RNS Number:6659D
Prospect Japan Fund Ld
11 September 2007
THE PROSPECT JAPAN FUND LIMITED
UNAUDITED PRELIMINARY ANNOUNCEMENT OF PROFITS
For the period from 1 January 2007 to 30 June 2007
Market Performance (%), US$ NAV
YTD 2007 1 Year 3 Year 5 Year
(30/06/2007)
PROSPECT JAPAN FUND 7.41% 8.92% 25.41% 124.59%
TOPIX SMALL 2.29% -3.16% 28.31% 110.83%
TSE2 -2.03% -10.18% 15.41% 136.97%
Prospect Japan Fund Limited's (the "Company's") inception date was 20 December
1994. Topix Small is the capitalization-weighted index designed to measure the
stocks not included in the Topix 500 Index that are listed on the First Section
of the Tokyo Stock Exchange. TSE2 is the capitalization-weighted index of all
companies listed on the Second Section of the Tokyo Stock Exchange. As of August
2003, the benchmark of the Company changed from TSE2 to Topix Small since its
characteristics with respect to average market capitalization more closely
resemble the investment strategy pursued by the portfolio. The above performance
of the Fund is net of fees and expenses and includes reinvestment of dividends
and capital gains. Source: Prospect Asset Management, Inc. Topix Small and TSE2
Index performance includes the reinvestment of dividends. Source: Bloomberg.
Summary
As of 30 June, 2007 the fund posted a Year-to-Date return of 7.41% versus the
benchmark Topix Small Index which rose 2.29%. Small cap in general and small cap
domestic demand in particular, has lagged the broader market. We feel there are
two components to this. Foremost is the ongoing failure of record corporate
profits to flow through to better consumption. Japanese companies have hitherto
chosen to make use of cash flows to buy back shares and raise dividends rather
than increase salaries and bonuses. Secondly, following the exceptional move
from 2002-2006, small cap specialist funds appear to continue to see net
redemptions.
Regarding consumption, we maintain our view that we are near a bottom. The macro
environment for condominium developers, be it number of units coming to market,
or average sale price per unit, has shown signs of improvement in the recent
months. The most recent retail sales figures from the Ministry of Economy, Trade
and Industry, (METI) showed a growth of 0.1% in May from a year earlier;
signalling spending by consumers may at last be beginning to pick up.
The fund's most important strategy in the last 18 months has involved the JREIT
sector. We have been aggressively overweight since the middle of 2006, and the
bulk of the fund's first half returns accrued from this asset class. The past
several months have seen a contraction in the JREIT sector's discount to NAV, a
drop in the dividend yields, and a rise in long-term bond rates. This has
combined to cause a correction in the JREIT space, and we have positioned the
fund accordingly. Since February's peak in JREIT exposure, the fund has scaled
back its JREIT holdings to account for slightly less than 15% of the fund. We
have reinvested some of this capital into our core property development
positions.
Outlook
The asset reflation story remains intact, but it is making itself manifest in
various pockets of the economy. The first asset class to recover was the large
listed property developers, followed by the commercial property sites
themselves. As cap rates fell for class A buildings, we saw JREITs become a new
source of liquidity both for physical property transactions and investment
flows. We are of the view that the greatest opportunity in the market currently
lies in underutilized property embedded in equity, i.e. hidden asset plays. This
strategy currently represents approximately 15% of the fund. With yields having
dropped below 2% on class A sites, and the JREIT index yield at 3%, we think
some of the undervalued sites possess implied yields of approximately 5%.
The Prospect Japan Fund Limited is a closed-end investment company incorporated
in Guernsey, and listed on the London Stock Exchange. The Company's investment
objective is to achieve long-term capital growth from a portfolio of securities
primarily of smaller Japanese companies listed or traded on Japanese Stock
Markets. Past performance is no indication of future results.
UNAUDITED INCOME STATEMENT
for the period from 1 January 2007 to 30 June 2007
Revenue Capital Total Revenue Capital Total
01.01.2007 01.01.2007 01.01.2007 01.01.2006 01.01.2006 01.01.2006
to to to to to to
30.06.2007 30.06.2007 30.06.2007 30.06.2006 30.06.2006 30.06.2006
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Dollars Dollars Dollars Dollars Dollars Dollars
Gains/(losses)
on investments - 16,508,860 16,508,860 - (24,375,822) (24,375,822)
Other (losses)/
gains - (507,385) (507,385) 22,460 296,628 319,088
Investment
income:
Dividends 2,619,690 - 2,619,690 2,254,246 - 2,254,246
Interest - - - 1,475 - 1,475
2,619,690 16,001,475 18,621,165 2,278,181 (24,079,194) (21,801,013)
Management (1,790,750) - (1,790,750) (1,785,725) - (1,785,725)
fee
Other (1,055,805) - (1,055,805) (1,017,091) - (1,017,091)
expenses
(Deficit)/
return on
ordinary
activities
before tax (226,865) 16,001,475 15,774,610 (524,635) (24,079,194) (24,603,829)
Withholding
tax (166,168) - (166,168) (157,473) - (157,473)
(Deficit)/
return on
ordinary
activities
for the
period (393,033) 16,001,475 15,608,442 (682,108) (24,079,194) (24,761,302)
(Deficit)/
return per
Ordinary
Share -
Basic &
Diluted (0.004) 0.156 0.152 (0.007) (0.230) (0.237)
The above results relate to continuing operations of the Company.
