LYXOR FOCUS FUND (GBP) LIMITED

 

 

 

 

ANNUAL REPORT

AND FINANCIAL STATEMENTS

For the period from 1 January 2013 to

31 December 2013

 

 

 

 

 

Table of Contents

 

 

General Information

 

Manager's Report

 

Directors' Report

 

Independent auditors' report

 

Balance Sheet

 

Profit and Loss Account

 

Statement of Cash flows

 

Statement of Changes in Net Assets Attributable to Holders of Participating Shares

 

Notes to the Financial Statements

 

Details of the Portfolio

 

 

General Information

 

LYXOR FOCUS FUND (GBP) LIMITED(the "Company") was incorporated on 13 May, 2008as a closed-ended limited liability investment company, with a proposed life of 8 years, under the Companies (Jersey) Law 1991. The Company constitutes and is regulated as a "collective investment fund" under the Collective Investment Funds (Jersey) Law, 1988 (as amended).

 

Board of Directors:		Registered Office:
Stephen Folland (Chairman of the Board) Anita Philippe John Boothman		PO Box 197 SG Hambros House 18 Esplanade
		St Helier
Registrar, Transfer Agent, Paying Agent:		Jersey, JE4 8RT
Computershare Investor Services (Channel Islands) Limited		Channel Islands
Ordnance House		Sub-Manager:
31 Pier Road		Lyxor Asset Management S.A.
St Helier		Tour Société Générale
Jersey JE4 8PW		17, cours Valmy
Channel Islands		92987 Paris - La Défense Cedex
		France
Manager and Secretary:
SG Hambros Fund Managers (Jersey) Limited		Auditors:
P.O. Box 78 SG Hambros House 18 Esplanade		PricewaterhouseCoopers CI LLP 37 Esplanade St Helier
St Helier		Jersey, JE1 4XA
Jersey, JE4 8PR		Channel Islands
Channel Islands
		Legal Advisors in Jersey:
Custodian:		Mourant Ozannes
SG Hambros Trust Company (Channel Islands) Limited		22 Grenville Street St Helier
PO Box 197 SG Hambros House		Jersey, JE4 8PX Channel Islands
18 Esplanade St Helier Jersey, JE4 8RT		Listing Sponsor: Dillon Eustace
Channel Islands		33, St John Rogerson's Quay
		Dublin 2
		Ireland

 

 

Manager's Report

LYXOR FOCUS FUND (GBP) LIMITED

 

Strategy:

 

The Company's investment objective is to provide investors with consistent and superior capital appreciation in the long term with medium risk, through exposure to an underlying fund, the Lyxor Focus Fund Limited (the "Underlying Fund").  The Company physically holds a portfolio of listed equities, but is exposed to the Underlying Fund through a derivative contract. This contract means that the Company swaps the performance returns on its investment portfolio with the performance returns of the GBP Class of the Lyxor Focus Fund Limited.

 

The Company aims to provide an absolute return with low and asymmetric correlation to equity and bond markets with an annual return target of 3-month USD Libor plus 5-6% per year with a volatility of approximately 5%. Through the Company's exposure to the Underlying Fund, returns are enhanced by concentrated positions while risks are mitigated through a well diversified allocation among strategies and managers.

 

Market environment:

For the period from 1 January 2013 to 31 December 2013

 

The long-held view was that the unprecedented monetary policies from the major central banks in developed countries were bearing fruit, pulling economies out of the financial crisis and driving a reflation/normalisation process in financial markets. In that respect 2013 will probably stand out as a remarkable year where major milestones were reached.

 

Tail risks, that dominated markets in the aftermath of the financial crisis, were successfully contained in developed countries. Regulators decided to relax the Basel III rules to be imposed on banks. In the Eurozone Draghi's ECB was effective in curtailing fears of a Euro breakdown. Member countries such as Italy and Portugal overcame policy issues, while Cyprus averted a major banking crisis. Moreover, the Monetary Union made important progress towards a banking union. In the U.S. lawmakers finally agreed on next year's budget after one of the longest government shutdowns.

 

Volatility, the so called "risk" measure, dropped to pre-crisis levels, below 15 on average over the year versus almost 18 in 2012 and 24 in 2011. Sovereign CDS spreads that represent a country's perceived riskiness compressed as well in the Eurozone periphery. The average sovereign CDS spread for Italy and Spain fell from highs of close to 600 bps mid-2012 to about 150 bps more recently. A similar move brought back European bank spreads to less than 100 bps after hitting almost 200 bps in July.

 

Unsurprisingly, the safe haven feature of high grade government bonds became less attractive and overvalued sovereign issues corrected massively once the Fed announced plans to taper quantitative easing in May. U.S. Treasury yields surged from 1.63% on 1 May to almost 3% in early September, followed by German Bund yields that increased from 1.2% to 2% over the period.

 

Unloved, undervalued equities regained investors' confidence at the expense of bonds, as evidenced by Deutsche Bank data on flows in and out of funds (including ETFs). For the first time since the financial crisis flows into bond funds dried up while equity funds enjoyed sizeable inflows. The so called "Great Rotation" pushed developed markets higher.

 

The S&P 500 index staged an impressive 29.6% rally in 2013 after gaining 13.4% in 2012. Despite the lack of an earnings driver the Euro Stoxx index rose 20.5% over the year, bettering 2012's performance.

 

Japan certainly did not belong in the same category.  Japanese asset prices responded to the country's historical shift in economic policies, a source of major distortions. The most striking example related to bond markets. JGBs benefited from the BoJ's asset purchase program that pressured yields down to 0.74% and triggered a weakening in the Yen (against the Dollar) from 86.7 to 105.26 by year-end. Pricing-in the strong earnings momentum, lower interest rates and hopes of a lasting exit from deflation, Japanese equities swelled close to 60%.

 

Credit performances were a tale of two cities. The asset class was hurt mid-year by the correction in bond markets, but later recovered as spreads compressed in sympathy with related equities. All in all over 2013 high yield issues offered positive total returns of 7.9% in Europe (iBoxx EUR liquid HY index) and 5.9% in the U.S. (iBoxx $ liquid HY index), with limited volatility.

 

Emerging assets were clearly left out of the wave that moved developed markets. Mounting doubts on the growth outlook, hawkish local policies fighting unwanted inflationary pressures and prospects of less liquidity from the Fed weighed on Emerging assets.

 

Govies (Merrill Lynch Global Emerging Market Sovereign Plus index) and equities (MSCI Emerging Markets index) yielded negative total returns (in USD) in 2013 of about -4% and -2.3% respectively.  

 

Commodities remained the worst performing asset class for the second year in a row. Prices of industrials and oil stayed flattish over the year amid economic uncertainties on China's demand for resources. However, gold prices dropped like a stone (-28%), discounting the coming normalisation in the Fed's policy

 

With less compelling valuations and less support from monetary accommodation (at least from the Fed) it was believed that the major risk to the outlook lay with growth prospects. In that respect uncertainties seemed concentrated in the Eurozone.

