TIDMPJF
RNS Number : 3468F
Prospect Japan Fund Ld
21 April 2011
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 2010. All figures are based on the audited financial
statements for the year ended 31 December 2010, approved by the
Board of Directors on 19 April 2011.
The announcement is prepared on the same basis as will be set
out in the annual report and financial statements.
CHAIRMAN'S REPORT
for the year ended 31 December, 2010
The year ended 31 December, 2010 has shown positive signs of
improvement for the Japanese economy with corporate earnings
continuing to grow despite a strengthening Yen. The Government and
the Bank of Japan have, throughout the year, introduced a number of
initiatives in an attempt to aid the economy and its recovery with
the announcement of a 5 trillion Yen stimulus package, which
following the earthquake has since been doubled to 10 trillion Yen.
An integral component of the package was the establishment of a 50
billion Yen asset purchase programme to acquire exchange traded
funds, J-REITs, Japanese Government and Corporate bonds, which has
also been doubled to 100 billion Yen. This encouraging climate has
led to impressive performance from your Investment Adviser with the
Net Asset Value (NAV) returning 17.1% in line with the Topix Small
Index's gain of 17.5%. The discount at year end was 15.9% having
narrowed from 20.5% 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 fully supportive of the strategy pursued by the
Investment Advisor which has seen a slight shift in focus during
the year from REITS concentration to a more diversified range of
Japanese equities.
On 11 March, 2011 Japan experienced the largest earthquake on
record, measuring a magnitude of 9.0 on the Richter Scale which
caused a tsunami to hit the coast of North Japan. Early indications
show that Fund investments have been relatively unscathed,
experiencing business disruptions only, such as production delays,
supply chain interruptions and reduced consumer spending in the
immediate aftermath. At this stage it is too early to determine the
full impact that these events will have on the Japanese economy,
but your Investment Advisor remains positive and will closely
monitor the developments of the Company's holdings.
David Fitzwilliam-Lay will be retiring from the Board this year
after 16 years, serving as Chairman for 14 years and then as a
Director, so he will not be offering himself for re-election at the
next Annual General Meeting. The Board would like to express its
gratitude to David Fitzwilliam-Lay for his commitment and
contribution to the Board throughout his tenure.
Richard Battey, non-executive director and Chairman of the Audit
Committee, is subject to annual re-election in accordance with
Article 76 of the Articles of Incorporation of the Company and,
being eligible, has offered himself for re-election. 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 providing
an appropriate balance to the composition of the Board.
In accordance with Article 143 of the existing Articles of the
Company a special resolution to wind up the Company has to be
proposed at every third Annual General Meeting. Thus, in order to
ensure the Company continues, more than 25% of the votes cast on
the special resolution must be cast against the resolution. The
last such vote took place in 2008 so the next resolution will be
placed on the Agenda for consideration at the Annual General
Meeting scheduled to be held on 22 August 2011. If the resolution
to wind up the Company receives more than 75% of the votes, the
Directors will be required to submit proposals to the Shareholders
to wind up the Company. The Board of Directors believes that it is
in the best interests of the Shareholders that the Company should
continue and therefore recommends Shareholders vote against the
resolution.
The Annual General Meeting of the Company is due to take place
on 22 August, 2011 at 10.30a.m. at the Company's registered office
at Trafalgar Court, St Peter Port, Guernsey.
John Hawkins
Chairman
15 April, 2011
INVESTMENT ADVISOR'S REPORT
for the year ended 31 December, 2010
Market Performance (%), US$ NAV
1 Year 3 Year 5 Year
31.12.10
Prospect Japan Fund 17.11 (50.28) (62.45)
Topix Small 17.50 4.27 (17.95)
Prospect Japan Fund inception date is 20 December 1994. Topix
Small is 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. The 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 17.1%
in 2010, in line with the Topix Small Index' 17.5% gain.
