TIDMEGP
THE EGYPT TRUST
Société d'Investissement à Capital FixeLuxembourgR.C.S. Luxembourg B 55 584
Audited Annual Report March 31st, 2010
Table of Contents
Organisation of the Fund
General Information
Chairman's Statement
Responsibility Statement
Manager's Review
Corporate Governance
Report of the Réviseur d'Entreprises Agréé
Statement of Net Assets
Shareholders' Equity
Statement of Operations
Statement of Changes in Net Assets
Statistical Information about the Fund
Statement of Changes in Shares Outstanding
Statement of Investments and Other Net Assets
Currency, Geographical and Industrial Classification of the Fund
Notes to the Financial Statements
Organisation of the Fund
Chairman
ALEXANDER E. ZAGOREOS Jermain Hill Lane
Eagle Bridge, NY 12057, U.S.A.
Directors
MICHAEL BECKETT * Northcroft Dulwich Common
London SE21 7EW, U.K.
SHAKER ALBERT KHAYATT * KHAYATT & COMPANY INC.
50 Broad Street, Suite 1609
New York, NY 10004, U.S.A.
MOHAMED KAMAL EL-DIN BARAKAT * 151 Mohamed Farid Street
Cairo, EGYPT
MICHAEL TAIT * OXFORD AND EDINBURGH CONSULTANTS
Chairman of the Audit Committee 8 Chalcot Crescent
London NW1 8YD, U.K.
Advisory Board HERBERT GULLQUIST
Registered Office 11, rue Aldringen
L-1118 Luxembourg
Manager LAZARD ASSET MANAGEMENT LLC
30 Rockefeller Plaza
New York, NY 10112, U.S.A.
Investment Adviser NATIONAL BANK OF EGYPT
NBE Tower
1187 Corniche El-Nile
Boulak
Cairo, EGYPT
* Member of the Audit Committee
Organisation of the Fund(continued)
Custodian and Paying Agent KBL European Private Bankers S.A.
43, boulevard Royal
L-2955 Luxembourg
Domiciliary, Registrar, Transfer KREDIETRUST LUXEMBOURG S.A.
and Administrative Agent 11, rue Aldringen
L-2960 Luxembourg
Réviseur d'entreprises agréé DELOITTE S.A.
560, rue de Neudorf
L-2220 Luxembourg
Financial Adviser and Broker Arbuthnot Securities Limited
Arbuthnot House
20, Ropemaker Street
London EC2Y 9AR, U.K.
General Information
1. Shareholders will be sent audited annual accounts relating to THE EGYPT TRUST (the "Fund" or the "Corporation"), which will include a report by the Manager, made up to the last day of March in each year. Shareholders will also be sent an unaudited half-yearly report covering the six-month period ending September 30th in each year.
2. The Annual General Meeting of Shareholders is held in Luxembourg each year at 4 p.m. on the third Tuesday of August in each year (or, if such day is not a business day in Luxembourg, on the next following business day). Notices convening each annual general meeting, including agenda, time and place, and details of attendance, quorum and majority requirements under Luxembourg law, will be sent to the registered addresses of Shareholders together with the annual report and accounts not less than 21 days before the date of such meeting.
3. The investment policy of the Corporation is to achieve medium to long-term capital growth through investments principally in the equities of companies listed on the Egyptian Stock Exchange.
4. The Corporation intends to distribute annually to Shareholders substantially all of its income (including dividends and interest) available for distribution after deducting fees and expenses.
5. Dividends will only be paid to the extent that they are covered by income received from underlying investments, shares of profits of associated companies being unavailable for this purpose unless and until distributed to the Corporation. The Fund's Articles of Incorporation (the "Articles") provide that dividends shall not be paid out of surpluses arising upon the realisation of investments.
6. A dividend declared but not claimed by a Shareholder after twelve years from the declaration thereof shall lapse and revert to the Corporation.
7. The Net Asset Value (the "NAV") per Share is expressed in US Dollars ("USD") and is published on a weekly basis in the "Financial Times".
8. The Shares of the Fund are listed on the London Stock Exchange.
Chairman's Statement
Dear Shareholders,
It gives me pleasure to report a year of solid returns following a period viewed by many as the worst financial crisis since the Great Depression. Markets around the world rebounded from their lows as confidence was restored and investors returned to fundamentals. During the twelve months ended March 31st, 2010, The Egypt Trust was up 53% compared to the Fund's benchmark up 65%. This difference is owing to the Fund's statutory diversification requirements. The Egypt market underperformed the emerging markets over the past fiscal year, in part because of regional issues such as the Dubai World debt crises affecting all regional stock markets.
During the global economic crisis, the Egyptian economy has shown impressive resilience as GDP continued to grow 4.5%, in real terms, in FY 2008/2009. The estimate for this year is 5.5%. Egypt's ability to weather the global financial crisis without much damage is mainly a result of strong domestic private consumption, a central theme in the Manager's investment strategy.
Recent events in Europe brought about by the debt crisis in Greece did not have much direct effect in Egypt, as the government was able to issue $1.5 billion of debt, at a reasonable price, in international markets, without difficulty.
This confidence bodes well for the Egyptian stock market as it is reasonably priced relative to other developing markets. We believe the mix of attractive valuations, healthy macroeconomic indicators, and significant growth prospects, makes us optimistic about the medium to long term prospects of Egyptian equities.
In the short term however, recent global events suggest that a global economic recovery is still shaky and global stock markets (including Egypt) might remain unsettled.
Alexander E. ZagoreosChairmanRespectfully Submitted,
Luxembourg, July 2010
Responsibility Statement
We, the Directors of The Egypt Trust, confirm to the best of our knowledge that:
a) the financial statements which have been prepared in accordance with the applicable set of accounting standards (being the legal and regulatory requirements in Luxembourg relating to investment funds) give a true and fair view of the assets, liabilities, financial position and profit or loss of the Fund as at March 31st, 2010 and for the financial year then ended; and
b) the Manager's Review includes a fair review of the development and performance of the business and the position of the Fund together with a description of the principal risks and uncertainties that it faces.