 

The Eurozone was escaping recession, but the recovery, based on less fiscal drag and less deleveraging, looked fragile. The Euro strength could undermine and delay the upturn in exports, while domestic demand could remain impaired by credit conditions.

 

Credit growth failed to resume and businesses from peripheral countries faced high financing costs as financial fragmentation persisted. Fortunately policymakers were more pro-growth oriented. The ECB surprised markets with its November rate cut and it was believed that further easing lay ahead, aimed at easing financing conditions in particular for small businesses.

It should be noted that risks are not one-sided. A virtuous cycle, led by Germany's effort to boost its domestic demand, could develop and provide some economic upside to the Eurozone.

 

Japan will also bring its share of economic volatility with the consumption tax increase scheduled for 1 April 2014. The tax hike should trigger spending that will boost growth in Q1 while the payback should be felt in Q2.

 

Last but not least, the future of China's economy should remain one of the biggest debates among investors in 2014, with strong arguments on both sides. China faces downside risks to growth stemming from imbalances related to real estate and rapid lending over the past 5 years. The excess credit growth and the low quality of loans constitute the major source of downside. However, there is no obvious and immediate catalyst for these downside risks to play out. Also, there is also the slight possibility that China may grow out of its debt problems over time.

 

Market Overview

For the period from 1 January 2014 to 28 February 2014

 

January:

The first month of the year started with more volatility than many investors expected stemming from a handful of imbalances heading into year-end. There were several factors that combined and interacted to result in an S&P 500 decline of 3%.

 

Emerging markets were at the core of investors' concern with weak data from China and a focus on high yield debt products with high uncertainty of repayment. Geo-political events also weighed on sentiment related to country specific problems in Argentina, Turkey and Ukraine. Data in developed economies was also mixed in the month of January. Add to this the heavily skewed positioning towards risky assets at year-end and the result was the January risk-off period.

 

Emerging market concerns were not new, but really came in to focus. Two separate issues in EM weighed on markets.

 

First, the dynamics surrounding China's slowdown and deleveraging gained more attention as January PMI slowed to 49.6, below the consensus forecast of 50.3. Economic data in China continued to slow after the tick up in the late summer and autumn. Offsetting the slowing data was the injection of liquidity by the central bank in January.

 

The second issue was the current account imbalances that were built over recent years and were now unwinding. Countries such as India, Turkey, Brazil, Indonesia and South Africa had large current account deficits that were financed by low global rates and capital inflows. These inflows now started to reverse. The central banks in these countries acted to slow the capital outflow by raising rates. This was clearly evident in Turkey where the central bank raised overnight rates from 7.75% to 12%. Nevertheless, Emerging Markets Index was down 5% YTD.

 

Data in developed markets hit a soft patch in January. The Non-Farm Payrolls report was much weaker than expected at 74k vs. 197k consensus expectation. The earnings season was also mixed with fewer positive surprises than in previous quarters. US 10-year Treasury yield was down 28 bp YTD as the mixed data reversed some of the bearish positioning in government bonds. Related to lower US yields, USD/JPY sold off 2.3% in January and consequently Nikkei was off 8%.

 

The Fed maintained its trajectory of tapering in January, reducing asset purchases by $10 billion. The Fed statement was marginally hawkish relative to expectations and focused on the improving of the economy while dismissing the recent weak data points. On the other side of the ocean the ECB was likely feeling increasing pressure for more action as the latest CPI of 0.7% confirmed that inflation remained in a downward trajectory.

 

February:

Gains in February across equity markets reversed the weak start to the year. The S&P 500 was up 2.9% for the month, which brought YTD performance just slightly below flat.  Europe also rebounded strongly, up 4.4% for the month and up 3.1% YTD. The strong gains for the month were driven by better investor sentiment and lower risk premiums. The VIX declined by 14.5% for the month to 14. Most economists now believed that weak US data in January and February was likely impacted by one of the most severe winters on record and that data in March would show some mean reversion. In addition the end of earnings season in the US finished on a strong note after a weaker than expected start. On the other side of the Atlantic firm economic data in Europe explained why the region outperformed.

 

Emerging markets remained a source of concern though the risk of a systemic emerging market sell off and contagion reduced. The MSCI Emerging Markets Index gained 1.3% this month, but lagged developed markets. Currencies sold off markedly for many emerging economies and helped drive a rebalance between higher exports and lower imports. Central bank actions focused on raising rates also contributed to the rebalance. China surprised investors by weakening its currency after a steady appreciation over the past 2 years. Geo-political risks remained an issue and increased in countries like Ukraine, Russia and Venezuela. However it was unlikely that these idiosyncratic situations would spill over into a broader risk sell off in EM.

 

Fixed income yields did not rebound with other risky assets. US 10-year Treasury yields declined 5 bps to 2.7% for the month and were just off the 2014 lows. Yields for German Bunds were also trending down and finished the month at 1.65%. It appeared that the fixed income market was taking a more negative view of the weak economic data points in January and February. Credit markets remained very robust with US high yield spreads compressing 25bps to 316 and European high yield declining 40 bps to 265. Retail flows resumed into credit in 2014 and helped support the market.

 

Japanese equities did not rebound as much as other equity markets in February - the Nikkei was up just 0.5% for the month. In addition 10-year Japanese yields continued to trend lower suggesting that the fixed income market was not pricing strong future inflation. The upcoming tax hike in April was a concern for investors because it could derail the current economic recovery. A similar tax hike in 1997 was partly responsible for causing a recession at the time. In addition, despite several weak economic data points in January, the BOJ did not increase stimulus as some had hoped and the central bank opted to wait for more data before increasing the current package. Adding to the pressure on equities was the strong Yen.  Low US Treasury yield pressurised USD/JPY, which was down 70 bps to 102 for the month of February.

 

Performance:

 

From 31 December 2012 to 31 December 2013, the Principal Investment Portfolio of the Company returned a global performance of 7.25%. The breakdown of this performance over the various months (each end of month corresponding to the last official valuation date of the month) was as follows compared to its benchmark indices:

 

Date	Net Asset Value per share (GBP)	Monthly performance (%)	JPM GGB Hedge USD (%)	MSCI World (%)
29 January 2013	1.0271	1.48	(1.58)	5.85
26 February 2013	1.0228	(0.42)	(1.06)	(0.64)
26 March 2013	1.0392	1.60	(0.33)	3.71
30 April 2013	1.0471	0.76	1.12	2.67
28 May 2013	1.0627	1.49	(3.92)	3.23
25 June 2013	1.0242	(3.62)	(1.82)	(6.37)
30 July 2013	1.0470	2.23	0.87	6.77
27 August 2013	1.0355	(1.10)	(0.31)	(2.02)
24 September 2013	1.0482	1.23	0.63	4.23
29 October 2013	1.0617	1.29	0.92	3.35
26 November 2013	1.0696	0.74	(0.01)	1.18
31 December 2013	1.0855	1.49	(0.82)	2.29
Annual Return	n/a	7.25	-6.24	26.25

 

Monthly performances were in the range of -3.62% and +2.23%. Taking into account the strategy followed by the Company, none of them was deemed to require additional commentary.

