TIDMCQS
RNS Number : 9650Z
CQS Diversified Fund Limited
17 December 2014
CQS DIVERSIFIED FUND LIMITED
Annual Report and Audited Financial Statements and Notice of
AGM
CQS Diversified Fund Limited (the "Company"), a closed-ended
investment company incorporated in Guernsey with registration
number 52551, is pleased to announce that, in accordance with DTR
6.3.5, the Annual Report and Audited Financial Statements for the
year ended 30 September 2014, along with the Notice of AGM, are now
available.
The Annual Report and Audited Financial Statements are available
via the Company's website at www.cqsdiversifiedfund.comand will
shortly be submitted to the National Storage Mechanism and will
also shortly be available for inspection at
www.hemscott.com/nsm.do.
Enquiries:
Secretary
Citco Fund Services (Guernsey) Limited
Douglas Mackay
Telephone (01481) 706796
Date: 17 December 2014
Annual Report and Audited Financial Statements
For the year ended 30 September 2014
Financial Highlights For the YEAR ENDED 30 September 2014
-- Net Asset Value at 30 September 2014 was GBP74.1m, a decrease
from GBP90.6m at 30 September 2013. GBP18.4m reduction is due to
the closure and delisting of the USD Class following the failure of
the USD continuation vote.
-- Net Asset Value per share rose from GBP1.1114 to GBP1.1350
for the GBP Shares. The USD Shares Net Asset Value per share rose
from USD1.1063 to USD1.1361 for the period from 1 October 2013 to
the class redemption on 1 September 2014.
-- Net Asset Value growth per share of 2.12% and 2.69% for the
GBP and USD Shares (prior to class closure) respectively.
-- Share discount to Net Asset Value at 30 September 2014 was
4.19% for the GBP Shares (2013: 9.35%).
-- Earnings per share for the GBP Shares for the year was
GBP0.0344 (2013: GBP0.0703). Earnings per share for the USD Shares
for the period to class closure was USD0.0089 (2013:
USD0.0667).
-- Two quarterly dividends of one pence per share were approved
during the current financial year with the second paying on 29
October 2014. A further dividend of one pence per share was
announced on 16 December 2014 to be paid on 30 January 2015.
-- The Company's advisers have been exploring opportunities to
grow the Company through new share issuance in order to meet the
Minimum AUM by 31 January 2015. Up to the date of signing of the
financial statements there has been no new share issuance and as
such the Board has concluded that it is appropriate to prepare the
financial statements on a break up basis.
directory
Registered Office Directors
Arnold House Rupert Dorey (Chairman)
PO Box 273 Stephen East
St Julian's Avenue Sarah Evans
St. Peters Port John de Garis
Guernsey GY1 3RD
All the directors are independent
non-executive directors.
Administrator and Secretary
Citco Fund Services (Guernsey) Financial Adviser and Broker
Limited Jefferies Hoare Govett
1(st) Floor Vintners Place
Tudor House 68 Upper Thames Street
Le Bordage London EC4V 3BJ
St Peter Port England
Guernsey GY1 1DB
Solicitors Registrar and Transfer Agent
As to English law: Capita Registrars (Guernsey) Limited
Herbert Smith LLP PO Box 627
Exchange House Longue Hougue House
Primrose Street St Sampson
London EC2A 2HS Guernsey GY2 4JN
England
Advocates Independent Auditors
As to Guernsey law: Ernst & Young LLP
Ogier PO Box 9
Ogier House Royal Chambers
St Julian's Avenue St Julian's Avenue
St Peter Port St Peter Port
Guernsey GY1 1WA Guernsey GY1 4AF
Principal Bankers Investment Manager
The Royal Bank of Scotland International to CQS Diversified Fund (SPC) Limited
Limited Segregated Portfolio Alpha ("DVA")
Royal Bank Place CQS Cayman Limited Partnership
1 Glategny Esplanade PO Box 242
St Peter Port 45 Market Street
Guernsey GY1 4BQ Gardenia Court, Camana Bay
Grand Cayman, KY1-1104
Cayman Islands
Investment Adviser
to CQS Diversified Fund (SPC) Limited
- Segregated Portfolio Alpha ("DVA")
CQS (UK) LLP
5(th) Floor
33 Grosvenor Place
London, SW1X 7HY
England
For the latest information, please visit:
www.cqsdiversifiedfund.com
Chairman's Statement
For the year ended 30 September 2014
I am pleased to welcome shareholders to the fourth annual report
of CQS Diversified Fund Limited (the "Company").
During the financial year under review, substantially all of the
Company's assets were held in CQS Diversified Fund (SPC) Limited -
Segregated Portfolio Alpha I ("DVA") providing shareholders access
to a portfolio of CQS-managed Underlying Funds.
As at the end of the period, the Underlying Funds comprise: CQS
ABS Fund; CQS Asia Fund; CQS Credit Long Short Fund; CQS Global
Convertible Arbitrage Fund; CQS Directional Opportunities Fund; and
CQS European Equity Long Short Fund. There have been some material
changes to the allocation of investment to the Underlying Funds.
Refer to page 9 for an allocation comparison.
The Company allows shareholders access to the investment
management skills of CQS without the need of a high minimum
monetary investment, as would be required by a direct investment in
DVA, coupled with the ability to trade shares daily on the London
Stock Exchange.
As announced in May 2014, the Continuation Resolution put to the
Shareholders by the Board on 4 March 2014 for the GBP class was
approved but the USD Share class resolution was not passed and the
USD class was closed on 18 September 2014.
In February 2014 the Board announced that in the event that that
it was unable to grow the Company's NAV to GBP100m by 31 January
2015 (the "Minimum AUM"), the Directors intend to put forward
proposals to enable the Shareholders to realise their holdings at,
or close to, NAV by means of a reconstruction or winding-up of the
Company.
Investment Performance
In the period from 1 October 2013 to 30 September 2014, the GBP
Share NAV rose from GBP1.1114 to GBP1.1350, a return of 2.12% for
the period. The USD Share NAV rose from USD1.1063 to USD1.1361 for
the period from 1 October 2013 to the class redemption on 1
September 2014.
The price of a GBP Share increased from GBP1.0075 to GBP1.0875
during the period, an appreciation of 7.94% with the discount to
NAV being 4.19% as at 30 September 2014 compared to 9.35% a year
earlier.
Further details in relation to the performance of DVA and the
Underlying Funds are set out in the Investment Adviser report on
DVA included in the Strategic Report.
Dividend
As announced in the Shareholders Circular dated 12 February
2014, the Directors are targeting paying a quarterly dividend of
one pence per GBP share. The first two such quarterly dividends
were paid on 30 July 2014 and 29 October 2014 respectively.
Outlook
The Investment Adviser to DVA has informed the Board that it
believes the strategies utilised leave the Company well positioned
to capture opportunities from credit and equity markets volatility,
and from a greater dispersion in credit derivatives. The key
portfolio themes; capturing positive carry with low duration;
exploiting credit and equity market volatility and dispersion: and
taking advantage of idiosyncratic opportunities could continue to
deliver positive returns to Shareholders.
Market conditions however have depressed NAV returns to
Shareholders over recent months and against this background it has
proved difficult to grow the Company through new share issuance. In
light of the undertaking to grow AUM to GBP100m by 31 January 2015,
or put forward proposals to enable the shareholders to realise
their holdings, your Board has concluded that it is appropriate to
prepare the financial statements on a break up basis. In practice
this has a minimal effect as the Company's financial assets or
investments have been previously valued on a fair value basis.
The liquidation costs have however been recognised in the
Statement of Financial Position and Statement of Comprehensive
Income. GBP514,000 of these liquidation costs, termed Share class
closure fees in the Statement of Comprehensive Income, relate to
costs which were incurred by the Investment Adviser to DVA upon set
up of the Company. These were due to be amortised by the Investment
Manager to DVA over a seven year period. As the Company is expected
to liquidate in 2015, only 5 years from launch, there remains a
balance payable to the Investment Adviser to DVA. A further
GBP50,000 of liquidation fees have been accrued for legal and
professional fees estimated to be incurred on liquidation of the
Company.
As I indicated in the circular in February 2014, I will write to
Shareholders shortly after 31 January 2015 to outline the next
steps for the Company.
I would like to express the Board's thanks to all shareholders
for their continued support.
Rupert Dorey
Date: 16 December 2014
Strategic Report
For the year ended 30 September 2014
Introduction
This Strategic Report is presented by the Company under updated
guidelines for UK-listed companies' Annual Reports in accordance
with the Companies Act 2006, and is designed to provide information
primarily about the Company's business and results for the year
ended 30 September 2014. It should be read in conjunction with the
Chairman's statement on page 4 and the Report of the Directors on
page 12, which give further information on the activities of the
Company for the year and on the corporate governance under which
the Company operates.
Investment Policy
The investment objective of CQS Diversified Fund Limited is to
achieve attractive risk-adjusted returns over the medium to long
term by primarily investing in convertible and credit-related
strategies. The Company will seek to achieve its investment
objective by investing substantially all of its assets in CQS
Diversified Fund (SPC) Limited - Segregated Portfolio Alpha
("DVA").
DVA is a fund incorporated in the Cayman Islands with an
investment objective to generate attractive risk adjusted returns
over the medium to long term. DVA seeks to mitigate the risks and
volatility associated with investing in individual strategies by
constructing a portfolio of underlying funds across a range of
strategies (the "DVA Investment Policy"). Investors in the Company
participate indirectly in the investment portfolio of DVA.
DVA is currently invested in CQS ABS Feeder Fund Limited ("CQS
ABS Fund"), CQS Asia Feeder Fund Limited ("CQS Asia Fund"), CQS
Directional Opportunities Feeder Fund Limited ("CQS Directional
Opportunities Fund"), CQS Credit Long Short Feeder Fund Limited
("CQS Credit Long Short Fund"), CQS European Equity Long Short
Feeder Fund Limited ("CQS European Long Short Fund") and CQS Global
Convertible Arbitrage Feeder Fund Limited ("CQS Global Convertible
Arbitrage Fund") (the "Underlying Funds"), all of which are managed
by CQS Cayman Limited Partnership and primarily invest in
convertible and credit related strategies. The portfolio of
Underlying Funds may in the future exclude any or all of the above
funds and/or include any other investment fund in which DVA may
invest from time to time, whether or not managed by the CQS
group.
The Underlying Funds may employ a variety of investment
strategies and methodologies including, but not limited to:
convertible strategies; fixed income and relative value arbitrage;
credit strategies; specialist credit strategies including asset
backed securities, structured credit and distressed; long/short,
market neutral and quantitative equity strategies; event driven
strategies; risk arbitrage; emerging markets; market neutral;
multi-strategy; macro; and managed futures. Such strategies may be
implemented across local, regional and/or global markets. DVA may
invest in newly or recently launched Underlying Funds as an early
investor.
DVA's investments may be in regulated and unregulated investment
companies, open-ended or closed ended funds, investment trusts and
limited partnerships, which may be domiciled in any country. The
Underlying Funds and the securities in which they invest may be
listed or unlisted, leveraged or unleveraged, rated or unrated and
denominated in any currency. CQS (UK) LLP, the Investment Adviser
to DVA, currently intends to limit DVA's maximum exposure to any
Underlying Fund, at the time of investment, to 40 per cent of DVA's
NAV.
It is intended by CQS (UK) LLP that cash and cash equivalents
held by DVA for the purpose of payment of the fees and expenses of
DVA and/or for the purpose of facilitating any rebalancing of
investments in the Underlying Funds will equal no more than ten per
cent of DVA's total assets. DVA may, from time to time, hold
additional cash and cash equivalents where DVA considers this
appropriate to manage its liquidity.
DVA is able to reallocate between the Underlying Funds on a
periodic basis which enables CQS (UK) LLP to manage the risk of DVA
itself and exploit investment opportunities. In determining the
desired portfolio of investments from time to time, CQS (UK) LLP
considers factors in relation to each Underlying Fund including,
but not limited to: historic and expected returns, risk-adjusted
returns and return volatilities; expected alpha; liquidity terms;
correlations between strategies and returns for comparative
strategies. Potential risks and returns are qualitative inputs from
the senior investment officer, chief investment officers and senior
portfolio managers of each of the Underlying Funds captured through
a monthly Investment Advisory Committee. Probability adjusted
returns of the Underlying Funds are analysed to estimate and assess
prospective total return. CQS (UK) LLP uses the above inputs
combined with portfolio risk management models and its judgement,
to manage the portfolio allocation decisions for DVA towards
achieving its investment objectives.
Save for the maximum exposures set out above, the investment
policy of DVA does not contain any other constraints on its
exposures to the Underlying Funds.
Results and Dividends
The results for the year ended 30 September 2014 are shown in
the Statement of Comprehensive Income on page 28 and the Statement
of Financial Position at that date is set out on page 27.
In accordance with the Company's dividend policy as announced in
the Shareholders Circular dated 12 February 2014, the Directors are
targeting paying a quarterly dividend of one pence per GBP Ordinary
share. Two quarterly dividends of one pence per share have been
approved during the current financial year with the second paid on
29 October 2014. A further dividend of one pence per share was
announced on XX November 2014 to be paid on XX January 2015.
Share Capital
At various dates from 1 October 2013 to 30 September 2014
shareholders converted 12,048,613 GBP Ordinary Shares into
20,027,037 USD Ordinary Shares, and converted 50,000 USD Ordinary
Shares into 29,635 GBP Ordinary Shares.
