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| Share Name | Share Symbol | Market | Type | Share ISIN | Share Description |
|---|---|---|---|---|---|
| Dexion Com. | LSE:DCL | London | Ordinary Share | GB00B0ZQ8Q41 | ORD NPV GBP |
| Price Change | % Change | Share Price | Bid Price | Offer Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
|---|---|---|---|---|---|---|---|---|---|---|
| 0.00 | 0.00% | 98.875 | 0.00 | 01:00:00 |
| Industry Sector | Turnover | Profit | EPS - Basic | PE Ratio | Market Cap |
|---|---|---|---|---|---|
| 0 | 0 | N/A | 0 |
From May 2019 to May 2024
TIDMDCL
RNS Number : 9455D
Dexion Commodities Limited
30 March 2011
DEXION COMMODITIES LIMITED
ANNUAL REPORT AND ACCOUNTS
The Company has today, in accordance with DTR 6.3.5, released its Annual Financial Report for the year ended 31 December 2010. The Report is available via www.dexioncommodities.com and will shortly be submitted to the National Storage Mechanism and will also shortly be available for inspection at www.hemscott.com/nsm.do
Financial Highlights
31 December 2010 GBP Shares EUR Shares US$ Shares -------------------------------- -------------- ------------- ------------- Continuing Portfolio Total Net Assets GBP40,541,826 EUR6,567,507 US$4,569,751 Published Net Asset Value per Share GBP0.9832 EUR1.1861 US$1.6802 Mid-Market Share Price GBP0.9225 EUR1.1200 US$1.5500 Discount to Net Asset Value (6.17)% (5.57)% (7.75)% -------------------------------- -------------- ------------- ------------- 31 December 2009 GBP Shares EUR Shares US$ Shares -------------------------------- -------------- ------------- ------------- Continuing Portfolio Total Net Assets GBP40,824,796 EUR7,810,379 US$1,742,657 Published Net Asset Value per Share GBP0.9753 EUR1.1784 US$1.6617 Mid-Market Share Price GBP0.8888 EUR1.0388 US$1.5038 Discount to Net Asset Value (8.87)% (11.85)% (9.51)% -------------------------------- -------------- ------------- -------------
On 31 July 2009, the investments of the Company were split between a Redemption Portfolio and a Continuing Portfolio, as part of the Company's Reorganisation. Unless otherwise indicated, performance statistics used in this Report and Accounts refer to the original portfolio prior to the Reorganisation, and to the Continuing Portfolio thereafter.
CHAIRMAN'S STATEMENT
I am pleased to present Shareholders with the Annual Report and Accounts of Dexion Commodities Limited for the year ended 31 December 2010.
2010 Overview
Having seen the performance of the Company improve during 2009, performance was more subdued in 2010. Many hedge funds felt the impact of the downturn in the market, caused primarily by the Eurozone financial crisis. As was the case in 2008 and 2009, a legacy of discounts persisted across the listed hedge fund listed sector, and the Company's GBP Shares traded for the majority of 2010 at a discount to NAV of greater than 10%.
During 2010 the net asset value of the Company's GBP Shares rose by 0.81%. The annualised NAV return on the GBP Shares from inception to 31 December 2010 has been +0.01% with annualised volatility of 7.79%.
Following the re-organisation of the Company in 2009, the Company's Articles of Association were amended to provide for a continuation vote to be put to Shareholders in June 2010 regardless of the discount (if any) at which the Company's Shares (or any class of them) then traded. On 24 June 2010 at the meeting of Shareholders the 2010 Continuation Resolution was passed, with a total of 64% of the issued Share capital voting, and 88% of those being votes cast in favour.
Whilst cognisant that the Share price discount to NAV has been unwelcome for Shareholders, given the small size of the Company's asset base, the Board has been unwilling to reduce those assets further through the repurchase or redemption of Shares and therefore the Company's ability to reduce the current share price discount is significantly limited.
Accordingly, in the absence of a significant change in either market conditions or the Company's performance, the Board believed it was likely that the discount management provisions would have been triggered in early July 2011, necessitating a continuation vote for the relevant classes of Shares in the Company. Notwithstanding the Investment Adviser's views as to the outlook for commodity strategies, the Board believed there was a real risk of one or more of those votes failing.
Winding Down and Proposed Liquidation of the Company
In view of the Company's performance since the 2009 reorganisation, the small size of the Company's asset base, the share price discount at which the Shares continue to trade, the likelihood of one or more redemption offers being required later in 2011, the limited liquidity in the Shares, and the Company's expense base (as a closed-ended investment Company listed on the main market of the London Stock Exchange) compared to its assets, the Board announced on 23 December 2010 its intentions to put proposals to Shareholders for the orderly winding down of the Company, followed by its liquidation. On 3 March 2011, the Board issued a Shareholder Circular setting out details of the proposed realisation and liquidation process and giving notice of two Extraordinary General Meetings at which approval would be sought from Shareholders for implementation of the proposals.
The aim of the proposals is for the Company to be able to realise the vast majority of its Continuing Portfolio on a faster timetable than would normally be the case as a result of the Company having secured favourable liquidity from the underlying managers of the Company's investments.
On 25 March 2011, Shareholders approved the winding down of the Company, pursuant to which the investment objective and investment policy of the Company has been amended, now being to realise the investments in the Continuing Portfolio in an orderly and timely manner, with a view to distributing cash to Shareholders. It is expected that all of the investments in the Continuing Portfolio will have been realised by 31 March 2011, with the proceeds to be received by the Company by 30 April 2011.
The Board invites Shareholders to a second Extraordinary General Meeting on 11 April 2011 to consider the Winding Up Resolution for the winding up of the Company and the appointment of a liquidator. Subject to the passing of the Winding Up Resolution, the liquidator will distribute the proceeds from the realisation of the investments of the Continuing Portfolio to Shareholders. The reason for the delay between the first and second Extraordinary General Meetings is so that the Board, rather than the liquidator, remains in substantial control of the realisation of the investments of the Continuing Portfolio.
The Board's focus in relation to the winding down and the winding up has been to achieve a solution which is as quick and clean as possible for Shareholders. In particular this has involved the Investment Adviser agreeing to seek consents from certain underlying funds to the conditional redemption of certain investments, so enabling a significant part of the Continuing Portfolio to be realised up to three months earlier than would otherwise have been the case.
I would like to express my thanks to Shareholders who have been supportive of the Company and the Board's efforts since inception. It is with regret that the Board has concluded that the winding up of the Company is the only viable solution for the Company in its current situation.
Finally, I would like to take this opportunity to thank my fellow Directors for their time and endeavours over the last few years, in ensuring the best outcome for Shareholders. The Board has worked hard to offer innovative solutions to Shareholders over the last couple of years, which it has continued to do by enabling a quick and efficient winding up of the Company.
Rupert Dorey
Chairman
29 March 2011
MANAGER'S REPORT
The published net asset values of the Company's GBP Shares, EUR Shares and US$ Shares increased by 0.81%, 0.65% and 1.11% respectively, net of fees and expenses, during 2010.
The first half of 2010 saw commodities underperform. Slowing growth momentum and renewed concerns about the health of the financial system heavily influenced investor sentiment. Commodity prices were buffeted by macro concerns and the DJ-UBS Commodities Index finished the period down 9.7%. In this environment, the Company's fundamental strategies encountered difficulties. Losses were spread across commodity and environmental strategies, with notable drawdowns occurring in February, May and June. The heightened macroeconomic concerns saw risk reduced across the Continuing Portfolio and entering the second half of the year most managers were trading cautiously awaiting greater clarity over the financial health of the Eurozone periphery and the US economy.
The second half of 2010 saw investors re-focus on strengthening global growth and improving commodity fundamentals. An inventory compression across many commodities (driven by a mixture of demand and weather influences) helped propel commodity prices higher. However, the rally was uneven as the energy complex lagged amid excessive stock levels in oil and natural gas. The commodity strategy performed well in this environment, achieving a double digit gain in the second half as the vast majority of the Company's underlying managers generated profits. The smaller environmental allocation posted a modest gain, with US and global long/short strategies performing particularly well.
Commodity Strategies
Commodity markets came under pressure in January, as monetary tightening in China and the US Administration's crackdown on banks saw prices dragged lower amid investor de-risking. Despite long only indices tumbling 8% in January, the commodity strategy posted a modest gain as shorts in grains and excellent stock selection from highly hedged long/short managers led to positive returns. Returns were also supported by long positions in sugar, which surged to record highs late in the month.
Performance in February and March was disappointing as shifting fundamentals in sugar led to losses amongst multi-strategy managers and energy managers struggled amid declining volatility. Tight stock levels and expectations of supply deficits drove sugar prices upward in Q4 2009 and January, leading to large backwardation in the term structure. In February, sugar prices dropped after India (the second largest producer) surprised analysts with a higher than estimated crop forecast. The downside was exacerbated as speculative longs unwound positions and key importing nations delayed purchases amid high prices and the inverted term structure. Sugar fell over 30% during February and March. However, despite the declines, a number of multi-strategy managers remained positively positioned in this market and recouped some losses as prices recovered late in the period.
The performance of the Continuing Portfolio in the first half of 2010 was, however, dominated by events in May and June. In May, commodity markets felt the full force of investor de-risking amid concerns over the solvency of the European banking system. Of the major commodities markets only gold, natural gas and orange juice bucked the negative trend of indiscriminate selling. While the Company's managers were cognisant of macro developments, they did not anticipate the scale of market volatility created by Europe's escalating sovereign debt woes. Improving fundamentals meant exposure in oil and softs was generally to the long side and these sectors proved to be a significant source of losses.
In June, idiosyncratic events rather than macro forces impaired performance. The largest negative contribution came from one of the Company's diversified managers, whose short exposure to coffee was hit by a 20% surge in prices, with multiple 5% up days.
The Strategy's strong performance in the second half of 2010 was underpinned by excellent gains from multi-strategy and agricultural managers. Base metal strategies also contributed positively, particularly those with an equity focus. Returns from the energy sector were more mixed, as large inventory overhangs in oil and natural gas led to choppy, erratic price movements which made alpha generation problematic.
The grain complex was one of the best sources of opportunities over the second half, with multi-strategy managers allocating a substantial part of their risk budget to the sector given the compelling opportunities. A mixture of strong demand and sub-optimal growing conditions for wheat, corn and soyabeans led to continued downward revisions to 2010 production and inventory data. This led to large price rises which many managers were positioned to benefit from. Cotton was another commodity to experience huge gains. Floods in key growing regions, such as Pakistan, along with strong demand sparked a doubling of prices over the period.
The strategy enjoyed additional gains from the two dedicated agricultural managers, whose weighting within the Continuing Portfolio was increased during the second half of 2010. These managers employ option based strategies and delivered gains of 34% and 16% respectively in that period. Both managers actively trade around their positions, and this was clear to see in November as they both posted gains in a month when grain prices slumped on profit taking.
Within base metals, equity based managers outperformed in the second half, with one Canadian based fund delivering a 40% gain. Established long positions in small and mid cap mining stocks performed well as earnings upgrades accompanied rising metal prices, driving share prices higher. The performance of active trading metal managers was more modest. Long positions in markets such as copper and tin benefited as falling inventories sparked price gains, although tactical shorts in gold hurt, and shorts in zinc also proved damaging as prices rallied despite forecasts of a healthy surplus.
The energy complex continued to provide challenges for hedge funds and 2010 was a disappointing year for many energy managers. The year was characterised by choppy price action within fairly wide bands for oil, oil related products and natural gas. The reason for energy lagging other sectors was the persistent inventory overhang in most markets. The fundamentals for oil improved as the year progressed and going forward, many managers believe 2011 will provide better trading opportunities.
In terms of manager returns, one manager focused on small cap service and exploration stocks generated very good returns in the final quarter as these shares were lifted higher amid an equity rally. The only other manager to post a double digit gain in the second half was a natural gas trader, who utilised a proprietary weather model to successfully trade the natural gas gyrations from both the long and short sides. Less successful was a Houston based energy trader who encountered difficulties in oil product spreads, which were generally range bound and lacked the volatility needed to extract meaningful returns. Further losses were suffered more generally in natural gas, where weather driven spikes inflicted losses on directional shorts and bear spread positions.
Environmental
In the first quarter, the changing shape of the carbon curve challenged the Company's carbon specialist manager, as the manager's structural long bias to the back of the curve suffered from the flattening of the term structure. The manager was unable to recoup the losses when lower carbon prices pushed down the value of the project portfolio, erasing gains achieved in the trading book.
In equity long/short, negative policy developments in European solar and Brazilian water utility sectors proved damaging. Uncertainty over ongoing German solar subsidies led to first half 30% peak-to-trough declines in many solar stocks, hurting long positions. The damage to the Continuing Portfolio was limited as managers had taken significant profits following a strong run in the second half of 2009. In Brazil, long positions in water utility stocks suffered as lower than anticipated hikes in water tariffs led to sharp downward moves.
As with most hedge fund strategies, May was an extremely testing time as alternative, renewable and carbon long-only indices declined by between 13% and 21%. Despite positive returns from the Company's carbon trader and pleasing capital preservation from the majority of equity long/short managers, heavy losses from Asian managers and poor performance from a core diversified manager weighed heavily on returns.
The push for cleaner energy continued unabated and the fundamental drivers for many of the companies in which the Company's managers were invested remained unchanged. However, as is the case in de-leveraging months such as May, smaller and less understood sectors take the brunt of investor de-risking, with losses in clean energy, environmental technology and water treatment stocks accounting for the bulk of losses.
While both earnings and valuation fundamentals remained positive, the Company's equity long/short managers reduced risk following May's sell-off, yet still felt the impact in June as alternative energy stocks fell sharply again at the end of the month, despite there being no meaningful news.
The strategy generated a healthy single digit gain in the second half of 2010, with the bulk of performance accruing from equity related strategies. One manager secured solid gains from its agricultural/bio-fuel exposure, with additional gains coming from holdings in energy infrastructure. Elsewhere, positions in solar energies performed reasonably well despite large sector volatility, whilst other notable returns accrued from timely shorts in building efficiency and transportation efficiency stocks.
Water was one of the largest sector exposures within the strategy and this sector continued to be a source of profits in the second half. Water stocks continued to exhibit greater dispersion than traditional equity sectors and the Company's long/short managers successfully captured this dispersion, with long positions in water infrastructure achieving especially good gains. As with other environmentally focused sectors, shorts were a drag on performance, notably in Asia, where managers' market timing slightly detracted from returns.
The small allocation to a carbon focused manager resulted in a positive contribution in the second half of 2010. Whilst much of the period proved difficult, a profit was achieved following a large upward re-valuation in December on project positions post the expiration of the current carbon trading phase in 2012.
Outlook
Most managers remain bullish on agriculture and base metal markets. In agriculturals, the Company is witnessing multi-year lows in inventories across many agricultural commodities, and any negative weather events could lead to severe price spikes. Both sector specialists and multi-strategy managers are prepared to actively trade opportunities in this area and the current environment provides excellent opportunities.
Copper is the favoured market within the metals complex as strengthening global demand coupled with modest supply growth continues to put pressure on inventories. Within energy, the clearing of the large offshore oil inventory has led to a tighter supply/demand balance and higher volatility should increase opportunities for both directional and spread trading strategies. Natural gas remains a conundrum, with bearish inventory levels weighing on prices, but weather related events expected to spark intermittent rallies. Managers who can accurately predict weather patterns will have an edge in this market.