By order of the BoardAlexander E. Zagoreos Chairman
Luxembourg, July 2010
Investment Policy
-- Asset Allocations:
The Fund invests primarily in equity securities of Egyptian
companies listed on the Egyptian Stock Exchange (formerly Cairo
and Alexandria Stock Exchanges) as well as other exchanges.
We use a bottom-up, fundamental company analysis to identify
companies that have strong earnings-generation ability but are
inexpensively priced.
We continuously monitor potential and existing holdings in the
Fund, in addition to the overall macro-economic environment in
Egypt. The asset allocation and security selection changes
accordingly.
-- Risk Diversification:
The Fund will run a concentrated portfolio, subject to exposure
limits detailed below, but in the meanwhile aims to provide broad
exposure to the market through holding a diversified portfolio.
The liquidity of the Egyptian market is limited compared to
developed markets. When making an investment decision, liquidity
concerns weigh in. We aim to keep 90% of the Fund's NAV in highly
liquid securities and cash. The remaining 10% would provide the
flexibility to invest in attractively priced securities with low
liquidity, or in pre-IPO companies.
We seek to invest in undervalued assets trading at a discount
(absolute and/or relative). Such discounts could limit the
portfolio's downside risk, and add more value during rising
markets.
-- Exposure Limits:
Maximum weighting in any single security should not exceed 10% of
NAV - Passive breaches should be brought back in line with the
policy in a manner consistent with the best interests of the
shareholders, and
Maximum weighting in any single sector should not exceed 25% of
NAV. The Fund treats Real Estate & Property Development as a
separate sector and not part of Financials.
Gearing: The Fund's Manager is not allowed to use gearing.
Manager's Review
Performance overview
Q1 Q2 Q3 Q4 Year
=------------------------------------------------------------------
Egypt Trust: NAV $ 27.15 32.37 29.56 32.49
=------------------------------------------------------------------
Egypt Trust: Return (Net) 27.89% 19.23% -8.68% 9.91% 53.04%
=------------------------------------------------------------------
IFC Investable: Value 210.3 251.78 233.17 257.10
=------------------------------------------------------------------
IFC Investable: Return 35.09% 19.72% -7.39% 10.26% 65.15%
=------------------------------------------------------------------
Source: KBL, Reuters
The Egyptian Stock Market, along with nearly all stock markets, has witnessed a strong recovery, starting in March 2009, as the panic that dominated the markets following one of the worst global financial crises started to recede and investors gradually returned to fundamentals. Helping the market were the corporate earnings, which came in better than the market's expectations and certainly didn't support the doomsday scenario that had triggered the massive, indiscriminate sell-off.
Also lending some support to the market was the GDP growth figures, which came in at 4.5% at the end of March 2009. This figure, while significantly lower than the 8% targeted, was still a very respectful figure for that quarter in light of the financial crises.
The market continued to advance in the following months but eventually had to pull back during the third quarter of the fiscal year (Q4 2009). This was largely a result of the negative sentiment towards the whole region created by Dubai World's announcement of the need to restructure its debts. Additionally, as investors became concerned regarding the rising budget deficit and inflation, and corporate earnings came in largely in line with expectations, there were no positive surprises to provide a catalyst to the market. As a result, for the one-year period ended March 31st, 2010, the Egyptian market underperformed global emerging markets, as measured by the 77.2% gain of the MSCI EM Index during the same period.
The Egypt Trust underperformed its index for the year ended March 31st, 2010, mainly as a result of the Fund's underweight position in Orascom Constructions Industries, which nearly doubled during that period. The Fund is only allowed to own a maximum of 10% of its NAV in any single issuer, while the weight of this security in the index is nearly 30%.
Portfolio overview (as of March 31st, 2010)
Top 10 Holdings Portfolio (%)
=--------------------------------------------------
National Societe Generale Bank 6.72%
=--------------------------------------------------
Egyptian Int'l Pharmaceuticals Co. 6.55%
=--------------------------------------------------
Telecom Egypt 6.06%
=--------------------------------------------------
Orascom Telecom Holding 5.67%
=--------------------------------------------------
Orascom Construction Industries 5.42%
=--------------------------------------------------
Talaat Moustafa Group Holding 5.25%
=--------------------------------------------------
EFG- Hermes Holding 4.35%
=--------------------------------------------------
Alexandria Mineral Oils Co. 4.08%
=--------------------------------------------------
Sidi Kerir Petrochemicals 4.01%
=--------------------------------------------------
Egyptian Financial & Industrial Co. 3.94%
=--------------------------------------------------
TOTAL 52.05%
=--------------------------------------------------
Sector Allocation Portfolio (%)
=-------------------------------------
Telecom 14.01%
=-------------------------------------
Financials 21.00%
=-------------------------------------
Materials 15.93%
=-------------------------------------
Healthcare 7.04%
=-------------------------------------
Industrial 9.67%
=-------------------------------------
Real Estate 15.22%
=-------------------------------------
Petrochemicals 8.08%
=-------------------------------------
Consumer Discretionary 5.40%
=-------------------------------------
Other 3.65%
=-------------------------------------
=-------------------------------------
TOTAL 100.00%
=-------------------------------------
Manager's Review(continued)
The Egypt Trust portfolio remains relatively concentrated as the top 10 holdings represent 52% of NAV. Sector allocation witnessed some changes compared to March 2009; Telecom's weight was reduced as a result of completely selling out of Mobinil during the France Telecom / Orascom Telecom legal battle over control as well as underperformance by the sector. On the other hand, Real Estate's weight increased as we invested more in the sector because of the cheap valuation during the crises as well as strong performance during the year.
Cash and other net assets and liabilities amounted to 3.66% of NAV at March 31st,2010, down from 6.26% a year earlier.
The following chart shows the sector allocations on March 31st, 2010 compared to March 31st, 2009:
GRAPH OMITTED
On March 31st, 2010, no single issue was in breach of the 10% single issuer limit and no sector was in breach of the 25% sector limit.