The figures contained in this announcement are unaudited.
UNAUDITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS' FUNDS
for the period from 1 January, 2007 to 30 June, 2007
Capital
Capital Capital Capital Reserve/
Share Redemption Redemption Revenue Reserve/ Reserve/ Exchange
capital Reserve Reserve Reserve Realised Unrealised Differences Total
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars
Balances at
1 January,
2007 102,824 312,685 96,730,082 (14,097,274) 142,497,446 (3,172,177) 36,295 222,409,881
Movements
during the
period
Realised
gains on
investments
sold - - - - 22,025,352 - - 22,025,352
Movement on
unrealised
loss on
revaluation
of
investments - - - - - (5,516,492) - (5,516,492)
Losses on
foreign
exchange - - - - - - (507,385) (507,385)
Deficit on
ordinary
activities - - - (393,033) - - - (393,033)
Redemption
of shares (675) 675 (1,446,159) - - - - (1,446,159)
Balances at
30 June,
2007 102,149 313,360 95,283,923 (14,490,307) 164,522,798 (8,688,669) (471,090) 236,572,164
for the period from 1 January, 2006 to 30 June, 2006
Capital
Capital Capital Capital Reserve/
Share Redemption Redemption Revenue Reserve/ Reserve/ Exchange
capital Reserve Reserve Reserve Realised Unrealised Differences Total
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars
Balances at
1 January,
2006 105,354 310,155 102,139,113 (12,965,499) 97,585,899 61,859,924 (250,230) 248,784,716
Movements
during the
period
Realised
gains on
investments
sold - - - - 32,259,171 - - 32,259,171
Movement on
unrealised
loss on
revaluation
of
investments - - - - - (56,634,993) - (56,634,993)
Gain on
foreign
exchange - - - - - - 296,628 296,628
Deficit on
ordinary
activities - - - (682,108) - - - (682,108)
Redemption
of shares (2,300) 2,300 (4,955,041) - - - - (4,955,041)
Balances at
30 June,
2006 103,054 312,455 97,184,072 (13,647,607) 129,845,070 5,224,931 46,398 219,068,373
UNAUDITED BALANCE SHEET
as at 30 June 2007
30.06.2007 30.06.2006
In U.S. Dollars In U.S. Dollars
Assets
Securities at fair value through profit
and loss 225,627,115 216,392,506
Current assets
---------- ----------
Debtors 831,305 5,354,946
Bank deposits 25,303,323 406,620
---------- ----------
Total Current Assets 26,134,628 5,761,566
---------- ----------
Liabilities falling due within one year
Creditors 15,189,579 3,085,699
---------- ----------
Net current assets 10,945,049 2,675,867
---------- ----------
Net assets 236,572,164 219,068,373
========== ==========
Represented by:
SHARE CAPITAL AND RESERVES
Share capital 102,149 103,054
Redemption reserve 95,283,923 97,184,072
Capital redemption reserve 313,360 312,455
Other reserves 140,872,732 121,468,792
---------- ----------
Shareholders' funds attributable to
equity interests 236,572,164 219,068,373
========== ==========
Ordinary Shares in issue 102,149,520 103,054,521
========== ==========
Net Asset Value per Ordinary Share 2.32 2.13
========== ==========
UNAUDITED CASH FLOW STATEMENT
for the period from 1 January 2007 to 30 June 2007
01.01.2007 to 01.01.2006 to
30.06.2007 30.06.2006
In U.S. Dollars In U.S. Dollars
Operating activities
Net cash inflow/(outflow) from operating
activities 440,272 (1,269,966)
--------- ---------
Financial investment
Purchase of investments (152,040,734) (126,661,284)
Sale of investments 177,127,649 115,934,134
---------- ----------
Net cash flow from financial investment 25,086,915 (10,727,150)
---------- ----------
Net cash flow before financing 25,527,187 (11,997,116)
Financing
Repurchase of shares (1,446,160) (4,955,041)
---------- ----------
Net cash outflow from financing (1,446,160) (4,955,041)
---------- ----------
Increase/(decrease) in cash 24,081,027 (16,952,157)
========== ==========
Reconciliation of net cash flow to
movement in net funds
Net cash inflow/(outflow) 24,081,027 (16,952,157)
Effects of foreign exchange rate changes (507,385) 296,628
Net funds at beginning of period 1,729,681 17,062,149
---------- ----------
Net funds at end of period 25,303,323 406,620
========== ==========
Revision of Borrowing Powers
The Company's Articles restrict the borrowing powers of the Directors to 25 per
cent. of the adjusted capital and reserves of the Company. In the past, the
Directors have limited the borrowings of the Company to 10 per cent. of its
adjusted capital and reserves to be used only for short-term borrowings and
liquidity purposes.
It is the Directors' intention to revise this limitation, with immediate effect,
to allow the exercise of the borrowing power for up to 20 per cent. of the
Company's adjusted capital and reserves and to be able to employ such gearing
for tactical as well as short-term borrowing and liquidity purposes.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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