TIDMPJF
RNS Number : 5819K
Prospect Japan Fund Ld
21 April 2010
THE PROSPECT JAPAN FUND LIMITED
ANNUAL REPORT AND AUDITED FINANCIAL STATEMENTS
The financial information set out in this announcement does not constitute the
Company's statutory accounts for the year ended 31 December 2009. All figures
are based on the audited financial statements for the year ended 31 December
2009.
The financial information for the year ended 31 December 2009 is derived from
the financial statements delivered to the UK Listing Authority. The Auditors
reported on those accounts, their report was unqualified and did not contain a
statement under Section 262 of The Company (Guernsey) Law, 2008.
The announcement is prepared on the same basis as will be set out in the annual
accounts.
CHAIRMAN'S REPORT
for the year ended 31 December, 2009
The year ended 31 December, 2009 has again been a difficult one for Japan.
Economic uncertainty, both globally and domestically, coupled with an almost
continuously strengthening Yen provided an environment of difficult trading
conditions. Despite all of this, your Investment Advisor has performed very
satisfactorily with the Net Asset Value (NAV) performance showing a 35.71%
increase for the year and the NAV per share showing an increase from $56 to $76
per share, whilst the Topix Small Index closed up 2.3% for the year. The
discount at the year end was 20.5% having narrowed from the level of 38.6% at
the commencement of the year.
The Investment Advisor reports in greater detail on the portfolio in their
report within these Financial Statements. The Board remains supportive of the
strategy pursued by the Investment Advisor and is hopeful that the improvement
in performance experienced this year will continue.
Directorate - Richard Battey was appointed to the Board as a non-executive
director and Chairman of the Audit Committee effective 10 February, 2010. Rupert
Evans is subject to annual re-election due to his position as a Director of the
Manager and, being eligible, has offered himself for re-election. All of the
other Directors are independent and this provides an appropriate balance. David
Fitzwilliam-Lay is subject to annual re-election in accordance with Section A7
of The New Combined Code of the London Stock Exchange as he has been appointed
as a Director of the Company for more than 9 years and has offered himself for
re-election. Richard Battey is subject to re-election in accordance with Article
76 of the Articles of Incorporation of the Company, and being eligible, has
offered himself for re-election.
Annual General Meeting - The Annual General Meeting of the Company is due to
take place on 27 August, 2010 at 10.30 at the Company's registered office at
Trafalgar Court, St Peter Port, Guernsey.
John Hawkins
Chairman
20 April, 2010
INVESTMENT ADVISOR'S REPORT
for the year ended 31 December, 2009
Market Performance (%), US$ NAV
1 Year 3
Year 5 Year
31.12.09
Prospect Japan Fund 35.71(64.81)(55.29)
Topix Small 2.61
(20.62) (2.09)
Prospect Japan Fund inception date was 20 December 1994. Topix Small is a
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. As of August 2003, the benchmark of the Prospect Japan Fund 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. Above performance of the Fund is net of fees and expenses and
includes reinvestment of dividends and capital gains. Fund Performance Source:
Prospect Asset Management, Inc. Index Performance Source: Bloomberg.
Summary
The Prospect Japan Fund Limited (the "Company") returned 35.7% in 2009, and
significantly outpaced the benchmark Topix Small Index' 2.6% gain. Strength in
the Japanese REIT market as well as significant gains from the real estate and
non-bank finance sectors drove performance higher.
The real estate asset management sector saw its share of problems as banks
reduced lending to real estate firms. Despite the shake-out, one firm survived
after receiving a roll-over of debt by extending long term loans from two
domestic mega-banks during a period of heightened uncertainty. The Company owned
convertible bonds in Kenedix, achieving stellar gains once it was clear that
Kenedix would survive.
The non-bank finance sector surged in November when the sector was upgraded by a
sales side analyst after a report in the Nikkei said that the government could
ease money lending regulations by relaxing money lending laws. The Company was
invested in convertible bonds of Takefuji. Takefuji successfully exchanged part
of an outstanding convertible bond for a combination of cash and a new bond.
The Company outperformed the market, despite the abundance of lingering bad
economic news. The first half of the year marked a period of high bankruptcies
- 18 for the first six months of 2009, marking the second worst first half
period since 22 companies filed for bankruptcy in 2002. One of the Company's
holdings, Azel, a condominium developer filed for bankruptcy protection. Azel
failed due to counterparty risk when a customer was unable to secure financing
for the purchase of one of Azel's assets. Azel was no longer able to meet
financing requirements on their own debt obligations.
Consumer spending remains weak, as department store sales continue to decline by
close to 10% annually. Unemployment figures have improved to 5.1% after reaching
a record high of 5.7% in July. Government stimulus measures provided support for
the real estate and J-REIT market, diminishing risks of bankruptcies. It is
highly probable that further economic stimulus measures will be necessary in
Japan and globally to provide the needed boost to a prolonged economic recovery.
Japan's newly elected (August 2009) government enjoyed high approval ratings in
the first few months after the election, but recent scandals within the
Democratic Party of Japan will make governing difficult in the coming months as
popular support has receded in the polls.
JREIT Market 2009
2009 for the JREIT market revolved around stabilizing concerns brought about by
the previous year's failure of New City Residence, and successive bankruptcies
of several JREIT sponsor companies, and weakness of others. Financing concerns
were largely mitigated by the establishment of a government sponsored real
estate market stabilization fund in September 2009, which was intended to be a
lender of last resort for JREITs. The sponsorship changes that began in 2008
went into full swing, along with the four announced mergers, all on schedule for
completion in 2010.
Holdings
JREIT Mergers scheduled for completion in 2010
New City Residence acquires BLife Investment
The fate of New City Residence (8965, NCR), the JREIT whose failure in 2008
helped spark a loss in confidence in the sector, was at the front of ongoing
consolidation efforts during 2009. On 7 April, America's Lone Star Real Estate
Fund was announced as the winner of an extended bidding process to determine
sponsorship for NCR. However, the JREITs future was thrown back into turmoil
when its creditors twice rejected the rehabilitation plan. This opened the door
for Daiwa House Industries, who secured sponsorship and creditor approval on 9
December. Daiwa House's offer, as detailed below, also includes a merger with
BLife Investment (8984) which completed on 1 April 2010 with BLife Investment as
the surviving entity.
Third Party Offering
+-------------+----------------+
| New Units: | 120,000 |
+-------------+----------------+
| Price: | JPY50,000 |
| | |
+-------------+----------------+
| Receipts | |
+-------------+----------------+
| Daiwa House | 60,000 |
| | Units |
+-------------+----------------+
| SMBC | 20,000 |
| | Units |
+-------------+----------------+
| Chuo Mitsui | 20,000 |
| Trust | Units |
+-------------+----------------+
| Mizuho | 20,000 |
| Securities | Units |
+-------------+----------------+
Blife - NCR Merger
+------------+------------+
| Merger | 0.23 |
| Ratio: | shares of |
| | Blife for |
| |1 share of |
| | NCR |
+------------+------------+
Advance Residence mergers with Nippon Residential
On 6 August, shareholders of Advance Residence (8978) and Nippon Residential
(8962, NRI) announced approval of a consolidation-type merger between the
JREITs, which completed on 1 March 2010, at which time both JREITs were
delisted, and the combined entity listed the following day. This followed the 6
August announcement that Advance Residence sponsor ITOCHU Corp. would take over
sponsor of NRI from bankrupt Pacific Holdings.
Advance - Nippon Residential Merger
+------------+-------------+------------+
| Merger | Merger | |
| Ratio: | Ratio: | |
| Advance | Nippon | |
| |Residential | |
+ + +------------+
| | | |
+------------+-------------+------------+
| 3 : 1 | 2 : 1 | |
+------------+-------------+------------+
Japan Retail Fund acquires LaSalle Japan REIT
On 29 October, retail focused Japan Retail Fund (8953, JRF) and diversified
LaSalle Japan REIT (8974, LJR) announced their intention to merge on 12 March
2010. The merger ratio is set to 1 share of LJR for 0.295 share of JRF. In the
interest of reducing the amount of partial shares, JRF will execute a 4-for-1
stock split the day of the merger.
Japan Retail - LaSalle Japan Merger
+------------+---------------+
| Merger | Merger |
| Ratio: |Ratio:Pre-JRF |
| | stock split |
+------------+---------------+
| 1 : 1.18 | 1 : 0.295 |
+------------+---------------+
Invincible Investment (formerly TGR Investment) acquires LCP Investment
On 17 November, diversified JREIT's TGR Investment (8963) and LCP Investment
(8980) announced their intention to merge at a ratio of 0.8 share of TGR for
each LCP share which was approved by the shareholders of both companies, and
completed on 1 February 2010. TGR Investment is to be the surviving entity with
LCP's asset management company becoming the advisor. The new entity is listed
under the name Invincible Investment. This was the fourth announced JREIT
merger, and the first among "equals", as both diversified REITs were small cap
with weaker sponsor companies. The rationale behind the merger is that it will
enable the companies to alleviate refinancing difficulties by taking advantage
of negative goodwill generated to dispose of properties and repay debts without
adverse effect on dividends. Going forward, the merged JREIT will continue to
seek a strong sponsor company.
Sponsor changes
On 16 June, DA Office Investment (8976)announced a change of sponsor to Daiwa
Securities. Daiwa Securities was allotted 51,893 new units of the JREIT for a
13.11% holding, making it the 2nd largest shareholder after DaVinci subsidiary
Columbus. Columbus holds 35.09% after the issuance.
The change in sponsor is expected to improve the financing environment for the
JREIT in the short-term, and synergies with Daiwa Securities are expected to
benefit growth and real estate management going forward. At present there are
no plans to change the investment strategy or to engage in M&A, though they are
not opposed to the prospect.
Crescendo Investment (8966) announced the transfer of 100% of the asset
management company to Heiwa Real Estate, citing the need for a strong sponsor in
the current climate. The change in sponsorship goes along with a secondary
equity offering to Heiwa RE of 23,238 shares at JPY129,100 for a total price of
JPY3bn. Combined with existing holdings, Heiwa RE now owns 19.38% of Crescendo.
The issuance price represented a 3.2% discount to the last traded price on 6
October 2009. The new shares caused dilution of 21.3%.
On 20 October, MID REIT (3227), a JREIT focused on office properties in the
Osaka area, announced the effective change in sponsorship to The Kansai Electric
Power Co. Expected benefits include better refinancing terms.
Expected consolidation announcements for 2010
Nippon Commercial Investment (3229) announced an extension on its deadline for
selection of a new sponsor company in November. Original plans called for a
final decision on exclusive negotiation rights by the end of October. The
company is still in negotiation with several potential new sponsors and is
hoping to come to a decision around end November. Potential arrangements
include possible merger with an existing JREIT.
In November, Joint REIT (8973) announced a fast-track sponsor search after the
company decided to split from Joint Group due to what it feels is the inadequacy
of the group's new sponsor, Reno. The REIT found a new sponsor in Sekisui
House.
Outlook for the Company
We expect to continue to outperform the market via stock picking. However, we
do not expect the overall market to improve dramatically.
While we continue to believe that the focus of the market will continue to be on
consolidation and sponsorship changes, there is also an increasing interest in
the ability of JREITs to execute new property acquisitions. There is a growing
consensus that Japanese Real Estate has reached a bottom, presenting JREITs the
opportunity to acquire properties at attractive yields. JPY21.8 billion in
property acquisitions were announced by JREITs during the month of December,
JPY5.25 billion of which was financed by part of the JPY18.6 billion in
secondary equity issuances announced during the same period. We expect to see
more acquisitions funded by public offerings going forward, as the equity
capital market thaws.
