provided a facility which allows the drawdown of fixed advances and of overdrafts in current accounts, but in total is limited to the lowest of the following three scenarios: (1) GBP15,000,000; or (2) 20% of the Net Asset Value of the Cell; or (3) 35% of the Cell's three month average market capitalisation. This facility is valid until further notice, although it may be terminated by either party subject to three months' notice or immediately on any event of default. As at 31 December 2010, GBP622,199 was drawn down on this facility. On fixed amounts drawn down the facility attracts interest at a rate equivalent to the lender's interbank market rate two days prior to the drawdown, plus a margin of 0.9% per annum. On any overdraft the interest rate will be the standard variable overdraft rate as set by the lender, calculated daily and charged quarterly. Notes to the financial statements 39 Castle Asia Alternative PCC Limited 2010 15. Financial risk management objectives and policies (continued) (e) Fair value disclosure In the opinion of the Directors there is no material difference between the book values and the fair values of the financial assets and liabilities. 16. Reserves Capital Capital Shares Reserve Reserve held in Revenue Realised Unrealised Treasury Reserve Total As at 31 December 2010 2010 2010 2010 2010 2010 GBP GBP GBP GBP GBP Opening Balance 563,970 5,813,206 (4,351,037) (3,775,642) (1,749,503) Realised gains on investments 4,627,305 - - - 4,627,305 Movement in unrealised loss on investments - (2,507,502) - - (2,507,502) Realised losses on forward currency contracts (2,964,480) - - - (2,964,480) Unrealised gain on forward currency contracts - 227,820 - - 227,820 Other realised and unrealised currency gains 82,730 93 - - 82,823 Revenue loss for the year - - - (1,230,924) (1,230,924) Treasury shares cancelled - - 3,498,308 - 3,498,308 Shares purchased for Treasury - - (845,748) - (845,748) 2,309,525 3,533,617 (1,698,477) (5,006,566) (861,901) Capital Capital Shares Revenue Total Reserve Reserve held in Reserve Realised Unrealised Treasury As at 31 2009 2009 2009 2009 2009 December 2009 GBP GBP GBP GBP GBP Opening Balance (13,167,312) 15,079,154 (50,000) (3,006,207) (1,144,365) Realised gain on investments 5,547,151 - - - 5,547,151 Movement in unrealised loss on investments - (5,250,364) - - (5,250,364) Realised gains/ (losses) on forward currency contracts 7,972,088 (2,825,192) - - 5,146,896 Unrealised loss on forward currency contracts - (275,307) - - (275,307) Other realised and unrealised currency gains/ (losses) 212,043 (915,085) - - (703,042) Revenue loss for the year - - - (769,435) (769,435) Treasury shares cancelled - - 50,000 - 50,000 Shares purchased for Treasury - - (4,351,037) - (4,351,037) 563,970 5,813,206 (4,351,037) (3,775,642) (1,749,503) 40 Notes to the financial statements Castle Asia Alternative PCC Limited 2010 17. Basic and diluted (loss)/earnings per Redeemable Participating Preference Share Revenue loss per redeemable participating preference share is based on the loss attributable to the redeemable participating preference shares of GBP1,230,924 (2009: GBP769,435) and on the weighted average number of redeemable participating preference shares in issue of 50,984,811 (2009: 56,443,003). Capital earnings per redeemable participating preference share is based on the net capital loss attributable to the redeemable participating preference shares of GBP534,034 (2009: GBP4,465,334 gain) and on the weighted average number of redeemable shares in issue of 50,984,811 (2009: 56,443,003). 18. Net Asset Value per Redeemable Participating Preference Share The net asset value per redeemable participating preference share is based on net assets attributable to redeemable participating preference shares of GBP 50,818,026 (2009: GBP58,930,515) and on the redeemable participating preference shares in issue at the year end of 48,115,362 (2009: 54,458,427). 19. Derivative Financial Instrument: Forward Foreign Exchange Contract The Company hedges its US dollar exposure by entering into forward sales of US dollars into sterling. The intention is that this should create a gain (or loss) that offsets the loss (or gain) that results from holding assets that are denominated in US dollars. Occasionally, the Company may invest in funds that are denominated in currencies other than US dollars and because of this it may, from time to time be necessary for the Company to hedge against its exposure to these currencies. At the year end there were four outstanding forward contracts, as disclosed in note 9, totalling US$79,660,000 against sterling (2009: US$94,330,000). These contracts showed an aggregate unrealised loss at 31 December 2010 of GBP47,486 (at 31 December 2009: loss GBP275,307). 