Monthly NAV Performance since inception GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2010 -0.19% -1.11% -0.15% 0.29% -2.86% -2.90% 1.68% -0.44% 2.08% 1.55% -0.03% 3.08% 0.81% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2009 0.95% -1.36% -0.04% 3.27% 2.52% 0.41% 0.32% 0.95% 0.23% -0.72% 1.05% -0.70% 7.00% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2008 -4.54% -0.27% -2.29% 2.17% 1.58% 0.02% -1.69% -0.64% -4.62% -8.17% -5.31% 3.73% -18.86% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2007 0.50% 1.42% 0.70% 1.43% 1.79% 0.97% 1.35% -2.10% 2.41% 3.14% -1.16% 0.99% 11.94% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2006 - - - 1.47% -2.53% -0.95% -0.57% -0.89% -0.35% 1.74% 2.48% 1.84% 2.14% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== EUR Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2010 -0.30% -0.99% -0.15% 0.47% -2.72% -3.04% 1.63% -0.38% 2.05% 1.17% 0.10% 2.98% 0.65% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2009 0.82% -1.36% -0.66% 1.47% 2.52% 0.47% 0.34% 0.92% 0.21% -0.69% 1.06% -0.67% 4.45% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2008 -4.51% -0.26% -2.22% 1.97% 1.39% -0.08% -2.16% -0.63% -5.11% -8.69% -4.25% -8.85% -29.28% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2007 0.42% 1.29% 0.56% 1.34% 1.68% 1.19% 1.65% -2.22% 2.18% 3.23% -1.35% 0.88% 11.27% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2006 - - - 1.32% -2.72% -1.09% -0.71% -1.05% -0.52% 1.62% 2.33% 1.82% 0.90% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== USD Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD 2010 -0.20% -0.95% -0.14% 0.34% -2.71% -2.94% 1.75% -0.49% 2.08% 1.51% -0.06% 3.11% 1.11% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2009 0.84% -1.35% -0.43% 1.45% 2.82% 0.46% 0.63% 0.87% 0.21% -0.80% 1.03% -0.70% 5.08% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2008 -4.66% -0.45% -2.61% 1.89% 1.30% -0.23% -2.27% -0.73% -5.39% -6.57% -3.06% 0.69% -20.31% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2007 0.53% 1.42% 0.71% 1.48% 1.75% 0.97% 1.42% -2.15% 2.39% 3.55% -1.31% 0.96% 12.21% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ======== 2006 - - - 1.55% -2.44% -0.86% -0.49% -0.81% -0.32% 1.79% 2.59% 1.83% 2.75% ===== ======= ======= ======= ====== ======= ======= ======= ======= ======= ======= ======= ======= ========
Note: Historical monthly NAV performance is net of all fees. Except for a short period between 12 November and 23 December 2008, Dexion Commodities' GBP Share NAV has been hedged from US$ to GBP using currency forwards; these hedging arrangements have had a positive effect on the GBP NAV performance when GBP interest rates were higher than US$ interest rates and vice versa. Dexion Commodities' GBP Share NAV was not hedged in this way between 12 November and 23 December 2008, and in that period, the currency exposure had an overall impact of approximately +0.44% on the GBP Share NAV and -9.56% on the EUR Share NAV (see RNS dated 22 December 2008, No. 6046K).
Source: Bloomberg (data)
Analysis of significant investments
The ten largest holdings of the Continuing Portfolio as at 31 December 2010 are set out below:
Hot Features
Premium
Fair Value % of Company's
Name of Investment Strategy LIR000 Net assets
----------------------- ----------------------- ----------- ---------------
MAN Commodity
Strategies Limited Commodity Strategies 24,038 48.95%
Astenbeck Offshore
Commodities Fund II
Limited Commodity Strategies 2,321 4.73%
Environmental
TRF Feeder Fund Strategies 2,295 4.67%
Range Wise MAC 58
Limited Commodity Strategies 2,231 4.54%
Zurbano Fund Limited Commodity Strategies 1,873 3.81%
Energy &
Oceanic Hedge Fund Transportation 1,678 3.42%
Energy &
AAA Mac 53 Limited Transportation 1,655 3.37%
Front Street Resources
MAC 78 Limited Commodity Strategies 1,446 2.95%
Galena Fund Limited Commodity Strategies 1,359 2.77%
Energy &
Cygnus Mac Limited Transportation 1,347 2.74%
----------------------- ----------------------- ----------- ---------------
GBP40,243 81.95%
----------------------------------------------- ----------- ---------------
The holdings of the Redemption Portfolio as at 31 December 2010 are set out below:
% of
Redemption
Fair Value Portfolio's
Name of Investment Strategy LIR000 Investments
------------------------ ------------------------ ----------- -------------
Plainfield 2009
Liquidating Limited Special Situations 115 45.45%
Autonomy Global Macro Emerging Markets
Fund Limited Macro 50 19.76%
Xmark Opportunity Fund Healthcare
Limited Opportunities 30 11.86%
The Rohatyn Group -
Global Opportunity Emerging Markets
Fund Limited Macro 21 8.30%
Sector Spesit I Fund
Class A USD Energy & Transportation 14 5.53%
Deephaven European
Event Fund Limited Special Situations 12 4.75%
Pequot Healthcare Healthcare
Emerging Markets Fund Opportunities 8 3.16%
TAO L Holdings Limited Asian Opportunities 3 1.19%
LIR253 100.00%
------------------------------------------------- ----------- -------------
The ten largest holdings of the Continuing Portfolio as at 31 December 2009 are set out below:
Market Value % of Company's
Name of Investment Sector LIR000 Net assets
---------------------- ---------------------- ------------- ---------------
RMF Commodity
Strategies Commodity Strategies 25,281 51.77%
RMF Environmental
Opportunities Fund Environmental
Limited Strategies 8,562 17.53%
Energy &
Cygnus MAC Limited Transportation 2,610 5.34%
Zurbano Fund Limited Multi-Strategy 2,551 5.22%
Range Wise MAC 58 Agriculture &
Limited Livestock 1,394 2.86%
Viridian Fund Limited Multi-strategy 1,231 2.52%
Energy &
Oceanic Hedge Fund Transportation 1,218 2.49%
Galena Fund Limited Managed Futures 1,186 2.43%
Energy &
AAA Mac 53 Limited Transportation 1,076 2.20%
Hard Assets 2X Fund
Limited Multi-strategy 941 1.93%
---------------------- ---------------------- ------------- ---------------
LIR46,050 94.29%
--------------------------------------------- ------------- ---------------
The holdings of the Redemption Portfolio as at 31 December 2009 are set out below:
% of
Redemption
Market Value Portfolio's
Name of Investment Strategy LIR000 Investments
----------------------- ----------------------- ------------- -------------
Pemba European Loan European Loan
Opportunities Fund Opportunities 3,461 69.87%
Plainfield 2009
Liquidating Limited Special Situations 1,006 20.31%
Xmark Opportunity Fund Healthcare
Limited Opportunities 175 3.53%
Autonomy Capital Fund Emerging Markets
Limited Macro 143 2.89%
Sector Spesit I Fund Special Situations 66 1.33%
Pequot Healthcare
Emerging Markets Healthcare
Fund Opportunities 66 1.33%
Rohatyn Group Global
Opportunity Fund Emerging Markets
Limited Macro 36 0.74%
LIR4,953 100.00%
----------------------------------------------- ------------- -------------
As the Redemption Portfolio did not have any net assets at the Statement of Financial Position date, the percentages of the Redemption Portfolio's investments have been shown.
Whilst it is generally considered best practice to disclose the full portfolio of an investment company, the composition of the Company's Continuing Portfolio and Redemption Portfolio is the subject of confidential provisions with the Investment Adviser. The Board believes that such disclosure could be disadvantageous to the Company and its Shareholders, for instance by increasing competition for the limited investment capacity in underlying hedge funds and hedge fund strategies. Accordingly, in common with several other funds of hedge funds, and, in compliance with current UK Listing Authority requirements, the Company intends to disclose only its ten largest investments in each portfolio.
Dexion Capital (Guernsey) Limited
29 March 2011
BOARD MEMBERS
The Directors of the Company are listed below, have been members of the Board since inception in March 2006 and have served throughout the year:
Rupert Dorey (50), Chairman, has over 22 years of experience in debt capital markets, specialising in credit related products, including derivative instruments. Mr Dorey's expertise is principally in the areas of debt distribution, origination and trading, covering all types of debt from investment grade to high yield and distressed debt. Mr Dorey was at Credit Suisse First Boston for 17 years from 1988 until May 2005. From 2000 until he left CSFB, he was head of sterling credit sales. Previously, he held a number of positions at CSFB, including establishing CSFB's high yield debt distribution business in Europe, fixed income credit product co-ordinator for European offices and head of UK Credit and Rates Sales. Since leaving CSFB, Mr Dorey acts as a non-executive director to a number of hedge funds, fund of hedge funds and private equity funds. Mr Dorey is a resident of Guernsey.
Christopher Hill (58), is an Associate of the Chartered Institute of Bankers and was Managing Director of Guernsey International Fund Managers Limited, part of The Barings Financial Services Group, from 1996 until the Group was sold to Northern Trust in 2005. He has more than 35 years' experience in the field of offshore banking and fund administration. Mr Hill is a non-executive director of Thames River Multi-Hedge PCC Limited, which is a London listed fund of hedge funds and Chairman of UK Commercial Property Trust Limited also listed in London. Mr Hill is also a past Chairman of the Guernsey Investment Funds Association and a resident of Guernsey.
Robin Bowie (49), was educated at Vanderbilt University, Tennesse. Mr Bowie began his City career as a bond trader at Citibank in 1984, after which he worked at Goldman Sachs as a credit trader. In 1989, at BZW he developed their ECU and European Government Bond trading operations and in 1995 moved to HSBC where he was in charge of European Government Bond trading. In 1998 he became Treasurer of KBC Bank in London with responsibility for the management of interest rate, foreign exchange and credit risk. He left KBC in 2000 to found Dexion Capital. Mr Bowie is a director of Dexion Capital Holdings Limited, a Guernsey company which is the holding company of the Manager and the Investment Consultant. He is also a director of Dexion Absolute Limited, Dexion Equity Alternative Limited and Dexion Trading Limited, which are funds of hedge funds, the shares of which are listed on the London Stock Exchange. Mr Bowie is a UK resident.
DIRECTORS' REPORT
The Directors present their report and audited financial statements for the year ended 31 December 2010.
Principal Activity
Dexion Commodities Limited (formerly Dexion Alpha Strategies Limited) (the "Company") is a Guernsey authorised closed-ended investment company listed on the London Stock Exchange. The Company's Shares are classified as premium listed. Trading in the Company's Shares (of each class) commenced on 23 March 2006.
Company Law
These financial statements have been prepared under the Companies (Guernsey) Law, 2008.
Direction of the Company
The Board announced that it intended to put forward proposals which, if approved, would lead to the realisation of the Company's portfolio and liquidation of the Company. A circular was sent to Shareholders on 3 March 2011 setting out details of the proposals and convening a first extraordinary general meeting which was held on 25 March 2011 at which the proposals to wind down the Company were approved. A second extraordinary general meeting to approve the winding up of the Company and the appointment of a liquidator is to be held on 11 April 2011.
The Shares are currently listed on the Official List and traded on the main market of the London Stock Exchange. As a result of the realisation of substantially all of the investments in the Continuing Portfolio, the Company no longer meets the requirements of the Listing Rules and, accordingly on 31 March 2011, the listing for each class of Shares will be suspended (and subsequently cancelled) at that point. Accordingly, the Shares will no longer be capable of being traded on the London Stock Exchange.
Investment Objective and Investment Policy for the Continuing Portfolio
Until 25 March 2011 the investment objective for the Continuing Portfolio of the Company was to maximise medium-term returns in a manner commensurate with acceptable risk management. From 25 March 2011 the investment objective for the Continuing Portfolio has been to realise the investments in an orderly and timely manner.
The investment objective for the Redemption Portfolio has been to realise the investments in an orderly and timely manner.
Until the 25 March 2011 change of investment policy, the Company sought to achieve its investment objective for the Continuing Portfolio through an investment policy that focuses upon commodity, energy, and environmental strategies accessed, directly or indirectly, through a multi-manager, multi-strategy portfolio of commodities themed hedge funds.
Investment Policy
The Company's previous investment policy for the Continuing Portfolio involved the Company investing either directly or indirectly in underlying funds across a range of alternative investment strategies which target emerging and/or under exploited sources of alpha. Such strategies included commodity, energy and environmental strategies, accessed, directly or indirectly, through a multi-manager, multi-strategy portfolio of commodities themed hedge funds. The Company could have invested in long volatility strategies (such as short term managed futures) when the Investment Adviser determined that it was likely that they would be an attractive source of alpha or provide protection for the Continuing Portfolio. The allocations and the strategies in which the Company was invested could have varied from time to time and could have changed over time at the absolute discretion of the Investment Adviser.
The Company thus sought to access directly or indirectly around 30 underlying portfolio managers. It was intended that around three quarters of the value of Continuing Portfolio would have quarterly liquidity and around one quarter of the Continuing Portfolio would have monthly liquidity although this was subject to change from time to time.
Since 25 March 2011, the investment objective and policy of the Company has been to realise the Company's existing investments in an orderly and timely manner, with a view to distributing cash to Shareholders.
The Redemption Portfolio which was created to fund the acceptances of the Redemption Offers is being managed with a view to realisation.
Credit facility
The Continuing Portfolio does not have any long-term or fixed structural gearing. The Company is indirectly exposed to gearing to the extent that the underlying funds are themselves geared. Northern Trust (Guernsey) Limited has been the credit facility provider since inception of the Company. The facility granted is up to the lower of GBP7.5 million and 20 per cent. of net NAV. The facility was increased temporarily to the lower of GBP7.5 million and 30 per cent. of net NAV until 30 April 2010, at which point it reverted back to the lower of GBP7.5 million or 20 per cent. of net NAV. As at 31 December 2010, the facility was drawn-down by GBP1.3 million (overdraft). In view of the Liquidation Proposals, the Company and Northern Trust (Guernsey) Limited have agreed that following the passing of the Extraordinary General Meeting Resolution on 25 March 2011, the facility will be cancelled effective 31 March 2011.
As substantially all of the Continuing Portfolio's assets are denominated in US dollars whilst the Shares are denominated in Dollars, Sterling and Euro, the Company will engage in currency hedging for the Continuing Portfolio until 31 March 2011. No hedging has been engaged in with regard to the Redemption Portfolio, or the proceeds of realisation of investments in it.
Investment Restrictions
Until the recent change of the Company's investment objective and policy the Company had adopted the following investment restrictions in its Continuing Portfolio which include certain restrictions set out in the Listing Rules:
-- Neither the Company nor any subsidiary will conduct a trading activity which is significant in the context of the group as a whole.
-- Not more than 20 per cent. of the total assets of the Company will be invested in any one underlying fund or underlying funds managed by a single portfolio manager at the time the investment is made.
-- The Company will not make further investment(s) in any underlying funds managed by a single portfolio manager where, immediately following such further investments, those underlying funds represent 30 per cent. or more of the total assets of the Company.
For the avoidance of doubt, the two restrictions immediately above did not apply to the Company's investment in the MAN portfolios (or any other master portfolio invested in by the Company) where, instead, the two restrictions immediately below applied.