The Economy
Egypt's economy showed great resilience during the crises. After dropping to 4.4% for the six months ended June 2009, GDP growth picked up in the following six months (4.7%) and we expect growth for FY 09/10 to come in at approximately 5.5%. A key factor in growth was the steady increase in private consumption - in the range of 4.8-5% per annum throughout the last 3 years. A spike in government consumption in the first half of 2009 also provided a boost to the economy. On the other hand, net foreign direct investment ("FDI") for the six months ended December 2009 came in at only $2.6 billion, compared to $4.1 billion for the previous six months. FDI has played a big role in Egypt's economic growth, and without a strong recovery in this area, Egypt is not likely to achieve the 7-8% growth rate the government targets in 2011-2012.
Manager's Review(continued)
As a result of the financial crises, government revenues have dropped, while the stimulus package and subsidy bill caused expenditures to increase. Monthly data shows that the budget deficit for the period July 09 - February 10 reached EGP 75 billion compared to 45 billion for the same period last year. For the FY 09/10, we expect the budget deficit to be approximately 9%. It is not likely that we will see a significant decline in the budget deficit soon unless economic growth picks up significantly, encouraging government to reduce expenditures, or the government decides to reduce subsidies (though we think this is unlikely this year given it is an election year).
Inflation moderated slightly in March 2010, to 12.2%, from 13.6% in January (and a high of 23.6% in August 2008), but remains one of the highest rates in emerging markets. We expect the coming few months to see upward pressure on inflation as global commodities price are recovering, and Egypt's producers price index (PPI) already picking up. This might cause the Central Bank to raise rates to try to contain inflation which, in turn, would put further pressures on economic growth.
Egypt's external sector improved significantly. Current account deficit in the six months to December 09 narrowed to $1.3 billion from $2.5 billion for the same period the previous year. This was a result of the narrowing of the trade deficit to $11.9 billion (from $14.6 billion), as exports and imports declined by 15.3% and 16.9%, respectively. Services balance also declined by 15.8%, to $ 6.3 billion, mainly as a result of a 65% decline in investment income. Suez Canal revenues also declined by 16.7%, but tourism revenues increased by 4.7%. It should be noted that the quarter ended December 09 showed a small current account surplus as a result of a significant improvement in the trade deficit during the quarter to $ 4.6 billion, vs. $7.2 billion the previous quarter due to higher exports proceeds and lower import bill.
Once again we would like to highlight the health of the Egyptian banking system, as bad loans coverage ratios remain comfortable and, for most banks, was above 100%. Moreover, banks remain highly liquid, with loans to deposits ratio around 50%. This puts banks in a great position to finance growth once appetite for risk returns.
Outlook
The Egyptian equity market lagged behind global emerging and developed markets in 2009, particularly during the last quarter of the year, which left Egyptian equities trading at a discount to global emerging markets. On the micro front, we find many Egyptian equities are attractively valued with dominant market positions, strong balance sheets and proper management that was able to navigate through the global turmoil successfully. Also, the resilience of the domestic demand over the past few years is very encouraging.
We believe the main challenges for Egyptian equities in the near future are macro, particularly Egypt's ability to attract enough FDIs to grow around 7-8%, creating new jobs, and expanding its export base which would cause the government revenues to increase and allow it to cut expenditures translating to a lower budget deficit.
In order to be able to attract the required FDI, Egypt needs to resume its structural reforms efforts targeted at reducing the cost (time, money and effort) of doing business, increasing the competitiveness of the market and enhancing transparency.
Overall, we continue to believe that the Egyptian Economy has good potential to grow at higher rates. Additionally, we find Egyptian equities attractively valued therefore despite the expected short term volatility, we remain bullish on the medium to long term and continue to invest based on our disciplined fundamental investment approach.
Manager's Review(continued)
Principal risks and uncertainties
The success of the Fund may be affected by general economic and market conditions, such as widening discounts, interest rate changes, availability of credit, inflation rates, economic uncertainty, changes in laws, and national and international political circumstances. These factors may affect the level and volatility of securities that the Fund invests in. The Manager actively monitors these factors and, to the extent possible, attempts to mitigate their negative impact on the Fund.
The Fund invests in securities issued primarily by companies located in Egypt. The Egyptian securities markets can be extremely volatile. The Fund's performance will be influenced by political, social and economic factors affecting companies in Egypt. As an emerging market country, Egypt can generally have an economic structure that is less diverse and mature, and a political system that is less stable, than those of developed countries. Further, a fund, such as the Fund, that invests substantially all of its assets in securities of issuers in one country may experience significantly greater volatility than a fund that invests in a more geographically diverse portfolio.
Luxembourg, July 2010 Lazard Asset Management
Note: The information in this report represents historical data and is not an indication of future results.
Corporate Governance
Corporate Governance Principles
As a société d'investissement à capital fixe registered in Luxembourg, the Fund was not, in the year under review, required to comply with the requirements of the UK Combined Code on Corporate Governance ("Combined Code") nor any other code of corporate governance. The Fund is, however, committed to high standards of corporate governance and it is the Fund's policy to comply with best practice on good corporate governance.
The main elements of the Fund's practices and procedures which reflect its special circumstances as an offshore investment company are set out below.
The Board
The Board comprises five non-executive directors all of whom are considered to be independent and offer a wide range of skills and experience to the Fund.
The Combined Code includes provisions relating to:
* the role of the chief executive
* executive directors' remuneration
* the need for an internal audit function.
For the reasons set out in the preamble to the Combined Code, the Board considers these provisions are not relevant to the position of the Fund, being an externally managed investment company.
In the Board's opinion, despite Mr Alexander Zagoreos, Mr Michael Tait, Mr Michael Beckett and Mr Shaker Khayatt each having served on the board of directors of the Fund for more than 9 years, they continue to qualify as independent directors despite their length of service, as they are each, free from any business or other relationships that could materially interfere with the exercise of their respective judgment. In addition, the Directors believe that continuity and experience adds significantly to the strength of the Board. With the exception of Mr Alexander Zagoreos who is a Senior Adviser to Lazard Asset Management LLC (the "Manager"), the aforementioned directors are also independent of the Manager.