* As of 31 December, 2009, Invincible Investment Corp represented 4.12% of the
Company. LCP Investment represented 1.28% of the Company. DA Office Investment
represented 5.03% of the Company. MID REIT represented 1.67% of the Company.
Joint REITrepresented 1.17% of the Company. New City Residence, BLife
Investment, Advance Residence, Nippon Residential, Japan Retail Fund, LaSalle
Japan REIT, Crescendo Investment and Nippon Commercial Investment are not
holdings of the Company
Prospect Asset management, Inc
20 April, 2010
DIRECTORS' REPORT
The Directors present their Annual Report and the Audited Financial Statements
of Prospect Japan Fund Limited (the "Company") for the year ended 31 December,
2009.
The Company's Business
The Company was registered under the laws of Guernsey on 18 November, 1994 as a
Limited Company listed on the London Stock Exchange. It is a closed-ended
investment company established to achieve long-term capital growth from an
actively managed portfolio of securities primarily of smaller Japanese companies
listed or traded on Japanese Stock Markets.
Results and Dividend
The results for the year are set out in the Statement of Comprehensive Income.
The Directors do not recommend the payment of a dividend for the year.
In the year to 31 December, 2009 Net Asset Value per Ordinary Share increased by
35.71%.
Performance
The Board considers that Prospect Asset Management (Channel Islands) Limited,
the manager to the Company, is managing the Company's investments in a manner
that is most likely to achieve the objective of long term capital appreciation
for its shareholders.
Statement of Directors' Responsibilities
The Directors are responsible for preparing the Financial Statements in
accordance with applicable Guernsey Law and Generally Accepted Accounting
Principles. Guernsey Company Law requires the Directors to prepare financial
statements for each financial year which give a true and fair view of the state
of the affairs of the Company and of the total return of the Company for that
year and in accordance with the applicable laws. In preparing those financial
statements the Directors are required to:
- select suitable accounting policies and then apply them consistently;
- make judgements and estimates that are reasonable;
- state whether applicable accounting standards have been followed, subject to
any material departures disclosed and explained in the financial
statements; and
- prepare the financial statements on a going concern basis unless it is
inappropriate to presume that the Company will continue in business.
The Directors are responsible for keeping proper accounting records which
disclose with reasonable accuracy at any time the financial position of the
Company and to enable them to ensure that the Financial Statements have been
properly prepared in accordance with The Companies (Guernsey) Law, 2008. They
are also responsible for safeguarding the assets of the Company and hence for
taking reasonable steps for the prevention and detection of fraud, error and
non-compliance with law or regulations.
The Directors confirm that they have complied with the above requirements in
preparing the Financial Statements.
Directors' Statement
So far as each of the Directors is aware, there is no relevant audit information
of which the Company's auditor is unaware, and each Director has taken all the
steps he ought to have taken as a Director to make himself aware of any relevant
audit information and to establish that the Company's auditor is aware of that
information.
Corporate Governance
As a Guernsey incorporated company, the Company is not required and therefore
does not comply with the Code of Best Practice published by the UK Committee of
Corporate Governance (The "Combined Code"). The Directors, however, attach a
high degree of importance to the maintenance of high standards of corporate
governance. The Board has considered the principles and recommendations of the
AIC's Code of Corporate Governance issued in March 2009 (the 'AIC Code') by
reference to the AIC Corporate Governance Guide for Investment Companies (the
'AIC Guide'). The AIC Code, as explained by the AIC Guide, addresses all the
principles set out in Section 1 of the Combined Code, as well as setting out
additional principles and recommendations on issues which are of specific
relevance to investment companies. The Board considers that it is appropriate to
report against the principles and recommendations of the AIC Code, and by
reference to the AIC Guide (which incorporates the Combined Code).
The Board
The Board comprises five non-executive directors. All members of the Board other
than Rupert Evans are independent of the Manager. None of the Directors have a
contract of service with the Company.
The Board meets on at least four occasions each year, at which time the
Directors review the investment management of the Company's assets and all other
significant matters so as to ensure that the Directors maintain overall control
and supervision of the Company's affairs. The Board is responsible for the
appointment and monitoring of all service providers to the Company.
Attendance at the Board and Audit Committee meetings during the year was as
follows;
+----------+------+------+------------+------+----------+------+----------+----------+
| | | Board Meetings | Ad hoc | Audit Committee Meetings |
| | | | committee | |
| | | | meetings | |
+----------+------+-------------------+-----------------+----------------------------+
| | |Held | Attended |Held |Attended |Held |Attended | |
+----------+------+------+------------+------+----------+------+----------+----------+
| David | 4 | 3 | 1 | - | 2 | 1 | |
| FitzWilliam-Lay | | | | | | | |
+-----------------+------+------------+------+----------+------+----------+----------+
| Rupert | 4 | 2 | 1 | - | NA | NA | |
| Evans | | | | | | | |
+-----------------+------+------------+------+----------+------+----------+----------+
| John | 4 | 4 | 1 | 1 | 2 | 2 | |
| Hawkins | | | | | | | |
+-----------------+------+------------+------+----------+------+----------+----------+
| Christopher | 4 | 4 | 1 | 1 | 2 | 2 | |
| Sherwell | | | | | | | |
+----------+------+------+------------+------+----------+------+----------+----------+
Richard Battey was appointed to the Board on 10 February, 2010.
Chairman, Senior Independent Director and Chief Executive
The Chairman of the Board is John Hawkins. In considering the independence of
the Chairman, the Board has taken note of the provisions of the Code relating to
independence and has determined that Mr Hawkins is an Independent Director. As
the Chairman is an Independent Director, no appointment of a senior Independent
Director has been made. The Company has no employees and therefore there is no
requirement for a chief executive.
Re-election
In accordance with the Company's Articles of Association, all newly appointed
Directors stand for election by the shareholders at the next Annual General
Meeting ("AGM") following their appointment. The Directors retire by rotation
and offer themselves for re-election every three years. Directors who have
served on the Board for more than nine years are subject to annual re-election.
The non-independent Director, due to being a Director of the Manager, Mr Rupert
Evans, is subject to annual re-election.
Supply and Agenda of Information
The quarterly board meetings are the principal source of regular information for
the Board enabling it to determine policy and to monitor performance and
compliance. The Manager attends each Board meeting either in person or by
telephone thus enabling the Board to fully discuss and review the Company's
operation and performance. Each Director has direct access to the Company
Secretary, and may, at the expense of the Company, seek independent professional
advice on any matter that concerns them in the furtherance of their duties.
Nomination Committee
The Board as a whole fulfils the function of a Nomination Committee. Whilst the
independent Directors take the lead in the appointment of new Directors, any
proposal for a new Director will be discussed and approved by all of the Board.
Directors' Remuneration
The level of Directors' fees is determined by the whole Board on an annual basis
and therefore a separate Remuneration Committee has not been appointed. When
considering the level of Directors' remuneration the Board considers the
industry standard and the level of work that is undertaken. Since all Directors
are non-executive, the Company is not required to comply with the principles of
the Code in respect of executive directors' remuneration.
During the year ended 31 December, 2009, the Directors were entitled to receive
an annual fee of GBP15,000, the Chairman of the Audit Committee GBP17,500 and
the Chairman of the Board GBP20,000.
Going Concern
The Directors believe that it is appropriate to continue to adopt the going
concern basis in preparing the Financial Statements since the assets of the
Company consist mainly of securities that are ultimately realisable and whilst
the liquidity of these needs to be managed, the Company has adequate financial
resources to meet its liabilities as they fall due.
Audit Committee
An audit committee has been appointed comprising the independent Directors, with
John Hawkins originally appointed as Chairman. The Audit Committee operates
within clearly defined terms of reference which have been approved by the Board
and provides a forum through which the Company's external Auditors report to the
Board. The Board is satisfied that the Audit Committee contains members with
sufficient recent and relevant financial reporting experience. On 1 July, 2009
Chris Sherwell replaced John Hawkins as Chairman of the Audit Committee. On 10
February, 2010 Richard Battey replaced Chris Sherwell as Chairman of the Audit
Committee.
The Audit Committee has considered the requirement for an annual internal audit
of the Company. On the basis that the Company is an investment company with no
employees, the Audit Committee believes that an internal audit function is not
necessary for the Company.
Management and Engagement Committee
At a Board Meeting held on 18 April, 2007 it was resolved that a Management and
Engagement Committee be appointed comprising the independent Directors. The
Management and Engagement Committee operates within clearly defined terms of
reference which have been approved by the Board.
The purpose of this committee is to review the performance of the Investment
Advisor and the third party service providers to the Company.
Dialogue with Shareholders
The Investment Advisor maintains a regular dialogue with institutional
shareholders, feedback from which is reported to the Board. In addition, Board
members and representatives of the Manager are available to answer shareholders'
questions at the Annual General Meeting. The Company Secretary is available to
answer general shareholders' queries at any time during the year.
Internal Control
The Board is responsible for establishing and maintaining the Company's system
of internal control and for maintaining and reviewing its effectiveness. The
system of internal controls is designed to manage rather than to eliminate the
risk of failure to achieve business objectives and as such can only provide
reasonable, but not absolute assurance against material misstatement or loss.
The Board considers on an ongoing basis the process for identifying, evaluating
and managing any significant risks faced by the Company. The process includes
reviewing reports from the Company Secretary on risk control and compliance, in
conjunction with the Manager's regular reports which cover investment
performance.
The Board has contractually delegated to external parties various functions as
listed below. The duties of investment management, accounting and custody are
segregated. Each of the contracts entered into with the parties was entered into
after full and proper consideration by the Board of the quality and cost of
services offered, including the control systems in operation as far as they
relate to the affairs of the Company.
The key terms of the Investment Management Agreement and specifically the fee
charged by Prospect are set out in Note 4 to the Financial Statements.
* Management is provided by Prospect Asset Management (Channel Islands) Limited,
a company licensed and regulated by the Guernsey Financial Services Commission.
* Investment Advisory Services are provided by Prospect Asset Management Inc., a
company registered with the SEC.
* Administration, Registrar and Company Secretarial duties are performed by
Northern Trust International Fund Administration Services (Guernsey) Limited, a
company licensed and regulated by the Guernsey Financial Services Commission.
* CREST agency functions are performed by Computershare (CI) Limited, a company
licensed and regulated by the Jersey Financial Services Commission.
* Custody of assets is undertaken by Northern Trust (Guernsey) Limited, a
company licensed and regulated by the Guernsey Financial Services Commission.
Directors' and Other Interests
At 31 December, 2009 David FitzWilliam-Lay and Chris Sherwell have beneficial
interests of 30,742 (2008: 30,742) and 9,940 (2008: 9,940) Ordinary Shares
respectively of the Company. No other Directors holding office at 31 December,
2009, or their associates, had any beneficial interest in the Company's Shares.
There have been no changes in these interests between the end of the year and
the date of this report.
Rupert Evans is a Director of the Manager and a former partner in the firm of
the Guernsey legal advisers, Ozannes. John Hawkins, Chris Sherwell and Richard
Battey are all Directors of a range of funds.