 

The description of the principal risks and uncertainties faced by the Company and the undertakings is provided through Note 9 and Note 5(c) to the Financial Statements of this Report.

 

The indication of any important events that have occurred since the end of the financial is provided through Note 12.

 

In relation to the Company's use of financial instruments and where material for the assessment of its assets, liabilities, financial position and profit and loss:

-       the Company's financial risk management objectives and policies, including its policy for hedging major types of forecasted transaction for which hedge accounting is used is provided through Notes 2(b) and Note 9

 

-     the Company's exposure to price risk, liquidity risk and cash flow risk is provided through Note 9.

 

Directors' Report

 

The Directors submit their annual report together with the audited financial statements for the period ended 31 December 2013.

 

Statement of Directors' Responsibility

 

The Directors are responsible for preparing the financial statements in accordance with applicable law and United Kingdom Accounting Standards.

 

To the best of the directors' knowledge that:

 

-    the financial statements, prepared in accordance with the applicable set of accounting standards, give a true and fair view of the assets, liabilities, financial position and profit and loss of the Company; and

 

-    the management report includes a fair review of the development and performance of the business and the position of the Fund, together with a description of the principal risks and uncertainties.

 

In preparing those financial statements the directors should:

 

-    select suitable accounting policies and then apply them consistently;

 

-    make judgements and estimates that are reasonable and prudent;

 

-    prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue the business; and

 

-    state whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements.

 

The Directors confirm they have complied with all the above requirements in preparing the financial statements.

 

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 (Jersey) Law 1991. 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.

 

So far as the Directors are aware, there is no relevant audit information of which the Company's auditors are unaware, and each Director has taken all the steps that he or she ought to have taken as a director in order to make himself or herself aware of any relevant audit information and to establish that the Company's auditors are aware of that information.

 

Net Assets, Profits, and Dividends

 

At the period-end, the LYXOR FOCUS FUND (GBP) LIMITED net assets attributable to holders of participating shares amounted to GBP 81,412,508.34 with an increase in net assets from operations

Directors' Report (Continued)

 

attributable to holders of participating shares for the same period of GBP 5,505,000.12. The policy of the Company is not to pay any dividends on its participating shares. The Directors are not aware of any existing or contingent liabilities.

 

Notable event during the period

 

As a consequence of an examination of the 2012 annual report by the Irish Auditing & Accounting Supervisory Authority (IAASA), the Company has agreed to make amendments to selected disclosures around fair value, risk disclosures, related party disclosures, Statement of Cash Flow and the Management Report. These amendments are set out in notes 2b(iv), 8, 9 and 11 to these financial Statements.

 

Post Balance Sheet Events

 

There are no post balance sheet events.

 

Directors

The names of the persons who were Directors at any time during the period ended 31 December 2013 and their residency are set out below. All of the Directors serve in a non-executive capacity.

 

Name	Residency
Stephen Folland Anita Philippe John Boothman	Jersey Jersey Jersey

 

Directors, Secretary and their interests

At the period-end, Mr Folland held 20,000 participating shares in the Company (2012: 20,000). None of the other Directors and their families nor the secretary had any interests in the shares of the Company at 31 December 2013.

 

Independent Auditors

The independent auditors, PricewaterhouseCoopers CI LLP, have indicated their willingness to continue in office.

 

On behalf of the Board

 

Stephen Folland

_______________________

Director

Anita Philippe

_______________________

Director

 

Date: 30 April 2014

Independent auditors' report to the members of LYXOR FOCUS FUND (GBP) LIMITED

 

We have audited the accompanying financial statements of LYXOR FOCUS FUND (GBP) LIMITED ("the Company") which comprise the balance sheet as of 31 December 2013 and the profit and loss account, the statement of cash flows, the statement of changes in net assets attributable to holders of participating shares for the period then ended and a summary of significant accounting policies and other explanatory information.

Directors' responsibility for the financial statements     

The Directors are responsible for the preparation of financial statements that give a true and fair view in accordance with United Kingdom Accounting Standards and with the requirements of Jersey law. The Directors are also responsible for such internal control as they determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditors' responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those Standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

               

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall presentation of the financial statements.

 

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Company as of 31 December 2013, and of its financial performance and cash flows for the period then ended in accordance with United Kingdom Accounting Standards and have been properly prepared in accordance with the requirements of the Companies (Jersey) Law 1991.

 

 

 

 

 

Independent auditors' report to the members of LYXOR FOCUS FUND (GBP) LIMITED (continued)

Report on other legal and regulatory requirements

We read the other information contained in the Annual Report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises a summary of General Information of the Company, the Manager's Report and the Directors' Report.

                        

In our opinion the information given in the Director's Report is consistent with the financial statements.

                                                          

This report, including the opinion, has been prepared for and only for the Company's members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

 

 

 

 

Brendan McMahon

For and on behalf of PricewaterhouseCoopers CI LLP

Chartered Accountants and Recognized Auditor

Jersey, Channel Islands

 

Date: 30 April 2014

 

Balance Sheet

(in GBP)

 

	Notes	31 December 2013	31 December 2012
Fixed Assets
Financial assets at fair value through profit or loss:
Other derivative instruments	17	7,839,783.05	7,126,391.15
Current Assets
Financial assets at fair value through profit or loss:
Investments	16	73,599,555.42	68,806,616.01
Cash and cash equivalents		6.35	6.19
Other receivables	4(a)	2.00	2.00
Total Assets		81,439,346.82	75,933,015.35
Current Liabilities
Payable for management fees		26,838.48	25,507.13
Other payables	4(b)	0.00	0.00
Current Liabilities (excluding net assets attributable to holders of participating shares)		26,838.48	25,507.13
Non-Current Liabilities Net assets attributable to holders of participating shares		81,412,508.34	75,907,508.22
Total Liabilities		81,439,346.82	75,933,015.35

 

 

Net asset value per participating share:

(in GBP)

 

 

31 December 2013

 

NAV/unit

1.0855

 

 

31 December 2012

 

NAV/unit

1.0121

 

 

 

The accompanying notes form an integral part of the financial statements.

 

 

 

The Directors approved the financial statements on: 30 April 2014

 

 

Stephen Folland		Anita Philippe

Director                                                                     Director

Profit and Loss Account

(in GBP)

 

 

	Notes	31 December 2013	31 December 2012
Interest income		0.00	0.00
Net realised gain/(loss) on financial assets and liabilities at fair value through profit or loss		6,047,489.39	(7,337,995.55)
Change in unrealised gain/(loss) on financial assets and liabilities at fair value through profit or loss		(385,426.76)	11,080,250.44
Total investment income/ (loss)		5,662,062.63	3,742,254.89
Expenses
Management fees	8(e)	(157,062.51)	(149,748.75)
Total expenses		(157,062.51)	(149,748.75)
Finance costs	2(f)	0.00	0.00
Profits/(loss) before taxation		5,505,000.12	3,592,506.14
Taxation		0.00	0.00
Increase/(decrease) in net assets from operations attributable to holders of participating shares		5,505,000.12	3,592,506.14

 

The accompanying notes form an integral part of the financial statements.