The Board is supplied in a timely manner with information in a form and of a quality appropriate to enable it to discharge its duties. Strategic issues and all operational matters of a material nature are determined by the Board.
At every Annual General Meeting ('AGM') each director stands for re-election, rather than retiring by rotation every three years as provided for by the Combined Code.
The Board aims to meet at least three times a year to consider the business and affairs of the Fund and at each meeting reviews investment performance. Between these meetings the Board meets on an ad hoc basis to consider specific matters of a transactional nature. The Directors are kept fully informed of investment and financial controls and other matters that are relevant to the business of the Fund and should be brought to the attention of the Directors. The Directors also have access, where necessary in the furtherance of their duties, to professional advice at the expense of the Fund.
The Board has responsibility for ensuring that the Fund keeps proper accounting records which disclose with reasonable accuracy at any time the financial position of the Fund. The Board is also responsible for safeguarding the assets of the Fund and for taking reasonable steps for the prevention and detection of fraud and other irregularities. However, certain functions have been delegated by the Board to third parties, as further described below.
Corporate Governance (continued)
There is currently no formal process by which the Board carries out a self-appraisal of its performance. However, it is the Board's intention to introduce an appraisal system during the forthcoming financial year ending March 31st, 2011.
The Fund has maintained appropriate directors' liability insurance cover throughout the year.
Audit Committee
The Audit Committee, which is chaired by Mr Michael Tait and also comprises Mr Michael Beckett, Mr Shaker Khayatt and Mr Mohamed Barakat, examines the effectiveness of the Fund's internal control systems, the annual and half-yearly financial reports, the interim management statements, the auditor's remuneration and engagement, as well as the auditor's independence and any non-audit services provided by them.
The Audit Committee meets at least twice annually, being before the Board meets to consider the Fund's half-yearly and annual financial reports. The Audit Committee operates within clearly defined terms of reference and provides a forum through which the Fund's external auditors report to the Board.
The Audit Committee has considered the independence and objectivity of the Auditors and has conducted a review of non-audit services which the Auditors have provided. It is satisfied in these respects that Deloitte S.A. has fulfilled its obligations to the Fund and its Shareholders.
The external auditor is invited to attend all Audit Committee meetings and has the opportunity to meet with the committee without representatives of the Manager being present.
The Fund does not have its own internal audit function, as all the administration is delegated to the Manager. This matter is kept under annual review.
Nomination Committee
The Board operates without a Nomination Committee however the Directors recognise the importance of the progressive refreshing of, and succession planning for, company boards. The Board is of the view that length of service does not necessarily compromise the independence or contribution of Directors of an investment fund, where continuity and experience can add significantly to the strength of the Board.
Internal controls
The Board is responsible for the Fund's system of internal control and for reviewing its effectiveness. The Board confirms that there is an ongoing process for identifying, evaluating and monitoring the significant risks faced by the Fund.
The Board and the Manager have agreed clearly-defined investment criteria, specified levels of authority and exposure limits. Reports on these issues, including performance statistics and investment valuations, are submitted to the Board at each meeting. The Manager's evaluation procedure and financial analysis of the companies within the portfolio include detailed research and appraisal. The Board recognises that these control systems can only be designed to manage, rather than eliminate the risk of failure to achieve business objectives and to provide reasonable, but not absolute, assurance against material misstatement or loss. It relies on the operating controls established by the Manager.
Corporate Governance (continued)
Delegation of responsibilities
The Directors of the Fund clearly define the duties and responsibilities of their agents and advisors. The appointment of agents and advisers is conducted by the Board after consideration of the quality of the parties involved and the Board monitors their ongoing performance and contractual arrangements. The Board has also specified which matters are reserved for a decision by the Board and which matters may be delegated to its agents and advisers.
The Board has delegated a number of areas of responsibility, outlined below.
Management and administration
The management of the investment portfolio has been delegated to the Manager and although the Fund does not operate a management and engagement committee, the Board regularly reviews the performance of the Fund's Manager and its terms of appointment. The Directors continue to believe that in light of the Fund's performance, the appointment of the Manager on the terms set out below is in the interests of the Fund's Shareholders as a whole.
The Manager was appointed on August 2nd, 1996 and under the terms of the agreement with the Fund either party may terminate the agreement by giving three months' prior written notice. Pursuant to this agreement, the Manager is entitled to an annual management fee of 1 per cent. of the value of the gross assets of the Fund, payable monthly in arrears. Under the terms of the agreement the Fund has also agreed to indemnify the Manager from and against any and all liabilities, losses, damages, court costs and reasonable expenses, arising from the act or omission of the Manager, except to the extent that such liability results from a breach of the Manager's fiduciary obligation with respect to the Company or from fraud, wilful default or negligence in the performance or non performance by the Manager of its obligations or duties under the agreement.
Custody and settlement services are undertaken by KBL European Private Bankers S.A. and the appointed Domiciliary Registrar, Transfer and Administrative Agent is Kredietrust Luxembourg S.A..
The Board has delegated the exercise of voting rights attaching to the securities held in the portfolio to the Manager. The Manager follows a proxy voting policy when voting which provides for certain matters to be reviewed on a case by case basis.
The Board regularly reviews the delegated functions to ensure their continued competitiveness and effectiveness, including the Manager, although no formal management and engagement committee has been established.
Dialogue with Shareholders
All holders of Shares in the Fund have the right to receive notice of, and attend, all general meetings of the Fund. The Directors are always available to enter into dialogue with shareholders and make themselves available for such purpose whenever required. The Fund believes such communications to be important.
Deloitte S.A.Audit, Tax, ConsultingFinancial Advisory560, rue de NeudorfL-2220 LuxembourgB.P.1173L-1011 LuxembourgTel: +352 451 451Fax: +352 451 452 401www.deloitte.lu
Report of the Réviseur d'Entreprises Agréé
To the Shareholders ofTHE EGYPT TRUST
Following our appointment by the general meeting of the shareholders, we have audited the accompanying financial statements of THE EGYPT TRUST, which comprise the statement of net assets and the statement of investments and other net assets as at March 31st, 2010 and the statement of operations and other changes in net assets for the year then ended, and a summary of significant accounting policies and other explanatory notes to the financial statements.