As noted in the Chairman's Statement the Continuation Resolution
put to the Shareholders by the Board on 4 March 2014 for the GBP
class was approved but the USD Share class resolution was not
passed and the USD class was closed on 18 September 2014.
Going Concern
On 12 February 2014 the Company issued a circular to investors
stating that in the event that the Company is unable to reach the
Minimum AUM, the Directors intended to put forward proposals to
enable the Shareholders to realise their holdings at, or close to,
NAV by means of a reconstruction or winding-up of the Company.
The Board has explored a number of avenues to raise additional
funds but have concluded that it is extremely unlikely that the AUM
will reach GBP100m by 31 January 2015 and accordingly have
concluded it is appropriate to prepare the financial statements on
a break up basis.
The Company's financial position, its cash flows and liquidity
position are set out in the financial statements. The Board have
assessed these and are satisfied that even though the Company is no
longer considered to be a going concern, there are no material
adjustments required to the valuations of the Company's investments
since the net realisable value ("NRV") under a break up basis is
equivalent to fair value. The liquidation costs have however been
accounted for in the Statement of Financial Position and Statement
of Comprehensive Income, the main component of those is the Share
Class closure fees.
Performance Measurement and Key Performance Indicators
The Board uses a number of performance measures to assess the
Company's success in meeting its objectives. The key performance
indicators are as follows:
Total Return
The Board reviews the Company's Net Asset Value ("NAV") total
return and Share Price total return on a quarterly basis.
Discount/premium to NAV
At each Board meeting, the Board monitors the level of the
Company's discount/premium to NAV. The Company publishes a NAV per
share figure on a monthly basis through the official newswire of
the London Stock Exchange.
Risk Assessment
The board has assessed the risks faced by the Company with the
most significant risk being the performance of DVA, given the
investment in DVA makes up 99.34% of the Company's NAV. The Board
manages this risk by:
-- Receiving quarterly reporting on quarterly performance from the Investment Adviser to DVA,
-- Receiving reports on the risks managed by DVA,
-- Visiting the offices of the Investment Adviser to DVA to
understand their risk processes, and
-- The creation of a risk committee which meets quarterly.
The share discount to net asset value is also a risk faced by
the Company. The Board has endeavoured to manage this through the
creation of performance and the introduction of a quarterly
Dividend for the remaining GBP Shareholders.
Investment Adviser Report on CQS Diversified Fund (SPC) Limited
- Segregated Portfolio Alpha
CQS Diversified Fund Limited (the "Company") has invested
substantially all of its assets into CQS Diversified Fund (SPC)
Limited - Segregated Portfolio Alpha ("DVA"). The remainder of this
report covers the period from October 1, 2013 to September 30, 2014
and has been provided by the Investment Adviser at the invitation
of the Directors of the Company. This has been provided as a source
of information for shareholders of the Company, and is not
attributable to the Company.
Investment Adviser Report on DVA
DVA returned (0.17%) to the Class B GBP Shares, net to
investors, for the twelve months from 1 October 2013 to 30
September 2014.
DVA is a portfolio of CQS-managed funds and seeks to generate
long-term capital gains while managing the volatility of its
returns through diversified investments. It implements a rigorous
asset allocation process through a dynamically-managed portfolio of
funds with a portfolio construction process based on both
qualitative and quantitative techniques. DVA benefits from CQS'
risk management and operational infrastructure platforms.
In order to achieve its investment objective, DVA continued to
seek to balance risk against reward through the management of
allocations to CQS-managed hedge funds over the twelve months to 30
September 2014. Allocations to the Underlying Funds on a look
through basis were as follows:
30 September 30 September
Fund 2014 (%) 2013 (%)
CQS ABS Fund 32.1 22.1
CQS Global Convertible Arbitrage Fund 26.3 0.0
CQS Directional Opportunities Fund 22.5 25.1
CQS Credit Long Short Fund 8.0 17.0
CQS European Equity Long Short Fund 5.5 1.8
CQS Asia Fund 4.9 8.2
CQS Convertible and Quantitative Strategies
Fund 0.0 25.3
CQS European Distressed Fund 0.0 0.4
Other non financial assets 0.7 0.1
The benefits of DVA's portfolio diversification and
multi-strategy approach continued to be demonstrated in the twelve
months ended 30 September 2014. DVA generated positive returns
along with muted volatility and low correlation to risk assets.
In July 2014, the CQS Convertible and Quantitative Strategies
Fund underwent a corporate action which resulted in investors
exchanging their shares in the CQS Convertible and Quantitative
Strategies Fund into a newly formed fund, CQS Global Convertible
Arbitrage Feeder Fund Limited. The corporate action was intended to
separate a certain minority of non-core legacy positions from the
bulk of the core positions that were held by the CQS Convertible
and Quantitative Strategies Fund. This corporate action resulted in
a number of liquidity enhancements for investors, as well as a more
actively traded, concentrated fund focussed solely on global
convertible arbitrage. The CQS European Distressed Fund closed in
mid-October 2013 following a full redemption. We are pleased to
report that CQS European Distressed Fund produced positive returns
from the date of DVA's investment.
There were overall gains recorded during the period as the CQS
Directional Opportunities Fund, the CQS ABS Fund and the CQS Equity
Long Short Fund were profitable. These profits offset the modest
losses that were incurred by the CQS Credit Long Short Fund, the
CQS Convertible and Quantitative Strategies Fund, CQS Global
Convertible Arbitrage Fund and the CQS Asia Fund.
At an underlying strategy level, Structured Credit (excluding
any ABS strategy) was the strongest performer over the period for
DVA. Some losses were incurred during the first half of the period
as credit spread widening and a decrease in correlation led to
mark-to-market losses, however, the CQS Directional Opportunities
Fund took advantage of the wider spreads and greater premiums
available by adding several short-protection (long-credit)
positions, including two year first-to-default baskets and
three/four year equity and mezzanine tranche transactions. An
environment of credit spread tightening in the second half of the
period helped these long-corporate credit positions benefit from
roll-down, mark-to-market profits, and an increase in
correlations.
ABS Bond strategies positively contributed to DVA returns over
the period, with the majority of gains emanating from US
residential mortgage backed securities ("RMBS"). ABS strategy
returns included profits from Wrapped, Subprime, Second Liens,
Pay-Option-Arms and Alt-A strategies. European ABS also performed
well over the period with constructive fundamentals and supportive
technicals pushing prices higher across most asset classes. The
European Central Bank's supportive tone over the second part of
DVA's fiscal year with regards to its announced asset purchase
programme drove the secondary market tighter, most notably in
peripheral RMBS bonds including Spain where the CQS ABS Fund had
positioned itself earlier in the year. Towards the end of the
period, the CQS ABS Fund's exposure to the subprime mezzanine
strategy as well as the European RMBS and collateralised loan
obligation sectors were added to, while the allocation to European
commercial mortgage backed securities ("CMBS") was reduced.
Convertible Bond strategies posted gains for DVA over the
period. The beginning of the period saw gains led by the North
America portfolio as the announcement of asset purchase tapering by
the US Federal Reserve ignited a significant pick-up in trading
activity, lending support to secondary valuations. Gains were
driven by the CQS Global Convertible Arbitrage Fund, which were
marginally offset by convertible strategies within the CQS Asia
Fund and CQS Directional Opportunities Fund. The period ended with
a rebound in new issuance which, combined with asset outflows from
long-only convertible bond players and equity market volatility,
led to weakness among convertible bonds.
Equity strategies overall generated gains for DVA for the
period, with the CQS Directional Opportunities Fund's equity
sub-strategies contributing the most. Within these sub-strategies,
class-of-share arbitrage produced profits from mean reversion
across a range of equity-linked pairs, as well as benefitting from
positions in higher yielding stocks and event trading strategies,
particularly at the beginning of the period. The CQS European
Equity Long Short Fund generated gains over the period with
positive returns from both the long and short portfolios. Notable
positive contributions came from long positions in the oil &
gas, food & beverage and insurance sectors while rigs and food
producers were profitable on the short side. Towards the latter
part of DVA's financial year, peripheral and mid-cap names
underperformed. The CQS European Equity Long Short Fund's exposure
within these sectors was subsequently decreased and the overall
liquidity of the CQS European Equity Long Short Fund was
increased.
Vanilla Credit strategies were the main detractor from overall
DVA performance over the period. Within the CQS Directional
Opportunities Fund, the strategy had been positioned as a
short-credit portfolio of liquid CDS and index positions which
suffered mark-to-market losses as a result of general spread
tightening. Many of the losses were concentrated in Europe where
CQS Directional Opportunities Fund's positions are focussed. As a
result of its predominantly short positioning, the CQS Credit Long
Short Fund incurred losses over the period given the credit spread
tightening across North America and Europe. The majority of losses
were attributable to DVA's positioning in Europe, which accounted
for approximately three quarters of gross losses, with the
remainder from DVA's North American exposure. With concerns over
the growth prospects in Europe and the potential impact that the
tapering of US Federal Reserve's quantitative easing programme
("QE") and the possibility of interest rate hikes in the US might
have on emerging markets, the CQS Credit Long Short Fund maintained
short positions in peripheral European corporates, French
corporates and emerging market-related companies. Other investment
themes over the period included short financials and retailers with
exposure to Russia, a thesis designed to benefit from the ongoing
escalation of tensions, and core positions in the metals &
mining sector as the Chinese slowdown and deteriorating commodity
prices. At certain points during the period under review and where
there was heightened credit volatility in the markets these
positions contributed to returns. The longer term tightening of
credit spreads and significant inflows into the asset class led to
losses from overall short positioning.
The CQS Asia Fund incurred losses over the period as gains in
the event and credit portfolios were offset by macro and fixed
income portfolios. The special situations strategy also posted
marginal positive returns over the period. Many positions suffered
as reduced opportunity sets resulted from an increased correlation
of regional markets with global themes.
Macro and Distressed strategies made small positive
contributions to DVA with modest profits from the CQS Directional
Opportunities Fund.
DVA's balanced positioning has been maintained over the period
under review with a continued focus on three key portfolio themes:
long-side credit strategies to capture positive carry with overall
low duration; positioning to benefit from potential market
volatility and dispersion; and exploiting idiosyncratic
opportunities. To express these core themes there was a marked
increase in DVA's allocation to the CQS ABS Fund in the 12-month
period, designed to capture value offered by RMBS and European
CMBS, and exploit opportunistic monoline insurance strategies.
Allocations to CQS Directional Opportunities Fund has been
relatively constant in order to gain exposure to structured
corporate credit and the allocation to CQS Global Convertible
Arbitrage Fund, taking on the allocation exchanged from CQS
Convertible and Quantitative Strategies Fund has provided a
constant exposure to convertible strategies that may gain from
equity market volatility and event driven situations. There was
also an increase in DVA's allocation to the CQS European Equity
Long Short Fund to capture the equity dispersion in Europe. The CQS
Credit Long Short Fund weighting has been reduced and the CQS
Credit Long Short Fund itself is now increasingly being managed
versus overall DVA positioning. We remain constructive on the
overall opportunity set, which could be refreshed for a number of
our strategies by credit spread widening and valuation-cheapening
in selected areas.
All market data sourced from Bloomberg. CQS-managed fund
allocations are based on internal estimate. Allocations have
fluctuated throughout DVA's fiscal year.
Report of the Directors
For the year ended 30 September 2014
The Directors present their financial statements of CQS
Diversified Fund Limited (the "Company") for the year ended 30
September 2014.
The Company
The Company is a closed-ended company incorporated in Guernsey
on 27 October 2010. The Company's shares were admitted to the
Official List of the UK Listing Authority with a premium listing on
15 December 2010. On the same day, trading of the GBP and USD
Ordinary Shares commenced on the London Stock Exchange. On 18
September 2014 the USD Ordinary Shares were delisted from trading
on the London Stock Exchange in line with the closure of the share
class.
Principal Activities
The principal activity of the Company is to achieve attractive
risk-adjusted returns over the medium to long term by primarily
investing in convertible and credit related strategies. The Company
seeks to achieve its investment objective by investing
substantially all of its assets in DVA. The investment strategy is
provided in the Strategic Report by the Investment Adviser of CQS
Diversified (SPC) Limited - Segregated Portfolio Alpha.
Directors
All the Directors were appointed initially on 27 October 2010
and act in an independent non-executive capacity. They are listed
on page 3 and their details are provided on page 21. The Directors'
fees are disclosed in the Directors' Remuneration Report on page
22. As at 30 September 2014 and the date of the report, the
Directors, their close relatives and related trusts, held the
following beneficial interests in the Company:
30 September 2014 30 September 2013
Rupert Dorey 300,000 shares 300,000 shares
Stephen East 50,000 shares 50,000 shares
Sarah Evans 25,000 shares 25,000 shares
John de Garis 10,000 shares 10,000 shares
Corporate Governance
On 30 September 2011 the Guernsey Financial Services Commission
("GFSC") issued a new Code of Corporate Governance ("GFSC Code")
which came into effect on 1 January 2012. Companies reporting
against the UK Corporate Governance Code 2012 (the "Code") or the
AIC Companies Code of Corporate Governance ("AIC code") are deemed
to comply with the GFSC Code.
As a member of the AIC, the Board has agreed to comply with the
AIC code. The Financial Reporting Council has confirmed compliance
with the AIC code is equivalent to compliance with the Code. The
AIC Code, as explained by the AIC Guide, addresses all the
principles set out in the Code, as well as setting out additional
principles and recommendations on issues that are of specific
relevance to the Company and will provide better information to
shareholders. The Board recognises the value of the AIC Code and
has taken appropriate measures to ensure that the Company complies
with the AIC Code so far as is possible, given the Company's size
and nature of business.