 

Continuing operations: All items dealt with in arriving at the increase/(decrease) in net assets from operations attributable to holders of participating shares for the periods ended 31 December 2013 and 31 December 2012 relate to continuing operations.

 

Total recognised gains and losses: The Company has no recognised gains and losses other than those included in the net increase/(decrease) in net assets from operations attributable to holders of participating shares above, and therefore no separate statement of total recognised gains and losses has been presented.

Statement of Cash flows

(in GBP)

 

 

	31 December 2013	31 December 2012
Purchase of financial assets	(253,984,345.20)	(358,479,042.90)
Proceeds from sale of financial assets (including realised gains)	263,645,656.40	366,216,500.80
Cash flow from operating activities
Net (payments) / proceeds from derivative financial instruments	(9,505,579.88)	(7,588,022.16)
Operating expenses paid	(155,731.16)	(149,429.64)
Cash flow from operating activities (note 15)	0.16	6.10
Cash flow from financing activities
Proceeds from participating shares issued	0.00	0.00
Cash flow from financing activities	0.00	0.00
Net increase in cash and cash equivalents	0.16	6.10
Cash and cash equivalents at the beginning of the period	6.19	0.09
Cash and cash equivalents at the end of the period	6.35	6.19

 

 

 

 

The accompanying notes form an integral part of these financial statements.

 

Statement of Changes in Net Assets Attributable to Holders of Participating Shares

(in GBP)

 

	31 December 2013	31 December 2012
Net assets attributable to holders of participating shares at beginning of the period	75,907,508.22	72,315,002.08
Increase/(decrease) in net assets from operations attributable to holders of participating shares	5,505,000.12	3,592,506.14
Net assets attributable to holders of participating shares at end of the period	81,412,508.34	75,907,508.22

 

 

 

The accompanying notes form an integral part of the financial statements.

 

 

Notes to the Financial Statements

 

1.   Establishment

 

The Company is set up as a closed-ended listed limited liability investment company. The assets of the Company are held and invested as one principal investment portfolio.

 

The Company is exposed to the Lyxor Focus Fund Limited ("the Underlying Fund") through a derivative contract. This contract means that the Company swaps the performance returns on its investment portfolio with the performance returns of the GBP Class of the Lyxor Focus Fund Limited.

 

2.   Summary of Significant Accounting Policies

 

The principal accounting policies applied in the presentation of these financial statements are set out below. These policies have been consistently applied to all periods presented, unless otherwise stated in the following text.

 

(a)  Basis of preparation

The financial statements, which are drawn up to the last dealing day in December of each year, have been prepared in accordance and comply with United Kingdom Accounting Standards. The preparation of financial statements in conformity with United Kingdom Accounting Standards requires the Directors to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Although these estimates are based on management's best knowledge of current events and actions, actual results may ultimately differ from those estimates.

 

These financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative instruments) at fair value through profit or loss.

 

(b)   Financial assets and financial liabilities at Fair Value through Profit or Loss

(i)    Classification

The Company designates all of its investments in debt and equity securities and related derivatives as financial assets or financial liabilities at fair value through profit or loss. These financial assets and liabilities are classified as held for trading or designated upon initial adoption at fair value through profit or loss. Derivatives are categorised as financial assets or liabilities held for trading.

 

Financial assets and liabilities designated at fair value through profit or loss at inception are those that are managed and their performance evaluated on a fair value basis in accordance with the Company's documented investment strategy. The Company's policy is for the Manager, the Sub-Manager and the Directors to evaluate the information about these financial assets and liabilities on a fair value basis together with other related financial information.

 

FRS 29 requires enhanced classification and disclosures about financial instruments carried at fair value. FRS 29 establishes a fair value hierarchy for the inputs used in valuation models and techniques used to measure fair value. Fair value represents the price that would be received upon the sale of an asset or paid upon the transfer of a liability in an orderly transaction between market participants at the measurement date (an exit price).

Assets and liabilities measured at fair value are classified into one of the following categories:

 

• Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. The type of investments which would generally be included in this category would include, among others, equities and derivatives listed on the most liquid securities exchanges as well as leading governmental bonds.

• Level 2 - Quoted prices in markets that are not considered to be active or financial instruments for which all significant inputs are observable, either directly or indirectly (including quoted prices for similar investments in active markets, interest rates and yield curves, credit risks, etc.). The type of investments which would generally be included in this category would include, among others, debt instruments and certain over-the-counter derivatives.

• Level 3 - Prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. The type of investments which would generally be included in this category would include, among others, unlisted securities, quoted securities in untraded markets, low-rated bonds, private or debt securities issued by private entities.

 

The inputs or methodology used for valuing securities are not necessarily an indication of the risks associated with investing in those securities.

 

(ii)   Measurement

FRS 26 requires financial assets to be held at fair value, except loans and receivables, held to maturity investments and investments in equity instruments that do not have a quoted market price in an active market and whose fair value cannot be reliably measured. FRS 26 requires financial liabilities to be measured at amortised cost except for financial liabilities at fair value through profit and loss. Fair value is the amount for which an asset could be exchanged or a liability settled by or with knowledgeable, willing parties in an arm's length transaction.

 

Financial instruments are measured initially at fair value being the transaction price. 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 profit and loss account.

 

(iii)   Recognition and derecognition

Purchases and sales of financial assets and liabilities are recognised on the trade-date, being the date on which the Company commits to purchase or sell the asset or liability. Financial assets and liabilities are derecognised when the rights to receive cash flows from the securities have expired or have been transferred and the Company has transferred substantially all risks and rewards of ownership.

 

Gains and losses arising from changes in the fair value of the financial assets and liabilities at fair value through profit or loss category are included in the profit and loss account in the period in which they arise.

 

(iv)  Fair value measurement principles

The fair value of financial instruments traded in active markets is based on the closing prices available at the balance sheet date as quoted on the principal exchange on which they are listed.

 

The fair value of financial instruments that are not traded in an active market is estimated with care and in good faith on behalf of the Directors by the Sub-Manager, with a view to establishing the probable realisation value for such units or shares as at close of business on the relevant valuation day. The valuation of an unlisted financial instrument may be based on the last traded price and may differ significantly from the values that would have been used had a ready market existed and may differ from the actual amounts ultimately realised. Such differences could be material.

 

Derivative financial instruments are recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets. In the event that such price is unavailable the probable realisation value is estimated by the Sub-Manager. The equity-linked swap detailed in note 17 is valued at the settlement price provided by the counterparty as at 31 December 2013. At each NAV calculation day, the Sub-Manager valuation team challenges the price of the counterparty by comparing the evolution of the NAV of the Fund (derived from the price provided by the counterparty) with the evolution of the NAV of the Underlying Fund. No assumptions are used in this valuation technique that has been applied consistently since inception. All derivative instruments are carried as assets when fair value is positive and liabilities when fair value is negative.

 

The Directors have no reason to believe that the valuations are unreasonable.

 

(c)   Cash and cash equivalents

Cash and cash equivalents includes cash in hand, deposits held and other short-term highly liquid investments with original maturities of three months or less.