Board of Directors of the Fund's responsibility for the financial statements
The Board of Directors of the Fund is responsible for the preparation and fair presentation of these financial statements in accordance with the Luxembourg legal and regulatory requirements relating to the preparation of the financial statements. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.
Responsibility of the réviseur d'entreprises agréé
Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the Commission de Surveillance du Surveillance du Secteur Financier. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgement of the réviseur d'entreprises agréé, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the réviseur d'entreprises agréé considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors of the Fund, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Report of the Réviseur d'Entreprises Agréé(continued)
Opinion
In our opinion, the financial statements give a true and fair view of the financial position of THE EGYPT TRUST as of March 31st, 2010, and of the results of their operations and changes in their net assets for the year then ended in accordance with the Luxembourg legal and regulatory requirements relating to the preparation of the financial statements.
Other matter
Supplementary information included in the annual report has been reviewed in the context of our mandate but has not been subject to specific audit procedures carried out in accordance with the standards described above. Consequently, we express no opinion on such information. However, we have no observation to make concerning such information in the context of the financial statements taken as a whole.
Deloitte S.A.
Réviseur d'entreprises agréé
P. Lenges
Partner
July 7th, 2010560, rue de NeudorfL-2220 LUXEMBOURG
Statement of Net Assets (in USD)
March 31st, 2010 March 31st, 2009
ASSETS
Securities' portfolio at market value 63,862,228 48,338,381
Cash at bank 3,128,164 5,086,232
Receivable on sales of securities - 787,033
Income receivable on portfolio 88,621 286,741
Interest receivable on bank accounts 145 198
Prepaid expenses 1,003 1,038
Total assets 67,080,161 54,499,623
LIABILITIES
Bank liabilities 388,356 2,631,048
Payable on repurchases of Shares 140,499 -
Expenses payable 262,620 300,654
Total liabilities 791,475 2,931,702
Net Assets at the End of the Year 66,288,686 51,567,921
Number of Shares outstanding 2,041,277 2,429,483
Net Asset Value per Share 32.47 21.23
Shareholders' Equity represented by (in USD)
March 31st, 2010 March 31st, 2009
Capital: 8,513,347 17,026,694 17,026,694
Shares at USD 2.00
Share Premium 73,633,306 73,633,306
Legal Reserve 1,702,669 1,702,669
Profit brought forward 68,699,528 61,553,644
Cost of 1,663,837 Shares -15,939,917 -15,939,917
held in treasury
Repurchase of 4,808,233 Shares -73,280,536 -61,125,930
at the requestof Shareholders
Total Capital and Reserves 71,841,744 76,850,466
Net realised gain/loss for the year -3,746,644 7,145,884
Unrealised depreciation -1,806,414 -32,428,429
on securities
Total Shareholders' Equity 66,288,686 51,567,921
The accompanying notes are an integral part of these financial statements.
Statement of Operations (in USD)
Year Ended Year Ended
March 31st, 2010 March 31st, 2009
INCOME
Dividends, net 2,698,364 4,356,639
Interest on bank accounts 14,537 78,232
Received commissions 607,796 10,322
Total income 3,320,697 4,445,193
EXPENSES
Management fees 686,833 762,468
Advisory fees 171,708 190,617
Custodian fees 25,983 28,649
Bank and financial services 200,783 305,625
Central administration costs 75,211 70,882
Audit and supervisory fees 58,189 58,135
Printing and publication expenses 28,823 47,002
Subscription duty ("taxe 33,018 36,525
d'abonnement")
Interest paid 26,836 7
Directors' fees and expenses 201,217 318,706
Other expenses 80,079 129,463
Total expenses 1,588,680 1,948,079
NET INVESTMENT INCOME 1,732,017 2,497,114
NET REALISED GAIN/LOSS
- on sale of securities (-1 year) -368,905 5,094,035
- on sale of securities (+1 year) -5,044,926 -354,940
- on foreign exchange -64,830 -90,325
REALISED GAIN/LOSS -3,746,644 7,145,884
CHANGE
IN
NET
UNREALISED APPRECIATION/DEPRECIATION
- on securities 30,622,015 -70,816,899
INCREASE/DECREASE IN NET ASSETS 26,875,371 -63,671,015
AS A RESULT OF OPERATIONS
The accompanying notes are an integral part of these financial statements
Statement of Changes in Net Assets (in USD)
Year Ended Year Ended
March 31st, 2010 March 31st, 2009
Net Assets at the Beginning 51,567,921 115,445,281
of the Year
Net investment income 1,732,017 2,497,114
Net realised loss on -64,830 -90,325
foreign exchange
Net realised gain/loss on sale -368,905 5,094,035
of securities (-1 year)
Net realised loss on sale -5,044,926 -354,940
of securities (+1 year)
Net realised gain/loss -3,746,644 7,145,884
for the Year
Repurchase of Shares at the -12,154,606 -206,345
request of Shareholders
Change 30,622,015 -70,816,899
in
unrealised appreciation/depreciation
on securities
Net Assets at the End of the Year 66,288,686 51,567,921
Statistical Information about the Fund (in USD)
March 31st, 2010 March 31st, 2009 March 31st, 2008
Net Assets 66,288,686 51,567,921 115,445,281
Net Asset Value 32.47 21.23 47.34
per Share
Statement of Changes in Shares Outstanding For the Year ended March 31st, 2010
Number of Shares Outstanding at the Beginning of the Year 2,429,483
Number of Shares repurchased held in treasury -
Number of Shares repurchased at the request of Shareholders -388,206
Number of Shares Outstanding at the End of the Year 2,041,277
The accompanying notes are an integral part of these financial statements.