The Company is required to comply with the UK Financial Conduct
Authority's ("FCA") Listing Rule 9.8.7 which includes a requirement
that the Company "comply or explain" against the Code. The Company
has complied with the AIC Code and therefore the Code throughout
the year under review with the exception of the following areas of
non-compliance:
-- there is no chief executive position; and
-- there is no internal audit function.
As a closed-ended investment company with a non-executive board,
the Company has no employees and therefore no requirement for a
chief executive. The Company considers that there is no need to
have an internal audit function as all the Directors are
non-executive and the Company's administration functions have been
delegated to independent third parties. The Audit Committee
evaluates the need for an internal audit function on an annual
basis.
The Company is also required to comply with the UK Financial
Conduct Authority's Disclosure and Transparency Rules, including
Rule 7.2, which requires the Company to include a corporate
governance statement in its annual financial report.
The Company is not required to register under the Alternative
Investment Fund Managers Directive ("AIFMD") with the Guernsey
Financial Services Commission as the Company is not engaged in
Marketing activities, and as such The AIFMD Rules are not
applicable to the Company. The Board has however sought to align
the Company with AIFMD where relevant and, in particular has
created a risk committee which meets quarterly. The Directors have
determined that the Company will, in the event that it engages in
marketing activities, be a self managed Alternative Investment Fund
under AIFMD.
The Board
Led by the Chairman, the Board is responsible for the corporate
governance of the Company and comprises four Directors, all of whom
are non-executive and are considered independent for the purposes
of the Listing Rules. The Directors have overall responsibility for
the Company's activities and the determination of its investment
policy and strategy. The Directors meet at least quarterly, to
direct and supervise the Company's affairs. This includes reviewing
the investment strategy, risk profile and performance of the
Company and the performance of the Company's service providers, and
to monitor compliance with the Company's objectives. The Company's
strategy for delivering its objectives and the basis on which the
Company generates or preserves value over the medium to long term
are set out in the Investment Policy, on page 6. The principal
financial risks and uncertainties of the Company are set out in
note 14 and note 2(b) of the financial statements.
The terms and conditions of appointment of the Directors are
available for inspection on request at the offices of the
Administrator.
The Company's Secretarial and Administration function has been
delegated to an independent third party, Citco Fund Services
(Guernsey) Limited. All Directors have direct access to the
Secretary and the Secretary is responsible for ensuring that Board
procedures are followed and that there is good communication within
the Board and between the below committees and the Board.
The Board has established the following committees, each with
formally delegated duties and responsibilities.
Audit Committee ("AC")
The Company's AC comprises all of the Directors. Sarah Evans
acts as chairman of the AC which meets formally at least twice a
year. The Chairman of the Board, Rupert Dorey, is an independent
Director and, in accordance with the AIC Code, is permitted to sit
on the AC. The principal duties of the AC are, amongst other things
to:
-- monitor the integrity of the financial statements of the
Company, including its annual and half-yearly reports, financial
statements, and any other formal announcement relating to its
financial performance, reviewing significant financial reporting
issues and judgements which they may contain;
-- oversee the appointment and relationship with the external auditor;
-- keep under review the scope, results and cost effectiveness
of the audit and the independence and objectivity of the
auditor;
-- review the external auditor letter of engagement and management letter;
-- analyse the key procedures adopted by the Company's service providers;
-- review the adequacy and effectiveness of the Company's internal financial controls;
-- review the administrator statements on internal control systems; and
-- consider the need for an internal audit function.
The Auditor's present their audit plan to the AC prior to
commencing their audit. The audit plan sets out the Auditor's risk
assessment, the key areas of audit emphasis and the audit process
and strategy to be followed during the audit. During the audit, the
AC meets with the Auditors and receives an audit results report
which identifies the significant risk areas (as described later on
this page), significant audit findings and a summary of any audit
differences. From the AC\'s interaction with the Auditor, the
review of the detailed audit report and feedback from all parties
involved in the audit process, including the Administrator, Company
Secretary and Investment Manager to DVA and the Underlying Funds,
the AC is able to evaluate the effectiveness of the Auditors.
During the year the AC, with input from the Investment Manager to
DVA, completed a formal review of the Auditor and concluded that it
was satisfied with the service provided by the Auditor. When
evaluating the Auditor the AC has regard to a variety of criteria
including, reasonableness and effectiveness of the audit plan,
effectiveness of communication with all parties involved in the
audit and management of the audit process. This review is
undertaken annually prior to the AC providing a recommendation to
the Board on the re-appointment or removal of the Auditor.
Ernst & Young LLP, the Company's Auditor was first appointed
on 1 November 2010 and have been re-appointed at each subsequent
Annual General Meeting. Although no formal tender process was
undertaken at the time, as Ernst & Young Ltd was, and remains,
the auditor of DVA and the Underlying Funds and although Ernst
& Young Ltd and Ernst & Young LLP are separate entities
there were, and remain, efficiencies and cost savings with the
appointment of Ernst & Young LLP as the Auditors of the
Company. The AC also consider the appointment of other audit firms
when evaluating the Auditor for the annual re-appointment. The
Auditor is required to rotate the audit partner responsible for the
Company audit every five years. The current lead audit partner has
been in place for four years.
The AC evaluates the independence of the Auditor at the planning
stage of the audit and at the conclusion of the year end audit; in
addition the Auditor has provided confirmation that it is
independent. The AC is therefore satisfied that the Auditor is
independent and objective with regards the audit of the
Company.
Where non-audit services are to be provided by the Auditors,
full consideration of the financial and other implications on the
independence of the Auditors arising from any such engagement will
be considered before proceeding. During the year under review the
Auditor provided the below non audit services:
-- agreed upon procedures with regards to the review of the
Company's interim financial statements as at 31 March 2014 and
received fees of GBP5,000;
No other non audit services were provided, during the year under
review, by the Auditor to the Company.
The AC believes that the risk of mis-valuation of the Company's
investment in DVA and the existence of the Minimum AUM and its
impact on the going concern assumption are significant issues which
it has identified and reported to the Board. As explained in the
Going Concern note on pages 7-8, the Board has concluded that it is
appropriate to prepare the financial statements on a break up
basis.
The AC has concluded that it has the right composition in terms
of expertise and has effectively undertaken its activities and
reported them to the Board during the year under review.
Risk Committee ("RC")
On 5 September 2013, in response to the requirements of the
Alternative Investment Fund Managers Directive ("AIFMD"), the Board
elected to be self-managed within the context of AIFMD and
established a Risk Committee ("RC"). The RC comprises John de
Garis, Sarah Evans, Stephen East and Rupert Dorey, who is also
chairman of the RC. The functions of the RC are, amongst other
things to:
-- develop and implement the Company's risk management framework;
-- determine the Company's risk appetite, strategy, principles
and policies, to ensure they are in line with regulatory, corporate
governance and industry best practice;
-- review the Company's risk exposures;
-- agree and approve the risk content within the Company's annual report and accounts;
-- review and discuss the scope of work of the Risk Management
function of the Investment Adviser of DVA, its plans, the issues
identified as a result of its work, how the Investment Adviser's
management is addressing these issues and the effectiveness of
systems of risk management; and
-- review the adequacy of the Investment Adviser's risk
management function's resources, and its authority and standing
within the Investment Adviser.
The RC has no significant issues which it wishes to report
following its latest meeting held on 16 December 2014.
Management and Remuneration Committee ("MRC")
The MRC comprises all of the Directors. Stephen East acts as
chairman of the MRC. The MRC meets as and when required, but not
less than once a year.
The functions of the MRC are, amongst other things to:
-- ensure that the Company's contracts of engagement with the
Administrator and other service providers are operating
satisfactorily, so as to ensure the safe and accurate management
and administration of the Company's affairs and business, and to
ensure that the terms are competitive and reasonable and to make
appropriate recommendations to the Board;
-- ensure that the Company complies, to the best of its ability
with applicable laws and regulations, and adheres to the tenet of
generally accepted codes of conduct; and
-- consider the remuneration of the Chairman and of each
Director of the Board to ensure that it is appropriate and
sufficient for the services each of them renders to the Company,
and is at a level which is considered to be in the interests of
shareholders.
The MRC carried out its latest annual review of the Company's
service providers on 2 September 2014 and concluded that all
engagements with service providers are operating effectively and
that there are no significant issues it wishes to report.
Nominations Committee ("NC")
Due to the small size of the Board and the fact that all
Directors are independent, the NC comprises all of the Directors of
the Company. John de Garis acts as chairman of the NC. The NC meets
as and when required, but not less than once a year, for the
purpose of reviewing the structure, size and composition of the
Board and identifying and putting forward candidates for the office
of Director of the Company if there are vacancies.
Prior to an appointment of a Director, the NC will evaluate the
balance of skills, knowledge, experience, and diversity on the
Board and in light of this evaluation prepare a description of the
role and capabilities required for a particular appointment. In
identifying suitable candidates the NC shall, where
appropriate:
-- use open advertising or the services of external advisers;
-- consider candidates from a wide range of backgrounds; and
-- consider candidates on merit, taking care that appointees
have enough time available to devote to the position.
The Board acknowledges the importance of diversity, including
gender, to the effective functioning of the Board and notes that
female representation on the Board has made up 25% since inception.
Taking into consideration the size and activities of the Company
and that the Board is functioning effectively, the NC believes a
25% female representation is an appropriate minimum at the present
time, although a more diverse representation will be considered for
any future appointments to the Company's Board.
The following table shows the number of formal meetings held by
the Board and committees for the year ended 30 September 2014 as
well as the number of attendances at each meeting.
Management
Quarterly Nominations and Remuneration
Board Audit Committee Committee Committee Risk Committee
Held Attended Held Attended Held Attended Held Attended Held Attended
Rupert Dorey 4 4 1 1 1 1 1 1 1 1
Stephen East 4 4 1 1 1 1 1 1 1 1
Sarah Evans 4 4 1 1 1 1 1 1 1 1
John de Garis 4 4 1 1 1 1 1 1 1 1
In addition to the formal meetings listed in the table, a number
of additional ad hoc board and committee meetings were held during
the year and several informal meeting were held with the Investment
Adviser of DVA.
The Directors maintain a record of the training they receive,
including regular training from either the Company Secretary or the
Financial Adviser and Broker as necessary and this includes updates
on the changes to the regulatory and listing requirements. New
Directors receive an induction on their appointment to the Board by
the Investment Adviser of DVA covering the activities and the key
business and financial risks of the Company - this training is
updated as appropriate.
The Board, AC, MRC and NC undertake an evaluation of their own
performance and that of individual Directors on an annual basis;
this formal self appraisal evaluation was last carried out on 2
September 2014. The Board and committees consider how they function
as a whole and also review the individual performance of their
members. Stephen East as senior independent Director takes the lead
in reviewing the performance of the Chairman. The Chairman also has
responsibility for assessing the individual Board members' training
requirements. Following the self evaluation process the Board
concluded that no changes were required to the composition of the
Board or its committees. A review of the skills and experience of
the existing Board of Directors is outlined below:
Director Skills and experience
In depth knowledge of debt capital
Rupert Dorey markets as well as broad non-executive
Chairman of the Board experience in listed and unlisted funds
Chairman of the RC in a wide variety of discrete strategies.
An experienced finance professional
with in depth knowledge of audit, financial
reporting, tax and treasury matters.
Stephen East Many years of plc board experience
Senior Independent Director in executive and non executive roles
Chairman of the MRC across a broad spread of sectors.
Wide ranging knowledge of financial
reporting and management together with
Sarah Evans substantial non-executive directorship
Chairman of the AC experience of UK listed Companies.
An accomplished institutional manager
with long-term experience in multi
asset investment and a director of
John de Garis quoted and unquoted companies in both
Chairman of the NC an executive and non-executive capacity.
The principle set out in the UK Corporate Governance Code is
that Directors should submit themselves for re-election at regular
intervals and at least every three years. By rotation one third of
the Directors are required to retire at each Annual General Meeting
of the Company but may be nominated for re-election at the same
meeting. At the previous Annual General Meeting, held on 4 March
2014, Mr Stephen East retired and was re-elected. Due to a
statutory requirement, the NC has considered and approved the
proposal for John de Garis and Sarah Evans to retire and offer
themselves for re-election at the next Annual General Meeting.
The Board is also scheduled to consider the tenure of Directors
once any director has been appointed to the Board for a continuous
period of nine years. This is currently scheduled to occur in 2019
for all Board members.
Internal Controls
The internal control systems are designed to meet the Company's
particular needs and the risks to which it is exposed. Accordingly,
the internal control systems are 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 has overall responsibility for the Company's system of
internal controls, including its financial, operational and
compliance controls, risk management, and for reviewing its
effectiveness. However, as the Company has no direct employees, the
Board has delegated the operational aspects of the Company's risk
management and internal controls to independent third parties but
has retained overall responsibility for the risk management. These
independent third parties report to the Board or one of the
committees on a quarterly basis and the Board reviews their
performance annually. The Board has assessed the systems and
procedures employed by these third parties and conclude that an
effective system of internal controls for the Company is in
place.
The AC and RC are responsible for monitoring the effectiveness
of the internal control and risk management systems related to the
financial reporting process respectively, on an ongoing basis.