 

(d)   Deposits

Deposits include amounts held with credit institutions with original maturities of more than three months.

 

(e)   Borrowings

Borrowings include amounts due to credit institutions with original maturities of more than three months.

 

(f)    Finance costs

Finances costs include interest expenses on borrowings.

 

(g)   Revenue recognition

Bank deposit interest and other interest income are credited to interest income in the profit and loss account on an accrual basis.

 

In accordance with FRS 16 Current Tax, dividend income is reported gross of withholding tax deducted at source and the related tax is disclosed separately on the face of the profit and loss account. This has no effect on the net income or net assets of the Company.

 

(h)   Foreign currency translation

(i)    Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the Company operates ('the functional currency'). This is the Sterling Pound, which reflects the fact that the majority of investors acquire and redeem shares based on a net asset value per share calculated in Sterling Pounds, and which is also the presentation currency.

 

(ii)   Transactions and balances

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign currency assets and liabilities at the balance sheet date are translated at the foreign exchange rate ruling at the balance sheet date. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the profit and loss account.

 

(i)    Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

 

(j)    Receivables

Receivables are carried at anticipated realisable value. An estimate is made for doubtful receivables based on a review of all outstanding amounts at period end. Bad debts are written off during the period in which they are identified.

 

(k)   Accrued expenses and other payables

Accrued expenses and other payables are recognised at the best estimate of the expenditure required to settle the obligation.

 

(l)    Participating shares

Participating shares are not redeemable and are classified as financial liabilities.

 

(m)  Net Asset Value per Participating Share

The net asset value per share is calculated by dividing the net assets included in the balance sheet by the number of participating shares in issue at the period end. The calculation of the net asset value per share is performed in accordance with the terms set out within the Prospectus.

 

(n)   Related parties

Related parties are individuals and companies where the individuals or companies have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.

 

(o)   Taxation

The Company is liable to Jersey corporation tax at an applicable standard rate of 0%.

Capital gains, dividends and interest on securities held in the Company may be subject to withholding or capital gains taxes imposed by the country of origin of the issuer of any such securities.

 

3.    Critical accounting estimates and judgements

 

Management makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. Estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below.

 

Fair value of derivative financial instruments

The Company may, from time to time, hold financial instruments that are not quoted in active markets, such as over-the-counter derivatives. Fair values of such instruments are determined by using valuation techniques. Where valuation techniques are used to determine fair value, they are validated and periodically reviewed by experienced personnel at the Sub-Manager. Except for the derivative instrument, the Company's financial assets and financial liabilities are held for the purpose of being traded or are expected to be realised within one year.

 

Fair value of investments in Underlying Fund

The Underlying Fund holds mainly financial instruments that are not quoted in active markets, such as investments in other underlying funds. These investments are valued at the net asset values provided by such entities or their administrators where this approximates fair value. These values may be unaudited or may themselves be estimates. Where unaudited or estimated values are used to determine fair value, they are validated and periodically reviewed by experienced personnel at the Sub-Manager.

 

4.    Other Receivables and Payables

 

(a) Other Receivables

 

-due within one year	31 December 2013	31 December 2012
- Amount receivable from the Manager in respect of the founders shares	2.00	2.00
- Receivable for investments sold	0.00	0.00
	2.00	2.00

 

(b) Other Payables

 

-due within one year	31 December 2013	31 December 2012
- Payable for investments purchased	0.00	0.00
	0.00	0.00

5.    Share Capital

 

(a)   Founders Shares

Founders shares are issued for cash at GBP 1.00 to the Manager and its nominees. The Manager and its nominees are the only holders of Founders Shares and as such are entitled to receive notice of general meetings of the Company and to attend and vote thereat. On a poll each holder of Founders Shares is entitled to one vote for each Founders Share held by it. Founders Shares are not redeemable. The holding of Founders Shares creates no interest, direct or indirect, in the net assets or profits attributable to the Company other than on the winding up of the Company. In a winding-up the holder of a Founders Share is entitled only to a return of GBP 1.00 after the return of GBP 1.00 on the participating shares.

 

(b)   Participating shares

Participating shares do not carry such rights to dividends as specified in the Prospectus. In a winding up, each participating share has a preferential right of return of GBP 1.00 and a right to share in surplus net assets of the Company after the return of GBP 1.00 on Founders Shares. Holders of participating shares are not entitled to receive notice of general meetings of the Company or to attend and vote thereat. Participating shares in the Company are not redeemable prior to the Redemption Date, as defined in the Prospectus. Shareholders wishing to dispose of their participating shares prior to that date mayrefer to the Prospectus for more details.

 

	Shares in issue as of 30      31 December 2012	Subscriptions for the period	Redemptions for the period	Shares in issue as of 31 December 2013
Founders Shares	2.00	0.00	0.00	2.00

 

Participating Shares	Shares in issue as of  31 December 2012	Subscriptions for the period	Redemptions for the period	Shares in issue as of 31 December 2013
GBP Class	75,000,000.00	0.00	0.00	75,000,000.00

 

(c)   Characteristics of the Participating shares

Participating shares are issued for a period equal to the proposed life of the Company which is 8 years. They do not offer any form of capital protection or guarantee and their value may fall as well as rise.

 

Since they may not be redeemed prior to the Redemption Date, as defined in the Prospectus, any shareholders wishing to dispose of their participating shares prior to the redemption date may only do so by means of a transfer or sale of such participating shares (on the London Stock Exchange, the Irish Stock Exchange or otherwise).

 

Although it is intended that one or more market makers will make a market in the participating shares there can be no assurance that at any particular time any market maker will be willing to make a market in the participating shares or that a liquid secondary market in the participating shares will develop.

The price at which the participating shares can be disposed of (if a buyer can be found) may not reflect the value of the underlying assets of the Company or the Net Asset Value per participating share, but may also be based on a number of other factors, including the demand for the participating shares, the size of the holding to be sold, administrative costs, movements in the foreign exchange markets, an assessment of credit risks and fluctuations in interest rates and dividend yields.

The Net Asset Value per participating share will in part reflect the valuations of the derivative contract(s). These valuations may be affected by, amongst other things, fluctuations in the credit ratings of the approved counterparty and the performance and expected future performance of the Underlying Fund shares (to which the value of the derivative contract(s) is linked) which, whilst they may not affect the ability of the Company to pay the redemption amount, may affect the Net Asset Value per participating share and consequently the market price at any time of the participating shares.

 

Any shareholder wishing to dispose of his participating shares in the secondary market may only do so by selling them at whatever price a buyer may be prepared to pay for them in the secondary market.

 

(d)   Authorised Share Capital

The Company is authorised to issue 2 founders shares and 100,000,000 participating shares, of which 75,000,000 were issued as of 31 December 2013 and 31 December 2012.

 

6.    Credit Institutions

The Company's cash balances are maintained with Sociéte Générale.

 

7.    Soft Commissions

There are no soft commission arrangements.