-- The Company will not make further investments in any underlying funds managed by the Investment Adviser (excluding MAN Commodity Strategies Fund) where, immediately following such further investment(s), those underlying funds represent 50 per cent. or more of the total assets of the Company, subject always to ensuring an adequate spread of investment risk consistent with the Listing Rules.
-- The Company will not make further investments in MAN Commodity Strategies Fund where, immediately following such further investment(s), the Company's investment in MAN Commodity Strategies Fund would represent 80 per cent. or more of the total assets of the Company, subject always to ensuring an adequate spread of investment risk consistent with the Listing Rules.
-- The Company will not borrow more than 40 per cent. of its net assets for short term or temporary liquidity purposes, including as may be necessary to facilitate investment and withdrawals from underlying funds or to meet ongoing expenses or to fund share repurchases and to implement the Company's currency hedging strategy.
-- Dividends will not be paid unless they are covered by income received from underlying investments.
-- The distribution as dividend of surpluses arising from the realisation of investments will be prohibited.
-- Any material change in the investment policy of the Company will only be made with the approval of Shareholders by ordinary resolution.
-- The Company will not invest in other listed closed-ended investment funds.
-- The Company will avoid cross-financing between businesses forming part of its investment portfolio.
-- The Company will avoid the operation of common treasury functions as between the Company and investee companies.
These investment restrictions no longer apply as the investments in the Continuing Portfolio are being realised on an orderly basis.
The above investment restrictions have not applied to the Redemption Portfolio as the investments in that portfolio are being realised on an orderly basis.
Shareholder Information
The Company announces its net asset value ("NAV") on a monthly basis together with commentary on investment performance. Estimated NAVs are normally provided weekly. Share price, net asset value and performance information can also be found by eligible Shareholders via www.dexioncommodities.com. However information on that website does not form part of, nor is it incorporated by reference into this document and that information is not available to certain overseas Shareholders. Shareholder web conferences also take place and are announced via RNS.
Fair Value Adjustment Policy
Following the Company's announcement on 23 December 2010 regarding liquidation proposals and a review of the illiquid investments, being those investments which were gated, suspended, in liquidation or subject to other settlement obstructions, the Directors established a Fair Valuation Adjustment Policy to be applied to the carrying value of each illiquid investment as at 31 December 2010 and thereafter.
The Fair Value Adjustment Policy is as follows:
-- Cash - no adjustment
-- Illiquid investments - written down by 50 per cent.
-- Investments in funds or vehicles in liquidation - written down by 75 per cent.
Approximately 1.09 per cent. of the Continuing Portfolio (using the final net asset values at 31 December 2010 prior to fair valuation adjustments) comprised the illiquid investments. By applying the fair value adjustments the aggregate value of the illiquid investments was reduced from US$839,321 to US$260,287 as at 31 December 2010, a reduction of approximately 69 per cent. (a reduction of 0.75p per share).
Approximately 75 per cent. of the Redemption Portfolio (using the final net asset values at 31 December 2010 prior to fair valuation adjustments) comprises illiquid investments. By applying the fair value adjustments the aggregate value of the illiquid investments in the Redemption Portfolio was reduced from US$1,371,013 to US$394,748 as at 31 December 2010, a reduction of approximately 71 per cent.
Results
The results for the year are set out in the Statement of Comprehensive Income. The Directors do not propose a dividend for the year (2009: GBPNil).
The Directors have determined that the Company is operating two business segments following the Reorganisation in 2009. These segments have been defined as the Continuing Portfolio and the Redemption Portfolio. While the Continuing Portfolio's performance has been assessed in the total return to Shareholders, the Redemption Portfolio is managed to realise the investments in it in an orderly and timely manner and with a view to returning the proceeds of realisation to Redeeming Shareholders.
As a result, the Company's Statement of Financial Position reflects the assets and liabilities of each segment at the date of the statement and the Statement of Comprehensive Income and the Statement of Cashflows reflect the results and cashflows of the original portfolio prior to Reorganisation and the two segments post Reorganisation in 2009. The results of the segments are aggregated into a Company total.
Management Arrangements
The Company has an agreement with Dexion Capital (Guernsey) Limited for the provision of investment management services until 31 March 2011. Management fees as disclosed in Note 10 were based on an annual amount of 1.5 per cent. of the total assets of the Continuing Portfolio plus a performance fee as outlined in Note 10.
The management fee in respect of the Redemption Portfolio is 0.5 per cent. per annum (payable monthly) based on net assets in the Redemption Portfolio. No performance fees are payable in respect of the Redemption Portfolio.
Continuing Appointment of the Manager
On 31 March 2011 the management agreement will terminate but with fees being paid at 1.0 per cent. per annum from that date as if termination had occurred on 30 June 2011, but on the basis of the NAV of the Continuing Portfolio at 31 December 2010. Fees in respect of the Redemption Portfolio will cease on 31 March 2011.
Trail Commissions
Qualifying Investors (or a financial intermediary where Qualifying Investors are procured by a financial intermediary who subscribed on their behalf) are until 31 March 2011, entitled to a trail commission of 0.5 per cent. per annum of the Total Assets attributable to the Shares held by them calculated and payable quarterly in arrears by the Manager out of the Manager's management fee. Trail commission ceases to be payable to Qualifying Investors in respect of Shares subsequently disposed of by such Qualifying Investors (including on cancellation) and is not pro-rated to take account of the date of any disposal/cancellation of Shares during a quarter and is not payable unless those Shares remain held at the NAV Calculation Date at the end of the relevant quarter (subject to any variations agreed by the Manager with certain investors).
Trail commissions will cease to be payable to Qualifying Investors from 1 April 2011.
Substantial Interests
Disclosure and Transparency Rules are comprised in the Financial Services Authority Handbook. Such rules require substantial Shareholders to make relevant holding notifications to the Company and the UK Financial Services Authority. The Company must then disseminate this information to the wider market.
Directors' Interests
The Directors, all served throughout the period under review. The Directors had no beneficial interest in the Company other than shown below:
31 December 31 December 31 December 31 December
2010 2010 2009 2009
US$ Shares GBP Shares US$ Shares GBP Shares
------------- ------------ ------------ ------------ ------------
RO Dorey - 70,000 - 70,000
RMJ Bowie 35,000 62,000 35,000 62,000
Christopher - - - -
Hill
------------- ------------ ------------ ------------ ------------
Dexion Capital Holdings Limited, of which Robin Bowie is a director, transferred its holdings in the Company as of 31 December 2009 of 543,598 US$ Shares, 1,570,455 GBP Shares and 97,664 EUR Shares to its wholly owned subsidiary Dexion Capital (Guernsey) Limited on 25 June 2010. On 2 September 2010, Dexion Capital (Guernsey) Limited sold these shares pursuant to a sale and repurchase-like agreement (structured as an accreting strike option) under which it is expected that Dexion Capital (Guernsey) Limited will re-purchase the shares in approximately one year.
The repurchase consideration (exclusive of interest and charges) is equal to the disposal consideration. During the period Dexion Capital (Guernsey) Limited retains no voting rights in the shares, although it does retain economic interest. Robin Bowie Children's Trust held 4,000 US$ Shares (2009: 4,000).
Corporate Governance
Introduction
In June 2008 the Board determined, as a closed-ended investment company registered in Guernsey, that it was appropriate to become a member of the Association of Investment Companies (the "AIC") and to report against the AIC Code of Corporate Governance (the "AIC Code") and to follow the AIC's Corporate Governance Guide for Investment Companies (the "AIC Guide"). During February 2009 the Financial Reporting Council confirmed that by following the AIC Guide investment company boards should fully meet their obligations in relation to the Combined Code.
On 30 September 2010, the Financial Reporting Council provided the AIC with an updated endorsement letter to cover the fifth edition of the AIC Code. This Code takes in to account the newly issued UK Corporate Governance Code that replaces the Combined Code for accounting periods commencing on or after 29 June 2010.
The Board has considered the principles and recommendations of the AIC Code by reference to the AIC Guide. The Company Secretary undertook a review of the corporate governance principles of the Board and Committees of the Board of the Company. The Directors confirm compliance to the AIC Code except where detailed below.
Guernsey Regulatory Environment
During 2008, there were a number of changes to the regulatory regime for Guernsey funds. A number of provisions which were contained in the Control of Borrowing (Bailiwick of Guernsey) Ordinance, 1959 to 2003 ("COBO") (which governed closed-ended funds) were consolidated into the Protection of Investors (Bailiwick of Guernsey) Law, 1987, as amended (the "POI Law") (which governed open-ended funds and licensees) so that the POI Law now governs both open-ended and closed-ended funds (as well as licensees).
Guernsey Regulatory Environment (continued)
Closed-ended funds are now Category 1 controlled investments under the POI Law. The changes have also codified in the POI Law a number of standard conditions and ongoing notification requirements imposed on the licensees of funds which were listed on the fund's COBO consent, but were not explicitly set out in COBO. It is intended that the changes will simplify Guernsey's investment fund regime by categorising all funds (whether open-ended or closed-ended) as either registered schemes or authorised schemes.
The Directors have determined that the Company will continue as an Authorised Closed-Ended Investment Scheme until the Shares are cancelled.
The Board
Disclosure under Principle 5 of the AIC Code
The Board currently consists of three non-executive Directors, each of whom are independent of the Investment Adviser and, with the exception of Mr Bowie, are independent of the Investment Manager and the Investment Consultant. The Board accepts collective responsibility and does not consider it necessary to appoint a senior independent Director as the Chairman is non-executive. The Chairman met the independent criteria of the AIC Code Principle 1 and continued to meet this condition throughout his term of office. Being non-executive Directors, no Director has a service contract with the Company.
The Articles of Association provide that one third of the Directors retire by rotation at each annual general meeting. If their number is not three or a multiple of three, the number nearest to but not exceeding one third, shall retire from office. A Director who retires at an annual general meeting may, if willing to act, be re-appointed. The Directors are not subject to automatic re-appointment. As the Company was formed in 2006 no Director has served for a 9 year term. In accordance with the Listing Rules, Mr Bowie was put forward for re-election annually. Following the approval of Shareholders for an orderly wind up of the Company and the forthcoming vote on 11 April 2011 to wind down the Company, the Directors do not propose to convene an Annual General Meeting for 2011. It is anticipated that Shares will be cancelled during April 2011.
Further for the reasons stated above the Board believes there is no longer a requirement to consider the tenure of Directors as it is anticipated that a liquidator will be a duly appointed on 11 April 2011.
The Board meets at least four times a year and between these formal meetings there is regular contact with the Manager, Investment Adviser, Secretary and the Company's Broker. The Directors are kept fully informed of investment and financial controls, and other matters that are relevant to the business of the Company that should be brought to the attention of the Directors. The Directors also have access, to the Secretary and, where necessary in the furtherance of their duties, to independent professional advice at the expense of the Company.
The Board has a breadth of experience relevant to the Company, and the length of service and the experience of the Directors is disclosed in the report and accounts. A full list of other public company directorships are also in the report and accounts. There have been no new appointments to the Board since inception.
The attendance record of Directors is set out below:
Ad hoc Board
Quarterly &
Board Committee Audit
Meetings Meetings Committee
Number of meetings 4 10 3
Meetings attended:
C M W Hill 4 8 3
R O Dorey 4 10 3
R M J Bowie 4 2 (max 2) N/A
--------------------- ---------- ------------- ----------
The Board considers Agenda Items laid out in the Notice and Agenda of Meeting which are formally circulated to the Board in advance of the Meeting as part of the Board Papers. Directors may request any Agenda Items to be added that they consider appropriate for Board discussion. Additionally, each Director is required to inform the Board of any potential or actual conflicts of interest prior to Board discussion.
The number of ad hoc meetings during 2010 amounted to 10 where the Board regularly reviewed and considered the market conditions and the effect on the assets, liquidity and going-concern position of the Company as well as the Reorganisation Proposals and related matters.
The primary focus of the quarterly Board Meetings is a review of investment performance and associated matters such as gearing, asset allocation, as well as marketing/investor relations, risk management and compliance, peer group information and industry issues.
The Board has evaluated its performance and prior to the Liquidation Proposals considered the tenure of each Director on an annual basis. The Board and believes that the mix of skills, experience and length of service are appropriate to the requirements of the Company. Training requirements were also considered at the time of the review and at the request of the Directors ad hoc training may be arranged between annual reviews. To date the annual evaluation has been collated by the Company Secretary and the annual corporate governance review also carried out by the Company Secretary. The Board of Directors believes that the process to date has been robust and effective.
Directors' Duties and Responsibilities
The Directors have adopted a set of Reserved Powers, which establish the key purpose of the Board and detail its major duties. These duties cover the following areas of responsibility:
-- Statutory obligations and public disclosure;
-- Strategic matters and financial reporting;
-- Oversight of management and personnel matters;
-- The establishment, terms of reference and reporting arrangements for all sub-committees acting on behalf of the authority of the Board;
-- Risk assessment and management, including reporting, monitoring, governance and control; and
-- Other matters having a material effect on the Company.
These Reserved Powers of the Board have been adopted by the Directors to demonstrate clearly the seriousness with which the Board takes its fiduciary responsibilities and as an ongoing means of measuring and monitoring the effectiveness of its actions. It also addresses Principle 16 of the AIC Code.
Committees of the Board
The Board deemed it not necessary to appoint a nomination or remuneration committee as, being comprised wholly of non-executive Directors, the whole Board considered these matters. The Board sought external professional advice with regard to remuneration of the Directors when necessary.
Management Engagement Committee
A Management Engagement Committee, with defined terms of reference and duties, was established to review annually the terms of the management agreement between the Company and the Manager, the investment advisory agreement between the Company, the Manager and the Investment Adviser and the investment consultancy agreement between the Company, the Manager and the Investment Consultant. The Committee also reviewed the performance of all other key service providers including the Custodian, Designated Managers and Corporate Broker. This approach addressed AIC Code Principles 15 and 18. The Committee also ensured that key service providers were managing conflicts of interest, if any, in accordance with the Authorised Closed Ended Investment Schemes Rules 2008 issued by the Guernsey Financial Services Commission. The Management Engagement Committee consists of Mr Dorey and Mr Hill. Mr Dorey chairs the Management Engagement Committee.
Audit Committee
An Audit Committee was established consisting of Mr Hill and Mr Dorey. The Audit Committee is chaired by Mr Hill. The Audit Committee examined the effectiveness of the Company's internal control systems, the annual report and accounts and interim report, the auditors' remuneration and engagement, as well as the auditors' independence and any non-audit services provided by them. The Audit Committee received information from the Company Secretary, the compliance department of the Administrator and the external auditors. The Audit Committee met three times to review the annual accounts, interim accounts and audit timetable and other risk management and governance matters. A full strategic and operational risk matrix was tabled at each Audit Committee meeting. The Committee graded each risk in terms of probability and impact.
Terms of Reference
The Terms of Reference of each committee are available from the Company Secretary.
Internal Controls
The Board is ultimately responsible for the Company's system of internal control and for reviewing its effectiveness. The Board confirms that there was an ongoing process for identifying, evaluating and managing the significant risks faced by the Company.
The Board has reviewed the effectiveness of the system of internal control. In particular, it has reviewed and updated the process for identifying and evaluating the significant risks affecting the Company and the policies by which these risks are managed.