Financial controls are in place to enable the Board to meet its
responsibilities regarding the integrity and accuracy of the
Company's accounting records. The Board delegates this
responsibility and the responsibility of identifying relationships
or potential transactions with related parties to the
Administrator. The Board has reviewed, and will review annually,
the Administrator's statements on internal control systems prior to
its endorsement and in particular noted:
-- the Administrator's procedures for identifying business risk
and controlling their impact on the Company;
-- the Administrator's policies for preventing or detecting fraud;
-- the Administrator's policies for ensuring that they comply
with relevant regulatory and legal requirements; and
-- the reports on the Administrator's internal control systems
as well as any other service providers.
Relations with the Shareholders
The Company's Financial Adviser and Broker maintains a regular
dialogue with the Company's major shareholders. In addition, Board
members are available to meet shareholders if required and will be
available to respond to shareholders questions at the Annual
General Meeting.
The Board monitors the trading activity on a regular basis and
maintains contact with the Company's Financial Adviser and Broker
to ascertain the views of the shareholders. Shareholders' sentiment
is also ascertained by the careful monitoring of the
discount/premium that the shares are traded in the market against
the NAV per share.
The Board confirms that the annual report and financial
statements taken as a whole, are fair, balanced and understandable
and provide the information necessary for shareholders to assess
the performance, strategy and business model of the Company.
During the year the Chairman met with several shareholders on a
one on one basis and will continue to make himself available.
The Company reports to shareholders twice a year, produces a
bi-annual interim management statement and a monthly shareholder
report which is posted to the Company's website. In addition it has
an Annual General Meeting and a notice convening this together with
a proxy voting card is sent with the Annual Report and Audited
Financial Statements. The Registrar monitors the voting of the
shareholders and proxy voting is taken into account when votes are
cast at the Annual General Meeting. Shareholders may contact the
Directors via the Company Secretary. Further information regarding
the Company can be found on its website at
www.cqsdiversifiedfund.com.
The senior independent Director of the Company is Stephen East,
who is available to shareholders who have concerns and for which
either contact through the normal channel of the Chairman has
failed to resolve or for which such contact is inappropriate.
Substantial Shareholdings
The Directors have been notified of the following substantial
interests in the Company:
30 September 2014 16 December 2014
Number of Percentage Number of Percentage
Shareholder Shares Held Shares Held
Schroders plc / Cazenove
Capital Management Limited 17,374,392 26.62% 12,937,031 19.82%
BNP Paribas Arbitrage SNC 5,495,000 8.42% 6,740,000 10.33%
Weiss Asset Management LP 7,195,000 11.02% 7,195,000 11.02%
Mulcaster Trustees Limited 19,549,050 29.95% 19,549,050 29.95%
It is the responsibility of shareholders to notify the Company
of any changes to their shareholding when it reaches 5% of shares
in issue and any other notifiable changes thereafter.
Directors' Authority to Buy Back Shares
The Company did not purchase any of its Ordinary Shares during
the year as allowed under Resolution 4 as set out in the Notice of
Annual General Meeting on 4 March 2014. The Company will seek to
renew this buy-back authority at the next Annual General Meeting
subject to a maximum buy-back of 14.99 per cent of the issued
Ordinary Shares.
Annual General Meeting
The Company's Annual General Meeting is due to be held on 5
March 2015.
Related Party Transactions
Transactions entered into by the Company with related parties
are disclosed in note 5 of the financial statements.
Auditor
Ernst & Young LLP have expressed their willingness to
continue in office as auditors.
Disclosure of Information to Auditor
Each of the persons who was a Director at the date of approval
of the financial statements confirms that:
1. so far as they are aware, there is no relevant audit
information of which the Company's auditor is unaware and
2. the Director has taken all steps that he or she ought to have
taken as a Director to make himself or herself aware of any
relevant audit information and to establish that the Company's
auditor is aware of that information.
This confirmation is given and should be interpreted in
accordance with the provision of section 249 of the Companies
(Guernsey) Law 2008.
Signed on behalf of the Board of Directors by:
_____________________ _____________________
Rupert Dorey Sarah Evans
Chairman Director
Date: 16 December 2014
Board Members
Rupert Dorey (Chairman) (aged Sarah Evans (aged 59) is a Chartered
54) has over 30 years of experience Accountant and is a director
in financial markets, specialising of several other listed investment
in credit related products, including funds, as well as the Guernsey
derivative instruments. Mr Dorey's subsidiary of a global bank.
expertise is principally in the Mrs Evans spent over six years
areas of debt distribution, origination with the Barclays Bank plc group
and trading, covering all types from 1994 to 2001. During that
of debt from investment grade time she was a treasury director
to high yield and distressed and from 1996 to 1998 she was
debt. He was at Credit Suisse Finance Director of Barclays
First Boston ("CSFB") for 17 Mercantile, where she was responsible
years from 1988 until May 2005. for all aspects of financial
He held a number of positions control and operational risk
at CSFB, including establishing management. Prior to joining
CSFB's high yield debt distribution Barclays Mrs Evans ran her own
business in Europe, fixed income consultancy business advising
credit product co-ordinator for financial institutions on all
European offices and head of aspects of securitisation. From
UK Credit and Rates Sales. For 1982 to 1988 Mrs Evans was with
the past eight years, Mr Dorey Kleinwort Benson, latterly as
has been acting as a non-executive Head of Group Finance. She is
director to a number of hedge a member of the Institute of
funds, infrastructure funds and Directors and is resident in
private equity funds. Mr Dorey Guernsey.
is a member of the Institute
of Directors and is a resident
of Guernsey. He is a former President
of the Guernsey Chamber of Commerce.
Stephen East (aged 56) was formerly John de Garis (aged 48) joined
Finance Director of Woolworths Edmond de Rothschild in September
Group plc from 2005 to 2008, 2008 as Chief Investment Officer,
prior to which he was Finance based in Guernsey. This appointment
Director of MEPC plc. He has followed a tenure at Credit Suisse
also held non-executive directorships Asset Management in London, where
at Star Energy Group plc and since 2001 he was Head of European
Regus Group plc. Earlier in his and Sterling Fixed Income, since
career, he worked at Redland 2004, as a Managing Director.
plc where he held a variety of Mr de Garis completed a Higher
positions including Group Treasurer, Diploma in Business and Finance
having joined the business from at Richmond College before starting
Binder Hamlyn where he qualified his City career at Provident
as a Chartered Accountant. Mr Mutual in 1987. He later joined
East is currently the Chairman MAP Fund Managers where he gained
of Local Shopping REIT plc and experience managing passive equity
a non-executive director of Marwyn funds, MAP was subsequently bought
Management Partners plc Genesis by Credit Suisse. Mr de Garis
Housing Association Limited and is a Director of Edmond de Rothschild
Snoozebox Holdings plc. He is Asset Management (CI) Limited,
also a member and former President a chartered member of the Chartered
of the Association of Corporate Institute of Securities and Investment
Treasurers. Mr East is the senior and is resident in Guernsey.
independent director of the Company
and is resident in the UK.
All four Directors have served as directors of the Company since
its launch on 15 December 2010.
The Company's website contains a list of other listed companies
of which the Directors are board members.
Directors' Remuneration Report
For the year ended 30 September 2014
Remuneration Policy
All the Directors are non-executive and are remunerated for
their services at such rate as the Directors determine provided
that the aggregate amount of such fees does not exceed GBP300,000
per annum (or such sum as the Company in general meeting shall from
time to time determine). The Directors are also entitled to be paid
all reasonable out of pocket expenses properly incurred by them in
attending general meetings, board or committee meetings. As
described further on page 15 the MRC considers the appropriateness
of the remuneration of the Chairman and each Director of the
Board.
The Directors may grant special remuneration to any Director
who, being so called upon, is willing to render any special or
extra services to the Company. Such special remuneration may be
paid to such Director in addition to or in substitution for his or
her ordinary remuneration as a Director and may be paid by a lump
sum or commission or by either or both of those models or
otherwise.
The Directors may from time to time appoint one or more of their
body to the office of managing director or to any other executive
office in the Company at such remuneration and upon such terms as
they determine.
No Director has a service contract with the Company, nor are any
such contracts proposed. The Directors' appointments can be
terminated in accordance with the Articles of Incorporation which
do not specify a notice period for the removal of Directors. The
Articles of Incorporation provide that the office of Director shall
be terminated by, among other things:
(i) written resignation;
(ii) unauthorised absences from board meetings for 12 months or more;
(iii) written request of the other Directors; and
(iv) a resolution passed by a majority of the shares voted
Directors' Fees
The fees payable by the Company in respect of each of the
Directors who served during the year ended 30 September 2014 and
the year ended 30 September 2013 were as follows:
Year ended Year ended
30 September 30 September
2014 2013
GBP GBP
Rupert Dorey Chairman of the Board 40,000 40,000
Sarah Evans Chairman of the Audit Committee 35,000 35,000
Stephen East 30,000 30,000
John de Garis 30,000 30,000
------------------------ ------------------------
135,000 135,000
======================== ========================
Statement of Directors' Responsibilities
For the year ended 30 September 2014
The Directors are responsible for preparing the Directors'
report and the financial statements in accordance with
International Financial Reporting Standards as adopted by the
European Union ("IFRS") and the Companies (Guernsey) Law, 2008 for
each financial year, which give a true and fair view of the state
of affairs of the Company.
In preparing these financial statements, the Directors
should:
-- 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 being 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.
The Directors confirm that to the best of their knowledge:
-- these financial statements have been prepared in accordance
with IFRS and in accordance with the Listing Rules requirements of
the London Stock Exchange, give a true and fair view of the assets,
liabilities, financial position and profit; and
-- the annual report and audited financial statements of the
Company provide a fair review of the development, performance and
position of the Company; and a description of the principal risks
and uncertainties the Company faces.
The Directors are responsible for keeping proper accounting
records which disclose with reasonable accuracy at any time the
financial position of the Company and its results for the year and
to enable them to ensure that the financial statements comply with
IFRS. 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.
Signed on behalf of the Board of Directors by:
_____________________ _____________________
Rupert Dorey Sarah Evans
Chairman Director
Date: 16 December 2014
Independent Auditor's Report to the Members of CQS Diversified
Fund Limited
For the year ended 30 September 2014
Opinion on Financial Statements
In our opinion the financial statements:
-- give a true and fair view of the state of the Company's
affairs as at 30 September 2014 and of its profit for the year then
ended;
-- have been properly prepared in accordance with International
Financial Reporting Standards as adopted by the European Union;
and
-- have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
What we have audited
We have audited the financial statements of CQS Diversified Fund
Limited for the year ended 30 September 2014 which comprise the
Statement of Financial Position, the Statement of Comprehensive
Income, the Statement of Changes in Equity, the Statement of Cash
Flows and the related notes 1 to 19. The financial reporting
framework that has been applied in their preparation is applicable
law and International Financial Reporting Standards (IFRSs) as
adopted by the European Union. The financial statements have been
prepared on a break up basis.
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective Responsibilities of Directors and Auditor
As explained more fully in the Directors' Responsibilities
Statement set out on page 23, the directors are responsible for the
preparation of the financial statements and for being satisfied
that they give a true and fair view. Our responsibility is to audit
and express an opinion on the financial statements in accordance
with applicable law and International Standards on Auditing (UK and
Ireland). Those standards require us to comply with the Auditing
Practices Board's Ethical Standards for Auditors.
Scope of the Audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the financial statements sufficient to give
reasonable assurance that the financial statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the Company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the financial statements. In addition, we
read all the financial and non-financial information in the annual
report to identify material inconsistencies with the audited
financial statements and to identify any information that is
apparently materially incorrect based on, or materially
inconsistent with, the knowledge acquired by us in the course of
performing the audit. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Our Assessment of Risks of Material Misstatement
We have identified the following risks that have had a
significant effect on the overall audit strategy; the allocation of
resources in the audit and directing the efforts of the engagement
team:
-- Risk that the investment in CQS Diversified Fund (SPC)
Limited (the "Investee Company") may be incorrectly valued.
-- Application of the break up basis of accounting.
These were also considered as 'Significant Matters Considered by
the Audit Committee in Relation to the Financial Statements'.
Further discussion can be found in the 'Strategic Report and the
'Report of the Directors' in the Annual Report.
Our Application of Materiality
We apply materiality both in planning and performing the audit,
and in evaluating the effect of identified misstatements on the
audit and in the auditor's report on the financial statements and
in forming our opinion.
When establishing our overall strategy, we determined
materiality for the Company to be GBP0.74m (2013: GBP0.91m), which
is 1% (2013:1%) of equity. This provided a basis for determining
the nature, timing and extent of risk assessment procedures,
identifying and assessing the risk of material misstatement and
determining the nature, timing and extent of further audit
procedures.
On the basis of our risk assessment, together with our
assessment of the company's control environment, our judgement was
that overall performance materiality (i.e. our tolerance for
misstatement in an individual account or balance) for the Company
should be 75% (2013: 75%) of materiality, namely GBP0.56m (2013:
GBP0.680m). Our objective in adopting this approach was to ensure
that total uncorrected and undetected audit differences in the
financial statements did not exceed our materiality level.
We have reported to the Audit Committee all audit differences in
excess GBP0.04m (2013:GBP 0.04m) as well as differences below that
threshold that, in our view warranted reporting on qualitative
grounds.
An overview of the Scope of our Audit
Following our assessment of the risks of material misstatement
to the Company's financial statements, our response was as
follows:
-- We addressed the risk of material misstatement that the
investment in the Investee Company may be incorrectly valued
by:
-- Agreeing the Net Asset Value ("NAV") per share of the
Investee Company used in pricing the Company's investment to the
NAV per share published by the Investee Company;
-- Reviewing trades and/or redemptions of shares at or around
year end to support the assertion that NAV approximates net
realisable value;
-- Obtaining confirmation from the Investee Company that no
redemption charge will be applied to the Company's request for
redemption of the entirety of its investments; and
-- Performing other audit procedures on the valuation of the investment held.