 

8.    Related Party Transactions

 

(a)   Manager and Secretary

The Company has entered into a management agreement with SG Hambros Fund Managers (Jersey) Limited (the "Manager") pursuant to which the Manager has responsibility for the administration of the Company, the investment of the assets of the Company and the valuation of the assets and liabilities of the Company, the issue, repurchase and cancellation of participating shares, and the calculation of the prices of participating shares. In addition, the Manager is responsible for determining the number of participating shares in issue from time to time, keeping and arranging for the safe-keeping and inspection in Jersey of such returns, records and accounting information of the Company as are required by the law, maintaining the Register, acting as Secretary of the Company, and providing the registered office of the Company. SG Hambros Fund Managers (Jersey) Limited may also act as manager for certain underlying funds.

 

(b)   Custodian

The Company and the Manager have entered into a custodian agreement with SG Hambros Trust Company (Channel Islands) Limited (the "Custodian") pursuant to which the Custodian has responsibility forreceiving subscription monies, making payment of redemption monies, distributions and other sums payable out of the assets of the Company and the custody of the assets of the Company in accordance with the terms of such custodian agreement. Subject to certain conditions, the Custodian may appoint sub-custodians or prime brokers in respect of the assets of the Company.

 

(c)   Sub-Manager

The Company and the Manager have entered into a sub-management agreement with Lyxor Asset Management S.A. (the "Sub-Manager") pursuant to which the Sub-Manager acts as sub-manager to the Company and undertake as delegate of the Manager functions including, but not limited to, the management of the investment and allocation of the assets and liabilities of the Company and general administrative and operational services required by the Company in connection with its business, part of which has been delegated to Société Générale Securities Services ("SGSS"). Lyxor Asset Management S.A. may also act as sub-manager for certain underlying funds.

 

(d)   OTC Counterparty

Société Générale is the counterparty for the outstanding over-the-counter (OTC) derivative instrument held at 31 December 2013. The amounts due to/from the OTC counterparty at the balance sheet date are included in Note 17 under 'Details of Other derivative instruments'.

The amounts of transactions during the year with the OTC counterparty are presented under the caption "Net (payments)/proceeds from derivative financial instruments" within the Statement of Cash Flows.

 

(e)   Fees payable to related parties

The Sub-Manager is entitled to receive a management fee from the Company of up to 0.20% per annum of the Net Assets, calculated and payable monthly in arrears.

 

Under the terms of the derivative contract, Société Générale has agreed to cover for all ongoing expenses to be paid by the Company. Such ongoing expenses comprise mainly management fees to be paid to the Sub-Manager, the payment of the annual fees payable to directors, the costs of preparing, printing, publishing and distributing annual and semi-annual reports, financial statements and other notices and communications to shareholders, the payment to the Irish Paying Agent of an annual fee of EUR 2,500 and all annual fees of the Official List, Listing Sponsor, and the International Bulletin Board of the London Stock Exchange. Such ongoing expenses will be factored into the Derivative Amount.

 

The Manager is not entitled to receive any fees from the Company. 

 

Amounts payable out of the assets of the Company are separately disclosed in the balance sheet and the amounts charged for the period ended 31 December 2013 are separately disclosed in the profit and loss account.

 

All transactions with related parties have been undertaken on an arm's length basis.

 

(f)    Transactions with directors

There were no transactions with directors other than those in the normal course of business.

At the period-end, Mr Stephen Folland held 20,000 participating shares in the Company (2012: 20,000). None of the other Directors and their families nor the secretary had any interests in the shares of the Company at 31 December 2013.

 

9.    Financial Risks Disclosures

In pursuing its investment objectives the Company holds financial instruments. The financial instruments held at the balance sheet date are disclosed in Notes 16 and 17 under 'Details of the Portfolio'. The main risks arising from the Company's financial instruments are market price, interest rate, credit, liquidity, fair value measurement and foreign currency risks.

Under the supervision of its Risk Management Department, the Sub-Manager performs on a weekly basis an overall measurement of these risks. Such analysis is done through a Modified Value at Risk (MVaR) methodology. To properly compare emerging markets stocks, low liquid stocks, hedge funds or private equity, the Sub-Manager is using a customised VaR since the standard deviation of the original VaR methodology is not adequate. As these asset returns are not normally distributed, the MVaR is a better measure as it accounts for standard deviation, skewness and kurtosis at a given confidence level. The Sub-Manager computes its MVaR analysis with its own IT systems using historical data.

 

The MVaR analysis is covering the risk monitoring for market price risk, interest rate risk and foreign currency risk. It is used to get an estimate of a worst loss at a given confidence interval within a given timeframe.

 

The MVaR calculation applied by the Sub-Manager relies on a methodology called "Cornish-Fisher" expansion. This methodology aims to transform normal (Gaussian) distributions into non-normal (skewed and fat-tailed) distributions of asset returns.

 

In the context of the MVaR calculation, the main assumptions are as follows:

 

·     skewed : high probability of a gain but it will be likely a small one / small probability of a loss but it will be a large one;

·     fat-tailed (Kurtosis) : probability of extreme losses might be larger than in the normal distribution case;

·     the calculation of the MVaR relies on the historical returns of the fund; therefore the historical returns provide a good proxy of the exposure as of reporting date;

·     normal market conditions are assumed.

 

A common limitation of the MVaR is that it does not provide a measure of the maximum loss outside the confidence interval.

 

Other limitations of the analysis are :

 

·     the model is based on historical data and cannot take into account the fact that future market price movements, correlations between markets and levels of market liquidity in case of market stress may bear no relation to historical patterns;

·     the  market price information represents a hypothetical outcome and is not intended to be predictive (in the case of probability-based methods, such as MVaR, profit and losses are almost certain to exceed the reported amount with a frequency depending on the confidence interval chosen); and

·     future market conditions could vary significantly from those experienced in the past.

 

 

As at 31 December 2013, in normal market conditions, the maximum weekly decrease of the Company's NAV should not be greater than 2.01% with a confidence level of 99 % (2.07% at end of December 2012).

 

(a)  Market Price Risk

Market risk arises mainly from uncertainty about future prices of financial instruments held. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.

 

In the normal course of business, the Company holds a derivative instrument which is carried at fair value but which involves market risk that may be in excess of the amount recognised in the accompanying Balance Sheet due to future material changes in the market values of the securities, indices and currencies underlying the financial instruments.

 

(b)  Interest Rate Risk

As of 31 December 2013 and 31 December 2012, the Company does not hold fixed interest rate bearing securities, although fluctuation in long term interest rates may affect the value of other securities held.

 

(c)  Credit Risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

 

The main concentration to which the Company is exposed arises from the Company's investment in the derivative instruments and assets (cash and cash equivalents and investments) held by the Custodian.

 

Société Générale is the derivative counterparty of the Company. Additionally, the Sub-Manager, which is also the sub-manager of the Underlying Fund (i.e. Lyxor Focus Fund Limited), is a 100 per cent subsidiary of Société Générale.

 

The custodian of the Company is SG Hambros Trust Company (Channel Islands) Limited. This entity is a wholly owned subsidiary of Société Générale.