Substantial Shareholdings
At 31 March, 2010 the following interests in the share capital of the Company
exceeded 3% of the issued share capital:
+------+------+------+------+------------+-------+------+------------+
| | | | | Number | | | Percentage |
| | | | | of | | | of issued |
| | | | | shares | | | share |
| | | | | | | | capital |
+------+------+------+------+------------+-------+------+------------+
| | | | | | | | |
+------+------+------+------+------------+-------+------+------------+
| Clearstream | | 5,778,965 | | | 5.78% |
| Banking S.A. | | | | | |
+--------------------+------+------------+-------+------+------------+
| Euroclear Nominees | | 51,467,934 | | | 51.45% |
| Limited | | | | | |
+--------------------+------+------------+-------+------+------------+
| Goldman Sachs Securities | 15,345,000 | | | 15.34% |
| (Nominees) Ltd | | | | |
+---------------------------+------------+-------+------+------------+
| State Street | | 6,195,000 | | | 6.19% |
| Nominees Limited | | | | | |
+------+------+------+------+------------+-------+------+------------+
Share Buybacks
At the Extraordinary General Meeting of the Company held on 7 August, 2002, it
was resolved to amend the Articles of Association to permit the Company to make
market purchases of its own Ordinary Shares, up to 1,652,445 (14.99% of the
issued share capital at that date). Following the share split on 9 June, 2004,
the maximum number of share buybacks permitted became 16,524,453.
As approved at the AGM on 8 June, 2009, the Company may purchase, subject to
various terms as set out in the Articles, a maximum of 6,976,950 Ordinary
Shares. During the year, the Company purchased shares as detailed in Note 9 to
the Financial Statements.
Auditors
The Auditors, Ernst & Young LLP have indicated their willingness to continue in
office and offer themselves for re-appointment at the forthcoming AGM.
John Hawkins
Richard Battey
Chairman
Director
20 April, 2010
INVESTMENT POLICY
for the year ended 31 December, 2009
The Company will invest mainly in shares, but may also invest in equity related
instruments such as convertible bonds or warrants issued by smaller Japanese
companies and debt instruments.
The Company may invest not more than 10% of the Net Asset Value of the Company
in unlisted securities which are not recognised for trading on or quoted on any
of the Japanese Stock Markets. It is the intention of the Directors that such
investments should only be made where either a listing or an alternative form of
realising the investment can be expected within a reasonable period of time.
Within these parameters, the assets of the Company may be used to provide
"venture" or "start-up" capital (but no investment will carry unlimited
liability). The balance of the assets of the Company not invested in securities
will normally be invested in short-term debt securities and money market
instruments or placed on deposit.
The assets of the Company will be denominated principally in Japanese Yen. It is
not the present intention of the Directors to hedge the currency exposure of the
Company, but the Directors reserve the right to do so in the future if they
consider this to be desirable.
It is intended that the principal investment objective and policies of the
Company as set out above will remain in force until determined by the Directors
and any material change in the policies will only be made with shareholder
approval.
While overall control of investment policy will be retained by the Directors,
day-to-day investment management is the responsibility of the Manager. The
Manager will have the benefit of advice from the Investment Advisor.
PORTFOLIO OF INVESTMENTS
as at 31 December, 2009
+------------+----------+------------------------+----------+-------------+---+------------+
| Number | | | | Fair | | Percentage |
| of | | | | Value | | of |
+------------+----------+------------------------+----------+-------------+---+------------+
| Securities | | Investments | | in U.S. | | Net |
| | | | | | | Asset |
| | | | | Dollars | | Value |
| | | | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | Listed investments | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | Construction Industry | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 1,087,400 | | Shinnihon Corp | | 1,626,239 | | 2.14 |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | 1,626,239 | | 2.14 |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | Investment companies | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 5,896,000 | | Gro-Bels Co Ltd | | 1,214,023 | | 1.59 |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | 1,214,023 | | 1.59 |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | Real Estate | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 2,000 | | Logicom Inc | | 1,075,047 | | 1.41 |
+------------+----------+------------------------+----------+-------------+---+------------+
| 4,388 | | Urbanet Corp | | 1,165,061 | | 1.52 |
+------------+----------+------------------------+----------+-------------+---+------------+
| 1,414,500 | | Yasuragi Co | | 5,641,138 | | 7.41 |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | 7,881,246 | | 10.34 |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | REITs | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 3,266 | | FC Residential | | 7,075,301 | | 9.29 |
| | | Investment REIT | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 1,786 | | DA Office Investment | | 3,828,456 | | 5.03 |
| | | Corp | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 3,128 | | Invincible Investment | | 3,135,627 | | 4.12 |
| | | Corp | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 599 | | Japan Hotel and Resort | | 826,364 | | 1.09 |
+------------+----------+------------------------+----------+-------------+---+------------+
| 5,554 | | Japan Single-Residence | | 6,428,255 | | 8.44 |
| | | REIT Inc | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 452 | | Joint REIT Investment | | 891,509 | | 1.17 |
| | | Corporation | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 183 | | Kenedix Realty | | 501,750 | | 0.66 |
| | | Investment Corp | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 1,305 | | LCP Investment | | 977,247 | | 1.28 |
| | | Corporation | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 597 | | MID REIT Management Co | | 1,270,020 | | 1.67 |
| | | Ltd | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 7,898,895 | | Prospect Epicure JREIT | | 510,000 | | 0.67 |
| | | Value Fund* | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| 5,331 | | Prospect REIT Investment | 4,338,750 | | 5.70 |
| | | Corporation** | | | |
+------------+----------+-----------------------------------+-------------+---+------------+
| | | | | | | |
+------------+----------+------------------------+----------+-------------+---+------------+
| | | | | 29,783,279 | | 39.12 |
+------------+----------+------------------------+----------+-------------+---+------------+
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Retail | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| 152,110 | | Growell Holdings | | 3,502,940 | | 4.60 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| 286,500 | | Joyfull Co Ltd | | 1,692,143 | | 2.22 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| 348,000 | | Sekichu Co Ltd | | 1,508,534 | | 1.98 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| 650 | | Toridoll Corp | | 1,122,839 | | 1.48 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | 7,826,456 | | 10.28 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Storage/Warehousing | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| 2,278,000 | | Shibusawa Warehouse Co | | 7,455,497 | | 9.78 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | 7,455,497 | | 9.78 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Total listed | | 55,786,740 | | 73.25 |
| | | investments | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Unlisted investments | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Convertible Bond | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| 940,000,000 | | Azel Corp 4% | | 101,870 | | 0.14 |
| | | 01/12/2012 | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | 101,870 | | 0.14 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Corporate Bond | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| 713,000,000 | | Takefuji Corp 10% | | 5,408,832 | | 7.10 |
| | | 14/4/2011 | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | 5,408,832 | | 7.10 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Total unlisted | | 5,510,702 | | 7.24 |
| | | investments | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Total investments | | 61,297,442 | | 80.49 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | Net current assets | | 14,860,416 | | 19.51 |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | | | | | |
+--------------+----------+------------------------+----------+-------------+---+---------+
| | | NET ASSETS | | 76,157,858 | | 100.00 |
+--------------+----------+------------------------+----------+-------------+---+---------+
* Prospect Epicure JREIT Value Fund is classed as a related party as the fund
shares the same Investment Advisor as the Company.
** Prospect REIT Investment Corporation is classed as a related party as the
fund and the Company's Investment Advisors are wholly owned subsidiaries of
Prospect Company Limited, the parent company.
RESPONSIBILITY STATEMENT
For the year ended 31 December, 2009
Responsibility Statement of the Directors in respect of the Annual Report and
Audited Financial Statements
We confirm that to the best of our knowledge
(a) The Annual Financial Statements have been prepared in accordance with
International Financial Reporting Standards (IFRS) and give a true and fair view
of the financial position and profit or loss of the Company as at and for the
year ended 31 December, 2009.
(b) The Annual Financial Report includes information detailed in the Chairman's
Report, Investment Advisor's and Directors' Reports and Notes to the Annual
Financial Statements which provides a fair review of the information required
by:
(i) DTR 4.1.8 of the Disclosure and Transparency Rules, being a fair review of
the Company business and a description of the principal risks and uncertainties
facing the Company; and
(ii) DTR 4.1.11 of the Disclosure and Transparency Rules, being an indication of
important events that have occurred since the end of the financial year and the
likely future development of the Company.
Signed on behalf of the Board by:
John Hawkins Richard Battey
Chairman
Director
20 April, 2010
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF PROSPECT JAPAN FUND LIMITED
We have audited the Company's Financial Statements for the year ended 31
December, 2009 which comprise the Statement of Comprehensive Income, the
Statement of Financial Position, the Statement of Changes in Equity, the
Statement of Cash Flows and the related Notes 1 to 15. These Financial
Statements have been prepared under the accounting policies set out therein.
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 Auditors
The Directors are responsible for the preparation of the Financial Statements in
accordance with applicable Guernsey law as set out in the Statement of
Directors' Responsibilities.
Our responsibility is to audit the Financial Statements in accordance with
relevant legal and regulatory requirements and International Standards on
Auditing (UK and Ireland).
We report to you our opinion as to whether the Financial Statements give a true
and fair view and are properly prepared in accordance with The Companies
(Guernsey) Law, 2008. We also report to you if, in our opinion, the Company has
not kept proper accounting records, the Financial Statements are not in
agreement with the accounting records or if we have not received all the
information and explanations we require for our audit.
We read other information contained in the Annual report and consider whether it
is consistent with the Audited Financial Statements. The other information
comprises only the Management and Advisors, Chairman's Report, Investment
Advisor's Report, Directors' Report, Investment Policy, Portfolio of
Investments, Responsibility Statement and General Information. We consider the
implications for our report if we become aware of any apparent misstatements or
material inconsistencies with the Financial Statements. Our responsibilities do
not extend to any other information.
Basis of audit opinion
We conducted our audit in accordance with International Standards on Auditing
(UK and Ireland) issued by the Auditing Practices Board. An audit includes
examination, on a test basis, of evidence relevant to the amounts and
disclosures in the Financial Statements. It also includes an assessment of the
significant estimates and judgements made by the Directors in the preparation of
the Financial Statements and of whether the accounting policies are appropriate
to the Company's circumstances, consistently applied and adequately disclosed.
We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the Financial Statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.
Opinion
In our opinion the Financial Statements give a true and fair view, in accordance
with International Financial Reporting Standards as adopted by the European
Union, of the state of the Company's affairs as at 31 December, 2009 and of its
total comprehensive income for the year then ended and have been properly
prepared in accordance with The Companies (Guernsey) Law, 2008.