As there is delegation of operational activity as described below, the Audit Committee and Board have determined that there is no requirement for a direct internal audit function. The internal control systems were designed to meet the Company's particular needs and the risks to which it is exposed. Accordingly, the internal control systems were designed to manage rather than eliminate the risk of failure to achieve business objectives and by their nature can only provide reasonable and not absolute assurance against misstatement and loss.
The Board delegated the management of the Company's investment portfolio, the provision of custody services and the administration, registrar and corporate secretarial functions including the independent calculation of the Company's Net Asset Value and the production of the Annual Report and Financial Statements which are independently audited. The Board retains responsibility and accountability for the functions it delegates and is responsible for the systems of internal control. On an ongoing basis compliance reports were provided at each quarterly board meeting from the Administrator and Custodian. Formal contractual agreements were put in place between the Company and providers of these services.
Corporate Responsibility
The Company is not an operating company. The Board considers the ongoing concerns of investors by open and regular dialogue with and through the Manager, Investment Adviser and the Company's Broker.
The Company makes reference to the Corporate Responsibility Statement of MAN Investments (CH) AG as Investment Adviser.
The Company has kept abreast of regulatory and statutory changes and took appropriate action where necessary. As previously referred, all daily operations are delegated. The Company itself does not maintain premises, or have any employees.
Non Going Concern
On 11 April 2011 a resolution will be considered by Shareholders to place the Company into voluntary liquidation. As a result, the Directors are satisfied that it is not appropriate to adopt the going concern basis in preparing the Financial Statements. Consequently, these Financial Statements have been prepared in accordance with International Financial Reporting Standards on a non-going concern basis.
Relations with Shareholders
AIC Code Principle 17 & 19
The Investment Adviser and the Company's Broker have maintained a regular dialogue with institutional Shareholders, the feedback from which was reported to the Board.
In accordance with AIC Code Principle 17 the Board monitored the trading activity and shareholder profile on a regular basis. Shareholder sentiment was also ascertained by the careful monitoring of the discount/premium that the Ordinary Shares are traded in the market against the NAV per share when compared to the discount/premium experienced by the Company's peer group.
The Company has historically reported formally to Shareholders twice a year and a proxy voting card was sent to Shareholders with the Annual Report and Financial Statements. As previously mentioned, no Annual General Meeting will be convened for 2011. The Company's newsletter was provided to eligible Shareholders on an ongoing basis via www.dexioncommodities.com. The Registrar monitors the voting of the Shareholders and proxy voting is taken into consideration when votes are cast at any Annual General Meeting. Shareholders may contact the Directors via the Company Secretary.
Disclosure of information to auditor
The Directors who held office at the date of approval of this Directors' report confirm that, so far as they are each aware, there is no relevant audit information of which the Company's auditor are unaware; and each Director has taken all the steps that he ought to have taken as a Director to make himself aware of any relevant audit information and to establish that the Company's auditor is aware of that information.
R O Dorey C M W Hill
Director Director
29 March 2011
STATEMENT OF DIRECTORS' RESPONSIBILITIES IN RESPECT OF THE
FINANCIAL STATEMENTS
The Directors are responsible for preparing the Directors' Report and the financial statements in accordance with applicable law and regulations.
The Companies (Guernsey) Law, 2008 requires the Directors to prepare financial statements for each financial year. Under that law they have elected to prepare the financial statements in accordance with International Financial Reporting Standards (IFRS) and applicable law.
The financial statements are required by law to give a true and fair view of the state of affairs of the Company and of the profit or loss of the Company for that year.
In preparing these financial statements, the Directors are required to:
-- select suitable accounting policies and then apply them consistently;
-- make judgments and estimates that are reasonable and prudent;
-- state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and
-- prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.
As the Company is intended to be placed into voluntary liquidation, the financial statements have been prepared in accordance with International Financial Reporting Standards on a non-going concern basis.
The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the financial statements comply with The Companies (Guernsey) Law, 2008. They have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Company and to prevent and detect fraud and other irregularities.
Directors' Responsibility Statement
The Directors confirm that they have complied with the above requirements in preparing the financial statements and that to the best of our knowledge and belief:
a) This annual report includes a fair review of the development and performance of the business and the position of the Company together with a description of the principal risks and uncertainties that the Company faces; and
b) The financial statements, prepared in accordance with International Financial Reporting Standards, give a true and fair view of the assets, liabilities, financial position and profits of the Company.
R O Dorey C M W Hill
Director Director
29 March 2011
STATEMENT OF FINANCIAL POSITION as at 31 December
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Assets
Investments
designated at
fair value
through
profit or
loss 3 46,044 253 46,297 49,511 4,953 54,464
Forward
foreign
currency
contracts 3 545 - 545 469 - 469
Accounts
receivable 3 3,627 85 3,712 2,408 1,660 4,068
Cash and cash
equivalents 3 341 193 534 1,054 315 1,369
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Total assets 50,557 531 51,088 53,442 6,928 60,370
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Liabilities
Forward
foreign
currency
contracts 3 - - - - 1 1
Financial
liabilities
at fair value
through
profit or 3,
loss 6 - 525 525 - 6,912 6,912
Accounts
payable and
accrued 3,
expenses 6 124 6 130 128 15 143
Bank overdraft 3 1,324 - 1,324 4,484 - 4,484
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Total
liabilities 1,448 531 1,979 4,612 6,928 11,540
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets 49,109 - 49,109 48,830 - 48,830
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Represented
by:
Shareholders'
funds and
reserves
Special
reserve 8 48,147 - 48,147 48,147 - 48,147
Retained
earnings 8 962 - 962 683 - 683
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Total
Shareholders'
funds 49,109 - 49,109 48,830 - 48,830
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets per
GBP Share -
Continuing
Portfolio 9 GBP0.9832 GBP0.9832 GBP0.9753 GBP0.9753
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets per
EUR Share -
Continuing
Portfolio 9 EUR1.1861 EUR1.1861 EUR1.1784 EUR1.1784
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
Net assets per 9 US$1.6802 US$1.6802 US$1.6617 US$1.6617
US$ Share -
Continuing
Portfolio
--------------- ----- ---------- ----------- ---------- ----------- ----------- ----------
The financial statements were approved by the Board of Directors on 29 March 2011.
R O Dorey C M W Hill
Director Director
.
STATEMENT OF COMPREHENSIVE INCOME for the year ended 31 December
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
Note GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Income
Net gains/(losses)
on financial assets
held at fair value
through profit or
loss 3 1,513 (1,002) 511 5,047 718 392 6,157
Net
increase/(decrease)
on financial
liabilities held at
fair value through
profit or loss - 875 875 - - (2,095) (2,095)
Net realised foreign
exchange
gains/(losses) (27) 149 122 (2,464) 574 309 (1,581)
Interest income on
financial assets
that are not at
fair value through
profit or loss - - - 4 2 - 6
Other investment
income 16 8 24 338 1 31 370
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Net investment
income/(loss) 1,502 30 1,532 2,925 1,295 (1,363) 2,857
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Expenses
Management fee 10 (714) (18) (732) (760) (304) (40) (1,104)
Administration &
secretarial fees 10 (114) (3) (117) (93) (49) (13) (155)
Audit fee (19) (6) (25) (22) (18) (8) (48)
Other professional
fees (137) - (137) (525) (69) (1) (595)
Directors'
remuneration and
expenses 10 (44) - (44) (46) (4) (11) (61)
Directors' and
officers'
insurance (13) - (13) (9) (6) - (15)
Custodian charges 10 (33) (3) (36) (35) (14) (6) (55)
Credit facility fees (2) - (2) 2 - - 2
Sundry expenses (140) - (140) (141) (139) (53) (333)
Total operating
expenses before
finance costs (1,216) (30) (1,246) (1,629) (603) (132) (2,364)
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Finance costs
Interest expense on
financial
liabilities that
are not at fair
value through
profit or loss (7) - (7) (28) (9) - (37)
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Total finance costs (7) - (7) (28) (9) - (37)
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Other comprehensive
income
Foreign currency
translation gains - - - - - 1,495 1,495
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Total other
comprehensive
income - - - - - 1,495 1,495
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Total comprehensive income
for the year 279 - 279 1,268 683 - 1,951
---------------------------- ------------ ----------- -------- --------------- ----------- ------------ ---------
Basic & Diluted
earnings per GBP
Share - Continuing
Portfolio 13 GBP0.0093 GBP0.0359 GBP0.0069
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Basic & Diluted
earnings per EUR
Share - Continuing
Portfolio 13 EUR(0.0531) (EUR0.0935) EUR0.0610
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
Basic & Diluted 13 US$0.1251 (US$0.1372) US$0.0477
earnings per US$
Share - Continuing
Portfolio
--------------------- ----- ------------ ----------- -------- --------------- ----------- ------------ ---------
STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY for the year ended 31 December
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Balance at 1
January 48,830 - 48,830 90,763 - - 90,763
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total
comprehensive
income for the
year
Total return
for the year 279 - 279 1,268 683 - 1,951
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Transactions
with
Shareholders
Amount paid on
redemptions
and
cancellations - - - (7,513) - - (7,513)
Amounts
payable to
Redeeming
Shareholders - - - - - (36,371) (36,371)
Transfer of
funds to the
Redemption
Portfolio - - - (36,371) - 36,371 -
Transfer of
funds to the
Continuing
Portfolio - - - (48,147) 48,147 - -
--------------- ----------- ------------
Total
transactions
with
Shareholders - - - (92,031) 48,147 - (43,884)
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Balance at 31
December 49,109 - 49,109 - 48,830 - 48,830
--------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
STATEMENT OF CASHFLOWS for the year ended 31 December
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cashflows from
operating
activities
Total return for the
year 279 - 279 1,268 683 - 1,951
Adjustments:
Net (losses)/gains
on financial assets
held at fair value
through profit or
loss (1,513) 1,002 (511) (5,047) (718) (392) (6,157)
Net increase in
financial
liabilities at fair
value through
profit or loss - 875 875 - - 2,095 2,095
Net foreign exchange
losses/(gains) 27 (149) (122) 2,464 (574) (309) 1,581
Changes in operating
assets and
liabilities:
Decrease/(increase)
in debtors 1,292 - 1,292 2,075 (2,408) (1,660) (1,993)
(Decrease)/increase
in creditors (4) (6,397) (6,401) (2,892) 128 15 (2,749)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net cash from/(used
in) operating
activities 81 (4,669) (4,588) (2,132) (2,889) (251) (5,272)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cashflows from
investing
activities
Realised
(losses)/gains from
forward foreign
currency contracts (2,339) (856) (3,195) 6,476 (939) (340) 5,197
Purchase of
investments (16,844) - (16,844) (21,080) (35,040) - (56,120)
Proceeds from sale
of investments 21,576 5,318 26,894 54,960 26,869 23,669 105,498
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net cash from/(used
in) investing
activities 2,393 4,462 6,855 40,356 (9,110) 23,329 54,575
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cashflows from
financing
activities
Payment on
redemption and
cancellation - (64) (64) (7,513) - (31,554) (39,067)
Transferred to
Continuing or
Redemption Pool - - - (16,476) 7,995 8,481 -
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net cash (used
in)/from financing
activities - (64) (64) (23,989) 7,995 (23,073) (39,067)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Net
increase/(decrease)
in cash and cash
equivalents 2,474 (271) 2,203 14,235 (4,004) 5 10,236
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Exchange
(losses)/gains on
cash and cash
equivalents (27) 149 122 549 574 310 1,433
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cash and cash
equivalents at
beginning of the
year (3,430) 315 (3,115) (14,784) - - (14,784)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cash and cash
equivalents at end
of the year (983) 193 (790) - (3,430) 315 (3,115)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Analysis of cash and
cash equivalents at
end of the year
Cash at bank 341 193 534 - 1,054 315 1,369
Bank overdraft (1,324) - (1,324) - (4,484) - (4,484)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
(983) 193 (790) - (3,430) 315 (3,115)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
Cash flow from
operating activities
include:
Interest received 1 - 1 4 2 - 6
Interest paid (9) - (9) (28) (9) - (37)
--------------------- ----------- ----------- --------- --------------- ----------- ------------ ---------
1. General information
Dexion Commodities Limited (formerly Dexion Alpha Strategies Limited) (the "Company") was incorporated on 7 March 2006 in Guernsey, Channel Islands. At an Extraordinary General Meeting ("EGM") held on 31 July 2009, the Shareholders approved the change in the Company's name to reflect its revised investment policy. The Company's Shares (of each class) were listed on the London Stock Exchange on 24 March 2006. The Company is registered in Guernsey, Channel Islands under the Companies (Guernsey) Law, 2008.
The Board of Dexion Commodities Limited announced that it intends to put forward proposals which, if approved, will lead to the realisation of the Company's portfolio and liquidation of the Company. A circular was sent to Shareholders in March 2011 setting out details of the proposals and convening a first extraordinary general meeting which was held on 25 March 2011 at which the proposals to wind down the Company were approved. A second extraordinary general meeting to approve the winding up of the Company and the appointment of a liquidator is to be held on 11 April 2011.
The Shares are currently listed on the Official List and traded on the main market of the London Stock Exchange. As a result of the realisation of substantially all of the investments in the Continuing Portfolio, the Company no longer meets the requirements of the Listing Rules and, accordingly on 31 March 2011, the listing for each class of Shares will be suspended (and subsequently cancelled) at that point. Accordingly the Shares will no longer be capable of being traded on the London Stock Exchange.
2. Significant accounting policies
a) Statement of Compliance
The financial statements which give a true and a fair view have been prepared on a non going concern basis and in accordance with International Financial Reporting Standards (IFRS) adopted by the International Accounting Standards Board (IASB) and are in compliance with the Companies (Guernsey) Law, 2008.
The accounting policies have been applied consistently by the Company and are consistent with those used in the previous reporting year.
Determination and presentation of operating segments
The Company has adopted IFRS 8 'Operating segments' as of 1 January 2009. The standard requires a 'management approach', under which segment information is presented on the same basis as that used for internal reporting purposes.
The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company. The Board has considered the requirements of IFRS 8 'Operating Segments', and is of the view that the Company is engaged in the conduct of two business segments, being the management of the Continuing Portfolio for these Shareholders who wished to continue their investment in the Company with a revised investment policy and the management of the Redemption Portfolio in order to realise the investments attributable to Redeeming Shareholders. The key measure of performance used by the Board to assess the Company's performance and to allocate resources is the total return on the Company's net asset value on the Continuing Portfolio, as calculated under IFRS. The key measure of performance used by the Board to assess the performance of the Redemption Portfolio is the timing and extent of realisations to Redeeming Shareholders. As the valuations of both Portfolios are computed independently and items of income and expense are allocated to each Portfolio in accordance with the discretion of the Directors, no reconciliation is required between the measure of profit or loss used by the Board and that contained in these financial statements.
The Board of Directors have overall management and control of the Company. Material changes to the Investment Objective or Investment Policy (as currently applied to the separate portfolios) can only be made by the Shareholders. The Board of Directors have delegated the day to day implementation of this strategy to its Investment Adviser but retain responsibility to ensure that adequate resources of the Company are directed in accordance with their decisions. The investment decisions of the Investment Adviser are reviewed on a regular basis to ensure compliance with the policies and legal responsibilities of the Board. The Investment Adviser has been given full authority to act on behalf of the Company, including the authority to purchase and sell securities and other investments on behalf of the Company and to carry out other actions as appropriate to give effect thereto.