Statement of Investments and Other Net Assets March 31st, 2010(in USD)
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Currency Number / nominal value Description Cost Market value % of total net assets
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INVESTMENTS IN SECURITIES
=-------------------------------------------------------------------------------------------------------------------------------------
TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGE LISTING
=-------------------------------------------------------------------------------------------------------------------------------------
Shares
=-------------------------------------------------------------------------------------------------------------------------------------
Banks
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 50,000 Commercial Intl Bank Ltd 389,070 590,810 0.89
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EGP 750,000 Credit Agricole Egypt 1,424,669 1,656,375 2.50
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EGP 750,000 National Société Générale Bank Reg 1,135,766 4,456,956 6.72
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2,949,505 6,704,141 10.11
=-------------------------------------------------------------------------------------------------------------------------------------
Capital goods
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 125,000 El Sewedy Cables Hg Co 2,311,249 1,706,775 2.57
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EGP 75,000 Orascom Construction Industrie Reg 3,098,823 3,594,715 5.42
=-------------------------------------------------------------------------------------------------------------------------------------
5,410,072 5,301,490 7.99
=-------------------------------------------------------------------------------------------------------------------------------------
Consumer durables and apparel
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 250,000 Olympic Group Fin Inv Co SAE 1,629,534 1,408,009 2.12
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 300,000 Oriental Weavers Co 2,585,004 2,173,447 3.28
=-------------------------------------------------------------------------------------------------------------------------------------
4,214,538 3,581,456 5.40
=-------------------------------------------------------------------------------------------------------------------------------------
Diversified financial services
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 1,250,000 Citadel Capital Co 2,872,066 1,857,065 2.80
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 500,000 EFG-Hermes 4,568,119 2,884,126 4.35
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 2,250,000 Pioneers Holding 2,963,687 1,887,940 2.85
=-------------------------------------------------------------------------------------------------------------------------------------
10,403,872 6,629,131 10.00
=-------------------------------------------------------------------------------------------------------------------------------------
Energy
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 350,000 Alexandria Mineral Oils Co 3,582,012 2,702,234 4.08
=-------------------------------------------------------------------------------------------------------------------------------------
=-------------------------------------------------------------------------------------------------------------------------------------
Hotels restaurants and leisure
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 2,500,000 Talaat Moustafa Group Holding 4,279,070 3,482,565 5.25
=-------------------------------------------------------------------------------------------------------------------------------------
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Insurance
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 375,000 Delta Insurance 746,842 583,681 0.88
=-------------------------------------------------------------------------------------------------------------------------------------
=-------------------------------------------------------------------------------------------------------------------------------------
Investment companies
=-------------------------------------------------------------------------------------------------------------------------------------
USD 1,500,000 Al Arafa Inv & Consulting 1,629,275 1,035,000 1.56
=-------------------------------------------------------------------------------------------------------------------------------------
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Materials
=-------------------------------------------------------------------------------------------------------------------------------------
GBP 650,000 Centamin Egypt Ltd 1,077,916 1,338,872 2.02
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EGP 600,000 Egyptian Financial & Indust Co Reg 1,697,502 2,612,060 3.94
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 450,000 Ezz Steel 1,767,715 1,726,934 2.61
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 200,000 Paint and Chemical Ind 1,282,264 1,814,748 2.74
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 1,000,000 Sidi Kerir Petrochemicals 3,557,373 2,655,285 4.01
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 200,000 Suez Cement Co 1,915,604 1,608,427 2.43
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 225,000 Tourah Cement Co 1,865,343 1,464,175 2.21
=-------------------------------------------------------------------------------------------------------------------------------------
13,163,717 13,220,501 19.96
=-------------------------------------------------------------------------------------------------------------------------------------
=-------------------------------------------------------------------------------------------------------------------------------------
Pharmaceuticals and biotechnology
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 650,000 Egyptian Intl Pharm Industr Co 1,910,383 4,340,810 6.55
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 50,845 Memphis Pharmaceutic Chem Ind 527,052 323,761 0.49
=-------------------------------------------------------------------------------------------------------------------------------------
2,437,435 4,664,571 7.04
=-------------------------------------------------------------------------------------------------------------------------------------
Real estate
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 300,000 Heliopolis Housing & Dev SA 4,639,377 1,756,629 2.65
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 125,000 Namaa Dév Real Estate InvestCo 292,053 250,182 0.38
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 250,000 Nasr City Housing & Dev SA 1,452,326 1,481,566 2.23
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 1,125,000 Palm Hills Devlopments SAE 1,403,642 1,342,399 2.02
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 100,000 Sixth of Octob Dev & Inv Co SA 2,453,577 1,772,067 2.67
=-------------------------------------------------------------------------------------------------------------------------------------
10,240,975 6,602,843 9.95
=-------------------------------------------------------------------------------------------------------------------------------------
Retailing
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 100,000 B-Tech 61,514 70,287 0.11
=-------------------------------------------------------------------------------------------------------------------------------------
=-------------------------------------------------------------------------------------------------------------------------------------
Telecommunication services
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 3,675,000 Orascom Telecom Holding 651,912 3,757,764 5.67
=-------------------------------------------------------------------------------------------------------------------------------------
USD 295,000 Orascom Telecom Holding GDR Reg repr 5 Shares 1,523,980 1,510,400 2.28
=-------------------------------------------------------------------------------------------------------------------------------------
EGP 1,300,000 Telecom Egypt 4,373,923 4,016,164 6.06
=-------------------------------------------------------------------------------------------------------------------------------------
6,549,815 9,284,328 14.01
=-------------------------------------------------------------------------------------------------------------------------------------
TOTAL INVESTMENTS IN SECURITIES 65,668,642 63,862,228 96.34
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CASH AT BANK 3,128,164 4.72
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BANK LIABILITIES -388,356 -0.59
=-------------------------------------------------------------------------------------------------------------------------------------
OTHER NET ASSETS AND LIABILITIES -313,350 -0.47
=-------------------------------------------------------------------------------------------------------------------------------------
TOTAL NET ASSETS 66,288,686 100.00
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The accompanying notes are an integral part of these financial statements.