-- We addressed the risk of material misstatement in the
application of the break up basis of accounting by:
-- Reviewing the Directors' going concern assessment of the
Company and, in particular, in relation to their assertion that it
is unlikely that the Company will be able to grow its net asset
value to a minimum of GBP100m by 31 January 2015;
-- Assessing the components of the expected future net
expenditure of the Company to ensure the reasonableness of the
break up basis accrual; and
-- Reviewing the financial statements to ensure break up basis disclosures are appropriate.
Matters on which we are required to report by exception
Under the ISAs (UK and Ireland), we are required to report to
you if, in our opinion, information in the annual report is:
-- materially inconsistent with the information in the audited financial statements; or
-- apparently materially incorrect based on, or materially
inconsistent with, our knowledge of the Company acquired in the
course of performing our audit; or
-- is otherwise misleading.
In particular, we are required to consider whether we have
identified any inconsistencies between our knowledge acquired
during the audit and the directors' statement that they consider
the Annual Report is fair, balanced and understandable and whether
the Annual Report appropriately discloses those matters that we
communicated to the audit committee which we consider should have
been disclosed.
We have nothing to report in respect of the following matters
where the Companies (Guernsey) Law, 2008 require us to report to
you if, in our opinion:
-- Proper accounting records have not been kept; or
-- The financial statements are not in agreement with the accounting records; or
-- We have not received all the information and explanations we require for our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the company's
compliance with the nine provisions of the UK Corporate Governance
Code specified for our review.
Geraint Davies
for and on behalf of
Ernst & Young LLP
Guernsey
Date: 16 December 2014
The maintenance and integrity of the CQS Diversified Fund
Limited web site is the responsibility of the directors; the work
carried out by the auditors does not involve consideration of these
matters and, accordingly, the auditors accept no responsibility for
any changes that may have occurred to the financial statements
since they were initially presented on the web site.
Legislation in the Guernsey governing the preparation and
dissemination of financial statements may differ from legislation
in other jurisdictions.
Statement of Financial Position
As at 30 September 2014
(expressed in Pound Sterling)
30 September 2014
closing USD exchange
rate used: 1.62135
(30 September 2013:
1.61880) 30 September 2014 30 September 2013
------------------------------------------------------------------------ --------------------------------------------------------------------
Note GBP USD GBP USD
Class Class Total Class Class Total
Assets
Current assets
Cash and cash
equivalents 13 1,078,533 - 1,078,533 24,561 51,473 76,034
Other assets
and prepaid
expenses 15,089 - 15,089 31,346 1,722 33,068
Financial
assets 4 73,591,457 - 73,591,457 85,870,556 4,667,872 90,538,428
--------------------- ------------------------- ---------------------- --------------------- --------------------- ----------------------
Total assets 74,685,079 - 74,685,079 85,926,463 4,721,067 90,647,530
--------------------- ------------------------- ---------------------- --------------------- --------------------- ----------------------
Current
liabilities
Payables and
accrued
expenses 8 (606,625) - (606,625) (31,198) (1,714) (32,912)
Total current
liabilities (606,625) - (606,625) (31,198) (1,714) (32,912)
--------------------- ------------------------- ---------------------- --------------------- --------------------- ----------------------
Total net
assets 74,078,454 - 74,078,454 85,895,265 4,719,353 90,614,618
===================== ========================= ====================== ===================== ===================== ======================
Equity
Other reserves 12 62,524,535 - 62,524,535 76,745,598 4,426,858 81,172,456
Retained
earnings 12 11,553,919 - 11,553,919 9,149,667 292,495 9,442,162
--------------------- ------------------------- ---------------------- --------------------- --------------------- ----------------------
Total
shareholders'
funds 74,078,454 - 74,078,454 85,895,265 4,719,353 90,614,618
===================== ========================= ====================== ===================== ===================== ======================
Ordinary
shares in
issue 11 65,267,127 - 77,286,105 6,905,398
Net asset
value per
Ordinary
Share GBP1.1350 - GBP1.1114 USD1.1063
These financial statements were approved by the Board of
Directors on 16 December 2014.
Signed on behalf of the Board of Directors by:
_____________________ _____________________
Rupert Dorey Sarah Evans
Chairman Director
Date: 16 December 2014
The accompanying notes are an integral part of these financial
statements.
Statement of Comprehensive Income
For the year ended 30 September 2014
(expressed in Pound Sterling)
30 September 2014 average USD exchange
rate used: 1.65681 (30 September 2013:
1.56140) 30 September 2014 30 September 2013
------------------------------------------------------------------------ ------------------------------------------------------------------------
Note GBP USD GBP USD
Class Class Total Class Class Total
Income
Net gain on financial assets 4 3,339,287 341,647 3,680,934 5,843,410 321,141 6,164,551
Net foreign exchange gain/(loss)
on other assets and liabilities 2,162 (1,283) 879 (3,424) 2,588 (836)
Interest income/(expense) 318 18 336 (71) 10 (61)
------------------------- --------------------- ---------------------- ------------------------- --------------------- ----------------------
Total income 3,341,767 340,382 3,682,149 5,839,915 323,739 6,163,654
------------------------- --------------------- ---------------------- ------------------------- --------------------- ----------------------
Expenses pre liquidation expenses
and Share class closure fees
Professional fees 9 128,036 15,100 143,136 157,744 8,958 166,702
Directors' fees 5 116,738 18,262 135,000 127,752 7,248 135,000
Administration fees 7 62,260 9,740 72,000 68,135 3,865 72,000
Audit and assurance fees 23,338 3,662 27,000 22,907 1,294 24,201
Other expenses 43,143 6,720 49,863 46,576 2,648 49,224
Total expenses pre liquidation
expenses and Share class closure
fees 373,515 53,484 426,999 423,114 24,013 447,127
------------------------- --------------------- ---------------------- ------------------------- --------------------- ----------------------
Net income pre liquidation expenses
and Share class closure fees 2,968,252 286,898 3,255,150 - - -
------------------------- --------------------- ---------------------- ------------------------- --------------------- ----------------------
Share class closure fees 18 514,000 147,833 661,833 - - -
Liquidation expenses 18 50,000 28,000 78,000 - - -
Total comprehensive income for
the year 2,404,252 111,065 2,515,317 5,416,801 299,726 5,716,527
========================= ===================== ====================== ========================= ===================== ======================
Earnings per share for the year
Basic and diluted In Pound Sterling 10 GBP0.0344 GBP0.0055 GBP0.0703 GBP0.0412
In US
Dollars 10 - USD0.0089 - USD0.0667
The USD Class closed on 18 September 2014.
Statement of Changes in Shareholders' Equity
For the year ended 30 September 2014
(expressed in Pound Sterling)
30 September 2014 closing USD exchange
rate used: 1.62135 (30 September 2013:
1.61880)
For the year ended 30 September
2014 GBP USD
Class Class Total
Total shareholders' funds at beginning
of year 85,895,265 4,719,353 90,614,618
Conversion of shares (13,568,391) 13,568,391 -
--------------------- --------------------- ----------------------
(13,568,391) 13,568,391 -
Redemption of shares - (18,398,809) (18,398,809)
--------------------- --------------------- ----------------------
- (18,398,809) (18,398,809)
Dividends paid (652,672) - (652,672)
Net comprehensive income for the
year 2,404,252 111,065 2,515,317
--------------------- --------------------- ----------------------
Total shareholders' funds at end
of year 74,078,454 - 74,078,454
===================== ===================== ======================
For the year ended 30 September
2013 GBP USD
Class Class Total
Total shareholders' funds at beginning
of year 77,322,496 7,575,595 84,898,091
Conversion of shares 3,155,968 (3,155,968) -
--------------------- --------------------- ----------------------
3,155,968 (3,155,968) -
Net comprehensive income for the
year 5,416,801 299,726 5,716,527
--------------------- --------------------- ----------------------
Total shareholders' funds at end
of year 85,895,265 4,719,353 90,614,618
===================== ===================== ======================
Statement of Cash Flows
For the year ended 30 September 2014
(expressed in Pound Sterling)
USD exchange rates used are
relative
to the date of the respective
cashflow 30 September 2014 30 September 2013
------------------------------------------------------------------------ ----------------------------------------------------------------------------
GBP USD GBP USD
Class Class Total Class Class Total
Cash flows from operating
activities
Total comprehensive income for
the year 2,404,252 111,065 2,515,317 5,416,801 299,726 5,716,527
Adjustments to reconcile total
comprehensive
income for the year to net cash
provided by operating activities:
Movement in financial
assets (1,289,292) 4,667,872 3,378,580 (5,409,405) (256,455) (5,665,860)
Movement in other assets
and
prepaid expenses 16,257 1,722 17,979 9,617 2,291 11,908
Movement in other payables
and
accrued expenses 575,427 (1,714) 573,713 (12,692) (2,586) (15,278)
Net cash provided by operating
activities 1,706,644 4,778,945 6,485,589 4,321 42,976 47,297
----------------------- --------------------- ---------------------- --------------------- --------------------- ----------------------------
Cash flows from financing
activities
Payments for redemptions of
shares - (4,830,418) (4,830,418) - - -
Dividends paid (652,672) - (652,672) - - -
----------------------- --------------------- ---------------------- --------------------- --------------------- ----------------------------
Net cash used in financing
activities (652,672) (4,830,418) (5,483,090) - - -
----------------------- --------------------- ---------------------- --------------------- --------------------- ----------------------------
Net increase/(decrease) in cash
and cash equivalents 1,053,972 (51,473) 1,002,499 4,321 42,976 47,297
----------------------- --------------------- ---------------------- --------------------- --------------------- ----------------------------
Cash and cash equivalents at
start
of year 24,561 51,473 76,034 20,240 8,497 28,737
----------------------- --------------------- ---------------------- --------------------- --------------------- ----------------------------
Cash and cash equivalents at
end
of year 1,078,533 - 1,078,533 24,561 51,473 76,034
======================= ===================== ====================== ===================== ===================== ============================
Supplemental disclosure of cash
flow information
Cash flows from operating
activities
include:
Cash received/(paid) during the
year for interest 318 18 336 (71) 10 (61)
Supplemental disclosure of non
cash flow information
Non cash exchange of financial
assets 13,568,391 (13,568,391) - (3,155,968) 3,155,968 -
Non cash exchange of USD Shares
for GBP Shares 202,632 (202,632) - 4,055,252 (4,055,252) -
Non cash exchange of GBP Shares
for USD Shares (13,771,023) 13,771,023 - (899,284) 899,284 -
- - - - - -
======================= ===================== ====================== ===================== ===================== ============================
Notes to the Financial Statements
For the year ended 30 September 2014
1. General information
CQS Diversified Fund Limited (the "Company"), is a self-managed
closed-ended investment company incorporated and domiciled in
Guernsey with an unlimited life under registered number 52551. The
Company was incorporated on 27 October 2010 and is a registered
closed-ended investment scheme pursuant to the Protection of
Investors (Bailiwick of Guernsey) Law, 1987, as amended, and The
Registered Collective Investment Scheme Rules 2008 issued by the
Guernsey Financial Services Commission.
The investment objective of the Company is to achieve attractive
risk-adjusted returns over the medium to long term by primarily
investing in convertible and credit-related strategies. The Company
seeks to achieve its investment objective by investing
substantially all of its assets in CQS Diversified Fund (SPC)
Limited - Segregated Portfolio Alpha ("DVA").
DVA is a segregated portfolio company incorporated in the Cayman
Islands with an investment objective to generate attractive risk
adjusted returns over the medium to long term. DVA seeks to
mitigate the risks and volatility associated with investing in
individual strategies by constructing a portfolio of Underlying
Funds across a range of strategies (the "DVA Investment Policy").
Investors in the Company participate indirectly in the investment
portfolio of DVA.
The GBP Shares and USD Shares are listed on the official list of
the UK Listing Authority and traded on the Main Market of the
London Stock Exchange. On 18 September 2014 the USD Ordinary Shares
were delisted from trading on the London Stock Exchange in line
with the closure of the share class.
The Company has no employees and is administrated by Citco Fund
Services (Guernsey) Limited.
2. Summary of significant accounting policies
The principal accounting policies applied in the preparation of
these financial statements are set out below. These policies have
been consistently applied unless otherwise stated.
(a) Basis of preparation
The annual financial statements have been prepared in accordance
with International Financial Reporting Standards as adopted by the
European Union ("IFRS") and the Disclosure and Transparency rules
of the Financial Conduct Authority together with applicable legal
requirements of Guernsey Law. The financial statements have been
prepared under the historical cost convention as modified by the
revaluation of financial assets. The financial statements have been
prepared under the break up basis (see note 2(b)). No adjustments
were required to be made to the carrying value of the assets as the
estimated realisable value is deemed equivalent to the fair value
but provision was made for liabilities arising prior to and in
connection with the liquidation of the Company. The principle
accounting policies are set out below.
The preparation of financial statements in conformity with IFRS
requires the Company to make estimates and assumptions that affect
the reported amount of assets and liabilities at the date of the
financial statements and the reported amounts of revenue and
expenses during the year. A separate class account is maintained in
the books of the Company and disclosed in the financial statements
in respect of the GBP and the USD Shares. Actual results may differ
from these estimates.