Corporate earnings continue to grow, with recurring profits up
24% in the third quarter, which is pointing to a strong fiscal year
to March 2011, despite a strengthening currency. Industrial
production increased due to US and China demand (+4.6% year-on-year
in December), despite the strong Yen. The Yen appreciated 11.6% in
2010, and is hovering at the low end of the 80 Yen per US Dollar
range. In September of 2010, the Ministry of Finance stepped into
the foreign exchange market in an attempt to stem the tide of the
strengthening Yen. The intervention - the first since 2004 -
provided muted results. To a degree the Company is sheltered from
currency moves as it is invested in domestic demand related names,
which are not directly related to currency fluctuations. The
Ministry of Finance announced the sale of Yen692.5 billion in March
2011, in an effort to weaken the currency from a post-war high,
which threatens the recovery from its biggest earthquake ever.
In politics, yet another new Prime Minister was elected, when
Naoto Kan was elected to replace Yukio Hatoyama in June 2010. Kan
announced a Yen920 billion stimulus package in September,
criticized at home for not being large enough to tackle the strong
Yen or reverse deflationary trends. Subsequently, Kan's cabinet
endorsed a Yen5.1 trillion stimulus plan to protect an economic
recovery and help businesses cope with the surging Yen. The
Government has plans to lower the corporate tax rate to 35% in 2011
(down 5%). The massive recovery/reconstruction task at hand after
the earthquake and tsunami has prompted discussion that the tax cut
will be postponed or eliminated to help pay for the rebuilding
effort. Unemployment figures improved to 4.9%, on the back of
increased production which suggested a possibility of growth in
domestic consumption. However, domestic consumption is likely to be
tempered for a few months after the earthquake.
The Bank of Japan held a policy meeting on October 4-5, due to
increased uncertainty for the U.S. economy, the stronger Yen and
weak share prices. At the meeting it decided on three measures: 1)
a return to zero interest rate policy; 2) clarification of the time
horizon of that policy through 2012; 3) the establishment of a Yen5
trillion asset purchase program. The program will acquire exchange
traded funds, J-REITs, Japanese Government Bonds and corporate
bonds and will take place over a twelve month period commencing in
December 2010. This asset purchase program helped put a floor under
asset prices and increased investor risk appetite. The portion of
the asset purchase program targeting J-REITs commenced on 16
December and provided a catalyst for the J-REIT market. The
original Yen5 trillion asset purchase program was doubled to Yen10
trillion, as announced by the Bank of Japan on 14 March, 2011.
The Japanese property market emerged from hibernation in 2010.
Tokyo central business office vacancies appear to have peaked at
8.9% in December 2010, reaching similar levels to the last peak in
August 2003 (8.6%). Bank lending has thawed, boosting the value of
real estate transactions by 59% in the first half of calendar year
2010. (Urban Research Institute)
The Bank of Japan's December Tankan survey (a measure of general
business, economic and trade activity) showed headline indices
experienced the first decline in seven quarters, however the
declines were smaller than consensus expectations. The
deterioration was concentrated in the auto sector, highlighting the
impacts of the expiration of incentive programs. Despite negative
headline figures, positives were seen as recurring profits are
forecast to rise year-on-year for all industries.
Fund performance
Outperformers
Oenon Holdings(2533), the maker of Japanese alcohol, increased
market share in the private label rice wine business by supplying
private label products to large general merchandisers. Oenon
announced three upward revisions in fiscal year December 2010. The
first was an upward revision to first half profits (30 July
announcement); the second upward revision was to full year earnings
(November); and the final upward revision was announced on 31
January 2011. The drivers of the upward revisions were due to an
improvement in profitability from the bioethanol division, higher
alcohol prices (to consumers), lower raw material prices, reduced
marketing expenses and cost cutting efforts at subsidiaries.
Growell Holdings (3141), a drug store chain with stores
concentrated in the greater Tokyo area, Osaka, and Shizuoka,
continues to post stable monthly sales trends. Growell posted
positive same store sales figures in ten of the last twelve months.
First quarter results achieved sales growth of 17.8% and recurring
profit growth of 29.2%. Growell relies on organic store growth and
a successful merger and acquisition strategy.
Yasuragi (8919), a real estate company focusing on sales of
refurbished detached homes, announced solid third quarter results
in November. Yasuragi dramatically reduced losses at their real
estate rental division and slightly improved profit margins in
second hand home sales.