Michael Bane
Ernst & Young LLP
Guernsey, Channel Islands
20 April, 2010
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December, 2009
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | Revenue | | Capital | | Total | | Revenue | | Capital | | Total |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | 01.01.2009 | | 01.01.2009 | | 01.01.2009 | | 01.01.2008 | | 01.01.2008 | | 01.01.2008 |
| | | to | | to | | to | | to | | to | | to |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | 31.12.2009 | | 31.12.2009 | | 31.12.2009 | | 31.12.2008 | | 31.12.2008 | | 31.12.2008 |
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| Notes | In | | In | | In | | In | | In U.S. | | In U.S. |
| | U.S. | | U.S. | | U.S. | | U.S. | | Dollars | | Dollars |
| | Dollars | | Dollars | | Dollars | | Dollars | | | | |
+--------------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Investment income | 2,473,226 | | - | | 2,473,226 | | 6,044,614 | | - | | 6,044,614 |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Interest income | 358,469 | | - | | 358,469 | | 11,996 | | - | | 11,996 |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Foreign exchange | (283,041) | | 1,230,801 | | 947,760 | | 168,743 | | 1,030,365 | | 1,199,108 |
| | movements | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Gain/(loss) on financial | | | | | | | | | | |
| | assets at | | | | | | | | | | |
+------+---------------------------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | fair value | - | | 17,995,845 | | 17,995,845 | | - | | (127,546,173) | | (127,546,173) |
| | through profit or | | | | | | | | | | | |
| | loss | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Total | 2,548,654 | | 19,226,646 | | 21,775,300 | | 6,225,353 | | (126,515,808) | | (120,290,455) |
| | income/(deficit) | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| 4 | Management fee | (946,982) | | - | | (946,982) | | (1,758,523) | | - | | (1,758,523) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| 5 | Other expenses | (504,047) | | - | | (504,047) | | (861,368) | | - | | (861,368) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Transaction costs | - | | (155,891) | | (155,891) | | - | | (324,567) | | (324,567) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Loan Interest | - | | - | | - | | (478,186) | | - | | (478,186) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Total expenses | (1,451,029) | | (155,891) | | (1,606,920) | | (3,098,077) | | (324,567) | | (3,422,644) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Gain/(loss) for | | | | | | | | | | | |
| | the year before | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | tax | 1,097,625 | | 19,070,755 | | 20,168,380 | | 3,127,276 | | (126,840,375) | | (123,713,099) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | - |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| 3 | Withholding tax | (173,126) | | - | | (173,126) | | (416,602) | | - | | (416,602) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Gain/(loss) for | 924,499 | | 19,070,755 | | 19,995,254 | | 2,710,674 | | (126,840,375) | | (124,129,701) |
| | the year after | | | | | | | | | | | |
| | tax | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Total | | | | | | | | | | | |
| | comprehensive | | | | | | | | | | | |
| | income/ | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | (expense) for the | 924,499 | | 19,070,755 | | 19,995,254 | | 2,710,674 | | (126,840,375) | | (124,129,701) |
| | year | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | | | | | | | | | | | | |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| 2 | Gain/(loss) per Ordinary | | | | | | | | | | |
| | Share - | | | | | | | | | | |
+------+---------------------------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
| | Basic & Diluted | | | | | 0.199 | | | | | | (1.233) |
+------+-------------------+-------------+----------+-------------+----------+-------------+----------+-------------+----------+---------------+----------+---------------+
The 'Total' column of this statement represents the Company's Statement of
Comprehensive Income, prepared in accordance with IFRS. The supplementary
'Revenue' and 'Capital' columns are both prepared under guidance published by
the Association of Investment Companies.
All items in the above statement derive from continuing operations.
STATEMENT OF FINANCIAL POSITION
as at 31 December, 2009
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | 31.12.2009 | | 31.12.2008 |
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
|Notes | | | | In |
| | | | In U.S. | U.S. |
| | | | | Dollars |
| | | | Dollars | |
+-------+------------------------------------+----------+------------------+--------------+
| | Non-current assets | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| 6 | Financial assets at fair value | | 61,297,442 | | 55,126,667 |
| | through profit or loss | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Current assets | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| 7 | Receivables | | 2,109,751 | | 1,666,560 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Cash and cash equivalents | | 13,259,156 | | 168,075 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Total current assets | | 15,368,907 | | 1,834,635 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Current liabilities | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| 8 | Payables | | 508,491 | | 481,360 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Net current assets | | 14,860,416 | | 1,353,275 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Total assets less current | | 76,157,858 | | 56,479,942 |
| | liabilities | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Equity | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| 9 | Share capital account | | 100,030 | | 100,615 |
+-------+------------------------------------+----------+--------------+---+--------------+
| 9 | Redemption reserve | | 92,299,301 | | 92,616,639 |
+-------+------------------------------------+----------+--------------+---+--------------+
| 9 | Capital redemption reserve | | 315,479 | | 314,894 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Other reserves | | (16,556,952) | | (36,552,206) |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Total equity | | 76,157,858 | | 56,479,942 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| | Ordinary Shares in issue | | 100,030,520 | | 100,615,520 |
+-------+------------------------------------+----------+--------------+---+--------------+
| | | | | | |
+-------+------------------------------------+----------+--------------+---+--------------+
| 2 | Net Asset Value per Ordinary Share | | 0.76 | | 0.56 |
+-------+------------------------------------+----------+--------------+---+--------------+
The Financial Statements were approved by the Board of Directors on 20 April,
2010 and signed on its behalf:
John Hawkins
Richard Battey
Chairman
Director
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December, 2009
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | Share | Capital | Redemption | Revenue | Capital | Capital | Capital | |
| | Capital | Redemption | | | Reserve/ | Reserve/ | Reserve/ | |
| | | | | | | | Exchange | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | Account | Reserve | Reserve | Reserve | Realised | Unrealised | Differences | Total |
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | In | In | In | In | In | In | In |
| | In | U.S. | U.S. | U.S. | U.S. | U.S. | U.S. | U.S. |
| | U.S. | Dollars | Dollars | Dollars | Dollars | Dollars | Dollars | Dollars |
| | Dollars | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Balances at | 100,615 | 314,894 | 92,616,639 | (12,138,471) | 61,155,877 | (86,645,000) | 1,075,388 | 56,479,942 |
| 1 January, | | | | | | | | |
| 2009 | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Total comprehensive | | | | | |
| income/(expense) | | | | | |
+---------------------------------------------------+--------------+--------------+--------------+-------------+---------------+
| for the | | | | | | | | |
| year | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Gain/(loss) | - | - | - | 924,499 | (18,517,504) | 36,357,458 | 1,230,801 | 19,995,254 |
| for the | | | | | | | | |
| year after | | | | | | | | |
| tax | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Capital | | | | | | | |
| activities | | | | | | | |
+------------------------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Repurchase | (585) | 585 | (317,338) | - | - | - | - | (317,338) |
| of shares | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Total | (585) | 585 | (317,338) | - | - | - | - | (317,338) |
| capital | | | | | | | | |
| activities | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Balances at | 100,030 | 315,479 | 92,299,301 | (11,213,972) | 42,638,373 | (50,287,542) | 2,306,189 | 76,157,858 |
| 31 | | | | | | | | |
| December, | | | | | | | | |
| 2009 | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| for the year ended 31 December, | | | | | |
| 2008 | | | | | |
+---------------------------------------------------+--------------+--------------+--------------+-------------+---------------+
| | | Capital | Redemption | Revenue | Capital | Capital | Capital | |
| | | Redemption | | | Reserve/ | Reserve/ | Reserve/ | |
| | | | | | | | Exchange | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | Share | Reserve | Reserve | Reserve | Realised | Unrealised | Differences | Total |
| | capital | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | In | In | In | In | In | In | In |
| | In | U.S. | U.S. | U.S. | U.S. | U.S. | U.S. | U.S. |
| | U.S. | Dollars | Dollars | Dollars | Dollars | Dollars | Dollars | Dollars |
| | Dollars | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Balances at | 101,070 | 314,439 | 93,320,845 | (14,849,145) | 158,629,735 | (56,248,118) | 45,023 | 181,313,849 |
| 1 January, | | | | | | | | |
| 2008 | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Total comprehensive | | | | | |
| income/(expense) | | | | | |
+---------------------------------------------------+--------------+--------------+--------------+-------------+---------------+
| for the | | | | | | | | |
| year | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Gain/(loss) | - | - | - | 2,710,674 | (97,473,858) | (30,396,882) | 1,030,365 | (124,129,701) |
| for the | | | | | | | | |
| year after | | | | | | | | |
| tax | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Capital | | | | | | | |
| activities | | | | | | | |
+------------------------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Repurchase | (455) | 455 | (704,206) | - | - | - | - | (704,206) |
| of shares | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | (455) | 455 | (704,206) | - | - | - | - | (704,206) |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
| Balances at | 100,615 | 314,894 | 92,616,639 | (12,138,471) | 61,155,877 | (86,645,000) | 1,075,388 | 56,479,942 |
| 31 | | | | | | | | |
| December, | | | | | | | | |
| 2008 | | | | | | | | |
+-------------+----------+------------+-------------+--------------+--------------+--------------+-------------+---------------+
*Amended. Refer to note 6
STATEMENT OF CASH FLOWS
for the year ended 31 December, 2009
+-------+--------------------------------+--+--------------+--+--------------+
| | | | 01.01.2009 | | 01.01.2008 |
| | | | to | | to |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | 31.12.2009 | | 31.12.2008 |
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
|Notes | | | In U.S. | | In |
| | | | Dollars | | U.S. |
| | | | | | Dollars |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Cash flows from operating | | | | |
| | activities | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| 10 | Net cash inflow from operating | | 2,993,699 | | 2,231,628 |
| | activities | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Cash flows from investing | | | | |
| | activities | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Purchase of investments | | (50,593,333) | | (85,751,737) |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Sale of investments | | 61,358,586 | | 99,283,930 |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Net cash inflow from financing | | 10,765,253 | | 13,532,193 |
| | activities | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Net cash inflow before | | 13,758,952 | | 15,763,821 |
| | financing | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Cash flows from financing | | | | |
| | activities | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| 9 | Repurchase of shares | | (317,338) | | (704,206) |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Repayment of short term | | - | | (23,309,646) |
| | borrowings | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Net cash outflow from | | (317,338) | | (24,013,852) |
| | financing activities | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Increase/(decrease) in cash | | 13,441,614 | | (8,250,031) |
| | and cash equivalents | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Reconciliation of net cash | | | | |
| | flow to | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | movement in net funds | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Net cash inflow/(outflow) | | 13,441,614 | | (8,250,031) |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Effects of foreign exchange | | (350,533) | | (13,044) |
| | rate changes | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Cash and cash equivalents at | | 168,075 | | 8,431,150 |
| | beginning of year | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
| | Cash and cash equivalents at | | 13,259,156 | | 168,075 |
| | end of year | | | | |
+-------+--------------------------------+--+--------------+--+--------------+
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December, 2009
Note 1 Principal Accounting Policies
The Financial Statements have been prepared in accordance with policies
consistent with International Financial Reporting Standards ("IFRS") issued by
the International Accounting Standards Board (the "IASB") and as adopted by the
European Union, and interpretations issued by the International Financial
Reporting Interpretations Committee.
The preparation of the Financial Statements in conformity with IFRS requires
management to make judgements, estimates and assumptions that affect the
application of policies and the reported amounts of assets and liabilities,
income and expense. The estimates and associated assumptions are based on
historical experience and various other factors that are believed to be
reasonable under the circumstances, the results of which form the basis of
making the judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ from those
estimates.
The financial information in these Financial Statements has been prepared on the
basis of standards applicable as at 31 December, 2009.
Where the presentational guidance set out in the Statement of Recommended
Practice (the "SORP") for Financial Statements of Investment Trust Companies and
Venture Capital Companies issued by the Association of Investment Companies in
January 2009, is consistent with the requirements of IFRS, the Directors have
sought to prepare the Financial Statements on a basis compliant with the
recommendations of the SORP.