20. Ultimate controlling party In the opinion of the Directors on the basis of shareholdings advised to them the Company has no ultimate controlling party. 21. Reconciliation of published valuation to financial statements GBP Net assets per financial statements 50,818,026 Adjustment to accruals 8,259 Adjustment to financial assets held at fair 155,636 value through profit or loss Liquidation and termination general 371,250 expenses Net assets per published valuation 51,353,171 Notes to the financial statements 41 Castle Asia Alternative PCC Limited 2010 22. Subsequent events - proposals relating to the continuation of the Company Subsequent to the Company's year end, the Company issued a circular which was dispatched to Shareholders on 14 March 2011 convening an Extraordinary General Meeting for 18 April 2011. At the meeting Shareholders will be given the opportunity to vote on the future of the Company. In the event that Shareholders do not vote to continue the Company, they will be given, at the same meeting, the opportunity to vote to place the Company into voluntary liquidation. 42 Investment portfolio Castle Asia Alternative PCC Limited 2010 Investment portfolio at 31 December 2010 % of Fair Value Net Investments GBP Assets Schroder International Selection Fund 3,780,183 7.5 Indus Pacific Opportunities Fund 3,512,078 6.9 Real Return Asian Fund 3,488,476 6.9 Clairvoyance Asia Fund Limited 3,416,696 6.7 Alphadyne Investment Strategies Fund Limited 3,300,517 6.5 EB Asia Absolute Return Fund 3,147,830 6.2 Crown Amazon Segregated Portfolio 3,088,156 6.1 Crown Managed Accounts - Nezu 2,786,940 5.5 Horizon Portfolio I Limited 2,758,267 5.4 LIM China Master Fund SPC Limited 2,524,713 5.0 Whitney Japan Investors Fund 2,438,332 4.8 Triskele China Fund 2,396,552 4.7 Crown China Segregated Portfolio 2,303,296 4.5 Octagon Pan Asia Fund 2,207,979 4.3 Rockhampton Fund 2,152,520 4.3 LIM Asia Multi-Strategy Fund 2,101,570 4.1 PD Star Fund Limited 1,939,285 3.8 Segantii Asia Pacific Equity Multi-Strategy Fund 1,679,270 3.3 Crown Managed Accounts - Penta 1,384,357 2.7 Matchpoint Asia Fund Limited 1,361,330 2.7 Bennelong Asia Pacific (side pocketed)+ 99,100 0.2 Eastern Advisor Fund (side pocketed)+ 56,400 0.1 Total investment portfolio 51,923,847 102.2 Net current liabilities (1,105,821) (2.2) Net assets 50,818,026 100.0 Note: The above fair values are based on formal valuations supplied to the Company by the Administrators of the Company's underlying investments, with the exception of Bennelong Asia Pacific and Eastern Advisor Fund which have a 50% provision applied to their valuation. + Side pocketed - illiquid investments within an investee company are placed in a separate fund and any redemptions receive only their share of the liquid investments at the time of redemption with the balance being held until such time, if at all, that the illiquid investments can be redeemed. Investor information 43 Castle Asia Alternative PCC Limited 2010 Investor information Directors and Advisers Directors Board Adviser R O Dorey (Chairman)*# Frostrow Capital LLP N M S Rich, CBE, FCA*# 25 Southampton Buildings A H Smith# London WC2A 1AL C Russell, FCA, FSIP*# Registered Office Registrar Martello Court Capita IRG (CI) Limited Admiral Park 2nd Floor, TSB House St Peter Port No 1 Le Truchot Guernsey GY1 3HB St Peter Port Guernsey GY1 4AE Secretary and Administrator Investment Adviser Intertrust Fund Services LGT Capital Partners (Guernsey) Limited (Asia-Pacific) Limited Suite 4203 Two Exchange Martello Court Square Admiral Park 8 Connaught Place St Peter Port PO Box 13398 Guernsey GY1 3HB Hong Kong Legal Adviser (UK) Banker and Custodian ABN AMRO Custodial Services Norton Rose LLP (Ireland) Limited (formerly Fortis Prime Fund 3 More London Riverside Solutions Custodial London SE1 2AQ Services (Ireland) Limited) Fortis House, Park Lane Legal Adviser (Guernsey) Spencer Dock Carey Olsen Dublin 1 Carey House Ireland (effective date 1 February Les Banques 2010) 7 New Street St Peter Port Guernsey GY1 4BZ Broker Auditor Winterflood Securities Limited Ernst & Young LLP The Atrium Building, Cannon Bridge PO Box 9 25 Dowgate Hill Royal Chambers London EC4R 2GA St Julian's Avenue St Peter Port Guernsey GY1 4AF * Audit Committee member (Chairman N M S Rich) Remuneration and Management Engagement Committee member (Chairman C Russell) # Nomination Committee member (Chairman R O Dorey) END
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