Whilst the Investment Adviser may make the investment decisions on a day to day basis re the allocation of funds to different investments, any changes to the investment strategy or major allocation decisions for the Continuing Portfolio have to be approved by the Board, even though they may be proposed by the Investment Adviser. The Board therefore retains full responsibility as to the major allocations decisions made on an ongoing basis. The Investment Adviser will always act in accordance with the Investment Policy and Investment Restrictions as last approved by Shareholders (and as currently applied to the separate portfolios) which cannot be materially changed without the approval of the Shareholders.
Applicable new standards and interpretations not yet effective
The following new standards, new interpretations and amendments to standards and interpretations have been issued but are not yet effective for the financial year beginning 1 January 2010 and have not been early adopted:
IFRS 9, 'Financial Instruments', issued in December 2009. This addresses the classification and measurement of financial assets and is likely to affect the Company's accounting for financial assets. The standard is not applicable until 1 January 2013 but it is available for early adoption. The Company will not be adopting this standard as a circular to liquidate the Company has been served.
b) Basis of preparation
The financial statements are prepared in pounds sterling (GBP), which is the Company's presentational currency, rounded to the nearest thousand pounds. They are prepared on a fair value basis for financial assets at fair value through profit or loss and derivative financial instruments. Other financial assets and financial liabilities are stated at amortised cost.
Given that the financial statements have been prepared on a fair value basis, there has not been any significant impact due to the non-going concern status, however consideration has been given to this fact while determining the fair value of investments.
The preparation of financial statements in conformity with IFRS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.
The financial statements of the Company are presented in the currency of primary economic environment in which the Company operates (its "functional currency"). The Directors have considered the primary economic currency of the Company and considered the currency in which the original capital was raised, distributions to be made and ultimately the currency in which capital would be returned on a break up basis. The Directors have also considered the currency to which the underlying investments are exposed. On balance, the Directors believe that sterling (GBP) best represents the functional currency. For the purpose of the financial statements the results and financial position of the Company are expressed in sterling which is the presentational currency of the Company.
The Directors have considered the primary economic currency of the Redemption Portfolio to be the US dollar and this represents the functional currency of the Redemption Portfolio. For the purpose of presenting company financial statements, the assets and liabilities of the Redemption Portfolio are translated into sterling at exchange rates presiding at the date of the Statement of Financial Position. Income and expense items are translated at average exchange rates for the period since Reorganisation. Exchange differences arising are recognised in the Statement of Comprehensive Income.
The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period or in the period of revision and future periods if the revision affects both current and future periods.
The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company's financial statements.
c) Revenue recognition
Interest income is recognised in the Statement of Comprehensive Income as it accrues using the effective interest method. Dividend income is recognised when the right to receive payment is established. Income distributions from investment funds are recognised in the Statement of Comprehensive Income as dividend income when declared.
d) Expenses
All expenses are accounted for on an accruals basis.
e) Financial instruments
i) Classification
The Company designates all of its investments upon initial recognition as "financial assets at fair value through profit or loss". These include financial assets that are not held for trading purposes and which may be sold and represent a group of financial assets which is managed and its performance is evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the group is provided internally on that basis to the entity's key management personnel. These are principally investments in unlisted open ended investment funds.
Financial instruments held for trading include forward foreign currency deals awaiting settlement.
Financial assets that are classified as loans and receivables include sales awaiting settlement and other receivables.
The Company has designated the amounts payable to Redeeming Shareholders as "financial liabilities at fair value through profit or loss". These liabilities comprise the pool of net assets in the Redemption Portfolio which are valued at NAV from time to time which will be realised in order to pay Redeeming Shareholders the final balance of their cash proceeds.
Financial liabilities that are not at fair value through profit or loss include purchases awaiting settlement, accounts payable and accrued expenses.
The table in Note 3 details the categories of financial assets and financial liabilities held by the Company at the reporting date.
ii) Recognition
The Company recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument.
A regular-way purchase or sale of investments is recognised using trade date accounting. From this date any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded.
iii) Measurement
Financial instruments are measured initially at fair value (transaction price). Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately.
Subsequent to initial recognition, all instruments classified as fair value through profit or loss are measured at fair value with changes in their fair value recognised in the Statement of Comprehensive Income in the period in which they arise.
Financial assets classified as loans and receivables are carried at amortised cost using the effective interest rate method less impairment losses, if any.
Financial liabilities, other than those at fair value through profit or loss, are measured at amortised cost using the effective interest rate.
iv) Fair value measurement principles
Investments in underlying funds which are not quoted on a recognised stock exchange or other trading facility will be valued at the NAVs provided by such entities or their administrators. These values may be unaudited or may themselves be estimates. In addition, these entities or their administrators may not provide values at all or in a timely manner and, to the extent that values are not available, those investments will be valued by the Investment Adviser using valuation techniques appropriate to those investments. In determining fair value, the Investment Adviser takes into consideration, where applicable, the impact of suspensions, of redemptions, liquidation proceedings, investments in side pockets and other significant factors. Actual results may differ from these estimates. Following the review of the illiquid investments, being those investments which are currently gated, suspended, in liquidation or subject to other settlement obstructions, the Directors have established a Fair Valuation Adjustment Policy.
Open forward foreign currency contracts at the statement of financial position date are valued at forward currency rates at that point. The unrealised appreciation or depreciation on open forward foreign currency contracts is calculated by reference to the difference between the contracted rate and the rate to close out the contract.
v) Realised and unrealised gains and losses
Realised gains and losses arising on disposal of investments are calculated by reference to the proceeds received on disposal and the average cost attributable to those investments, and are recognised in the Statement of Comprehensive Income. Unrealised gains and losses on investments are recognised in the Statement of Comprehensive Income.
vi) Impairment
Financial assets that are stated at cost or amortised cost are reviewed at each statement of financial position date to determine whether there is objective evidence of impairment. If any such indication exists, an impairment loss is recognised in the Statement of Comprehensive Income as the difference between the asset's carrying amount and the present value of estimated future cash flows discounted at the financial asset's effective interest rate.
If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write-down, the writedown is reversed through the Statement of Comprehensive Income.
vii) Derecognition
The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39.
A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. The Company uses the average cost method to determine the gain or loss on derecognition.
.
f) Foreign currency transactions
Transactions denominated in foreign currencies are translated at the rate of exchange ruling on the date of transaction. Assets and liabilities denominated in foreign currencies are translated into sterling at the exchange rate prevailing at the Statement of Financial Position date. Realised and unrealised gains or losses on currency translation are recognised in the Statement of Comprehensive Income. Foreign currency differences relating to investments at fair value through profit or loss are included in gains and losses on investments (Note 3).
g) Cash and cash equivalents
Cash comprises cash in hand and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant changes in value. Cash, deposits with banks and bank overdrafts are stated at their principal amount.
h) Treasury shares
Where the Company purchases its own share capital (whether into treasury or for cancellation), the consideration paid, which includes any directly attributable costs (net of income taxes) is recognised as a deduction from equity Shareholders' funds through the special reserve, which is a distributable reserve.
When such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is recognised as an increase in equity, and the resulting surplus or deficit on the transaction is transferred to/from the special reserve.
Shares held in treasury are not taken into account in determining NAV per share detailed in Note 9 and earnings per share detailed in Note 13.
3. Financial instruments
a) Categories of financial instruments
2010 2009
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
Carrying Carrying Carrying Carrying Carrying Carrying
% of % of
Amount Amount Amount net Amount Amount Amount net
GBP000 GBP000 GBP000 assets GBP000 GBP000 GBP000 assets
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Financial
assets at
fair value
through
profit or
loss:
Designated at
fair value
through
profit or
loss:
Investments
in hedge
funds 46,044 253 46,297 96.28% 49,511 4,953 54,464 111.54%
Held for
trading:
Forward
foreign
currency
contracts 545 - 545 1.11% 469 - 469 0.96%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total at fair
value
through
profit or
loss 47,589 253 46,842 97.39% 49,980 4,953 54,933 112.50%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Loans and
receivables:
Cash at bank 341 193 534 1.09% 1,054 315 1,369 2.80%
Accounts
receivable 3,627 85 3,712 5.55% 2,408 1,660 4,068 8.33%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total loans
and
receivables 3,968 278 4,246 6.64% 3,462 1,975 5,437 11.13%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total Assets 50,557 531 51,088 104.03% 53,442 6,928 60,370 123.63%
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
3. Financial
instruments
(continued)
a) Categories
of financial
instruments
(continued)
Liabilities
Financial
liabilities
at fair
value
through
profit or
loss:
Financial
liabilities
at fair
value
through
profit or
loss - (525) (525) (1.07%) - (6,912) (6,912) (14.16%)
Forward
foreign
currency
contracts - - - - - (1) (1) -
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total at fair
value
through
profit or
loss - (525) (525) (1.07%) - (6,913) (6,913) (14.16%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Other
financial
liabilities
(at
amortised
cost):
Bank
overdraft (1,324) - (1,324) (2.70%) (4,484) - (4,484) (9.18%)
Accounts
payable and
accrued
expenses (124) (6) (130) (0.26%) (128) (15) (143) (0.29%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total
measured at
amortised
cost (1,448) (6) (1,454) (2.96%) (4,612) (15) (4,627) (9.47%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
Total
Liabilities (1,448) (531) (1,979) (4.03%) (4,612) (6,928) (11,540) (23.63%)
-------------- ----------- ----------- --------- -------- ----------- ----------- --------- ---------
In the opinion of the Directors the carrying amounts of loans and receivables and financial liabilities measured at amortised cost approximate their fair values.
b) Net gains and losses on financial assets at fair value through profit or loss
Post Reorganization
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Net
gains/(losses)
on financial
assets at fair
value through
profit or loss
Realised
gains/(losses)
on
investments 851 156 1,007 12,758 (813) 328 12,273
Movement in
unrealised
gains/(losses)
on
investments 2,925 (1,487) 1,438 (16,323) 2,792 405 (13,126)
Realised
(losses)/gains
on forward
currency
contracts (2,339) 328 (2,011) 6,476 (939) (340) 5,197
Unrealised
gains/(losses)
on forward
currency
contracts 76 1 77 2,136 (322) (1) 1,813
----------- --------------- ----------- ------------ ---------
1,513 (1,002) 511 5,047 718 392 6,157
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
4. Operating segments
Information on realised gains and losses derived from sales of investments are disclosed in Note 3 to the financial statements.
The Company is domiciled in Guernsey. All of the Company's income from investments is from underlying funds that are incorporated in countries other than Guernsey. Entity wide disclosures are necessary as the Company is engaged in two segments of business. In presenting information on the basis of geographical segments, segment investments and the corresponding segment net investment income arising thereon are determined based on the domicile countries of the respective investment entities and derivative counterparties.
The segment information provided to the board, in its capacity as chief operating decision maker of the Company, for the reportable segments is as follows:
Post Reorganisation
Prior to Continuing Redemption Company
Reorganisation Portfolio Portfolio Total
1
1 January 1 August 1 August January
Continuing Redemption Company to to to to
31 31
Portfolio Portfolio Total 31 July December 31 December December
2010 2010 2010 2009 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Interest income - - - 4 2 - 6
Other
investment
income 16 8 24 338 1 31 370
Net
gains/(losses)
on financial
assets held at
fair value
through profit
or loss 1,513 (1,002) 511 5,047 718 392 6,157
Net
gains/(losses)
on financial
liabilities at
fair value
through profit
or loss - 875 875 - - (2,095) (2,095)
Net foreign
exchange
gains/(losses) (27) 149 122 (2,464) 574 309 (1,581)
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total net
segment
income/(loss) 1,502 30 1,532 2,925 1,295 (1,363) 2,857
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total segment
assets 50,557 531 51,088 N/A 53,442 6,928 60,370
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Total segment
liabilities (1,448) (531) (1,979) N/A 4,612 6,928 11,540
---------------- ----------- ----------- -------- --------------- ----------- ------------ ---------
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
Total
segment
assets
include: GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
----------- ----------- ----------- -------- ----------- ----------- --------
Financial
assets at
fair
value
through
profit or
loss 46,044 253 46,297 49,511 4,953 54,464
Other
assets 4,513 278 4,791 3,931 1,975 5,906
----------- ----------- ----------- -------- ----------- ----------- --------
Geographical segments based on country of domicile
Continuing Portfolio 31 December Netherlands 2010 Guernsey USA Cayman BVI Ireland Antilles Bahamas Total --------------- --------- ------- ------- ---- -------- ------------ -------- -------- Financial assets at fair value through profit or loss 545 6,369 15,273 - 355 4 24,043 46,589 Net investment (loss)/income (11) 209 502 - 12 - 790 1,502 --------------- --------- ------- ------- ---- -------- ------------ -------- -------- Redemption Portfolio 31 December Netherlands 2010 Guernsey USA Cayman BVI Ireland Antilles Bahamas Total --------------- --------- ------- ------- ---- -------- ------------ -------- -------- Financial assets at fair value through profit or loss - 49 197 - - 4 3 253 Financial liabilities at fair value through profit or loss (525) - - - - - - (525) Net investment income/(loss) 1,032 (194) (780) - - (16) (12) 30 --------------- --------- ------- ------- ---- -------- ------------ -------- -------- Continuing Portfolio 31 December Netherlands 2009 Guernsey Jersey Cayman BVI Ireland Antilles Bahamas Total --------------- --------- ------- ------- ---- -------- ------------ -------- -------- Financial assets at fair value through profit or loss 469 - 48,570 941 - - - 49,980 Net investment income - - 1,294 1 - - - 1,295 --------------- --------- ------- ------- ---- -------- ------------ -------- -------- Continuing Portfolio 31 December Netherlands 2009 Guernsey Jersey Cayman BVI Ireland Antilles Bahamas Total --------------- --------- ------- ------- ---- -------- ------------ -------- -------- Financial assets at fair value through profit or loss - - 1,492 - 3,461 - - 4,953 Financial liabilities at fair value through profit or loss (6,913) - - - - - - (6,913) Net investment (loss)/income (2,095) - 157 - 575 - - (1,363) --------------- --------- ------- ------- ---- -------- ------------ -------- --------
The Company also has a diversified shareholder population and no individual investor owns more than 10 percent. of the issued capital of the Company as at 31 December 2010 (31 December 2009) except the following underlying Shareholders:
- Ericsson Pensionsstiftelse (23.6 per cent.) (2009: 11.7 per cent.)
- Kleinwort Benson Private Bank (12.6 per cent.) (2009: Nil per cent.)
- Weiss Asset Management LP (11.7 per cent.) (2009: Nil per cent.)
- South Yorkshire Pensions Authority (10.2 per cent.) (2009: Nil per cent.)
- BlackRock,Inc (Nil per cent.) (2009: 18.65 per cent.)
5. Financial risk management
Until 31 March 2011 the Company pursued its investment objective set out in the Manager's Report. The Company entered into investment transactions in financial instruments, principally the investment portfolio, the holding of which gave exposure to risks, which include market risk, liquidity risk, and default/credit risk. Asset allocation was determined by the Company's Investment Adviser who managed the distribution of the assets to achieve the investment objectives. Divergence from target asset allocations and the composition of the portfolio (from 31 July 2009 solely in respect of the Continuing Portfolio) was monitored by the Company's Investment Adviser. The nature and extent of the financial instruments outstanding at the end of the reporting period and the risk management policies employed by the Company are discussed below.