Changes in accounting standards
In the current financial year, the Company has adopted International Financial
Reporting Standard 8 'Operating Segments' (IFRS 8), Amendments to IFRS 7 -
Financial Instruments: Disclosures-Improving Disclosures about Financial
Instruments and International Accounting Standard 1 (Amended) - Presentation of
Financial Information (IAS 1) which became effective as of 1 January 2009.
IFRS 8 requires a 'management approach', under which segment information is
presented on the same basis as that used for internal reporting purposes.
The Board has considered the requirements of IFRS 8 'Operating Segments', and is
of the view that the Company is engaged in a single operating segment of
business, being investment in Japanese securities. The Board, as a whole, has
been determined as constituting the chief operating decision maker of the
Company. The key measure of performance used by the Board to assess the
Company's performance is the total return on the Company based on the Net Asset
Value per share, as calculated under IFRS. Therefore no reconciliation is
required between the measure of profit or loss used by the Board and that
contained in the Financial Statements.
IAS 1 (revised 2007) Presentation of Financial Statements requires the Company
to separate owner and non-owner changes in equity. The statement of changes in
equity includes only details of a transaction with owners, with all non-owner
changes in equity presented as a single line. In addition, the standard
introduces the statement of comprehensive income: it presents all items of
income and expense recognised in profit or loss, together with all other items
of recognised income and expense, either in one single statement, or in two
linked statements.
Comparative information has been re-presented so that it also is in conformity
with the revised standard. Since the change in the accounting standard only
impacts presentation aspects there is no impact on the Net Asset Value of the
Company.
Amendments to IFRS 7 were issued by the IASB in March 2009 and become effective
for annual periods beginning on or after 1 January 2009 with early application
permitted. The amendment to IFRS 7 requires fair value measurements to be
disclosed by the source of inputs, using a three-level hierarchy:
- Quoted prices (unadjusted) in active markets for identical assets or
liabilities (Level 1)
- Inputs other than quoted prices included in Level 1 that are observable for
the asset or liability, either directly (as prices) or indirectly (derived from
prices) (Level 2)
- Inputs for the asset or liability that are not based on observable market data
(unobservable inputs) (Level 3).
In addition the amendment revises the specified minimum liquidity risk
disclosures including amongst others: the contractual maturity of non derivative
and derivative financial liabilities, and a description of how this is managed.
The following standards, amendments and interpretations were effective on 1
January 2009 but had no impact on the financial position or performance of the
Company:
IFRS 1 (amendment), 'First-time adoption of IFRS', and IAS 27, 'Consolidated and
separate financial statements'
IFRS 2 (amendment), 'Share-based payment'
IAS 32 and IAS 1 (amendments) Puttable Financial Instruments and Obligations
Arising on Liquidation
IAS 23 (amendments) Borrowing Costs
IFRIC 9 Reassessment of Embedded Derivatives and IAS 39 Financial Instruments:
Recognition and measurement
IFRIC 13 Customer Loyalty Programmes
IFRIC 15 Agreements for the Construction of Real Estate
IFRIC 16 Hedges of a Net Investment in a Foreign Operation
IFRIC 18 Transfer of Assets from Customers
Standards, interpretations and amendments to published statements not yet
effective
At the date of authorisation of these Financial Statements, the following
standards and interpretations, which have not been applied in these Financial
Statements, were in issue but not yet effective:
IAS 27 (amendments), Consolidated and Separate Financial Statements [Effective
from 1 July, 2009]
IAS 39 (amendment), Financial instruments: Recognition and Measurement -
Eligible hedged items [Effective from 1 July, 2009]
IFRS 1 (amendments), Additional exemptions for first-time adopters [Effective
from 1 January, 2010]
IFRS 1 (revised and restructured), First-time Adoption of International
Financial Reporting Standards [Effective from 1 July, 2009]
IFRS 2 (amendments), Share-based payments - Group cash-settled share-based
payment transactions [Effective from 1 January, 2010]
IFRS 9 Financial Instruments Classification and Measurement [Effective from 1
January, 2013]
IFRS 3 (revised) - Business combinations [Effective from 1 July, 2009]
IFRIC 17 Distributions of non-cash assets to owners [Effective from 1 July,
2009]
Improvements to IFRSs
During the year the IASB issued a number of amendments to its standards and
interpretations. These amendments are not expected to have any material impact
on the accounting policies, financial position or performance of the Company.
Presentation of information
The Financial Statements have been prepared on a going concern basis under the
historical cost convention adjusted to take account of the revaluation of the
Company's investments at fair value.
In order to better reflect the activities of an investment company and in
accordance with the guidance issued by the Association of Investment Companies,
supplementary information which analyses the Statement of Comprehensive Income
between items of a capital and revenue nature has been presented
within the Statement of Comprehensive Income.
Financial instruments
Financial assets and financial liabilities are recognised in the Company's
Statement of Financial Position when the Company becomes a party to the
contractual provisions of the instrument. Financial assets and liabilities,
other than those shown at fair value through profit or loss, are measured at
amortised cost using the effective interest rate method.
Financial assets at fair value through profit or loss ("investments")
All "regular way" purchases and sales of investments are recognised on the trade
date, that is the date on which the Company commits to purchase or sell the
investment). "Regular way" purchases or sales are purchases or sales of
financial assets that require delivery of assets within the time frame generally
established by regulation or convention in the market place.
All of the Company's investments have been recorded at fair value through profit
or loss at the time of acquisition. Investments are initially recognised at fair
value, being the costs incurred in their acquisition. Any transaction costs are
expensed in the Statement of Comprehensive Income. After initial recognition,
investments are measured at fair value. Gains and losses arising from changes in
fair value are presented in the Statement of Comprehensive Income in the period
in which they arise.
Investments are recognised at fair value through profit or loss at inception
because they are managed and their performance evaluated on a fair value basis
and information thereon is evaluated by the management of the Company on a fair
value basis.
Other financial instruments
For other financial instruments, including other receivables, other payables and
unrealised gains or losses on open forward foreign currency contracts, the
carrying amounts as shown in the Statement of Financial Position approximate to
fair values due to the short term nature of these financial instruments.
Offsetting of financial instruments
Financial assets and financial liabilities are offset and the net amount
reported in the Statement of Financial Position, if and only if, there is a
currently enforceable legal right to offset the recognised amounts and there is
an intention to settle on a net basis, or to realise assets and settle the
liabilities simultaneously.
Fair value
The Company's investments consist of equity and equity-related investments in
smaller companies in Japan and unlisted convertible and corporate bonds.
Listed investments held at the statement of financial position date are valued
at bid prices quoted on the principal stock exchange on which the investments
are traded. Gains and losses arising from changes in fair value are presented in
the Statement of Comprehensive Income in the period in which they arise.
Unlisted investments, consisting of convertible and corporate bonds, are valued
at the Directors' estimate of their fair value in accordance with the
requirements of IAS 39 'Financial Instruments: Recognition and Measurement'.
The Directors estimates are based on available traded prices or comparisons with
the valuations of comparable convertible and corporate bonds.
Derecognition of financial instruments
A financial asset is derecognised when: (a) the rights to receive cash flows
from the asset have expired, (b) the Company retains the right to receive cash
flows from the asset, but has assumed an obligation to pay them in full without
material delay to a third party under a "pass through arrangement"; or (c) the
Company has transferred substantially all the risks and rewards of the asset, or
has neither transferred nor retained substantially all the risks and rewards of
the asset, but has transferred control of the asset.
A financial liability is derecognised when the obligation under
the liability is discharged or cancelled.
Income
Income arising on the investments is recognised when the right to receive them
has been met and is recorded gross of withholding tax. Bank interest is
accounted for on an accruals basis.
Expenses
Expenses are accounted for on an accruals basis. Expenses incurred on the
acquisition of investments at fair value through profit or loss are charged to
the Statement of Comprehensive Income in capital. All other expenses are charged
to the Statement of Comprehensive Income in revenue.
Cash and Cash equivalents
Cash and cash equivalents are defined as cash in hand, demand deposits and
highly liquid investments readily convertible to known amounts of cash and
subject to insignificant risk of change in value. Cash and cash equivalents at
the year end constituted demand deposits.
Capital Reserves
Gains and losses recorded on the realisation of investments and realised
exchange differences of a capital nature are transferred to the realised capital
reserve. Unrealised gains and losses recorded on the revaluation of investments
held at a period end and unrealised exchange differences of a capital nature are
transferred to the unrealised capital reserve.
Foreign Currencies
(i) Functional and presentation currency
The Company's functional and presentational currency is United States
Dollar.
(ii) Foreign currency transactions
Foreign currency assets and liabilities, including investments at valuation, are
translated into United States Dollars at the rate of exchange ruling at the
Statement of Financial Position date. Investment transactions and income and
expenditure items are translated at the rate of exchange ruling at the date of
the transactions. Gains and losses on foreign exchange are included in the
Statement of Comprehensive Income.
Note 2 Gain/(loss) per Ordinary Share - Basic & Diluted and Net Asset Value
per Ordinary Share - Basic & Diluted
The gain per Ordinary Share - Basic and Diluted has been calculated based on the
weighted average number of Ordinary Shares of 100,517,026 and a net gain of
US$19,995,254 (2008: on 100,659,675 Ordinary Shares and a net deficit of
US$124,129,701).
There were no dilutive elements to shares issued or
repurchased during the year.
The Net Asset Value per Ordinary Share - Basic and Diluted has been calculated
based on the number of shares in existence at the year end date 100,030,520
(2008: 100,615,520) and shareholders' funds attributable to equity interests of
US$76,157,858 (2008: US$56,479,942). The Company announces its Net Asset Value
per Share to the London Stock Exchange ("LSE") at each weekly and month end
valuation point. Below is the Net Asset Value per Ordinary Share announced to
the LSE and as presented in these Financial Statements.
+---+----------+-----------+----------+--+----------+--+------+--+------------+-+------------+
| | | | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | | | |
+---+----------+-----------+----------+--+----------+--+------+--+------------+-+------------+
| | | | | | | | | | In | | In |
| | | | | | | | | | U.S. | | U.S. |
| | | | | | | | | | Dollars | | Dollars |
+---+----------+-----------+----------+--+----------+--+------+--+------------+-+------------+
| Net Asset Value per Ordinary Share - Basic and Diluted | | 0.76 | | 0.56 |
+---+----------+-----------+----------+--+----------+--+------+--+------------+-+------------+
Note 3 Taxation
The Company has been granted Exempt Status under the terms of The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 to income tax in Guernsey. Its
liability is an annual fee of GBP600.
The amount disclosed as taxation in the Statement of Comprehensive Income
relates solely to withholding tax suffered at source, on income in the investing
country, Japan.
Note 4 Management Fees
The management fee is payable to the Manager, Prospect Asset Management (Channel
Islands) Limited, monthly in arrears at a rate of 1.5% per annum of the Net
Asset Value, which is calculated as of the last business day of each month.
Total management fees for the year amounted to US$946,982 (2008: US$1,758,523)
of which US$97,163 (2008: US$76,605) is due and payable at the year end. The
Management Agreement dated 1 December, 1994 shall remain in force until
determined by the Company or by the Manager giving the other party not less than
three months' notice in writing, subject to additional provisions included in
the agreement regarding a breach by either party.