 

As a result, the Company is exposed to the credit risk resulting from a default of Société Générale. Among others, Société Générale is included in the Sub-Manager's authorised counterparties list which is subject to a weekly monitoring based on the following limits:

 

·     The S&P long term rating of the counterparty is over or equal to A-.

 

·     The spread of the CDS 5 years of the counterparty respects 3 constraints :

-      spread of counterparty is <400bp

-      spread of counterparty is <1.5 x Average Spread Counterparty on 20 days + 50bp

-      spread of counterparty is <1.5 x ITraxx Europe Financial 5 years + 100bp

 

If one of these 4 limits is breached, a risk committee analyses all available information including external broker reports. All committee decisions are documented and if necessary, the decision to wind down current transactions with the counterparty is ultimately taken.

 

This risk is minimised by the fact that Société Générale has a proven track record and a leading market reputation in derivatives trading. It is well qualified to provide the necessary risk management techniques required for pricing and hedging these types of complex derivatives.

 

As of 31 December 2013, the credit rating of Société Générale from Standard & Poor's was A (A as of 31 December 2012) and the spread of the CDS 5 years was 92.18 bp (162.85 bp as of 31 December 2012).

There was no credit event during the period.

 

The Underlying Fund's sub-manager monitors counterparty credit risk by setting various limits such as limits on the gross assets with a single hedge fund manager at the Underlying Fund asset level. The Underlying Fund generally adheres to the general principle of diversification in relation to hedge funds managers and underlying strategies.

 

In accordance with the Company's policy, the Sub-Manager monitors the Company's credit position on a weekly basis and the Board of Directors review it on a quarterly basis.

 

(d)  Liquidity Risk

The Company's assets comprise mainly a portfolio of diversified stocks, which can be readily sold. The main liability of the Company is constituted by net assets attributable to holders of participating shares which have a maturity in 2016 corresponding to the proposed life of the Company.

 

Other financial liabilities all mature within one year, except the equity linked swap contract which matures in June 2016 and which may be terminated under an early termination clause.

 

The tables below summarise the Company's exposure to liquidity risks:

 

At 31 December 2013	0 - 3 months		3 months - 1 year	1 - 5 years	More than 5 years	No stated maturity	Total
Liabilities:
Accrued expenses	26,838.48	-		-	-	-	26,838.48
Other payables	-	-		-	-	-	-
Participating shares	-	-		81,412,508.34	-	-	81,412,508.34
Total liabilities	26,838.48	-		81,412,508.34	-	-	81,439,346.82

 

At 31 December 2012	0 - 3 months		3 months - 1 year	1 - 5 years	More than 5 years	No stated maturity	Total
Liabilities:
Accrued expenses	25,507.13	-		-	-	-	25,507.13
Other payables	-	-		-	-	-	-
Participating shares	-	-		75,907,508.22	-	-	75,907,508.22
Total liabilities	25,507.13	-		75,907,508.22	-	-	75,933,015.35

 

In addition, liquidity risk in the Underlying Fund is managed by the Sub-Manager by monitoring the following risk indicators:

 

i)      WAL (weighted average liquidity): as a general measure of the liquidity of the Underlying Fund which shows the ability of the Underlying Fund to exit all its underlying funds in a number of days. Its calculation is defined as per the formula below:

 

 

 

Where n is the total number of underlying funds

 

WAL Lockup Cash is the WAL readjusted by the leverage (with transparency) of the Underlying Fund, it is calculated as the below formulas:

 

 

 

 

As at 31 December 2013, the mean WAL Lock Up Cash measure was 16.58 days (12.22 days at end of December 2012).

 

ii)     The percentage of net assets in underlying funds according to the Underlying Fund's liquidity parameters (weekly liquidity/ monthly liquidity or worse).

 

As at 31 December 2013, the percentage holding in underlying funds with monthly liquidity or worse was 20.84% (24.89% at end of December 2012).

 

As at 31 December 2013, the percentage holding in underlying funds with weekly liquidity was 79.16% (72.71% at end of December 2012).

 

(e)  Foreign Currency Risk

Certain of the Company's net assets may be denominated in currencies other than GBP with the impact being that the Company's balance sheet and profit and loss account can be significantly affected by movements in currency exchange rates.

 

The following table sets out the Company's total exposure to foreign currency risk:

 

At 31 December 2013

Currency	Amounts (GBP)	% of net assets
EUR	73,599,561.63	90.40%
GBP	7,812,946.71	9.60%
TOTAL	81,412,508.34	100.00%

 

At 31 December 2012

Currency	Amounts (GBP)	% of net assets
EUR	68,806,622.09	90.65%
GBP	7,100,886.13	9.35%
TOTAL	75,907,508.22	100.00%

 

 

 

 

 

(f)   Fair value measurement risk

The following table is a summary of the inputs used in valuing the Company's investments carried at fair value as discussed in note 2 (b):

 

At 31 December 2013

				Level 1 GBP	Level 2 GBP	Level 3 GBP	Total GBP
Financial assets at fair value through P&L
Investments				73,599,555.42	-	-	73,599,555.42
Other derivative instruments				-	7,839,783.05	-	7,839,783.05
TOTAL				73,599,555.42	7,839,783.05	-	81,439,338.47
Financial liabilities at fair value through P&L				-	-	-	-
TOTAL				-	-	-	-

 

At 31 December 2012

				Level 1 GBP	Level 2 GBP	Level 3 GBP	Total GBP
Financial assets at fair value through P&L
Investments				68,806,616.01	-	-	68,806,616.01
Other derivative instruments				-	7,126,391.15	-	7,126,391.15
TOTAL				68,806,616.01	7,126,391.15	-	75,933,007.16
Financial liabilities at fair value through P&L				-	-	-	-
TOTAL				-	-	-	-

 

There were no transfers between levels for the years ended 31 December 2013 and 31 December 2012.

 

During the periods ended 31 December 2013 and 31 December 2012, the Company did not invest in instruments classified under level 3; the analysis of movement in level 3 instruments is therefore not applicable.

 

(g)  Other Risk Factors

Investors should be aware that an investment in participating shares involves complex and special risks that might lead to the loss of all or a substantial portion of their investments.

 

These risks may relate mainly to the nature of the Company and to the Underlying Fund.

 

Risk inherent to the nature of the Company

The performance depends on the ability and services of the Manager and Sub-Manager, if one of these related parties ceases to provide its services to the Company, there is no assurance that the Company will be able to find and recruit a replacement Manager or Sub-Manager of similar experience and credibility.

Tax risks such as any change in the interpretation or application of tax legislation or any change in the Company's tax status or in taxation legislation in Jersey, the UK, or any other tax jurisdiction could affect either an investor in regard of its post tax returns, or a counterparty to the derivative contract in regard to the value of the derivative that could also have consequences on the ability of the Company to achieve its investment objective.

 

Changes in applicable law like requirements imposed by collective investments schemes laws, securities laws, tax laws and pension laws in various jurisdictions, could lead to the Sub-Manager not being able to implement the investment policy with the result that the performance of the participating shares may be affected.