Capital risk management
The capital structure of the Company consists of equity attributable to Shareholders, including issued share capital, reserves and retained earnings as disclosed in Notes 7 and 8. The Company adheres to the Listing Rules of the UK Listing Authority.
Gearing Ratio
The Continuing Portfolio does not have any long-term or fixed structural gearing. The Company was indirectly exposed to gearing to the extent that the underlying funds are themselves geared. Northern Trust (Guernsey) Limited has been the credit facility provider since inception of the Company. The facility granted is up to the lower of GBP7.5 million and 20 per cent. of net NAV. The facility was increased temporarily to the lower of GBP7.5 million and 30 per cent. of net NAV until 30 April 2010, at which point it reverted back to the lower of GBP7.5 million or 20 per cent. of net NAV. As at 31 December 2010, the facility was drawn-down by GBP1.3 million (overdraft). In view of the Liquidation Proposals, the Company and Northern Trust (Guernsey) Limited have agreed that following the passing of the Extraordinary General Meeting Resolution on 25 March 2011, the facility will be cancelled effective 31 March 2011.
a) Market price risk
Market risk embodies the potential for both losses and gains and includes price risk, interest rate risk and currency risk.
The Company sought to achieve its investment objective for the Continuing Portfolio through investment in an actively managed portfolio of underlying funds diversified across a range of alternative investment strategies focused upon the commodity, energy and environmental complex. The Investment Adviser allocated the Company's assets in the Continuing Portfolio either directly or indirectly to underlying funds (which included funds managed or advised by the Investment Adviser) investing across the following strategies:
-- Commodity Strategies
-- Environmental Strategies
-- Long Volatility Strategies
Although the Investment Adviser allocated the Company's assets in the Continuing Portfolio among portfolio managers employing one or more of the strategies described above, subject to maintaining an appropriate spread of funds and investment strategies, the Company's assets in the Continuing Portfolio were deployed by the Investment Adviser in whatever funds and investment strategies the Investment Adviser deemed appropriate from time to time and which are consistent with the revised investment policy.
The exact number of funds and strategies used varied over time, although the Investment Adviser ensured an appropriate spread of investment risk consistent with the Listing Rules. The Company invested and managed its assets in the Continuing Portfolio in a way which was consistent with its objective of spreading investment risk.
Generally, the Investment Adviser sought (i) not to make further investment(s) in any one underlying fund, accessed either directly or indirectly, where immediately following such further investment(s) the underlying fund represented 8 per cent. or more of the Continuing Portfolio's total assets; and (ii) not to make further investment(s) in any underlying funds managed by a single portfolio manager, accessed either directly or indirectly, where immediately following such further investment(s) those underlying funds represented 20 per cent. or more of the Continuing Portfolio's total assets, although the Investment Adviser was able to deviate from any such guidelines from time to time, subject always to the maximum exposures, introduced in accordance with the Listing Rules, set out in the investment restrictions. For the avoidance of doubt, the MAN Portfolios (or any MAN master portfolio) invested in by the Continuing Portfolio were not subject to the above restrictions.
The Company intended to be substantially fully invested at all times, although the Investment Adviser used its discretion to hold cash or equivalent investments from time to time.
Market risk relates to the fact that there are certain general market conditions in which any given investment strategy is unlikely to be profitable. Neither the underlying portfolio managers nor the Investment Adviser had any ability to control or predict such market conditions. With respect to market risk, the Company's investment approach for the Continuing Portfolio was designed to achieve broad diversification on a global basis across financial markets in an attempt to reduce the Continuing Portfolio's exposure to any single market. However, from time to time multiple markets could move in tandem against the Continuing Portfolio's underlying investments and the Continuing Portfolio could suffer losses.
The performance of the Company's investments depended to a great extent on correct assessments of the course of price movements of securities and other investments by portfolio managers of the Company's underlying funds. There could be no assurance that those portfolio managers will be able to predict accurately these price movements. The securities markets have, in recent years, been characterised by great volatility and unpredictability. With respect to the investment strategies utilised by underlying funds in which the Company invested, there were some, and occasionally a significant, degree of market risk.
(i) Price risk
Market price risk arises mainly from uncertainty about future prices of financial instruments held by the underlying funds. It represents the potential gains and losses that might be suffered through holding market positions in the face of price movements. The Company's investments were indirectly exposed to market price fluctuations which were monitored by the Investment Adviser in pursuance of its investment objectives and policies. Adherence to investment guidelines and to investment and borrowing restrictions set out in the Company's investment policy for the separate portfolios and stated above mitigated the risk of excessive exposure to any particular type of fund. In addition to strict adherence to investment policy restriction, the Company diversified exposure to market risk for the Continuing Portfolio by spreading its investments using different trading strategies. At the end of the reporting period, the assets of the portfolios were allocated in the following strategies:
(i)
Continuing Redemptions Company Continuing Redemptions Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ------------ -------- ----------- ------------ --------
Investment
Strategy
Agriculture and
Livestock - - - 1,394 - 1,394
Asian
Opportunities - 3 3
Base Metals 327 - 327 346 - 346
Commodity
Strategies 33,268 - 33,268 25,281 - 25,281
Emerging
Markets Macro - 71 71 238 179 417
Energy and
Transportation 6,731 14 6,745 5,316 - 5,316
Environmental
Strategies 2,295 - 2,295 8,562 - 8,562
European Loan
Opportunities - - - - 3,461 3,461
Healthcare
Opportunities - 38 38 319 241 560
Multi-Strategy 3,259 - 3,259 4,724 - 4,724
Short-Term
Managed
Futures - - - 1,186 - 1,186
Special
Situations - 127 127 87 1,072 1,159
Investments in
advance 164 - 164 2,058 - 2,058
Portfolio total 46,044 253 46,297 49,511 4,953 54,464
---------------- ----------- ------------ -------- ----------- ------------ --------
Price sensitivity analysis
The Company used the MSCI World Composite Index as its benchmark to monitor regularly the evolution of the beta of the Continuing Portfolio and assessed overall performance and risk of the Continuing Portfolio. The beta of the Continuing Portfolio was calculated separately versus the benchmark, and had been reasonably constant throughout the year. The Investment Adviser used correlation, beta, standard deviation, among other statistical techniques, to test how the Continuing Portfolio might reasonably be expected to react under the prolonged rise or drawdown of its benchmarks, based on historical data about risk and return. The results of this analysis were used to re-assess risk and if necessary, rebalance the composition of the portfolio.
The table below illustrates the likely impact of a rise or fall of the MSCI World Composite Index by 10 per cent. on the net asset value of the Company at the end of the reporting year, under the assumption that all other factors remain constant:
Continuing Portfolio
Increase Decrease
of 10% of 10%
Impact in Impact in
Statement Statement
of of
Comprehensive Comprehensive
Carrying amount Income Income
For the year ended 31 December
2010 GBP000 GBP000 GBP000
----------------------------------- ------- -------------- --------------
Financial instruments designated
at
fair value through profit or loss 46,044 4,743 (4,743)
----------------------------------- ------- -------------- --------------
For the year ended 31 December
2009
-----------------------------------
Financial instruments designated
at
fair value through profit or loss 49,511 5,100 (5,100)
----------------------------------- ------- -------------- --------------
Redemption Portfolio
Increase Decrease
of 10% of 10%
Impact in Impact in
Statement Statement
of of
Comprehensive Comprehensive
Carrying amount Income Income
For the year ended 31 December
2010 GBP000 GBP000 GBP000
----------------------------------- ------- -------------- --------------
Financial instruments designated
at
fair value through profit or loss 253 26 (26)
----------------------------------- ------- -------------- --------------
For the year ended 31 December
2009
-----------------------------------
Financial instruments designated
at
fair value through profit or loss 4,953 510 (510)
----------------------------------- ------- -------------- --------------
Actual trading results may differ from the above sensitivity analysis and those differences may be material.
(ii) Interest rate risk
Substantially all of the Company's assets are non-interest bearing investments and its exposure to interest rate changes is limited. The Company, however, has a bank overdraft of GBP1,323,645 (2009: GBP4,483,956) at the year end and is therefore subject to cashflow interest rate risk due to fluctuations in the prevailing levels of market interest rates. The short term investments included within cash equivalents and bank overdraft have an overnight maturity, and as a result they have a limited exposure to fair value interest rate risk due to fluctuations in the prevailing levels of market interest rates.
Northern Trust (Guernsey) Limited has been the credit facility provider since inception of the Company and will continue to be until 31 March 2011. The interest rate which applies to all drawings under the facility is calculated at 1.25 per cent. over Northern Trust (Guernsey) Limited's cost of funds in the relevant currency. The amount drawn down at 31 December 2010 was GBP1,323,645 (2009: GBP4,483,956). Credit facility fees incurred amounted to GBP18,750 (2009: GBP35,938).
The following table details the Company's exposure to interest rate risks. It includes the Company's assets and trading liabilities at fair values, categorised by the earlier of contractual re-pricing or maturity date measured by the carrying value of the assets and liabilities.
Continuing Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2010 GBP000 GBP000 GBP000
----------------------------------------- ---------- ------------- --------
Assets
Financial assets at fair value
through profit or loss
Investments - 46,044 46,044
Forward foreign currency contracts - 545 545
Loans and receivables
Cash and cash equivalents 341 - 341
Accounts receivable - 3,627 3,627
----------------------------------------- ---------- ------------- --------
Total assets 341 50,216 50,557
----------------------------------------- ---------- ------------- --------
Liabilities
Financial liabilities at fair value
through profit or loss, held for
trading
Forward foreign currency contracts
Other financial liabilities (at
amortised cost)
Bank overdraft (1,324) - (1,324)
Accounts payable - (124) (124)
----------------------------------------- ---------- ------------- --------
Total liabilities (1,324) (124) (1,448)
----------------------------------------- ---------- ------------- --------
Total interest sensitivity analysis
gap (983)
----------------------------------------- ---------- ------------- --------
Redemption Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2010 GBP000 GBP000 GBP000
------------------------------------------ ---------- ------------- -------
Assets
Financial assets at fair value
through profit or loss
Investments - 253 253
Forward foreign currency contracts
Loans and receivables
Cash and cash equivalents 193 - 193
Accounts receivable - 85 85
------------------------------------------ ---------- ------------- -------
Total assets 193 338 531
------------------------------------------ ---------- ------------- -------
Liabilities
Net assets attributable to Shareholders - (525) (525)
Financial liabilities at fair value
through profit or loss, held for trading
Forward foreign currency contracts
Other financial liabilities (at
amortised cost)
Bank overdraft
Accounts payable - (6) (6)
------------------------------------------ ---------- ------------- -------
Total liabilities - (531) (531)
------------------------------------------ ---------- ------------- -------
Total interest sensitivity analysis
gap 193
------------------------------------------ ---------- ------------- -------
Continuing Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2009 GBP000 GBP000 GBP000
----------------------------------------- ---------- ------------- --------
Assets
Financial assets at fair value
through profit or loss
Investments - 49,511 49,511
Forward foreign currency contracts - 469 469
Loans and receivables
Cash and cash equivalents 1,054 - 1,054
Accounts receivable - 2,408 2,408
----------------------------------------- ---------- ------------- --------
Total assets 1,054 52,388 53,442
----------------------------------------- ---------- ------------- --------
Liabilities
Financial liabilities at fair value
through profit or loss, held for
trading
Forward foreign currency contracts - - -
Other financial liabilities (at
amortised cost)
Bank overdraft (4,484) - (4,484)
Accounts payable - (128) (128)
----------------------------------------- ---------- ------------- --------
Total liabilities (4,484) (128) (4,612)
----------------------------------------- ---------- ------------- --------
Total interest sensitivity analysis
gap (3,430)
----------------------------------------- ---------- ------------- --------
Redemption Portfolio
Less than Non-interest
1 month bearing Total
At 31 December 2009 GBP000 GBP000 GBP000
----------------------------------------- ---------- ------------- --------
Assets
Financial assets at fair value
through profit or loss
Investments - 4,953 4,953
Loans and receivables
Cash and cash equivalents 315 - 315
Accounts receivable - 1,660 1,660
----------------------------------------- ---------- ------------- --------
Total assets 315 6,613 6,928
----------------------------------------- ---------- ------------- --------
Liabilities
Financial liabilities at fair value
through profit or loss
Net assets attributable to Shareholders (6,912) (6,912)
Financial liabilities at fair value
through profit or loss, held for
trading
Forward foreign currency contracts - (1) (1)
Other financial liabilities (at
amortised cost)
Bank overdraft - - -
Accounts payable and accrued expenses - (15) (15)
----------------------------------------- ---------- ------------- --------
Total liabilities - (6,928) (6,928)
----------------------------------------- ---------- ------------- --------
Total interest sensitivity analysis
gap 315
----------------------------------------- ---------- ------------- --------
Interest rate sensitivity analysis
As at 31 December 2010, an increase of 100 basis points in interest rates would have decreased the net assets attributable to Shareholders in the Continuing Portfolio and changes in net assets attributable to Shareholders by GBP9,830. As at 31 December 2009, an increase of 100 basis points in interest rates would have decreased the net assets attributable to Shareholders and changes in net assets attributable to Shareholders by GBP34,300. A decrease of 100 basis points would have had an equal and opposite effect.
Actual trading results may differ from the above sensitivity analysis and those differences may be material.
iii) Currency risk
The principal exposure to currency risk arises from investments denominated in currencies other than the functional currency. The value of such investments may be affected favourably or unfavourably by fluctuations in exchange rates, notwithstanding any efforts made to hedge such fluctuations. A significant portion of the Company's investments at the end of the reporting year are denominated in currencies other than the base currency hence the exposure to currency risk in this manner is significant. The Company may from time to time enter into transactions in derivative instruments and take short positions with a view to hedging the Continuing Portfolio's currency exposure. At the reporting date, the Company had hedged almost all foreign currency positions in the Continuing Portfolio by selling them forward.
As at 31 December 2010, the net currency exposure of the Continuing Portfolio expressed in Sterling was as follows:
Continuing Portfolio
USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ --------- ------- ------- -------
Investments held at fair value 46,044 - - 46,044
Cash and cash
equivalents (1,098) (8) 123 (983)
Other net assets/(liabilities) 3,617 (7) (107) 3,503
------------------------------------ --------- ------- ------- -------
Total net long
position 48,563 (15) 16 48,564
Effect of forward foreign currency
contracts (44,855) 5,548 39,852 545
Net exposure 3,708 5,533 39,868 49,109
------------------------------------ --------- ------- ------- -------
As at 31 December 2010, the net currency exposure of the Redemption Portfolio expressed in Sterling was as follows:
Redemption Portfolio
USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ ------- ------- ------- -------
Investments held at fair value 253 - - 253
Cash and cash
equivalents 193 - - 193
Other net assets/(liabilities) (440) - (6) (446)
------------------------------------ ------- ------- ------- -------
Total net long
position 6 - (6) -
Effect of forward foreign currency
contracts - - - -
Net exposure 6 - (6) -
------------------------------------ ------- ------- ------- -------
There was no hedging in the Redemption Portfolio as at 31 December 2010.