Underperformers
Tri-Stage (2178) provides television programs and commercials
for direct marketing of products. Tri-Stage revised down full year
sales and profit targets based on higher media buying costs and
lower than expected sales numbers. Tri-Stage did clear client goals
in terms of product sales but missed internal targets. Sales at
three of the top five clients missed Tri-Stage' internal sales
targets. Monthly sales trends grew double digit from July to
September, but dropped to low single digits since October.
Toridoll (3397) is a restaurant chain based in Kobe consisting
of four main brands. The growth driver is the Marugame Seimen
brand, serving udon 'wheat noodles' in a cafeteria style setting.
Toridoll is adding 120 new restaurants per year, primarily in the
Marugame Seimen format. Monthly sales trends point to a weakness in
same store sales which were down 3.6% in the first half and are
roughly down 2.4% in the third quarter. New-store monthly store
sales were below company estimates. A decline in profits was due to
higher personnel and advertising costs.
J-REIT Market 2010
2010 was a banner year for the J-REIT market. The TSE REIT index
gained 26.6% year-on-year on the four pillars of (1) consolidation
through merger, (2) reduced credit costs, (3) the return of equity
issuances, and (4) the asset purchase program by the Bank of
Japan.
(1) Consolidation was a major theme of 2010, with seven J-REIT
mergers completed during the year, reducing the number of listed
funds to 35. In most cases, the market favourably received the
mergers, with portfolios moving into the hands of strong domestic
sponsors, and weaker sponsors leaving the market.
CODE SECURITY MAIN SPONSOR PARTICIPANTS DATE
Advance Residence
3269 Advance Residence Itochu Corp Nippon Residential 01/03/2010
-------------------- ------------- --------------------- -----------
Japan Retail
Fund
LaSalle Japan
8953 Japan Retail Fund Mitsubishi Investment 01/03/2010
-------------------- ------------- --------------------- -----------
United Urban
United Urban Investment
8960 Investment Marubeni Nippon Commercial 01/12/2010
-------------------- ------------- --------------------- -----------
Invincible LCP Investment
8963 Investment LCP Group TGR Investment 01/02/2010
-------------------- ------------- --------------------- -----------
Crescendo Investment
Heiwa Real Estate Japan
8966 Investment Heiwa RE Single-Residence 01/10/2010
-------------------- ------------- --------------------- -----------
BLife Investment
8984 BLife Investment Daiwa House New City Residence 01/04/2010
-------------------- ------------- --------------------- -----------
Japan Rental
Japan Rental Housing
8986 Housing Oaktree Prospect REIT 01/07/2010
-------------------- ------------- --------------------- -----------
While we believe the bulk of market consolidation has completed,
there are likely to be a few laggards. J-REITs such as Invincible
Investment (8963), FC Residential (8975) and Japan Office
Investment (8983) are among those that could make consolidation or
sponsor change announcements during the year.
(2) Credit markets loosened during the year, with banks again
willing to extend new loans for the purchase of real estate helping
fund J-REIT acquisitions. J-REITs issued Yen175 million in
corporate bonds during 2010, further calming concerns regarding
financing.
(3) More than Yen150 billion of new equity was raised during the
year accompanied by over Yen520 billion in new property
acquisitions.
(4) The dominant news towards year-end was the Bank of Japan
announcing its intention to purchase Yen50 billion in J-REIT units
as part of a broader Yen5 trillion asset-purchasing plan. The Bank
of Japan began purchasing shares of J-REITs rated AA or better on
16 December, with Yen2.2 billion of the eventual Yen50 billion
purchased by year end. The Yen50 billion amount represents
approximately 1.5% of total sector market capitalization, and 2.2%
of the market capitalization of eligible J-REITs
J-REIT Holdings News
The key J-REIT holdings that contributed to performance on the
year were Japan Single-Residence (8970), FC Residential (8975) and
Japan Office Investment (8983).