 

The Underlying Fund will also face the same risk relating to changes in applicable law over its life.

 

Risk relating to the Underlying Fund

Risks can also be viewed in transparency through the investment in the Underlying Fund. Investments in the Underlying Fund may involve a number of significant risk factors directly or indirectly due to the fact that the Underlying Fund invests in other investment schemes. Some investment schemes may invest in financial instruments and securities that may not be actively traded and there may be uncertainties involved in the valuation of such investments. Some investment schemes may use derivative instruments, which can be used to leverage the investment schemes' trading and the use of derivative instruments, while providing the opportunity for a higher return in investment, also increases the volatility of such investments and the risk of loss for investors.

 

The Underlying Fund is also facing the same risks, such as market price, counterparty risk, currency risk as the Company.

 

All of these risks do not constitute an exhaustive list of risk factors and investors should refer to the relevant prospectus for more details.

 

10.  Reporting Date

The financial statements are based on information produced at 31 December 2013, as this was the last dealing day of the Company in the financial year.

 

11.  Ultimate Controlling Party

By virtue of the Manager's holding of Founders Shares, which empowers the Manager to control the composition of the Board of Directors of the Company, the Company is a subsidiary of the Manager. The Manager is deemed to be the immediate controlling party of the Company.

 

The Manager is a wholly owned subsidiary of Société Générale. As a result the Directors consider Société Générale to be the ultimate controlling party of the Company;

 

12.  Post Balance Sheet Events

There were no material post balance sheet events.

 

13. Collateral

Certain amounts of cash are held with brokers as collateral on over-the-counter and traded derivative instruments. Such collateral is included in cash and cash equivalents on the balance sheet.

 

There is no cash held as collateral as at 31 December 2013 (2012: Nil).

 

14.          Commitments

There are no commitments as at 31 December 2013 (2012: Nil).

 

15.          Reconciliation of operating profit to net cash flow from operating activities

 

		31 December 2013	31 December 2012
Increase/(decrease) in net assets from operations attributable to holders of participating shares		5,505,000.12	3,592,506.14
Realised gain/(loss) on financial assets and liabilities at fair value through profit and loss		(6,047,489.39)	7,337,995.55
Unrealised gain/(loss) on financial assets and liabilities at fair value through profit and loss Movement in payables Purchase of financial assets Proceeds from sale of financial assets (including realised gains) Net (payments) / proceeds from derivative financial instruments Net cash inflow/(outflow) from operating activities		385,426.76 1,331.35 (253,984,345.20)   263,645,656.40   (9,505,579.88) 0.16	(11,080,250.44) 319.11 (358,479,042.90)   366,216,500.80   (7,588,022.16) 6.10

Details of the Portfolio

 

16.  Details of the Investments

 

Details of the portfolio by sector and by geographical area of the issuer are presented in the two tables below (in GBP):

 

As of 31 December 2013

 

1/ By Sector

 

Sector	Type of Security	Market Value	% of net assets
Aerospace	Equity	313,138.80	0.38%
Apparel Retailers	Equity	3,054,146.73	3.75%
Automobiles	Equity	8,083,196.36	9.93%
Banks	Equity	9,609,774.69	11.80%
Brewers	Equity	2,544,711.53	3.13%
Conventional Electricity	Equity	231,225.97	0.28%
Diversified Industrials	Equity	6,925,124.74	8.51%
Fixed Line Telecommunications	Equity	3,618,268.71	4.44%
Food Products	Equity	546,121.35	0.67%
Full Line Insurance	Equity	3,314,411.57	4.07%
Heavy Construction	Equity	7,862,675.59	9.66%
Integrated Oil and Gas	Equity	2,552,376.48	3.14%
Life Insurance	Equity	4,995,738.16	6.14%
Medical Equipment	Equity	3,167,786.51	3.89%
Multi-utilities	Equity	1,158,894.94	1.42%
Pharmaceuticals	Equity	3,843,676.22	4.72%
Reinsurance	Equity	725,531.68	0.89%
Semiconductors	Equity	1,361,285.30	1.67%
Software	Equity	3,069,182.70	3.77%
Specialty Chemicals	Equity	4,662,169.90	5.73%
Transportation Services	Equity	1,960,117.49	2.41%
TOTAL		73,599,555.42	90.40%

 

  

 

2/ By Geographical area of the issuer

 

Geographical area of the issuer	Type of Security	Market Value	% of net assets
Belgium	Equity	2,544,711.53	3.12%
Germany	Equity	36,884,667.20	45.30%
Netherlands	Equity	11,125,803.15	13.67%
Spain	Equity	20,491,997.06	25.17%
United Kingdom	Equity	2,552,376.48	3.14%
TOTAL		73,599,555.42	90.40%

 

As of 31 December 2012

 

1/ By Sector

 

Sector	Type of Security	Market Value	% of net assets
Automobiles	Equity	8,438,935.79	11.12%
Banks	Equity	9,240,560.25	12.17%
Brewers	Equity	2,391,574.50	3.15%
Conventional Electricity	Equity	1,403,497.77	1.85%
Diversified Industrials	Equity	6,049,582.82	7.97%
Fixed Line Telecommunications	Equity	3,611,780.85	4.76%
Food Products	Equity	1,333,329.58	1.76%
Food Retailers and Wholesalers	Equity	2,150,650.99	2.83%
Full Line Insurance	Equity	4,480,878.99	5.90%
Integrated Oil and Gas	Equity	234,232.66	0.31%
Life Insurance	Equity	3,284,874.11	4.33%
Mobile Telecommunications	Equity	3,106,766.88	4.09%
Multi-utilities	Equity	3,317,624.92	4.37%
Oil Equipment and Services	Equity	685,381.92	0.90%
Reinsurance	Equity	3,057,985.46	4.03%
Soft Drinks	Equity	640,657.99	0.84%
Software	Equity	2,538,267.78	3.34%
Specialty Chemicals	Equity	12,840,032.75	16.92%
TOTAL		68,806,616.01	90.64%

 

  

2/ By Geographical area of the issuer

 

Geographical area of the issuer	Type of Security	Market Value	% of net assets
Belgium	Equity	2,391,574.50	3.15%
Germany	Equity	47,625,835.24	62.74%
Italy	Equity	6,493,161.75	8.55%
Netherlands	Equity	4,401,520.01	5.80%
Spain	Equity	7,894,524.51	10.40%
TOTAL		68,806,616.01	90.64%

 

17.  Details of Other derivative instruments

 

As of 31 December 2013

 

Details of other derivative instruments are provided in the table below (in GBP):

 

Type of instruments	Nominal Amount	Maturity	Market Value	% of net assets
Equity Linked Swap	75,000,000.00	07/06/2016	7,839,783.05	9.63%

 

As of 31 December 2012

 

Details of other derivative instruments are provided in the table below (in GBP):

 

Type of instruments	Nominal Amount	Maturity	Market Value	% of net assets
Equity Linked Swap	75,000,000.00	07/06/2016	7,126,391.15	9.39%

 

  

 

      

This announcement has been issued through the Companies Announcement Service of

the Irish Stock Exchange.