All references to net assets throughout this document refer to
the net assets attributable to holders of the GBP and USD Ordinary
Shares unless otherwise stated.
New standards, interpretations and amendments adopted by the
Company
As interim financial statements for the year ending 31 March
2015 are likely to be prepared, IFRS 10 Consolidated Financial
Statements, IFRS 10 Consolidated Financial Statements (amendment)
and IFRS 12 Disclosure of interests in Other Entities will be
applicable to the Company and the adoption of these standards will
require the Company to disclose whether it meets the definition of
an investment entity under IFRS 10 Consolidated Financial
Statements (amendment). The directors have determined the other
standards applicable in this period are not relevant to the Company
given it is anticipated the Company will be wound up in 2015.
(b) Going concern
On 16 May 2014, 98.1% of the USD Shareholders elected to take up
the Redemption Offer proposed by the Directors and redeemed their
shares on 1 September 2014 at a valuation determined by the NAV on
29 August 2014. The US Dollar assets were realised in an orderly
manner to meet the Redemption Offer and as a result AUM decreased
by GBP18.4m.
On 12 February 2014 the Company issued a circular to investors
that in the event that the Company is unable to grow its NAV to
GBP100m by 31 January 2015 (the "Minimum AUM"), the Directors
intend to put forward proposals to enable the Shareholders to
realise their holdings at, or close to, NAV by means of a
reconstruction or winding-up of the Company. The Board has explored
a number of avenues to raise additional funds but to date has been
unable to identify any realistic prospects of so doing. Accordingly
the Board has concluded that it is extremely unlikely that the
Minimum AUM of GBP100m will be met by 31 January 2015 and
accordingly has concluded that it is appropriate to prepare the
financial statements on a break up basis.
It should be noted however that the investments in DVA, which
represent 99.34% of the Company's net assets, are valued at fair
value which is deemed equivalent to net realisable value
("NRV").
The Board are satisfied that even though the Company is no
longer determined to be a going concern, there are no material
adjustments required to the valuations of the investments of the
Company since the net realisable value ("NRV") under a break up
basis is equivalent to fair value. The liquidation and closure
costs have however been provided for in the Statement of Financial
Position and Statement of Comprehensive Income. The Share class
closure costs and liquidation expenses are discussed in more detail
in note 18.
(c) Foreign currency translation
(i) Functional and presentation currency
The financial statements are prepared in Pound Sterling ("GBP").
The functional currency of the Company is also considered to be GBP
because that is the primary economic environment in which the
Company has raised the majority of its capital.
The following exchange rates were used for the year ended 30
September 2014:
Closing Average
rate rate
US Dollar versus GBP 1.62135 1.65681
(i) Functional and presentation currency (continued)
The following exchange rates were used for the year ended 30
September 2013:
Closing Average
rate rate
US Dollar versus GBP 1.61880 1.56140
(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 exchange gains and losses resulting from the
settlement of such transactions and from the translation at year
end exchange rates of monetary assets and liabilities denominated
in foreign currencies are recognised in the Statement of
Comprehensive Income. Foreign exchange gains and losses relating to
cash and cash equivalents are presented in the Statement of
Comprehensive Income within Net foreign exchange gain/(loss) on
other assets and liabilities. Foreign exchange gains and losses
relating to the financial assets and liabilities carried at net
realisable value through profit or loss are presented in the
Statement of Comprehensive Income within Net gain on financial
assets.
(d) Financial instruments
(i) Classification
Financial assets are designated by the Board of Directors at
fair value through profit or loss at inception. All investments
held by the Company have been designated upon initial recognition
by the Board of Directors as financial assets at fair value through
profit or loss as they are managed and evaluated on a fair value
basis.
Associates are all entities over which the group has significant
influence but not control, generally accompanying a shareholding of
between 20% and 50% of the voting rights. The Company held
approximately 11% (2013: approximately 15%) interest in DVA at 30
September 2014. At the date of these financial statements the Board
does not consider that it is in a position to significantly
influence the board of DVA and as a result the Company is not
considered to have significant influence over DVA. Accordingly the
investment in DVA is classified as a financial asset.
(ii) Recognition/derecognition
The Company recognises financial assets at fair value through
profit or loss on the trade date; that is the date it commits to
purchase the investment. From this date any gains and losses
arising from changes in fair value of the assets or liabilities are
recognised. Investments are derecognised when the rights to receive
cash flows from the investments have expired or the Company has
transferred substantially all risks and rewards of ownership.
(iii) Valuation of investments
The investment in DVA is based on the NAV of DVA as supplied by
the administrator of DVA. The NAV of DVA is based on the estimated
fair values of the Underlying Funds held by DVA. As the Company
prepares financial statements on a break up basis the net
realisable value is based on the most recent unaudited NAV as
determined by the administrators or investment managers of the
respective Underlying Funds.
(e) Cash and cash equivalents
Cash is comprised of cash at bank including short term bank
deposits with an original maturity of three months or less.
(f) Expenses
Expenses (excluding liquidation expenses and Share class closure
fees) are accounted for on an accruals basis and are charged to the
Statement of Comprehensive Income in the year in which they are
incurred. As the financial statements have been prepared on a
break-up basis, expenses expected to be incurred prior to and in
connection with the liquidation of the Company are also
accrued.
(g) Operating segments
The Directors are of the opinion that as the Company is solely
engaged in investing in DVA, therefore the Company is reported as
one operating segment.
(h) Allocation of income, expenses and share issuance
A separate class account is maintained in the books of the
Company and disclosed in the financial statements in respect of the
GBP and the USD Shares. On each relevant subscription or redemption
day, a net allocation is made to each class account equal to the
proceeds from any shares issued, less an amount equal to the NAV as
at the last Company valuation day attributable to any Shares being
redeemed. As at each valuation day, any net increase or decrease in
the NAV attributable to a particular class since the previous
valuation day is allocated to the relevant class accounts. There is
then an allocation to each class account of "designated class
adjustments" being those costs including any management fees,
costs, pre-paid expenses, losses, dividends, profits, gains and
income which are determined to relate to one or more specific
classes of Share. The NAV of each GBP and USD Share is equivalent
to the balance on the class account after the above
allocations.
(i) Other reserves
The Shares of the Company have no par value and as such all net
proceeds on the issue of Shares have been classified as Other
reserves. The costs of the issuance have been expensed against the
proceeds of the issue. The Other reserves are distributable under
Guernsey Law.
(j) NAV per share and earnings per share
The NAV per share disclosed on the Statement of Financial
Position is calculated by dividing the net assets by the number of
Ordinary Shares in issue at the year end for each share class.
Earnings per share is calculated by dividing the net
profit/(loss) for the year by the weighted average number of
Ordinary Shares in issue during the year for each share class.
3. Critical accounting estimates and judgements
Critical accounting estimates and assumptions
The Directors make estimates and assumptions concerning the
future. The resulting accounting estimates will, by definition,
seldom equal the related actual results. The 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.
Value of financial assets
The Company holds investments in an unlisted investment fund;
these investments were carried at their fair value in the prior
year, which is generally the NAV reported by DVA's administrator.
In the current year the accounts have been prepared on a break up
basis, with investments shown at net realisable value, which as
discussed in note 2 (b) has been deemed equivalent to fair value.
Refer to the Schedule of Investments on page 48 for further
information.
Critical judgements
Functional currency
The Board of Directors have selected the Pound Sterling as the
functional currency as they consider that the Pound Sterling is the
currency that most faithfully represents the economic effect of the
underlying transactions, events and conditions. Pound Sterling is
the currency in which the Company measures its performance and
reports its results, as well as the currency in which it received
the majority of the proceeds from its placing.
Going concern
The Directors have assessed the information available to them at
this time with regards the Minimum AUM. The Directors have no
information which would indicate that there will be sufficient
share issuance to meet the minimum AUM and as such have concluded
that the financial statements be prepared on a break up basis.
As this is a judgement there is the risk that the Company has
inappropriately prepared its financial statements on the break up
basis. However as the investments in DVA, which represents 99.34%
of the Company's net asset, are valued at net realisable value, the
Directors do not expect there to be any material change to the NAV
of the Company if the financial statements were to be prepared on a
going concern basis.
4. Financial assets
30 September 2014:
(expressed in Pound Sterling)
GBP USD Total
Class Class GBP
Financial assets
Investment in unlisted investment
fund 73,591,457 - 73,591,457
------------------------ ------------------------ -------------------------
Financial assets 73,591,457 - 73,591,457
======================== ======================== =========================
Gain on financial assets
Realised gain 2,197,793 689,799 2,887,592
Unrealised gain/(loss) 1,141,494 (348,152) 793,342
------------------------ ------------------------ -------------------------
Total gain on financial assets 3,339,287 341,647 3,680,934
======================== ======================== =========================
30 September 2013:
(expressed in Pound Sterling)
GBP USD Total
Class Class GBP
Financial assets
Investment in unlisted investment
fund 85,870,556 4,667,872 90,538,428
------------------------ ------------------------ -------------------------
Financial assets 85,870,556 4,667,872 90,538,428
======================== ======================== =========================
Gain on financial assets
Realised gain 126,796 163,446 290,242
Unrealised gain 5,716,614 157,695 5,874,309
------------------------ ------------------------ -------------------------
Total gain on financial assets 5,843,410 321,141 6,164,551
======================== ======================== =========================
Fair value measurement
The Company is required to classify fair value measurements
using a fair value hierarchy that reflects the significance of the
inputs used in making the measurements. As discussed in note 2 (b),
investments held at realisable value in the current year are deemed
to be equivalent to fair value and as such the fair value
measurement hierarchy described in this note is applicable to
investments valued at net realisable value or fair value. The
hierarchy gives the highest priority to unadjusted quoted prices in
active markets for identical assets or liabilities (Level 1
measurement) and the lowest priority to unobservable inputs (Level
3 measurements). The fair value hierarchy has the following
levels:
-- Level 1 - Quoted (unadjusted) market prices in active markets
for identical assets or liabilities.
-- Level 2 - Valuation techniques (for which the lowest level
input that is significant to the fair value measurement is directly
or indirectly observable).
-- Level 3 - Valuation techniques (for which the lowest level
input that is significant to the fair value measurement is
unobservable).
The Company generally uses the NAV of DVA reported by the
administrator as the primary inputs to its valuation; however
adjustments to the reported NAV may be made based on various
factors, including, but not limited to, the attributes of the
interest held, including the rights and obligations, and any
restrictions or illiquidity on such interests, and the net
realisable value of the investment portfolio or other assets and
liabilities. As at 30 September 2014 no such adjustments were made
(2013: none).
The level in the fair value hierarchy within which the fair
value measurement is categorised is based on the lowest level input
that is significant to the fair value measurement. However, the
determination of what constitutes "observable" requires significant
judgment by the Company. The Company considers observable data to
be that market data which is readily available, regularly
distributed or updated, reliable and verifiable, not proprietary,
and provided by multiple, independent sources that are actively
involved in the relevant market.
The categorisation of a fund within the hierarchy is based upon
the pricing transparency of that fund and does not necessarily
correspond to the risks or underlying levels of that fund.
The Company's investments have been classified as Level 2 due to
the pricing transparency and the monthly dealing frequency of DVA.
At 30 September 2014, GBP73,591,457 (2013: GBP90,538,428) of net
assets were derived using DVA price quotations which have been
determined in good faith by the Company.
There were no transfers between any levels during the year
(2013: none).
5. Related parties
A party is considered to be related if that party has the
ability to control the company or exercise significant influence
over the company.
The Company considers the Board of Directors of the Company, the
Investment Manager and the Investment Adviser to DVA to be related
parties.
Investment Manager and Investment Adviser to DVA
CQS Cayman Limited Partnership (the "Investment Manager")
receives a management fee from DVA and the Underlying Funds and a
performance fee from the Underlying Funds.
CQS (UK) LLP (the "Investment Adviser") acts as adviser to DVA
and the Underlying Funds. Any fees of the Investment Manager are
payable by the Investment Manager.
Michael Hintze is chief investment officer of the Investment
Adviser, and is also a partner of the Investment Manager.
Directors
The Company pays each Director fees plus specified expenses for
attending board meetings. The Chairman is entitled to a fee of
GBP40,000 (2013: GBP40,000) per annum. Sarah Evans, as chairman of
the Audit Committee is entitled to a fee of GBP35,000 (2013:
GBP35,000) per annum. All other Directors receive GBP30,000 (2013:
GBP30,000) per annum. Directors' fees for the year amounted to
GBP135,000 (2013: GBP135,000), none of which was outstanding at the
year end.
Transactions
DVA uses the same Investment Adviser and Investment Manager as
the Underlying Funds. The Share class closure costs of GBP514,000
accrued in the Statement of Financial Position will be payable by
the Company to the Investment Manager upon liquidation of the
Company. GBP147,833 was paid during the year to the Investment
Manager for Share class closure costs in relation to the redemption
of the USD Class on 1 September 2014.
6. Management and performance fees
The Underlying Funds bear management and performance fees at
varying rates, ranging from 1% to 2% per annum and 10% to 20%
respectively. The Company is not charged a management fee or a
performance fee either directly or on its holding in DVA.
7. Fund Administrator
The Company entered into an administrative services agreement
with Citco Fund Services (Guernsey) Limited (the "Administrator")
on 10 November 2010. The Company pays the Administrator an agreed
monthly administration fee subject to the minimum amount. The
Administrator is also reimbursed by the Company for any reasonable
out-of-pocket expenses necessarily incurred in the performance of
its duties. The Administrator's fee is paid monthly in arrears.