Note 5 Other Expenses
+-------+----------+-----------+----------+--+----------+--+-+------------+---+------------+
| | | | | | | | | 01.01.2009 | | 01.01.2008 |
| | | | | | | | | to | | to |
+-------+----------+-----------+----------+--+----------+--+-+------------+---+------------+
| | | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | | |
+-------+----------+-----------+----------+--+----------+--+-+------------+---+------------+
| | | | | | | | | In U.S. | | In U.S. |
| | | | | | | | | Dollars | | Dollars |
+-------+----------+-----------+----------+--+----------+--+-+------------+---+------------+
| Administration and secretarial fees* | | | | | 157,830 | | 293,087 |
+-----------------------------------------+--+----------+--+-+------------+---+------------+
| Custodian's fees and | | | | | | 54,768 | | 119,306 |
| charges** | | | | | | | | |
+------------------------------+----------+--+----------+--+-+------------+---+------------+
| General expenses | | | | | | 153,590 | | 265,932 |
+------------------------------+----------+--+----------+--+-+------------+---+------------+
| Directors' remuneration | | | | | | 93,148 | | 134,429 |
+------------------------------+----------+--+----------+--+-+------------+---+------------+
| Auditors' fees | | | | | | | 44,711 | | 48,614 |
+------------------+-----------+----------+--+----------+--+-+------------+---+------------+
| | | | | | | | | | | |
+-------+----------+-----------+----------+--+----------+--+-+------------+---+------------+
| | | | | | | | | 504,047 | | 861,368 |
+-------+----------+-----------+----------+--+----------+--+-+------------+---+------------+
*The administration and secretarial fees are payable to Northern Trust
International Fund Administration Services (Guernsey) Limited, monthly in
arrears and is 0.25% of the Net Asset Value of the Company, which is calculated
as of the last business day of each month. Total administration and secretarial
fees for the year amounted to US$157,830 (2008: US$293,087) of which US$16,194
(2008: US$$12,768) is due and payable at the year end.
**The custodian's fees and charges payable to Northern Trust (Guernsey) Limited
monthly in arrears and are 0.08% of the value of the Portfolio of the Company,
and is calculated as of the last business day of each month. Total custodian's
fees and charges for the year amounted to US$54,768 (2008: US$119,306) of which
US$4,165 (2008: US$3,967) is due and payable at the year end.
Note 6 Financial Assets at Fair Value through Profit and Loss
+-------+----------+----------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| | | | | | | | | 31.12.2009 | | 31.12.2008 | |
| | | | | | | | | | | | |
+-------+----------+----------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| | | | | | | | | In U.S. | | In U.S. | |
| | | | | | | | | Dollars | | Dollars | |
+-------+----------+----------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| Opening book cost | | | | | | 141,771,667 | | 252,245,871 | * |
+-----------------------------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| Purchases at cost | | | | | | 55,180,765 | | 85,828,817 | |
+-----------------------------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| Proceeds on sale | | | | | | (67,245,561) | | (99,153,730) | |
+-----------------------------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| Realised loss on sale | | | | | | (18,121,887) | | (97,149,291) | |
+-----------------------------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| | | | | | | | | | | | |
+-------+----------+----------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| Closing book cost | | | | | | 111,584,984 | | 141,771,667 | * |
+-----------------------------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| Unrealised loss | | | | | | (50,287,542) | | (86,645,000) | * |
+-----------------------------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| | | | | | | | | | | | |
+-------+----------+----------+----------+--+----------+--+--+--------------+----------+--------------+----------+
| Fair value as at 31 | | | | | | 61,297,442 | | 55,126,667 | |
| December | | | | | | | | | |
+-------+----------+----------+----------+--+----------+--+--+--------------+----------+--------------+----------+
* Prior year opening and closing book costs have been amended by US$824,172 to
reflect a reclassification to the book cost of investments. The unrealised
gains/losses accounts have been amended accordingly.
Note 7 Receivables
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | | |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | In | | In U.S. |
| | | | | | | | | U.S. | | Dollars |
| | | | | | | | | Dollars | | |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| Amounts due from brokers | | | | | | 1,446,389 | | - |
+------------------------------+----------+--+----------+--+-----+------------+----------+------------+
| Dividends receivable | | | | | | 623,431 | | 1,653,787 |
+------------------------------+----------+--+----------+--+-----+------------+----------+------------+
| Interest receivable | | | | | | 39,931 | | - |
+------------------------------+----------+--+----------+--+-----+------------+----------+------------+
| Other receivables | | | | | | - | | 12,773 |
+------------------------------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | | | |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | 2,109,751 | | 1,666,560 |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
Note 8 Payables
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | | |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | In | | In |
| | | | | | | | | U.S. | | U.S. |
| | | | | | | | | Dollars | | Dollars |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| Amounts due to brokers | | | | | | 286,985 | | 156,209 |
+------------------------------+----------+--+----------+--+-----+------------+----------+------------+
| Other creditors | | | | | | | 221,506 | | 325,151 |
+------------------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | | | |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
| | | | | | | | | 508,491 | | 481,360 |
+-------+----------+-----------+----------+--+----------+--+-----+------------+----------+------------+
Note 9 Share Capital, Redemption Reserve & Capital Redemption Reserve
+--------------+----------+-----------+----------+----------+----------+-+----------+-+-------------+----------+------------+
| | | | | | | | | | | | Capital |
| | | | | | | | | | | | |
+--------------+----------+-----------+----------+----------+----------+-+----------+-+-------------+----------+------------+
| | | | | | | | | | Redemption | | Redemption |
| | | | | | | | | | | | |
+--------------+----------+-----------+----------+----------+----------+-+----------+-+-------------+----------+------------+
| Ordinary Shares | | | | | Share | | Reserve | | Reserve |
| | | | | | Capital | | | | |
+-------------------------------------+----------+----------+----------+-+----------+-+-------------+----------+------------+
| Number of shares | | | | | In | | In | | In |
| | | | | | U.S. | | U.S. | | U.S. |
| | | | | | Dollars | | Dollars | | Dollars |
+-------------------------------------+----------+----------+----------+-+----------+-+-------------+----------+------------+
| 100,615,520 | | Balance at 1 January, 2009 | 100,615 | | 92,616,639 | | 314,894 |
+--------------+----------+----------------------------------------------+----------+-+-------------+----------+------------+
| | | Shares repurchased and | | | | | |
+--------------+----------+----------------------------------------------+----------+-+-------------+----------+------------+
| (585,000) | | cancelled during the year | (585) | | (317,338) | | 585 |
+--------------+----------+----------------------------------------------+----------+-+-------------+----------+------------+
| | | | | | | | | | | | |
+--------------+----------+-----------+----------+----------+----------+-+----------+-+-------------+----------+------------+
| 100,030,520 | | Balance at 31 December, 2009 | 100,030 | | 92,299,301 | | 315,479 |
+--------------+----------+-----------+----------+----------+----------+-+----------+-+-------------+----------+------------+
The Redemption Reserve account is a distributable reserve account which can used
for among other things the payment of dividends, if any.
The Capital Redemption Reserve is used to cancel the nominal shares of the
Company when they are redeemed or there is a share buy back.
Ordinary Shares carry the right to vote at general meetings of the Company and
to receive dividends and, in a winding-up will participate in any surplus assets
remaining after settlement of any outstanding liabilities of the Company.
As approved at the AGM on 8 June, 2009, the Company may purchase a maximum of
6,976,950 Ordinary Shares, equivalent to 6.33% of the Issued share capital of
the Company as at the date of the AGM. During the year, shares were purchased
and cancelled as follows:-
+------+----------+------------+----------+--+--+---------+-+---------+-+------------+
| | | | | | | | | Price | | Percentage |
| | | | | | | | | per | | of |
| | | | | | | | | Share | | |
+------+----------+------------+----------+--+--+---------+-+---------+-+------------+
| Date | | | | | | Shares | | In | | share |
| | | | | | | | | U.S. | | capital |
| | | | | | | | | Dollars | | |
+------+----------+------------+----------+--+--+---------+-+---------+-+------------+
| 6 July, 2009 | | | | 125,000 | | 0.520 | | 0.12% |
+------------------------------+----------+--+--+---------+-+---------+-+------------+
| 12 October, 2009 | | | | 110,000 | | 0.570 | | 0.11% |
+------------------------------+----------+--+--+---------+-+---------+-+------------+
| 17 December, 2009 | | | | 350,000 | | 0.540 | | 0.35% |
+------------------------------+----------+--+--+---------+-+---------+-+------------+
| | | | | | | | | | | |
+------+----------+------------+----------+--+--+---------+-+---------+-+------------+
| | | | | | | 585,000 | | | | 0.58% |
+------+----------+------------+----------+--+--+---------+-+---------+-+------------+
Note 10 Reconciliation of Deficit on Ordinary Activities to Net Cash Inflow
from Operating Activities
+--+----------+------------+----------+--+----------+--+------+-+------------+----------+------------+
| | | | | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | | | | |
+--+----------+------------+----------+--+----------+--+------+-+------------+----------+------------+
| | | | | | | | | | In | | In |
| | | | | | | | | | U.S. | | U.S. |
| | | | | | | | | | Dollars | | Dollars |
+--+----------+------------+----------+--+----------+--+------+-+------------+----------+------------+
| Return on ordinary activities for the year | | | | 768,608 | | 2,386,107 |
+---------------------------------------------------+--+------+-+------------+----------+------------+
| Amortisation on convertible and corporate bonds | | (255,796) | | - |
+-------------------------------------------------------------+-+------------+----------+------------+
| Decrease/(increase) in dividends receivable and other | 1,002,576 | | (902,055) |
| receivables | | | |
+---------------------------------------------------------------+------------+----------+------------+
| Decrease in other | | | | | | | (103,023) | | (295,833) |
| creditors | | | | | | | | | |
+--------------------------+----------+--+----------+--+------+-+------------+----------+------------+
| Foreign exchange gain | | | | | | | 1,581,334 | | 1,043,409 |
+--------------------------+----------+--+----------+--+------+-+------------+----------+------------+
| | | | | | | | | | | | |
+--+----------+------------+----------+--+----------+--+------+-+------------+----------+------------+
| Net cash inflow from operating activities | | | | 2,993,699 | | 2,231,628 |
+--+----------+------------+----------+--+----------+--+------+-+------------+----------+------------+
Note 11 Analysis of Financial Assets and Liabilities by Measurement Basis
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | Investments | | Receivables | | |
| | | | | | | | | | | | |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | at | | and | | Total |
| | | | | | | | fair | | payables | | |
| | | | | | | | value | | | | |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | In U.S. Dollars | In U.S. Dollars | In |
| | | | | | | | | | U.S. |
| | | | | | | | | | Dollars |
+-------------+-------+----------+--+-+----------+----+------------------------+------------------------+------------+
| As at 31 | | | | | | | | | | |
| December, | | | | | | | | | | |
| 2009 | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | | | | | |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Financial | | | | | | | | | | |
| assets | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Investments at fair value through profit or | 61,297,442 | | - | | 61,297,442 |
| loss | | | | | |
+-----------------------------------------------------+-------------+----------+-------------+----------+------------+
| Cash and cash | | | | | | - | | 13,259,156 | | 13,259,156 |
| equivalents | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Receivables | | | | | | | - | | 2,109,751 | | 2,109,751 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | 61,297,442 | | 15,368,907 | | 76,666,349 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Financial | | | | | | | | | | |
| liabilities | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Payables | | | | | | | - | | 508,491 | | 508,491 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | - | | 508,491 | | 508,491 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | | | | | |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | Investments | | Receivables | | Total |
| | | | | | | | at fair | | and | | |
| | | | | | | | value | | payables | | |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | In U.S. | In U.S. Dollars | In |
| | | | | | | | Dollars | | U.S. |
| | | | | | | | | | Dollars |
+-------------+-------+----------+--+-+----------+----+------------------------+------------------------+------------+
| As at 31 | | | | | | | | | | |
| December, | | | | | | | | | | |
| 2008 | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | | | | | |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Financial | | | | | | | | | | |
| assets | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Investments at fair value through profit or | 55,126,667 | | - | | 55,126,667 |
| loss | | | | | |
+-----------------------------------------------------+-------------+----------+-------------+----------+------------+
| Cash and cash | | | | | | - | | 168,075 | | 168,075 |
| equivalents | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Receivables | | | | | | | - | | 1,666,560 | | 1,666,560 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | 55,126,667 | | 1,834,635 | | 56,961,302 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Financial | | | | | | | | | | |
| liabilities | | | | | | | | | | |
+---------------------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| Payables | | | | | | | - | | 481,360 | | 481,360 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
| | | | | | | | - | | 481,360 | | 481,360 |
+-------------+-------+----------+--+-+----------+----+-------------+----------+-------------+----------+------------+
Note 12 Related Party Transactions
Parties are considered to be related if one party has the ability to control the
other party or exercise significant influence over the other party in making
financial or operational decisions.