Japan Single-Residence (8970)
Japan Single-Residence, a Tokyo residential property focused
J-REIT, completed a merger with diversified J-REIT Crescendo
Investment (8966) to form Heiwa Real Estate REIT (8966) on 1
October 2010. The merger was set at 0.75 share of Crescendo
Investment for each share of Japan Single-Residence.
FC Residential (8975)
FC Residential experienced its fair share of drama during the
year, with a rare public showdown between management and
shareholders resulting in an unprecedented protection of
shareholder value. US based SJ Securities LLC, which holds a 23.2%
stake in FC Residential filed for a court injunction to block a
Yen5 billion 3(rd) Party issuance to Ichigo Asset Trust (sponsor
company of Japan Office Investment (8983)) which was announced by
FC Residential (8975) on 6 April. This would have resulted in an
84.9% unit dilution. On 26 April the Tokyo District Court suspended
the placement, and as a result, FC Residential cancelled the
issuance. However, due to FC Residential's management's repeated
disregard for preserving shareholder value, Prospect eliminated all
exposure at a premium in a block sale.
Japan Rental Housing (8986)
Japan Rental Housing completed its merger with Prospect REIT on
1 July, increasing its AUM by 45.2%, and generating Yen12.3 billion
of negative goodwill. The new portfolio has an improved Net
Operating Income yield of 5.3% due to a higher concentration of
Family type properties (32.4% from 28.4%). Management has outlined
its strategy towards further Net Operating Income improvement
through asset recycling towards higher occupancy properties in
Tokyo's 23 main wards and higher yielding family types in suburban
areas.
Outlook for the Company
We remain focused on stock picking and are encouraged by the
third quarter earnings. At the end of January 2011, 38% of Topix
(non-financials) have announced third quarter results. Sales grew
by 7.8% year-on-year and recurring profits were robust, growing
61.2%. Progress towards full year earnings targets show that sales
reached 73.6% of full year forecasts and recurring profits are
above target at 80.8% of full year forecasts. Toyo Keizai estimates
that full year sales will expand 7.0% year-on-year and recurring
profits to increase 44.4% year-on-year.
The current state of the market is similar to 2003, when the
market recovered on the back of bank lending to real estate. Real
estate developers have by and large shed unsold inventory.
Inventories are at 15 year lows, and low interest rates should help
encourage buyers eyeing more affordable product.
In the J-REIT space, credit concerns have dissipated, and the
greater portion of market consolidation is complete, attention
going forward is likely to be on external expansion via new equity
issuances. The consensus opinion is that the Japanese real estate
market has reached a bottom, presenting J-REITs with access to
funding and the opportunity to acquire property at attractive
yields. Thus far into the year two J-REITs have announced equity
issuances going towards property acquisitions totalling Yen63
billion. With 16 of 35 listed J-REIT trading above or very near
stated book value, we expect to see more tapping the equity markets
in the coming months.
Impact on the Fund from the Tohoku Earthquake/Tsunami
The earthquake on 11 March, 2011 measured a magnitude of 9.0 and
was the largest earthquake on record in Japan. In the following
days the companies in the Fund were contacted to assess the impact
on current and future business. Most of the companies were
remarkably unscathed by the earthquake/tsunami, however there are
supply chain interruptions, delays in production, and business
disruptions due to rolling blackouts that were in effect from 14
March. Companies in the Fund with a March year-end will see limited
impact from the earthquake since they were twenty days shy of their
fiscal year-end. Management at all the companies we spoke to said
it was too early to determine the scale of sales and profit
disruptions resulting from the natural disaster. Tri-Stage (2178) a
marketing company selling goods via television shopping media,
commented that sales immediately after the earthquake were down
since most of Japan was glued to their television sets watching the
news, with little appetite for shopping. Toridoll (3397) a
restaurant chain, closed 200 stores in the Tohoku and Northern
Kanto region on the Saturday after the
earthquake in order to assess the structural damage to the
restaurants. Seventy percent of the 200 restaurants were re-opened
within a week, with no estimate as to when the remaining 60
restaurants will open. In total, Toridoll has 519 restaurants. On
the positive side, Tomoe Corporation (1921) was cited in the
'Kabushiki Shimbun' - a financial newspaper - as a reconstruction
beneficiary. As for the J-REITs, there was minimal damage to the
properties.