Currency, Geographical and Industrial Classification of the Fund March 31st, 2010(in percentage of net assets)
Currency Classification
Egyptian Pound 90.48 %
US Dollar 3.84 %
Pound Sterling 2.02 %
TOTAL INVESTMENTS IN SECURITIES 96.34 %
US Dollar 4.72 %
TOTAL CASH AT BANK 4.72 %
Egyptian Pound -0.59 %
TOTAL BANK LIABILITIES -0.59 %
OTHER NET ASSETS AND LIABILITIES -0.47 %
TOTAL NET ASSETS 100.00 %
Geographical Classification
Egypt 94.32 %
Australia 2.02 %
TOTAL INVESTMENTS IN SECURITIES 96.34 %
CASH AT BANK 4.72 %
BANK LIABILITIES -0.59 %
OTHER NET ASSETS AND LIABILITIES -0.47 %
TOTAL NET ASSETS 100.00 %
Industrial Classification
Materials 19.96 %
Telecommunication services 14.01 %
Banks 10.11 %
Diversified financial services 10.00 %
Real estate 9.95 %
Capital goods 7.99 %
Pharmaceuticals and biotechnology 7.04 %
Consumer durables and apparel 5.40 %
Hotels, restaurants and leisure 5.25 %
Energy 4.08 %
Investment companies 1.56 %
Insurance 0.88 %
Retailing 0.11 %
TOTAL INVESTMENTS IN SECURITIES 96.34 %
CASH AT BANK 4.72 %
BANK LIABILITIES -0.59 %
OTHER NET ASSETS AND LIABILITIES -0.47 %
TOTAL NET ASSETS 100.00 %
The accompanying notes are an integral part of these financial statements.
Notes to the Financial Statements March 31st, 2010
NOTE 1 - GENERAL
THE EGYPT TRUST (the "Fund" or the "Corporation") is a closed-end investment corporation incorporated as an investment corporation under the laws of the Grand Duchy of Luxembourg and qualifies as a "société d'investissement à capital fixe" under the amended law of December 20th, 2002 (the "2002 Law") regarding undertakings for collective investments and the law of August 10th, 1915, as amended regarding commercial companies. The Fund is governed by Part II of the Luxembourg 2002 Law.
The Fund was incorporated in Luxembourg on July 23rd, 1996 for an indefinite period.
The Articles have been published in the "Mémorial, Recueil des Sociétés et Associations" and they have been filed with the Registrar of the Luxembourg District Court, where copies thereof may be obtained. In addition, a legal notice concerning the issue of the Shares is on file with the Registrar of the Luxembourg District Court.
The Fund's investment policy is to achieve medium to long-term capital growth through investments principally in the equities of companies listed on the Egyptian Stock Exchange.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a)Presentation of Accounts
The financial statements are presented in conformity with Luxembourg legal and regulatory requirements relating to investment funds. The Fund keeps its books and records in USD.
b)Valuation
1) The NAV per Share is calculated in accordance with Article 22 of the Fund's Articles on each Valuation Date (as defined in the Articles). "Valuation Date" means the date fixed by the Board of Directors (the "Board") for the valuation of the Shares being Friday of each week (or, if that day is not a business day in Luxembourg, on the next business day).
The NAV per Share is determined by dividing the Net Assets of the Fund, being the value of its assets less liabilities, by the number of Shares then outstanding.
2) In calculating the NAV per Share, income and expenses are treated as accruing from day to day and the Fund's Articles provide, inter alias, that:
(i) unquoted investments will initially be valued at cost price, which will include any expenses relating to their acquisition;
(ii) a revaluation of unquoted investments to a value in excess of or below cost may be made where, in the opinion of the Board, or in the opinion of the Fund's Manager (where the Board has delegated its powers), it is justified. Factors affecting such revaluations may include: the prices at which further issues of capital or dealings between third parties take place, the market value of comparable companies (making appropriate adjustments for such factors as limitation of marketability) or the price at which any agreement has been entered into, or is reasonably contemplated, for the sale of the investments;
(iii) securities which are listed on an official stock exchange or traded on any other regulated market will be valued at the last available price on the principal market on which such securities are traded, or by a pricing service approved by the Board;
(iv) assets or liabilities expressed in terms of currencies other than USD will be translated into USD at the prevailing market rate for such currencies at the Valuation Date.
3) First-in first-out method: Purchases of securities are recorded at cost. Realized gains and losses on securities sold are computed on the first-in first-out basis.
4) The value of cash in hand or on deposit, bills and notes payable on presentation, accounts due, prepaid expenses and dividends and interest declared and fallen due but not yet received consists of the nominal value of such assets, except, however, in the event that it seems improbable that such value can be realized, in which event the value is determined by deducting a sum which the Board considers appropriate to reflect the realizable value of such assets.
5) Foreign currencies monetary assets and liabilities denominated in foreign currencies in the Statement of Net Assets are translated into USD at the exchange rates ruling at the date of the report. Transactions in foreign currencies are recorded in USD based on the exchange rates in effect at the date of transactions. The following significant exchange rates have been applied for the conversion as at the date of the report:
USD
1 EGP Egyptian Pound 0.1816200
1 EUR Euro 1.3525500
1 GBP Pound Sterling 1.5173500
c)Income Recognition
Interest is recorded on an accrual basis, net of any withholding taxes in the relevant country. Dividend income is recorded on the ex-date, net of any withholding taxes in the relevant country.
d)Net Realised Gain/Loss
The net realised gain/loss on sale of securities is split between two accounts depending on the fact that the securities have been owned during more than one year or not.
NOTE 3 - MANAGEMENT AND ADVISORY FEES
The Fund pays Lazard Asset Management LLC, the Manager, annual management fees of 1.00%, of the value of the gross assets of the Corporation, payable monthly in arrears and to National Bank of Egypt, the Investment Adviser, 0.25%, per annum, of the value of the gross assets of the Corporation, payable monthly in arrears.