The Directors are responsible for the determination of the investment policy of
the Company and have overall responsibility for the Company's activities. The
Company's investment portfolio is managed by PAM(CI) Ltd whose parent company is
Prospect Company Limited
Mr Rupert Evans is a Director of the Manager.
Directors' fees are disclosed in Note 5. The basic fee payable to Directors is
GBP15,000, the Chairman of the Audit Committee GBP17,500 and the Chairman of the
Board GBP20,000. Mr. John Hawkins was Chairman of the Audit Committee until he
was replaced by Mr. Chris Sherwell on 1 July, 2009.
Prospect Residential Investment REIT is classed as a related party as the fund
and the Company's Investment Advisors are wholly owned subsidiaries of Prospect
Company Limited, the parent company. The Company received US$627,832 (2008:
US$931,845) by way of a dividend during the year from Prospect Residential
Investment REIT.
Prospect Epicure JREIT Value Fund is classed as a related party as the fund
shares the same Investment Advisor as the Company. The Company did not receive
income (2008: Nil) during the year from Prospect Epicure JREIT Value Fund.
Note 13 Financial Risk Management Objectives and Policies
Financial instruments
In accordance with its investment objectives and policies, the Company holds
financial instruments which at any one time may comprise the following:
* securities held in accordance with the investment objectives and policies
* cash and short-term debtors and creditors arising directly from operations
* borrowing used to finance investment activity
* derivative transactions including investment in warrants and forward
currency contracts
* options or futures for hedging purposes
The financial instruments held by the Company principally comprise
equities listed on the stock market in Japan. The specific risks arising
from the Company's exposure to these instruments, and the Manager/Investment
Advisor's policies for managing these risks, which have been applied throughout
the year, are summarised below.
Capital Management
The Company is a closed-ended investment company, and thus has a fixed capital.
The Company's capital is represented by Ordinary Shares and each share carries
one vote. They are entitled to dividends when declared.
As approved at the AGM on 8 June, 2009, the Company may purchase a maximum of
6,976,950 Ordinary Shares, equivalent to 6.33% of the Issued share capital of
the Company as at the date of the AGM provided that;
* The minimum price to be paid (exclusive of expenses) be US$0.01;
* The maximum price to be paid (exclusive of expenses)
be 105% of the average mid-market valuation for five days preceding the
purchase; and
* If the shares are trading on the London Stock Exchange at a
discount to the lower of the undiluted or diluted Net Asset Value;
The Board also considers from time to time whether it may be appropriate to
raise new capital by a further issue of shares. The raising of new capital would
however be dependent on there being genuine market demand.
The Company is not subject to externally exposed capital requirements.
Market Price Risk
The Company's investment portfolio - particularly its equity investments - is
exposed to market price fluctuations, which are monitored by the
Manager/Investment Advisor in pursuance of the investment objectives and
policies. In 2009, the Company had considerable exposure to the retail, real
estate and REIT sectors due to the Investment Advisor's view that companies in
these sectors are deeply undervalued. The Investment Advisor sees strong
opportunity for price correction in the companies in these sectors, as
fundamental operations remain stable.
Exceptional risks associated with investment in Japanese smaller
companies may include:
a) greater price volatility, substantially less liquidity and significantly
smaller market capitalisation, and
b) more substantial government intervention in the economy,
including restrictions on investing in companies or in industries deemed
sensitive to relevant national interests.
Market price sensitivity analysis
The sensitivity of the Company to market price risk can be approximated by
applying the percentage of funds invested measuring the impact that a movement
in the Topix Small Index would have. Topix Small Index 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. Topix Small Index provides an indicator of the effect of market price
risk on the Company's portfolio since its characteristics with respect to
average market capitalization more closely resemble the investment strategy
pursued by the Company. However, the Company's investments are concentrated to
the real estate industry and unlisted convertible and corporate bonds and as
such do not reflect the full array of companies on the index. At 31 December,
2009 a 1% positive/negative movement in the index would produce a
positive/negative movement in the net assets of the Company of US$208,084 (2008:
US$824,873) for equity related securities. This relationship between the
movement in the assets of the Company and the Index is of a linear nature.
As the intrinsic value of the convertible and corporate bonds is affected by the
movements in interest rates, an increase in the interest rate would decrease the
value of the convertible bonds and a decrease would have an opposite effect.
Foreign Currency Risk
The Company principally invests in securities denominated in currencies other
than United States Dollar, the functional currency of the Company. Therefore,
the Statement of Financial Position may be affected by movements in the exchange
rates of such currencies against the US Dollar. The Manager/Investment Advisor
has the power to manage exposure to currency movements by using forward currency
contracts. The Company was not party to any such instruments at the date of
these Financial Statements.
It is not the present intention of the Directors to hedge the currency exposure
of the Company, but the Directors reserve the right to do so in the future if
they consider this to be desirable.
The treatment of currency transactions other than in US Dollars is set out in
Note 1 to the Financial Statements under "Foreign Currencies".
The Company's currency exposure is as follows:
+------------+-----+---+---------+----------+-----+-------------+----------+-------------+
| | | | | | | 31.12.2009 | | 31.12.2008 |
| | | | | | | | | |
+------------+-----+---+---------+----------+-----+-------------+----------+-------------+
| | | | | | | In US | | In US |
| | | | | | | Dollars | | Dollars |
+------------+-----+---+---------+----------+-----+-------------+----------+-------------+
| Investments | | | | | | | |
+------------------+---+---------+----------+-----+-------------+----------+-------------+
| Japanese Yen (JPY5,609,161,250, | 60,787,442 | | 54,441,715 |
| 2008:JPY4,918,672,846) | | | |
+-------------------------------------------------+-------------+----------+-------------+
| Sterling (GBP315,956, | | | 510,000 | | 684,952 |
| 2008:GBP473,933) | | | | | |
+--------------------------------+----------+-----+-------------+----------+-------------+
| | | | | | | | | |
+------------+-----+---+---------+----------+-----+-------------+----------+-------------+
| | | | | | | 61,297,442 | | 55,126,667 |
+------------+-----+---+---------+----------+-----+-------------+----------+-------------+
| Other | | | | | | |
| (Liabilities)/Assets | | | | | | |
+----------------------+---------+----------+-----+-------------+----------+-------------+
| US Dollars | | | | | (120,735) | | (170,272) |
+------------------+---+---------+----------+-----+-------------+----------+-------------+
| Sterling (GBP35,313, | | | (57,000) | | (26,340) |
| 2008:GBP18,225) | | | | | |
+--------------------------------+----------+-----+-------------+----------+-------------+
| Japanese Yen (JPY1,386,918,257, | 15,038,151 | | 1,549,887 |
| 2008:JPY140,028,416) | | | |
+-------------------------------------------------+-------------+----------+-------------+
| | | | | | | | | |
+------------+-----+---+---------+----------+-----+-------------+----------+-------------+
| | | | | | | 14,860,416 | | 1,353,275 |
+------------+-----+---+---------+----------+-----+-------------+----------+-------------+
Interest Rate Risk
The Company may invest in fixed and floating rate securities. The income of the
Company may be affected by changes to interest rates relevant to particular
securities or as a result of the Manager/Investment Advisor being unable to
secure similar returns on the expiry of contracts or sale of securities. The
value of fixed interest securities may be affected by interest rate movements in
the future. Interest receivable on bank deposits or payable on bank
overdraft positions will be affected by fluctuations in interest rates, however
the value of the underlying cash positions will not be affected.
The direct effect of movements in interest rates are not material on cash and
cash equivalent as the Company predominately keeps its surplus cash in Japanese
Yen on which it does not earn interest (2008:US$48,719).
Interest rate sensitivity analysis
As the intrinsic value of the convertible and corporate bonds is affected by the
movements in interest rates, an increase in the interest rate would decrease the
value of the convertible and corporate bonds and a decrease would have an
opposite effect.
Fair Value
All assets and liabilities are carried at fair value or at carrying value which
equates to fair value.
The Company has adopted the amendment to IFRS 7, effective 1 January 2009. This
requires the Company to classify fair value measurements using a fair value
hierarchy that reflects the significance of the inputs used in making the
measurements. The fair value hierarchy has the following levels:
(i) Quoted prices (unadjusted) in active markets for identical assets or
liabilities
(level 1).
(ii) Inputs other than quoted prices included within level 1 that are
observable for the asset or liability, either directly (that is, as prices) or
indirectly (that is, derived from prices) (level 2).
(iii) Inputs for the asset or liability that are not based on observable market
data (that is, unobservable inputs) (level 3).
The following table analyses within the fair value hierarchy the Company's
financial assets and liabilities (by class) measured at fair value at 31
December, 2009
+--------+-----+---+-------------+----------+------------+----------+----------+----------+-------------+
| | | | Level | | Level 2 | | Level | | Total |
| | | | 1 | | | | 3 | | |
+--------+-----+---+-------------+----------+------------+----------+----------+----------+-------------+
| Assets | | | | | | | | | |
+--------+-----+---+-------------+----------+------------+----------+----------+----------+-------------+
| Financial | | | | | | | |
| assets at fair | | | | | | | |
| value | | | | | | | |
+------------------+-------------+----------+------------+----------+----------+----------+-------------+
| through | | | | | | | |
| profit and | | | | | | | |
| loss: | | | | | | | |
+------------------+-------------+----------+------------+----------+----------+----------+-------------+
| -Equity | | 55,786,740 | | - | | - | | 55,786,740 |
| Securities | | | | | | | | |
+--------------+---+-------------+----------+------------+----------+----------+----------+-------------+
| -Debt | | - | | 5,408,832 | | 101,870 | | 5,510,702 |
| Securities | | | | | | | | |
+--------------+---+-------------+----------+------------+----------+----------+----------+-------------+
| | | | | | | | | | |
+--------+-----+---+-------------+----------+------------+----------+----------+----------+-------------+
| Total | | 55,786,740 | | 5,408,832 | | 101,870 | | 61,297,442 |
| assets | | | | | | | | |
+--------+-----+---+-------------+----------+------------+----------+----------+----------+-------------+
The following table presents the movement in level 3 instruments for the year
ended 31 December, 2009 by class of financial instruments.