During the year the Administrator was paid GBP72,000 (2013:
GBP72,000), of which GBP6,000 (2013: GBP6,000) was payable at year
end.
The Underlying Funds also pay administration fees to their
respective administrators at varying rates.
8. Payables and accrued expenses
Payables and accrued expenses as at 30 September 2014 are as
follows:
GBP USD Total
Class Class GBP
Administration fee 6,000 - 6,000
Audit fee 21,987 - 21,987
Professional and other fees 14,638 - 14,638
Share class closure costs* 514,000 - 514,000
Liquidation expenses* 50,000 - 50,000
------------------------ ------------------------ -------------------------
Total 606,625 - 606,625
======================== ======================== =========================
*Share class closure costs and liquidation expenses are
discussed in more detail in note 18.
Payables and accrued expenses as at 30 September 2013 were as
follows:
GBP USD Total
Class Class GBP
Administration fee 5,688 312 6,000
Audit fee 20,842 1,145 21,987
Professional and other fees 4,668 257 4,925
------------------------ ------------------------ -------------------------
Total 31,198 1,714 32,912
======================== ======================== =========================
9. Professional fees
30 September 2014 30 September 2013
GBP USD Total GBP USD Total
Class Class GBP Class Class GBP
Broking fees 65,257 9,618 74,875 90,275 5,125 95,400
Other professional fees 62,779 5,482 68,261 67,469 3,833 71,302
----------- ----------- ------------ ----------- ----------- ------------
Total 128,036 15,100 143,136 157,744 8,958 166,702
=========== =========== ============ =========== =========== ============
10. Earnings per share
Basic and diluted earnings per share are calculated by dividing
the profit for the year by the weighted average number of ordinary
shares outstanding during the year.
Earnings per share for the year ended 30 September 2014 is as
follows:
GBP USD
Class Class
Earnings for the year 2,404,252 111,065
Weighted average number of ordinary shares 69,944,600 20,167,827
Earnings per share in Pound Sterling GBP0.0344 GBP0.0055
Earnings per share in US Dollar - USD0.0089
Earnings per share for the year ended 30 September 2013 was as
follows:
GBP USD
Class Class
Earnings for the year 5,416,801 299,726
Weighted average number of ordinary shares 77,051,060 7,273,031
Earnings per share in Pound Sterling GBP0.0703 GBP0.0412
Earnings per share in US Dollar - USD0.0667
11. Share capital
The authorised share capital of the Company is 1,000,000,000,000
Ordinary Shares and 1,000,000,000,000 C Shares. The Ordinary Shares
are voting shares of no par value. The C Shares are limited voting
convertible shares of no par value. The C Shares do not carry any
right to attend or vote at any general meeting of the Company. The
Company has not issued any C Shares to date.
The rights attaching to the Ordinary Shares and C Shares are as
follows:
(a) the holders of existing Ordinary Shares shall confer the
right to all other dividends in accordance with the Articles of
Association of the Company.
(b) ordinary shareholders present in person or by proxy or
(being a corporation) present by a duly authorised representative
at a general meeting has, on a show of hands, one vote and, on a
poll, one vote for every share held. C shares have no voting rights
other than in very limited circumstances.
(c) the capital and surplus assets of the Company remaining
after payment of all creditors and attributable to ordinary
shareholders 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 Ordinary 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.
The GBP and USD shares ranked pari passu in all respects. The
Company operates a share conversion scheme which allowed
shareholders of any Share class to convert all or part of their
holding into any other Share class in accordance with the detailed
provisions of the Articles of Incorporation. During the year
Shareholders of the USD class converted 20,027,037 USD Ordinary
Shares into 12,048,613 GBP Ordinary Shares and 29,635 GBP Ordinary
Shares into 50,000 USD Ordinary Shares. (2013: 6,977,363 USD
Ordinary Shares into 4,325,664 GBP Ordinary Shares and 1,295,070
GBP Ordinary Shares into 2,099,954 USD Ordinary Shares).
The USD Shareholders voted against the continuation vote held in
March 2014 and as such the Directors put forward proposals to
redeem the USD Shares. 98.1% of the USD Shareholders elected to
take up the Redemption Offer and redeemed on 1 September 2014 with
a valuation determined by the NAV on 29 August 2014.
Share transactions for the year ended 30 September 2014 are as
follows:
Shares
outstanding Issued Shares
at during Converted Redeemed outstanding
Share beginning the during during at
class of year year the year the year end of year
Ordinary
Shares:
GBP
Shares 77,286,105 - (12,018,978) - 65,267,127
USD
Shares 6,905,398 - 19,977,037 (26,882,435) -
Share transactions for the year ended 30 September 2013 were as
follows:
Shares
outstanding Issued Shares
at during Converted Redeemed outstanding
Share beginning the during during at
class of year year the year the year end of year
Ordinary
Shares:
GBP
Shares 74,255,511 - 3,030,594 - 77,286,105
USD
Shares 11,782,807 - (4,877,409) - 6,905,398
12. Other reserves
Other reserves as at 30 September 2014 are as follows:
GBP USD Total
Share capital account Class Class GBP
Subscriptions
Balance at beginning of year 76,745,598 4,426,858 81,172,456
Conversion of shares (13,568,391) 13,568,391 -
Redemption of shares - (18,398,809) (18,398,809)
Dividends paid (652,672) - (652,672)
Transfer of retained earnings - 403,560 403,560
Balance at end of year 62,524,535 - 62,524,535
======================== ======================== =========================
Reconciliation of retained earnings as at 30 September 2014 is
as follows:
GBP USD Total
Class Class GBP
Retained earnings at beginning
of year 9,149,667 292,495 9,442,162
Net income for the year 2,404,252 111,065 2,515,317
Transfer of retained earnings - (403,560) (403,560)
Retained earnings at end of
year 11,553,919 - 11,553,919
======================== ======================== =========================
Reconciliation of other reserves as at 30 September 2013 were as
follows:
GBP USD Total
Share capital account Class Class GBP
Subscriptions
Balance at beginning of year 73,589,630 7,582,826 81,172,456
Conversion of shares 3,155,968 (3,155,968) -
Balance at end of year 76,745,598 4,426,858 81,172,456
======================== ======================== =========================
Retained earnings as at 30 September 2013 were as follows:
GBP USD Total
Class Class GBP
Retained earnings at beginning
of year 3,732,866 (7,231) 3,725,635
Net income for the year 5,416,801 299,726 5,716,527
Retained earnings at end of
year 9,149,667 292,495 9,442,162
======================== ======================== =========================
The Shares of the Company have no par value. As such the
proceeds from the issue of Shares has been classified within the
Share capital account as Other reserves and in accordance with the
accounting policies of the Company and as allowed by IFRS, the
costs of the issuance of the Shares has been expensed against the
proceeds of the issue. There were no issuance costs incurred for
the year ended 30 September 2014 (2013: Nil).
The Companies Law (Guernsey), 2008 (as amended) allows the Other
reserves to be used for all purposes, including the buyback of
shares and the payment of dividends, provided that the Company
would, after any distributions, still meet the statutory Solvency
Test as defined in the Companies Law (Guernsey), 2008 (as
amended).
13. Cash and cash equivalents
Cash and cash equivalents comprise cash balances with the
Company's banker at 30 September 2014.
30 September 2014:
GBP USD Total
Class Class GBP
Royal Bank of Scotland
International
Limited 1,078,533 - 1,078,533
------------------------ ------------------------ -------------------------
Total 1,078,533 - 1,078,533
======================== ======================== =========================
Cash and cash equivalents comprise cash balances with the
Company's banker at 30 September 2013.
30 September 2013:
GBP USD Total
Class Class GBP
Royal Bank of Scotland
International
Limited 24,561 51,473 76,034
------------------------ ------------------------ -------------------------
Total 24,561 51,473 76,034
======================== ======================== =========================
14. Financial risk management objectives and policies
The Company's objective in managing risk is the creation and
protection of shareholder value. Risk is inherent in the Company's
activities, but it is managed through a process of ongoing
identification, measurement and monitoring, and other controls.
The Company is exposed to the following categories of risk,
directly from the investment it makes in DVA and indirectly from
the investments of DVA and its Underlying Funds:
-- Market risk
- Price risk
- Currency risk
- Interest rate risk
-- Counterparty credit risk
-- Liquidity risk
The Company is also exposed to operational risk arising from
both its investment activities and other activities conducted both
by the Company, the Investment Manager and the Investment Adviser
of DVA and the Underlying Funds and other third party agents in
support of its investments.
The following qualitative and quantitative disclosures relate to
the Company's direct exposures in financial assets and financial
liabilities and indirect exposures in its investment in DVA. Except
for the concentration of risk disclosures set out in page 43 it
excludes any indirect exposures in the Underlying Funds in which
the Company has invested through its holding in DVA.
Market risk
Market risk is the risk that the fair value or future cash flows
of financial instruments will fluctuate due to changes in market
variables such as equity prices, currency rates and interest
rates.
Price risk
Price risk is the risk of unfavourable changes in the fair
values of the Company's investments. The Company invests
substantially all its assets in DVA and does not undertake any
significant borrowing or hedging activity at the Company level.
Therefore the Company's price risk is directly linked to the fair
value of DVA and to the fair value of its Underlying Funds, which
hold investments in securities and derivatives, both listed and
over-the-counter.
At 30 September 2014, should the price of DVA
increase/(decrease) by 10% with all other variables remaining
constant, the effect will be an increase/(decrease) in the fair
value of financial assets of GBP7,359,146/GBP(7,359,146) (2013:
GBP9,053,843/GBP(9,053,843)).
Concentration of exposure to price risks
The Company's direct exposure to price risk arises from its
holding in DVA being its holding in the Class B2 Sterling and Class
B2 USD shares of DVA in the amount of GBP73,591,457 which
represents 99.34% of the Company's net assets (2013: GBP90,538,428
which represents 99.91%).
The following table shows the diversified allocation to the
Underlying Funds so that notwithstanding concentration of price
risk in the Company's investment in DVA, on a look through basis
the Directors believe the Company does not have true concentration
risk owing to the diversification benefits from owning the
Underlying Funds.
30 September 2014 30 September 2013
% of net % of net
Total assets Total assets
Underlying Funds GBP GBP
CQS ABS Fund 23,775,981 32.1 % 20,028,932 22.1 %
CQS Asia Fund 3,666,436 4.9 % 7,439,041 8.2 %
CQS Convertible and
Quantitative
Strategies Fund - - % 22,919,381 25.3 %
CQS Credit Long
Short
Fund 5,958,212 8.0 % 15,362,519 17.0 %
CQS Directional
Opportunities
Fund 16,667,489 22.5 % 22,729,588 25.1 %
CQS European
Distressed
Fund - - % 402,597 0.4 %
CQS European Equity
Long
Short Fund 4,088,570 5.5 % 1,656,370 1.8 %
CQS Global
Convertible
Arbitrage Fund 19,434,769 26.3 % - - %
73,591,457 99.3 % 90,538,428 99.9 %
Other non financial
assets
not exposed to
price risk 486,997 0.7 % 76,190 0.1 %
--------------------- --------------------- --------------------- ---------------------
74,078,454 100.0 % 90,614,618 100.0 %
===================== ===================== ===================== =====================
Currency risk
Currency risk is the risk that the value of a financial
instrument will fluctuate due to changes in foreign exchange rates.
The Company's direct currency exposure to a five percent positive
or negative shift in all exchange rates against GBP as at 30
September 2014 is GBPNil in absolute terms (2013: less than
GBP300,000). There is indirect currency risk from DVA's investment
in its Underlying Funds.
Interest rate risk
Interest rate risk arises from the possibility that changes in
interest rates will affect future cash flows or the fair values of
financial instruments. The Company is not exposed to material
interest rate risk as the majority of the Company's financial
assets are its investments in DVA which are non-interest bearing
securities and any excess cash of the Company is invested at short
term market interest rates. The Company has indirect interest rate
risk from DVA's investments in its Underlying Funds, based on the
Underlying Funds holdings, although this is primarily reflected in
the fair value of the financial investments held by the Underlying
Funds.
Other financial risk disclosures
Counterparty credit risk
Counterparty credit risk is the risk that the counterparty to a
financial instrument will cause a financial loss for the Company by
failing to discharge an obligation.
The Company is exposed to the risk of credit-related losses that
can occur as a result of a counterparty or issuer being unable or
unwilling to honour its contractual obligations. These credit
exposures exist within financing relationships and other
transactions.
It is the Company's policy to transact only with reputable
counterparties. The Investment Adviser closely monitors the
creditworthiness of the Company's principal banker by reviewing
their credit ratings, financial statements and press releases on a
regular basis.
The Company's investments in DVA are held in its own name,
however any excess cash is held by its principal banker, The Royal
Bank of Scotland International Limited which is the offshore
banking arm of the Royal Bank of Scotland Group. The Royal Bank of
Scotland Group plc is rated BBB+ (2013: A -) by Standard &
Poor's.
If The Royal Bank of Scotland International Limited were to
default and achieve no recovery for its creditors then the Company
would lose GBP1,078,533 as at 30 September 2014 (2013:
GBP76,034).
The Company also has indirect counterparty credit risk arising
from DVA's investments in its Underlying Funds.
Liquidity risk
Liquidity risk is defined as the risk that the Company will
encounter difficulty realising assets or otherwise raising funds to
meet financial commitments in a reasonable timeframe or at a
reasonable price.