NOTE 4 - TAXES
As a Luxembourg investment company, under present laws the Fund is not subject to income taxes in Luxembourg. Taxes may be withheld at the source on dividends and interest received on investment securities.
According to the Luxembourg 2002 Law, the Fund is subject to Luxembourg subscription duty ("taxe d'abonnement") at the rate of 0.05% per annum of its Net Assets, such tax being payable quarterly on the basis of the Total Net Assets of the Fund at the end of the relevant quarter.
NOTE 5 - REPURCHASES OF SHARES HELD IN TREASURY
The Fund is not obliged to repurchase Shares at the request of Shareholders.
The maximum price at which Shares can be repurchased will be the NAV per Share. Under Luxembourg law, repurchases may only be made to the extent that the Corporation has distributable reserves available for the purpose, being Share premium or accumulated reserves.
Any Shares so repurchased will be held in treasury or will be cancelled by way of reduction of issued capital. The Shares held in treasury may be resold at any time, at the discretion of the Board, if a premium to the NAV per Share may be obtained. Details of such repurchases and sales will be communicated to all Shareholders as well as to the London and the Luxembourg Stock Exchanges and to the Egyptian Stock Exchange if the Shares are listed there.
The Fund did not repurchase any Shares held in treasury during the year ended March 31st, 2010 and at this date, a total of 1,663,837 Shares are held in treasury for an amount of USD 15,939,917.
NOTE 6 - REPURCHASES AT THE REQUEST OF SHAREHOLDERS
Following to the Extraordinary General Meeting on November 17th, 2003 and to the circular resolution on December 24th, 2003 Shareholders may request the Corporation from December 29th, 2003 to redeem all or part of their Shares quarterly at a redemption price equal to the NAV per Share of the applicable Valuation Date, reduced by a redemption fee of up to 5% for the benefit of the Corporation to cover dealing charges. As of March 31st, 2010, such redemption fee amounts to USD 607,796 and is registered under the caption "received commissions" in the Statement of Operations. The Corporation shall redeem such Shares within the sole limitations set forth by law, the Fund's Articles and the prospectus and subject to any event giving rise to suspension as referred in the prospectus.
If the total value of requests for redemption of Shares received on any specific redemption date exceeds 10% of the Total Net Asset Values of Shares in issue, the redemption requests will be reduced pro rata to the holdings of the Shareholders who applied for redemption.
NOTE 7 - CAPITAL
The authorized Share capital of the Corporation on incorporation of the Fund was USD 40,000,000 divided into 20,000,000 Shares with a par value of USD 2.00 each.
On December 12th, 1997, a capital increase of 8,490,847 Shares was registered with a par value of USD 2.00 each.
The Fund is required by Luxembourg law to transfer at least 5% of its yearly net profits to a non-distributable legal reserve until such reserve amounts to 10% of the Fund's nominal Share capital. This reserve is not available for dividend distribution.
Following the Fund's Annual General Meeting Minutes on August 18th, 2009, no dividend has been distributed.
NOTE 8 - CUSTODIAN FEES
The Custodian receives, under the terms of the Custodian Agreement, fees for its services at rates to be agreed from time to time between the Fund and the Custodian in accordance with Luxembourg practice.
NOTE 9 - DIRECTORS FEES
Each of the Directors shall be paid a fee at such a rate as the Board shall determine provided that the aggregate of such fees shall not exceed USD 200,000 per annum or such higher amount as may from time to time be decided by resolution of the Corporation.
The Directors shall also be entitled to reimbursement of all travelling, hotel and other expenses properly incurred by them in attending and returning from meetings or otherwise in connection with the business of the Corporation.
NOTE 10 - BENEFICIAL AND NON-BENEFICIAL INTEREST OF DIRECTORS IN THE SHARE CAPITAL
As of March 31st, 2010, the beneficial and non-beneficial interests of the Directors in the Share capital are the following:
Alexander E. Zagoreos 2,500 Shares
NOTE 11 - DIRECTORS' INTEREST IN SIGNIFICANT CONTRACTS
Alexander E. Zagoreos was a Managing Director of Lazard Asset Management LLC through December 31st, 2005 and became a Limited Managing Director effective January 1st, 2006. He became a Senior Advisor on January 1st, 2008.
NOTE 12 - SUBSTANTIAL SHAREHOLDINGS
As of March 31st, 2010, the Board was aware of the following interests in the Shares of the Fund:
Ordinary Shares Percentage of
Issued Capital
=--------------------------------------------------------
National Bank of Egypt 1,501,315 73.5%
=--------------------------------------------------------
Banque Misr 391,384 19.2%
=--------------------------------------------------------
NOTE 13 - CHANGES OF THE INVESTMENT PORTFOLIO
The changes of the investment portfolio referring to the period of the report are available free of charge at the registered office of the Fund.
NOTE 14 - ADDENDUM TO THE PLACING MEMORANDUM
The Board has resolved to amend the prospectus with a consolidated addendum to the prospectus dated August 2nd, 1996. The prospectus may not be distributed without the consolidated addendum dated December 2003.
NOTE 15 - POST BALANCE SHEET EVENTS
On June 7th, 2010, the Fund announced that it had become aware that, as a result of the quarterly share redemptions offered by the Fund, two shareholders, National Bank of Egypt and Banque Misr (the "Major Shareholders") hold 1,501,315 ordinary shares and 391,384 ordinary shares respectively in the capital of the Fund, representing a combined holding of 92.7% of the Fund's issued share capital. Listing Rule 6.1.19 states that at least 25% of a listed company's issued share capital must be held in public hands and that shares held by any person or persons in the same group or persons acting in concert who have an interest in 5% or more of the shares are not deemed to be in public hands. In accordance with Listing Rule 9.2.16, the Fund has informed the UK Listing Authority ("UKLA") that, given the size of the combined shareholdings of the Major Shareholders, the Fund is currently not able to comply with the shares in public hands requirement and it remains in consultation with the UKLA regarding this issue. The Board confirmed to the market that it would be considering all possible and appropriate options for redressing the Fund's current free float position and will continue to engage with the Major Shareholders in seeking a resolution.
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