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
| | | | | Equity | | Debt | | |
| | | | | | | | | |
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
| | | | | Securities | | Securities | | Total |
| | | | | | | | | |
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
| Opening | | | - | | 9,128,642 | | 9,128,642 |
| balance | | | | | | | |
+-----------------+---+---------+------------+----------+-------------+----------+-------------+
| Purchases | | | | - | | 947,786 | | 947,786 |
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
| Sales | | | | - | | (7,121,170) | | (7,121,170) |
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
| Transfers into | | - | | - | | - |
| level 3 | | | | | | |
+---------------------+---------+------------+----------+-------------+----------+-------------+
| Gains recognised in | - | | (2,853,388) | | (2,853,388) |
| profit and loss | | | | | |
+-------------------------------+------------+----------+-------------+----------+-------------+
| | | | | | | | | |
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
| Closing | | | - | | 101,870 | | 101,870 |
| balance | | | | | | | |
+-----------------+---+---------+------------+----------+-------------+----------+-------------+
| | | | | | | | | |
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
| Net unrealised loss for | - | | (5,950,958) | | (5,950,958) |
| the year included in the | | | | | |
| statement of | | | | | |
| comprehensive income for | | | | | |
| level 3 investments held | | | | | |
| at 31 December 2009 | | | | | |
+-----------+-----+---+---------+------------+----------+-------------+----------+-------------+
On 6 November, 2009, the Company sold a level 3 investment for US$7,121,170.
Level 3 investments, consisting of convertible and corporate bonds, are valued
at the Directors' estimate of their fair value in accordance with the
requirements of IAS 39 'Financial Instruments: Recognition and Measurement'. The
Directors estimates are based on available traded prices or comparisons with the
valuations of comparable convertible bonds.
Short term Debtors and Creditors
Trade and other receivables do not carry interest and are short term in nature.
They are stated at nominal value as reduced by appropriate allowances for
irrecoverable amounts in the case of receivables.
Liquidity Risk
Liquidity risk is the risk that the Company will encounter in realising assets
or otherwise raising funds to meet financial commitments.
The Company invests primarily in listed securities. The table below analyses
liquidity of the Company's securities based on trading volumes in the period
after the Statement of financial position date.
The Investment Manager considers expected cash flows from financial assets in
assessing and managing liquidity risk, in particular its cash resources and
trade receivables. Cash flows from trade and other receivables are all
contractually due within twelve months.
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| As at 31 | Up to | | 1 | | 1-6 | | 6-12 | | Total |
| December 2009 | 1 | | week | | months | | months | | |
| | week | | to 1 | | | | | | |
| | | | month | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| | In US | | In US | | In US | | In | | In US |
| | Dollars | | Dollars | | Dollars | | US | | Dollars |
| | | | | | | | Dollars | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Financial | | | | | | | | | |
| assets | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Financial | | | | | | | | | |
| assets at | | | | | | | | | |
| fair value | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| through | 11,576,566 | | 13,351,342 | | 27,675,237 | | 8,694,297 | | 61,297,442 |
| profit or | | | | | | | | | |
| loss | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Dividends | - | | 270,445 | | 352,985 | | - | | 623,430 |
| receivable | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Interest | - | | - | | 39,932 | | - | | 39,932 |
| receivable | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Cash and | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| cash | 13,259,156 | | - | | - | | - | | 13,259,156 |
| equivalents | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Securities | 1,446,389 | | - | | - | | - | | 1,446,389 |
| sold | | | | | | | | | |
| receivable | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Financial | | | | | | | | | |
| liabilities | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Amounts due | (286,985) | | - | | - | | - | | (286,985) |
| to brokers | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Other | - | | (166,797) | | (54,709) | | - | | (221,506) |
| creditors | | | | | | | | | |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
| Total | 25,995,126 | | 13,454,990 | | 28,013,445 | | 8,694,297 | | 76,157,858 |
+---------------+------------+----------+------------+----------+------------+----------+------------+----------+-------------+
Credit Risk
Credit risk is the risk that an issuer or counterparty will be unable or
unwilling to meet a commitment that it has entered into with the Company. The
Company's principal sources of credit risk arise on amounts due from brokers for
settlement of outstanding investments transactions, dividends and interest
receivable and cash and cash equivalents.
The Company utilizes 18 executing brokers setting allocation targets for each
broker so as to not to place excessive concentration on any one counterparty.
The investment advisor performs a quarterly review of executing brokers as part
of its "Best Execution" analysis, which is part of the advisor's compliance
program. The investment team reviews the quality of broker research, execution
and service, and sets targets for each broker based on brokers' overall
performance.
Currently all cash is placed with Northern Trust (Guernsey) Limited ("NTGL").
NTGL is also custodian of the majority of the Company's investments. NTGL is a
wholly owned subsidiary of The Northern Trust Corporation ("TNTC"). TNTC is
publicly traded and a constituent of the S&P 500. TNTC has a credit rating of
AA.
All transactions in listed securities are settled/paid upon delivery using
approved brokers. The risk of default is considered minimal, as delivery of
securities sold is only made once the broker has received payment. Payment is
made on a purchase once the securities have been received by the broker. The
trade will fail if either party fails to meet their obligation.
When purchasing unlisted securities including OTC bonds, the Investment Advisor
prepares an evaluation on the company issuing these securities and monitors and
reviews the Company's quality and performance over time. These unlisted
investments are issued by the companies themselves and by their nature are
either not rated or have a higher credit rating.
It is the opinion of the Board of Directors that the carrying amounts of these
financial assets represent the maximum credit risk exposure as at the balance
sheet date.
Note 14 Segmental Reporting
The Board is responsible for the Company's entire portfolio and considers the
business to have a single operating and geographical segment. The Board's asset
allocation decisions are based on a single, integrated investment strategy, and
the Company's performance is evaluated on an overall basis.
The Company invests in a diversified portfolio of
Japanese investments. As required by IFRS 8, the total fair value of the
financial instruments held by the Company and the equivalent percentages of the
total value of the Company, are reported in the Portfolio Statement.
Revenue earned is reported separately on the face of the
Statement of Comprehensive Income as investment income being dividend income
received from equities, and interest income being interest earned from
convertible and corporate bonds.
Note 15 Subsequent Events
These Financial Statements were approved for issuance by the Board on 20 April
2010. Subsequent events have been evaluated until this date.
Richard Battey was appointed to the Board as a non-executive director and
Chairman of the Audit Committee effective 10 February, 2010.
GENERAL INFORMATION
General
The Company is a closed-ended investment company incorporated in Guernsey in
November 1994 and was launched in December 1994 with an initial asset value of
US$70 million. There are 100,035,520 Ordinary Shares in issue as at 31 December,
2009. The Company's Ordinary Shares being listed on the London Stock Exchange.
The Ordinary Shares of the Company have not been registered under the United
States Securities Act of 1933 or the United States Investment Companies Act of
1940. Accordingly, none of the Ordinary Shares may be offered or sold directly
or indirectly in the United States or to any United States persons [as defined
in Regulation 'S' under the 1933 Act] other than in accordance with certain
exemptions. Investment in the Company is suitable only for sophisticated
investors and should be regarded as long-term. Past performance is no indication
of future results.
Investment Objective
The Company was established to invest substantially all of its assets in
securities issued by smaller Japanese companies. The objective of the Company
is to achieve long-term capital growth from an actively managed portfolio of
securities primarily of smaller Japanese companies listed or traded on Japanese
Stock Markets.
Investment Restrictions
The following investment restrictions have been adopted:
(i) the Company may not invest in securities carrying unlimited liability; or
(ii) the Company may not deal short in securities; or
(iii) the Company may not take legal or management control in investments in its
portfolio; or
(iv) the Company may not invest in any commodities, land or interests in land;
or
(v) the Company may not invest or lend more than 10% of its assets in
securities of any one company or single issuer (other than obligations of the
Japanese Government or its agencies or of the US Government or its agencies); or
(vi) the Company may not invest more than 10% of its assets in non-corporate
investments orsecurities not listed or quoted on any recognised stock exchange,
for which purpose securities quoted on any of the Japanese Stock Markets will be
treated as securities quoted on a recognised stock exchange; or
(viii) the Company may not invest more than 5% of its assets in unit trusts,
shares or other forms of participation in managed open-ended investment
vehicles; or
(ix) the Company may not commit its assets in the purchase of foreign exchange
contracts, financial futures contracts, put or call options or in the purchase
of securities on margin other than in connection with or for the purpose of
hedging transactions effected on behalf of the Company.
NAV and Share Price Information
The prices of Ordinary Shares and the latest NAV are published daily in the
Financial Times. Prices (in Sterling terms) of the Ordinary Shares appear
within the section of the London Share Service entitled "Investment Companies".
The NAV (in Dollar terms) appears within the section of the Financial Times
Managed Funds Service under Prospect Asset Management (Channel Islands) Limited.
Life of the Company
From inception the Directors have believed that Shareholders should be able to
review the progress of the Company so that a decision can be taken as to whether
Shareholders should have an opportunity of realising the Company's underlying
investments. Accordingly, at the Eleventh Annual General Meeting of the Company
held on 22 May 2008, the Board included in the business to be considered by
Shareholders a Special Resolution that the Company should be wound up. As the
resolution was not passed, the Board shall include a similar resolution in the
business to be considered at every third Annual General Meeting held.
Directors
Brief biographical details of the Directors are as follows:
David FitzWilliam-Lay retired in 1993 after three and a half years as Chairman
of GT Management Plc, an international investment management company.
Previously he had been Chairman of its principal subsidiary companies (US, Japan
and Hong Kong) and Group CEO. He joined the GT Management Group in 1978. He was
a member of the Board of Governors of the National Association of Securities
Dealers, Washington DC between 1987 and 1990.
Rupert Evans is a Guernsey advocate and former partner in the firm of the
Guernsey legal advisors, Ozannes. He is now a consultant to Ozannes. He is a
non-executive director of the Manager and of a number of investment companies.
Mr Evans is resident in Guernsey.
John Hawkins is a fellow of the Institute of Chartered Accountants in England
and Wales. He was formerly Executive Vice President and a member of the
Corporate Office of The Bank of Bermuda Limited, with whom he spent many years
in Asia. He retired from the Bank of Bermuda in 2001 after 25 years with the
Group. He is a director of a range of funds which include hedge funds and equity
funds investing in Japan and Asia.
Christopher Sherwell was Managing Director of Schroders (C.I.) Limited from 2000
to 2003, and was Investment Director with Schroders (C.I.) Limited from 1993 to
2000. Prior to joining Schroders (C.I.) Limited, Mr Sherwell was Far East
Regional Strategist with Smith New Court Securities, and from 1977 to 1990
worked as a journalist on the Financial Times, including seven years as a
foreign correspondent in the Far East and Australia from 1983 to 1990.
Richard Battey is a qualified chartered accountant. He is a non-executive
director of a number of investment companies and funds. Mr Battey joined the
Schroder Group in December 1977 and was a director of Schroders (C.I.) Limited
from April 1994 to December 2004, where he served as Finance Director and Chief
Operating Officer, and was a director of Schroder Group Guernsey companies
before retiring from his last Schroder directorship in December 2008.
Taxation Status
The Company has obtained exemption from Guernsey Income Tax under The Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989. There is no capital gains tax in
Guernsey.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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