The Company retains sufficient cash at its principal banker to
manage its day to day expenses. There is however the liquidity risk
that in exceptional circumstances, the liquidity of DVA may not be
sufficient to meet all redemption requests made. This may limit the
Company's ability to raise cash, to fund ongoing expenses.
The tables below summarise the maturity profile of the Company's
financial liabilities. The analysis into relevant maturity
groupings is based on the remaining period at the end of the
reporting period to the contractual maturity date.
As at 30 September 2014: < than 3 to 12
3 months months >1 year Total
GBP GBP GBP GBP
Payables and accrued expenses (42,625) - - (42,625)
Liquidation and Share class
closure fees - (564,000) - (564,000)
------------------ ------------------ ----------------- -------------------
Total (42,625) (564,000) - (606,625)
================== ================== ================= ===================
As at 30 September 2013: < than 3 to 12
3 months months >1 year Total
GBP GBP GBP GBP
Payables and accrued expenses (32,912) - - (32,912)
------------------ ------------------ ----------------- -------------------
Total (32,912) - - (32,912)
================== ================== ================= ===================
15. Capital management
The Company's capital is represented by Ordinary Shares. The
Company's total capital employed at 30 September 2014 was
GBP74,078,454 (2013: GBP90,614,618) comprising distributable
reserves and retained earnings.
The objective of the Company in managing its capital is to
achieve attractive risk adjusted returns over the medium to long
term by primarily investing in convertible and credit-related
strategies. The Company seeks to achieve its capital management
objective by investing substantially all of its assets in DVA and
to maintain sufficient size to make the operations of the Company
cost efficient. The Company is not subject to any externally
imposed capital requirements.
The Company does not intend to engage in any structural
borrowing. However it does have the ability to borrow up to an
amount equal to 20% (2013: 20%) of its net assets at the time of
the drawdown for the purposes of managing day to day cash flows,
for meeting expenses of the Company and for funding the repurchase
of up to 14.99% (2013: 14.99%) of its shares.
Capital management policies and procedures
The Board monitors and reviews the broad structure of the
Company's capital on an ongoing basis. This review includes:
-- the need to buy back equity shares for cancellation, which
takes account of the difference between the NAV per share and the
share price (i.e. the level of share price discount or premium);
and
-- the extent to which revenue in excess of that which is
required to be distributed should be retained.
Refer to the financial risk management objectives and policies
(note 14) for additional policies and processes applied by the
Company in managing its capital.
In the event that the Company is placed into liquidation upon
not meeting the Minimum AUM the assets of the Company will be
realised in an orderly manner to meet the final distributions to
shareholders. Estimated liquidation costs have been included in the
total net asset value in the Statement of Financial Position and
the investments in DVA are valued at net realisable value as such
there are no material changes expected to the valuation of the
Company.
16. Taxation
The Company applied for and was granted exempt status for
Guernsey tax purposes. A company that has exempt status for
Guernsey tax purposes is exempt from Guernsey income tax under the
provisions of the Income Tax (Exempt Bodies) (Guernsey) Ordinance,
1989 and is charged an annual exemption fee of GBP600 (2013:
GBP600).
Currently no income, profit, capital transfer or capital gains
taxes are levied in Guernsey and, accordingly, no provision for
such taxes has been recorded by the Company. The Company is subject
however, to certain withholding taxes applicable to income earned
on its investments. Individual shareholders may be taxed on their
proportionate share of the Company's taxable income based upon
their individual circumstances.
17. Reconciliation of Net Asset Value
Up until the preparation of these financial statements, all
financial statements and NAV announcements have been prepared on a
going concern basis. As noted in Note 2(b) these financial
statement have been prepared on a break-up basis.
A reconciliation of the NAV per these financial statements and
the September NAV as per the announcement on 16 October 2014 is
provided below.
Total
GBP
NAV as per these financial statements 74,078,454
Liquidation and Share class closure fees 564,000
-------------------------
NAV as per the September NAV announcement 74,642,454
=========================
Total
NAV per Ordinary Share as per these financial statements 1.1350
Liquidation and Share class closure fees 0.0086
-------------------------
NAV as per the September NAV announcement 1.1436
=========================
18. Significant events
On 12 February 2014 the Company issued a circular which informed
investors that in the event that the Company is unable to reach the
Minimum AUM, the Directors intend to put forward proposals to
enable the Shareholders to realise their holdings at, or close to,
NAV by means of a reconstruction or winding-up of the Company
shares.
Costs and expenses incidental to the issue of Offer Shares by
the Company were incurred by the Investment Manager to DVA upon set
up of the Company. In line with the Company's Registration Document
there exists a recovery clause should there be a failure of a
Continuation resolution or the Company is wound up prior to the
seventh anniversary of Admission, which is December 2017. The
Shareholders who elected to redeem after the failure of the
continuation vote in March 2014 were charged GBP147,833 within
their redemption NAV in relation to such costs which equated to
GBP0.0055 per share (USD0.0091 per share). Upon liquidation the GBP
shareholders will be charged an estimated GBP514,000 (GBP0.0079 per
share) which has been accounted for in the financial statements as
a Share class closure costs. These will payable to the Investment
Manager to DVA. In addition to the above GBP28,000 legal costs were
incurred for the closure of the USD share class which have been
reflected within the Liquidation expenses on the Statement of
Comprehensive Income and were specifically charged to the USD
Shareholders. GBP50,000 legal and professional fees which are
estimated to be incurred should the Company liquidate in 2015 have
also been accounted for in the financial statements within
Liquidation expenses in the Statement of Financial Position.
The USD Shareholders voted against the continuation resolution
on 4 March 2014. As a result, and given the outcome of the
Redemption Offer, the class closure conditions were met and the USD
class was closed on 18 September 2014.
19. Subsequent events
In accordance with the Company's dividend policy as announced in
the Shareholders Circular dated 12 February 2014, a dividend of one
pence per share was announced on 16 December 2014, to be paid on 30
January 2015.
Other than as disclosed above, there have been no other
significant events since the year end that impact the Company and
require disclosure in the financial statements.
Schedule of Investments
As at 30 September 2014
(expressed in Pound Sterling)
Realisable
Description Value % of NAV
financial assets
Unlisted INVESTMENT FUNDS
CQS Diversified Fund (SPC) Limited
Segregated Portfolio Alpha - Class B2 Sterling 73,591,457 99.34%
Total Unlisted Investment Funds 73,591,457 99.34%
----------------- ---------------------
total financial assets 73,591,457 99.34%
================= =====================
Other assets 1,093,622 1.48%
Other liabilities (606,625) (0.82)%
----------------- ---------------------
Total NAV of the Company 74,078,454 100.00%
================= =====================
NOTICE OF ANNUAL GENERAL MEETING
CQS Diversified Fund Limited (the "Company")
Registered office: Arnold House, PO Box 273, St Julian's Avenue,
St. Peters Port, Guernsey GYI 3RD
Registration Number: 52551
Notice is hereby given that the Annual General Meeting of CQS
Diversified Fund Limited will be held at Arnold House, PO Box 273,
St Julian's Avenue, St. Peters Port, Guernsey, GY1 3RD at 10:00
a.m. on Tuesday 5th March 2015 for the following purposes:
To consider and, if thought fit, pass the following resolutions
which will be proposed as ordinary resolutions:
Ordinary Resolutions
1. That the Financial Statements of the Company for the year
ended 30 September 2014, and the reports of the Directors of the
Company and auditors of the Company thereon be received and
adopted.
2. That Mr J de Garis and Mrs S Evans be re-elected as a
Directors following their retirement in accordance with Article
88(a) of the Articles of Incorporation.
3. That the appointment of Ernst & Young LLP as auditors to
hold office until the conclusion of the next Annual General Meeting
of the Company at a remuneration to be determined by the Directors,
be approved.
4. That, subject to, and in accordance with, Article 4(b) of the
Company's Articles of Incorporation, the Company be and is hereby
authorised, in accordance with section 315 of the Companies
(Guernsey) Law, 2008, as amended (the "Law") to make market
acquisitions of ordinary shares in the Company, provided that:
(i) the maximum number of ordinary shares in each class
authorised to be acquired is 14.99 per cent. of each class of the
ordinary shares of the Company in issue at any time;
(ii) the minimum price payable by the Company for each ordinary
share is 1 pence (in the case of sterling shares) or $0.01 (in the
case of US dollar shares) and the maximum price payable by the
Company for each ordinary share will not be more than the higher
of:
(a) 105 per cent. of the average of the mid-market values of the
ordinary shares of that class in the Company for the 5 business
days prior to the date of the market acquisition; and
(b) that stipulated by the Commission Regulation (EC) of 22
December 2003 implementing the Market Abuse Directive as regards
exemptions for buy-back programmes and stabilisation of financial
investments (No. 2273/2003);
(iii) such authority shall expire on the conclusion of the next
Annual General Meeting of the Company; and
(iv) notwithstanding paragraph (iii), the Company may make a
contract to purchase shares under this authority before the expiry
of this authority which will or may be executed wholly or partly
after the expiry of this authority and may make a purchase of
shares in pursuance of any such contract after such expiry.
By order of the Board
Citco Fund Services (Guernsey) Limited
as Company Secretary
16 December 2014
Notes:
a) A shareholder entitled to attend and vote at the meeting may
appoint a proxy to attend, speak and vote instead of him/her. A
proxy need not be a shareholder of the Company. A shareholder may
appoint more than one proxy in relation to the meeting provided
that such proxy is appointed to exercise the rights attached to a
different share or shares held by the shareholder.
b) Form(s) of proxy is (are) included for use by shareholders to
complete, sign and return. Completion and return of the form(s) of
proxy will not prevent a shareholder from subsequently attending
the meeting (or any adjournments) and voting in person if he/she so
wishes.
c) To appoint more than one proxy to vote in relation to
different shares within your holding you may photocopy the form.
Please indicate the proxy holder's name and the number of shares in
relation to which they are authorised to act as your proxy (which,
in aggregate, should not exceed the number of shares held by you).
Please also indicate if the proxy instruction is one of multiple
instructions being given. All forms must be signed.
d) Form(s) of proxy, duly completed together with any power of
attorney or other authority (if any) under which it is signed, or a
notarially certified copy of such power or authority, must be
lodged with the Company's Transfer Agent, Capita Registrars, PXS,
34 Beckenham Road, Beckenham, Kent, BR3 4TU not less than 48 hours
before the time fixed for the meeting or any adjournment thereof,
or in the case of a poll taken more than 48 hours after it was
demanded, 24 hours before the time appointed for the taking of the
poll.
e) There are no service contracts between any of the Directors
and the Company.
f) No shareholder will be entitled to be present or vote at the
meeting (or any adjournment) either personally or by proxy unless
their name appears on the register of members of the Company as at
6.00 p.m. on 28 February 2015. Changes to the entries on the
register of members after that time shall be disregarded in
determining the rights of any person to attend and vote at the
meeting (or any adjournments). This record time is being set for
voting at the meeting (and any adjournments) because the procedures
for updating the register of members in respect of shares held in
uncertificated form require a record time to be set for the purpose
of determining entitlements to attend and vote at the meeting.
g) CREST members who wish to appoint a proxy or proxies through
the CREST electronic proxy appointment service may do so for the
meeting and any adjournment(s) of the meeting by using the
procedures described in the CREST Manual. CREST personal members or
other CREST sponsored members, and those CREST members who have
appointed a voting service provider(s), should refer to their CREST
sponsor or voting service provider(s), who will be able to take the
appropriate action on their behalf. In order for a proxy
appointment or instruction made using the CREST service to be
valid, the appropriate CREST message (a "CREST Proxy Instruction")
must be properly authenticated in accordance with Euroclear UK
& Ireland Limited's specifications and must contain the
information required for such instructions, as described in the
CREST Manual. The message, regardless of whether it constitutes the
appointment of a proxy or an amendment to the instruction given to
a previously appointed proxy must, in order to be valid, be
transmitted so as to be received by the Company's agent (RA10) by
the latest time(s) for receipt of proxy appointments specified
above. For this purpose, the time of receipt will be taken to be
the time (as determined by the timestamp applied to the message by
the CREST Applications Host) from which the Company's agent is able
to retrieve the message by enquiry to CREST in the manner
prescribed by CREST. After this time any change of instructions to
proxies appointed through CREST should be communicated to the
appointee through other means. CREST members
and, where applicable, their CREST sponsors or voting service
provider(s) should note that Euroclear UK & Ireland Limited
does not make available special procedures in CREST for any
particular messages. Normal system timings and limitations will
therefore apply in relation to the input of CREST Proxy
Instructions. It is the responsibility of the CREST member
concerned to take (or, if the CREST member is a CREST personal
member or sponsored member or has appointed a voting service
provider(s), to procure that his CREST sponsor or voting service
provider(s) take(s)) such action as shall be necessary to ensure
that a message is transmitted by means of the CREST system by any
particular time. In this connection, CREST members and, where
applicable, their CREST sponsors or voting service provider(s) are
referred, in particular, to those sections of the CREST Manual
concerning practical limitations of the CREST system and
timings.
h) Information about this meeting is available on the Company's
website at: www.cqsdiversifiedfund.com
i) As at close of business on 16 December 2014 the total voting
rights in the Company is 65,267,127.
This information is provided by RNS
The company news service from the London Stock Exchange
END
FR UNUWRSRAUAAA
CQS Diversified (LSE:CQS)
Historical Stock Chart
From Feb 2025 to Mar 2025
CQS Diversified (LSE:CQS)
Historical Stock Chart
From Mar 2024 to Mar 2025