As at 31 December 2009, the net currency exposure of the Continuing Portfolio expressed in Sterling was as follows:
Continuing Portfolio USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ --------- ------- ------- --------
Investments held at fair value 49,511 - - 49,511
Cash and cash equivalents (3,481) 31 20 (3,430)
Other net assets/(liabilities) 2,193 (9) 96 2,280
------------------------------------ --------- ------- ------- --------
Total net long
position 48,223 22 116 48,361
Effect of forward foreign currency
contracts (47,304) 6,836 40,937 469
Net exposure 919 6,858 41,053 48,830
------------------------------------ --------- ------- ------- --------
As at 31 December 2009, the net currency exposure of the Redemption Portfolio expressed in Sterling was as follows:
Redemption Portfolio
USD EUR GBP Total
GBP000 GBP000 GBP000 GBP000
------------------------------------ -------- -------- ------- --------
Investments held
at fair value 1,492 3,461 - 4,953
Cash and cash equivalents 315 - - 315
Other net liabilities (5,252) (3) (12) (5,267)
------------------------------------ -------- -------- ------- --------
Total net long position (3,445) 3,458 (12) 1
Effect of forward foreign currency
contracts 3,311 (3,312) - (1)
--------
Net exposure (134) 146 (12) -
------------------------------------ -------- -------- ------- --------
Since the Company hedged all its foreign currency position as illustrated by the table above, any subsisting foreign exchange risk is immaterial so no sensitivity analysis has been carried out.
b) Liquidity risk management
The Company's financial instruments included investments in other open-ended investment funds which are not traded in an organised public market some of which were illiquid. At the date of signing these financial statements, substantially all such investments have been realized except those that are designated in the Manager's Report as having restricted liquidity, totalling 0.4% of the Continuing Portfolio. The Investment Adviser continues to explore the options available to realise these investments and those in Redemption Portfolio in a timely manner
The Company has a loan facility with Northern Trust (Guernsey) Limited of the lower of GBP7.5 million or 20 per cent. of its net asset value for short-term or temporary liquidity purposes. Prior to April 2010, the facility was extended temporarily to up to the lower of GBP7.5 million and 30 per cent. of NAV. On 30 April 2010, the facility reverted to up to the lower of GBP7.5 million or 20 per cent. of net NAV. The expiry date of the facility is the banking day being three calendar months from the date of written notice advising the Company of the termination of the facilities. As at 31 December 2010, this facility was drawn down by GBP1.3 million. The facility will be terminated on 31 March 2011.
The table below analyses the Company's financial liabilities into relevant maturity groupings based on the remaining period at the end of the reporting year to the contractual maturity date. The amounts in the table are the contractual undiscounted cash flows. Balances due within 12 months equal their carrying balances, as the impact of discounting is not significant.
Continuing Portfolio
Within 1-3
1 month months Total
At 31 December 2010 GBP000 GBP000 GBP000
---------------------- -------- ------- -------
Bank overdraft 1,324 - 1,324
Accounts payable 98 26 124
1,422 26 1,448
---------------------- -------- ------- -------
Redemption Portfolio
Within 1-3
1 month months Total
At 31 December 2010 GBP000 GBP000 GBP000
Accounts payable 6 525 531
---------------------- -------- ------- -------
Company Total
Within 1-3
1 month months Total
At 31 December 2010 GBP000 GBP000 GBP000
--------------------- -------- ------- -------
Bank overdraft 1,324 - 1,324
Accounts payable 104 551 655
1,428 551 1,979
--------------------- -------- ------- -------
Continuing Portfolio
Within 1-3
1 month months Total
At 31 December 2009 GBP000 GBP000 GBP000
---------------------- -------- ------- -------
Bank overdraft 4,484 - 4,484
Accounts payable 91 37 128
4,575 37 4,612
---------------------- -------- ------- -------
Redemption Portfolio
Within 1-3
1 month months Total
At 31 December 2009 GBP000 GBP000 GBP000
Accounts payable 16 6,912 6,928
---------------------- -------- ------- -------
Company Total
Within 1-3
1 month months Total
At 31 December 2009 GBP000 GBP000 GBP000
---------------------- -------- ------- -------
Bank overdraft 4,484 - 4,484
Accounts payable 107 6,949 7,056
4,591 6,949 11,540
---------------------- -------- ------- -------
c) Credit risk management
Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Company.
Credit risk generally is higher when a non-exchange traded financial instrument is involved because the counterparty for
non-exchange traded financial instruments is not backed by an exchange clearing house. The Company is also exposed to
credit risk on the financial assets with its brokers.
The carrying amounts of financial assets best represent the maximum credit risk exposure at the end of the reporting year. This relates also to financial assets carried at amortised cost as they have a short-term to maturity.
At the end of the reporting year, the Company's financial assets exposed to credit risk amounted to the following:
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
------------- ----------- ----------- -------- ----------- ----------- --------
Financial
assets at
fair value
through
profit or
loss 46,044 253 46,297 49,511 4,953 54,464
Forward
foreign
currency
contracts 545 - 545 469 - 469
Accounts
receivable 3,627 85 3,712 2,408 1,660 4,068
Cash and
cash
equivalents 341 193 534 1,054 315 1,369
------------- -------- ----------- ----------- --------
50,557 531 51,088 53,442 6,928 60,370
------------- ----------- ----------- -------- ----------- ----------- --------
Credit risk arising on transactions with brokers relates to transactions awaiting settlement. Risk relating to unsettled transactions is considered small due to the short settlement period involved and the credit quality of the brokers used.
Transactions involving derivative financial instruments are usually with counterparties with whom the Company has signed master netting agreements. Master netting agreements provide for the net settlement of contracts with the same counterparty in the event of default.
Investments made by the Company and the funds in which it invests may not be regulated by the rules of any stock exchange or investment exchange or other regulatory body or authority. The counterparties to such investments have no obligation to make markets in such investments. Furthermore, the Company and such funds were subjected to the risk of bankruptcy of, or the inability or refusal to perform with respect to such investments by, the counterparties with which the Company or such funds deal.
The Investment Adviser carried out rigorous due diligence procedures before investing in an underlying manager's fund. Procedures were also in place to monitor the managers on a regular basis, thereby ensuring that the Company limits its exposure to credit risk on its underlying funds.
The Company monitored the credit rating and financial positions of the brokers used to further mitigate this risk. Substantially all of the assets of the Company were held by Northern Trust (Guernsey) Limited. Bankruptcy or insolvency of the Custodian may cause the Company's rights with respect to securities held by the Custodian to be delayed or limited. The Company monitored its risk by monitoring the credit quality and financial position of the Custodian.
All of the cash held by the Company was held by the Custodian and certain other financial institutions. Bankruptcy or solvency by the Custodian or other financial institutions may cause the Company's rights with respect to the cash held by the Custodian and other financial institutions to be delayed or limited. The Company monitored its risk by monitoring the credit rating of the Custodian and other service providers. The credit rating of the Northern Trust Company from Standard & Poor's at the year end was AA- (2009: AA-).
The Investment Adviser analysed credit concentration based on the counterparty and strategy of the financial assets that the Company holds. The ten largest holdings of the Company which are exposed to credit risk at 31 December 2010 are set out in the Manager's Report.
The Company's financial assets exposed to credit risk were concentrated in the following industries:
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
% % % % % %
--------- ----------- ----------- -------- ----------- ----------- --------
Hedge
Funds 91.07 47.65 90.62 92.64 95.44 92.96
Banking 0.67 36.35 1.05 1.97 4.55 2.27
Other 8.26 16.00 8.33 5.39 0.01 4.77
Total 100.00 100.00 100.00 100.00 100.00 100.00
--------- ----------- ----------- -------- ----------- ----------- --------
d) Fair value measurement
The Company adopted the amendment to IFRS 7, effective 1 January 2009. This requires the Company to classify financial instruments in terms of a fair value hierarchy that reflects the significance of the inputs used in making the measurements of such financial instruments for reporting purposes. IFRS 7 establishes a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under IFRS 7 are as follows:
Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;
Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either
directly (that is, as prices) or indirectly (that is, derived from prices);
Level 3 Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).
The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety was determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input was assessed against the fair value measurement in its entirety.
If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgment, considering factors specific to the asset or liability.
The determination of what constitutes 'observable' requires significant judgment by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.
Fair value disclosures
The following table analyses within the fair value hierarchy the Company's financial assets and financial liabilities measured at fair value at 31 December 2010:
Continuing Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in hedge
funds - 45,862 182 46,044
- 45,862 182 46,044
--------------------------------------------- -------- -------- -------
Redemption Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in hedge
funds - - 253 253
- - 253 253
--------------------------------------------- -------- -------- -------
The following table analyses within the fair value hierarchy the Company's financial assets and financial liabilities measured at fair value at 31 December 2009:
Continuing Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in
hedge funds - 49,185 326 49,511
- 49,185 326 49,511
--------------------------------------------- -------- -------- -------
Redemption Portfolio
Level 1 Level 2 Level 3 Total
GBP000 GBP000 GBP000 GBP000
----------------------------------- --------- -------- -------- -------
Investments at fair value through
profit or loss
- Investments in
hedge funds - 3,701 1,252 4,953
- 3,701 1,252 4,953
--------------------------------------------- -------- -------- -------
The Investee Funds held by the Company are not quoted in active markets.
Investee Funds classified in Level 2 and Level 3 were fair valued using the net asset value of the Investee Funds, as reported by the respective Investee Fund's administrator. Illiquid investments, being those investments which were gated, suspended, in liquidation or subject to other settlement obstructions have been marked down by the Directors according to the Fair Value Adjustment Policy.
Continuing Portfolio
Level 2 is comprised of 19 holdings in 17 discrete funds. All of these holdings were fair valued with reference to net asset value as reported by the underlying fund's administrator.
Level 3 is comprised of 21 holdings in 8 discrete funds. 4 of these holdings were fair valued with reference to net asset value as reported by the underlying fund's administrator. 17 holdings were fair valued with reference to the Company's Fair Value Adjustment Policy.
The following table presents the movement of investments in level 3 for the year ended 31 December 2010:
Investments
in
Hedge Funds
GBP000
-------------------------------- ------------
Balance at 31 December 2009 326
Purchases 467
Sales (137)
Transfers into level 3 232
Realised losses (30)
Movement in unrealised losses (676)
-------------------------------- ------------
Fair value at 31 December 2010 182
-------------------------------- ------------
Redemption Portfolio
Level 3 is comprised of 22 holdings in 8 discrete funds. 5 of these holdings were fair valued with reference to net asset value as reported by the underlying fund's administrator. 17 of these holdings were fair valued with reference to the Company's Fair Value Adjustment Policy.
The following table presents the movement of investments in level 3 for the year ended 31 December 2010:
Investments
in
Hedge Funds
GBP000
-------------------------------- ------------
Balance at 31 December 2009 1,252
Purchases 208
Sales (368)
Transfers into level 3 181
Realised losses (53)
Movement in unrealised losses (967)
-------------------------------- ------------
Fair value at 31 December 2010 253
-------------------------------- ------------
The following table presents investments in level 3 for the period between Reorganisation and the Statement of Financial Position date at 31 December 2009.
Continuing Portfolio
Investments
in
Hedge Funds
GBP000
------------------------------------- ------------
Transferred from original portfolio 1,848
Sales (1,566)
Realised gain 42
Unrealised gain 2
Fair value at 31 December 2009 326
------------------------------------- ------------
The following table presents investment in level 3 for the period between Reorganisation and the Statement of FinancialPosition date at 31 December 2009.
Redemption Portfolio
Investments
in
Hedge Funds
GBP000
------------------------------------- ------------
Transferred from original portfolio 1,396
Sales (5)
Realised gain -
Unrealised gain (139)
Fair value at 31 December 2009 1,252
------------------------------------- ------------
6. Accounts payable and accrued expenses
Continuing Redemption Company Continuing Redemption Company
Portfolio Portfolio Total Portfolio Portfolio Total
2010 2010 2010 2009 2009 2009
GBP000 GBP000 GBP000 GBP000 GBP000 GBP000
---------------- ----------- ----------- -------- ----------- ----------- --------
Liabilities at fair value
through profit or loss
Amounts payable
to Redeeming
Shareholders - 525 525 - 6,912 6,912
Accounts payable and accrued
expenses
Management fee 61 1 62 63 3 66
Audit fee 8 5 13 17 4 21
Administration
fee 14 - 14 14 1 15
Secretary fee 10 - 10 4 - 4
Custodian fee 3 - 3 6 1 7
Directors'
remuneration 12 - 12 11 6 17
Interest
payable - - - 2 - 2
Other accrued
expenses 16 - 16 11 - 11
124 6 130 128 15 143
---------------- ----------- ----------- -------- ----------- ----------- --------
Amounts payable to Redeeming Shareholders represents the pool of assets comprised in the Redemption Portfolio. Some of these assets are valued at NAV while others have been fair value adjusted. All such assets will be realised in order to pay Redeeming Shareholders the final balance of their cash proceeds. On approval of the liquidation and Winding Up of the Company, the Liquidator will take the responsibility for realising the remaining investments in the Redemption Portfolio. Redeeming Shareholders should be aware that realisation of assets in the Redemption Portfolio may still not have occurred even after all of the investments in the Continuing Portfolio have been realised.
7. Called up share capital
Continuing Continuing
Portfolio Portfolio
--------------------------------------------
2010 2009
--------------------------------------------
No. of
No. of Shares Shares
-------------------------------------------- -------------- -----------
Authorised
Unlimited number of shares at no par value - -
Issued at no par value
GBP Shares 41,233,649 41,859,900
EUR Shares 5,537,087 6,627,866
US$ Shares 2,719,786 1,048,710
-------------------------------------------- -------------- -----------
Reconciliation of number of ordinary shares
GBP Shares Continuing Portfolio
--------------------------------------------
2010 2009
--------------------------------------------
No. of Shares No. of Shares
-------------------------------------------- -------------- --------------
Issued GBP Shares at the start of the year 41,859,900 79,092,126
Redemption of GBP Shares - (27,925,515)
Conversion of GBP Shares (626,251) 238,086
Purchase of own GBP Shares into treasury
and cancelled - (9,544,797)
-------------------------------------------- -------------- --------------
Total GBP Shares at the end of the year 41,233,649 41,859,900
-------------------------------------------- -------------- --------------
Continuing Portfolio
2010 2009
EUR Shares No. of Shares No. of Shares
-------------------------------------------- -------------- --------------
Issued EUR Shares at the start of the year 6,627,866 15,758,167
Redemption of EUR Shares - (9,165,328)
Conversion of EUR Shares (1,090,779) 35,027
-------------------------------------------- -------------- --------------
Total EUR Shares at the end of the year 5,537,087 6,627,866
-------------------------------------------- -------------- --------------
Continuing Portfolio
2010 2009
US$ Shares No. of Shares No. of Shares
-------------------------------------------- -------------- --------------
Issued US$ Shares at the start of the year 1,048,710 1,482,881
Redemption of $ Shares - (206,848)
Conversion of EUR Shares to $ Shares 1,671,076 -
Conversion of US$ Shares - (227,323)
--------------------------------------------
Total US$ Shares at the end of the year 2,719,786 1,048,710
-------------------------------------------- -------------- --------------
The facility to convert between share classes operated in respect of the March 2010 and September 2010 Conversion Calculation Dates. On the basis of the Conversion Notices received by the Company, Shares were converted between share classes as summarised above.
As of 31 December 2010, the Board exercised its powers under the Company's articles of incorporation to prohibit conversions from the GBP Share class into US$ Share class, as it believed that the limit requiring at least 25 per cent. of Shares of a class to be in public hands was close to being breached, and that such a breach would not be in the interests of Shareholders.
The rights attaching to the Ordinary Shares are as follows:
a) the holding of existing Ordinary Shares shall confer the right to all other dividends in accordance with the Articles of Association of the Company.
b) the existing Shareholders present in person or by proxy or (being a corporation) present by a duly authorised representative at a general meeting have, on a show of hands, one vote and, on a poll, one vote for every Share held.
c) the capital and surplus assets of the Company remaining after payment of all creditors shall, on winding-up or on a return (other than by way of purchase or redemption of own Shares) after conversion, be divided amongst the Shareholders on the basis of the capital attributable to the respective classes of Shares at the date of winding up or other return of capital, and amongst the members of a particular class pro rata according to their holdings of Shares of that class.
During the year, the Company purchased Nil (2009: 9,544,797) of its own GBP Shares for consideration (2009: GBP7,512,540). All of the Shares purchased were cancelled.
Treasury shares are recorded as part of Shareholders' equity until they are reissued or cancelled as ordinary shares.
Also in issue is 1 subordinated non-voting share.
Redeeming Shareholders have no rights to vote at meetings or dividends or to the capital and surplus assets of the Company other than the Redemption Portfolio.
8. Reserves
Special Retained
Continuing Portfolio Reserve Earnings Total
As at 31 December 2010 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance 48,147 683 48,830
Net profit for the year - 279 279
48,147 962 49,109
--------------------------------------- --------- ---------- ---------
Special Retained
Redemption Portfolio Reserve Earnings Total
As at 31 December 2010 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance - - -
Net profit for the year - - -
- - -
--------------------------------------- --------- ---------- ---------
Special Retained
Company Total Reserve Earnings Total
As at 31December 2010 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance 48,147 683 48,830
Net profit for the year - 279 279
48,147 962 49,109
--------------------------------------- --------- ---------- ---------
Special Retained
Pre Reorganisation Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
--------------------------------------- --------- ---------- ---------
Opening balance 93,835 (3,072) 90,763
Repurchase of own Shares into
treasury (7,513) - (7,513)
Transfer to Continuing and Redemption
Portfolios (87,590) 3,072 (84,518)
Net income for the year 1,268 - 1,268
--------------------------------------- --------- ---------- ---------
- - -
--------------------------------------- --------- ---------- ---------
Special Retained
Continuing Portfolio Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ---------
Transfer from Original Portfolio 48,147 - 48,147
Net income for the year - 683 683
48,147 683 48,830
---------------------------------- --------- ---------- ---------
Special Retained
Redemption Portfolio Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ---------
Transfer from Original Portfolio 36,371 - 36,371
Amounts Payable to Redeeming
Shareholders (36,371) - (36,371)
- - -
---------------------------------- --------- ---------- ---------
Special Retained
Company Total Reserve Earnings Total
As at 31 December 2009 GBP000 GBP000 GBP000
---------------------------------- --------- ---------- ---------
Opening balance 93,835 (3,072) 90,763
Repurchase of own shares into
treasury (7,513) - (7,513)
Transfer between portfolios (3,072) 3,072 -
Amounts Payable to redeeming
Shareholders (36,371) - (36,371)
Net income for the year 1,268 683 1,951
48,147 683 48,830
---------------------------------- --------- ---------- ---------
9. Net asset value
The net asset value of each GBP, EUR and US$ Share has been determined by dividing the net assets of the Continuing Portfolio attributed to the GBP, EUR and US$ Shares of the Continuing Portfolio by the number of GBP, EUR and US$ Continuing Shares in issue at the year end as follows:
Net assets
attributable
to each share Shares in Net Assets
Continuing Portfolio class issue per share
------------------------ --------------- ----------- -----------
As at 31 December 2010
------------------------ --------------- ----------- -----------
GBP Share GBP40,541,826 41,233,649 GBP0.9832
EUR Share EUR6,567,507 5,537,087 EUR1.1861
US$ Share US$4,569,751 2,719,786 US$1.6802
------------------------ --------------- ----------- -----------
As at 31 December 2009
------------------------ --------------- ----------- -----------
GBP Share GBP40,824,796 41,859,900 GBP0.9753
EUR Share EUR7,810,379 6,627,866 EUR1.1784
US$ Share US$ 1,742,657 1,048,710 US$1.6617
10. Significant Agreements and Related Parties
a) Directors' Remuneration & Expenses
The annual Directors' fees comprise GBP26,000 payable to Mr Dorey and GBP22,000 to Mr Hill, Audit Committee Chairman. Mr. Bowie waived his right to an annual fee of GBP20,000.
At 31 December 2010 Directors' remuneration of GBP43,000 (2009: GBP61,000) was charged and a payable amount of GBP12,000 (2009: GBP17,000) was accrued in the Statement of Financial Position.
b) Manager
Dexion Capital (Guernsey) Limited (the "Manager") was remunerated at a monthly rate of 0.125 per cent. per month of the Total Assets of the Continuing Portfolio (out of which it pays the trail commissions payable to qualifying investors, fees payable to the Investment Adviser and fees payable to the Investment Consultant) and at a monthly rate of 0.0416 per cent. per month of the Total Assets of the Redemption Portfolio (out of which it pays fees payable to the Investment Adviser and fees payable to the Investment Consultant) for the provision of investment management services.
The management fee is calculated on the NAV Calculation Date in each calendar month and is payable monthly in arrears.
Additionally, the Manager is entitled to a performance fee, provided the total assets attributable to a class of Continuing Portfolio shares at the end of one financial year (having adjusted for any issues, redemptions or repurchases of ordinary shares arising on conversion of C shares or conversion from or to ordinary shares of other classes and for any contingent or accrued but unpaid liabilities) are greater than the value of the total assets attributable to that class of ordinary shares (as adjusted) at the end of any previous financial period, a performance fee equivalent to 10 per cent. of the amount by which the period-end total assets attributable to that class of ordinary shares exceed the greatest value of the total assets attributable to that class of shares at the end of any previous financial period (being adjusted as referred to above). The performance fee is calculated and payable annually in arrears. No performance fees were incurred during the year ended 31 December 2010 (2009: Nil).
At 31 December 2010, management fees of GBP732,000 (2009: GBP1,104,000) were charged and a payable amount of GBP62,000 (2009: GBP66,000) was accrued in the Statement of Financial Position.
No performance fee is charged with respect of the Net Assets attributable to the Redemption Portfolio.
The investment management agreement will terminate on 31 March 2011.
c) Investment Advisers
The Manager was responsible for the fees paid to MAN Investments (CH) AG (formerly RMF Investment Management) (the "Investment Adviser").
d) Administrator
HSBC Securities Services (Guernsey) Limited (the "Administrator") performed administrative duties for which it was remunerated at a rate of 0.1 per cent. per annum of the Net Asset Value up to GBP49 million, 0.075 per cent. per annum of the next GBP50 million, 0.05 per cent. of the next GBP125 million and 0.03 per cent. per annum thereafter per annum for both the Continuing Portfolio and the Redemption Portfolio (subject to a minimum annual fee of GBP50,000 calculated in total for the Continuing Portfolio and Redemption Portfolio). On approval of liquidation of the Company by the Shareholders, the Liquidator will take responsibility for realising the Company assets, and at such time the administration agreement will be terminated.
At 31 December 2010, administration fees of GBP91,000 (2009: GBP131,000) were charged and a payable amount of GBP14,000 (2009: GBP15,000) was accrued in the Statement of Financial Position.
e) Secretary
Dexion Capital (Guernsey) Limited (the "Secretary") performed secretarial duties for which it was remunerated at an annual fee of GBP24,000. On approval of liquidation of the Company by the Shareholders, the Liquidator will take responsibility for realising the Company assets, and at such time the secretarial agreement will be terminated.
At 31 December 2010, secretary fees of GBP26,000 (2009: GBP24,000) were charged and a payable amount of GBP10,000 (2009: GBP4,000) was accrued in the Statement of Financial Position.
f) Custodian
Northern Trust (Guernsey) Limited (the "Custodian"), was remunerated at an annual rate of 0.07 per cent. of the net asset value of the Company up to GBP49 million, 0.065 per cent. of the next GBP50 million, 0.06 per cent. of the next GBP125 million, 0.05 per cent. of the next GBP250 million 0.04 per cent. of the next GBP200 million and 0.03 per cent. thereafter for both the Continuing Portfolio and the Redemption Portfolio (subject to a minimum annual fee of GBP18,000 calculated in total for the Continuing Portfolio and Redemption Portfolio). On approval of liquidation of the Company by the Shareholders, the Liquidator will take the responsibility for realising the Company assets, and at such time the custodian agreement will be terminated and will be replaced by an agreement between the Liquidator and the Custodian.
At 31 December 2010, custodian fees of GBP36,000 (2009: GBP55,000) were charged and a payable amount of GBP3,000 (2009: GBP7,000) was accrued in the Statement of Financial Position.
11. Taxation
The Company is registered for taxation purposes in Guernsey where it pays an annual exempt status fee of GBP600 under The Income Tax (Exempt Bodies) (Guernsey) Ordinances 1989.
12. Distributions
The Directors do not expect income (net of expenses) to be significant and do not currently expect to declare any dividends. Subject to Shareholders approval at the Extraordinary General Meeting on 11 April 2011, the liquidator will distribute the residual assets to the Shareholders.
13. Basic and Diluted Earnings per Share
Continuing Portfolio
The calculation of the return per GBP, EUR and US$ Share is based on the total return for the year attributable to GBP, EUR and US$ Shares in the Continuing Portfolio and in the weighted average number of GBP, EUR and US$ Shares in issue for the Continuing Portfolio (excluding treasury shares) during the year as follows:
Total return Weighted average
attributable no. of shares
to in
each share Return per
class issue share
For the year ended 31
December 2010
------------------------------ ------------- ----------------- ------------
GBP Share GBP397,224 42,739,344 GBP0.0093
EUR Share (EUR235,583) 4,435,361 (EUR0.0531)
US$ Share US$129,382 1,034,498 US$0.1251
Original Portfolio
The calculation of the return per GBP, EUR and US$ Share is based on the total return for the period prior to Reorganisation attributable to GBP, EUR and US$ Shares in the Continuing Portfolio and on the weighted average number of GBP, EUR and US$ Shares in issue (excluding treasury shares) during that period as follows:
Total return Weighted average
attributable no. of shares
to in
each share Return per
class issue share
For the period from 1
January to 31 July 2009 :
---------------------------- --------------- ----------------- ------------
GBP Share GBP2,693,050 75,118,181 GBP0.0359
EUR Share (EUR1,475,971) 15,783,379 (EUR0.0935)
US$ Share (US$189,086) 1,378,379 (US$0.1372)
Continuing Portfolio
The calculation of the return per GBP, EUR and US$ Share is based on the total return for the period post Reorganisation attributable to GBP, EUR and US$ Shares in the Continuing Portfolio and on the weighted average number of GBP, EUR and US$ Shares in issue (excluding treasury shares) during that period as follows:
Total return Weighted average
attributable no. of shares
to in
each share Return per
class issue share
For the period from 1 August
to 31 December 2009:
------------------------------- ------------- ----------------- -----------
GBP Share GBP288,637 41,768,410 GBP0.0069
EUR Share EUR407,162 6,669,659 EUR0.0610
US$ Share US$52,031 1,091,237 US$0.0477
The return per Share as disclosed is calculated on performance per currency class and is expressed in currency prior to conversion to reporting currency.
14. Derivatives and hedging
In the normal course of business the Company engages in currency hedging to the Continuing Portfolio solely to reduce the risk of currency fluctuations and the volatility of returns which may result from currency exposure. This involves hedging the assets, which are predominantly US dollar based, to Sterling and Euro, as appropriate through the use of rolling forward foreign exchange transactions.
The following forward foreign exchange contracts were in place at 31 December 2010 in the Continuing Portfolio:
Currency bought Currency sold Maturity date Unrealised gain ---------------- -------------- ---------------- ---------------- GBP19,926,000 $30,739,242 31 January 2011 GBP233,536 GBP19,926,000 $30,798,622 31 January 2011 GBP195,496 EUR6,458,000 $8,479,225 31 January 2011 GBP115,497
The Redemption Portfolio does not hold any forward contracts as at 31 December 2010 and 31 December 2009.
The following forward foreign exchange contracts were in place at 31 December 2009 in the Continuing Portfolio:
Currency bought Currency sold Maturity date Unrealised gain ---------------- -------------- ---------------- ---------------- EUR7,707,504 US$11,041,000 29 January 2010 GBP3,125 GBP22,912,806 US$36,600,000 29 January 2010 GBP260,727 GBP18,024,289 US$28,792,000 29 January 2010 GBP204,654
15. Fair Value information
Many of the Company's financial instruments are carried at fair value in the Statement of Financial Position. Usually the fair value of the financial instruments can be reliably determined within a reasonable range of estimates. For certain other financial instruments including sales amounts due from/to brokers, accounts payable and accrued expenses, the carrying amounts approximate the fair value due to the immediate or short-term nature of these financial instruments.
At 31 December 2010, the carrying amounts of hedge funds which fair values are valued at the NAVs provided by underlying managers or their administrators amounted to GBP46,296,000 (31 December 2009: GBP54,464,000).
At 31 December 2010, the carrying amounts of derivative financial assets amounted to GBP545,000 (2009: GBP469,000) and derivative financial liabilities GBPNil (2009: GBP1,000) which fair values are valued using valuation techniques.
The major methods and assumptions used in estimating fair values are disclosed in note 2 e) of the significant accounting policies section. Actual results may differ from these estimates.
16. Exchange rates
The exchange rates to sterling at 31 December 2010 and 31 December 2009 were as follows:
2010 2009
----------- ------- -------
US Dollar 1.5613 1.6160
Euro 1.1643 1.1275
17. Ultimate Controlling Party
In the opinion of the Directors on the basis of the shareholdings advised to them, the Company has no ultimate controlling party.
18. Events Occurring After Statement of Financial Position Date
Subsequent to 31 December 2010, the Board issued a Shareholder Circular on 3 March 2011. The circular set out details of the proposed realisation and liquidation process and gave notice of two Extraordinary General Meetings at which the Shareholders should consider the approval to implement the proposal. On 25 March 2011, Shareholders approved the winding down of the Company, pursuant to which the investment objective and policy of the Company were amended to realise the investments in the Continuing Portfolio in an orderly and timely manner, with a view to distributing cash to Shareholders. On 11 April 2011, a Second Extraordinary General Meeting will be convened to consider the Winding Up Resolution for the winding up of the Company and to appoint a liquidator.
Pursuant to approval of the Winding Up of the Company, at the time the Liquidator is appointed, the assets of the Company are likely to comprise the cash attributable to the realized investments of the Continuing Portfolio together with the illiquid investments of both the Continuing and Redemption Portfolios, and an amount of cash of approximately GBP200,000. The cash is provided as working capital for the Liquidator, and is also intended to cover the cost and expenses of the Winding Up. The Directors deemed that the expenses relating to the winding up are not significant hence these have not been accrued in these financial statements..
19. Reconciliation of net asset value attributable to equity Shareholders to the published net asset value
As at 31 December 2010 and 31 December 2009, there is no difference between the net asset value attributable to equity Shareholders to the published net asset value.
Enquiries:
Carol Kilby
Dexion Capital (Guernsey) Limited
Tel: +44 (0)1481 743943
This information is provided by RNS
The company news service from the London Stock Exchange
END
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