Principal Risk and Uncertainties
It is too early to determine the impact the Tohoku earthquake
and tsunami will have on future sales and earnings. The Japanese
government and the Bank of Japan are working to provide disaster
recovery relief as well as economic stimulus for the rebuilding
effort. We will closely monitor the developments of the Fund
holdings. In addition, geo-political risk and a downturn in
economic momentum from the United States and China are issues that
could create pressure on the Japanese Stock Market. Additionally,
the unemployment rate in Japan is showing signs of slow
improvement. A sudden increase in the unemployment rate is also a
risk. Bank lending to the real estate market has started to
improve, which bodes well for the entire market and liquidity in
general. A relapse in credit tightening would adversely affect the
market.
Prospect Asset Management, Inc.
19 April, 2011
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, 2010.
The Company's Business
The Company was registered under the laws of Guernsey on 18
November, 1994 as a Limited Company with a premium listing 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, 2010 Net Asset Value per Ordinary
Share increased by 17.11%.
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
In prior periods, as a closed-ended investment company
registered in Guernsey, the Company was eligible for exemption from
the requirements of the previous Combined Code of Corporate
Governance published by the Financial Reporting Council. However
the Board put in place a framework for corporate governance which
it believes was appropriate having regard to the Company's size,
stage of development and resources and with reference to the
recommendations within the Association of Investment Companies'
Corporate Governance Guide for Investment Companies, which enabled
the Company to comply with the main requirements of the Combined
Code.
As a result of changes to the UK Listing Regime, with effect
from 6 April 2010, the Company must comply with the requirements of
the UK Corporate Governance Code. There is no published corporate
governance regime equivalent to the UK Corporate Governance Code in
Guernsey.
The Board of Prospect Japan Fund Limited has considered the
principles and recommendations of the AIC's Code of Corporate
Governance (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 reporting against the principles and recommendations
of the AIC Code, and by reference to the AIC Guide (which
incorporates the Combined Code), will provide better information to
shareholders.
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 Chairman of the Board is John Hawkins. In considering the
independence of the Chairman, the Board has taken note of the
provisions of the Combined 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.
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;
Ad hoc committee Audit Committee
Board Meetings meetings Meetings
Held Attended Held Attended Held Attended
David
FitzWilliam-Lay 4 3 - - 2 1
Rupert Evans 4 4 - - NA NA
John Hawkins 4 4 - - 2 2
Christopher
Sherwell 4 4 - - 2 2
Richard Battey 4 3 - - 2 2
Richard Battey was appointed to the Board on 10 February,
2010.
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.
Mr Rupert Evans is considered a non-independent Director due to
being a Director of the Manager. Mr David FitzWilliam-Lay is
considered non-independent as he has served on the Board for more
than nine years. Both non-independent Directors are subject to
annual re-election, however at the upcoming AGM, David
FitzWilliam-Lay will not be seeking 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, 2010, 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
because the assets of the Company consist mainly of securities that
are readily 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.
As disclosed in note 1 to the Financial Statements, in
accordance with the Company's Articles, the Board is obliged to
table a Special Resolution for the winding up of the Company at the
next Annual General Meeting. The outcome of this Special Resolution
depends on the results of future voting by shareholders. This
represents a material uncertainty which may cast significant doubt
as to the likelihood of the Company continuing as a going concern.
The Directors are however, of the opinion that Shareholders will
react positively to their recommendation to vote against the
resolution, and in favour of the continuation of the Company, and
that it is therefore appropriate for the Financial Statements to be
prepared on a going concern basis.
Audit Committee
An audit committee has been appointed comprising the independent
Directors. 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 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 the Manager 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, 2010 David FitzWilliam-Lay and Chris Sherwell
have beneficial interests of 128,061 (2009: 30,742) and 9,940
(2009: 9,940) Ordinary Shares respectively of the Company. No other
Directors holding office at 31 December, 2010, 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 advisors, Mourant Ozannes. John
Hawkins, Chris Sherwell and Richard Battey are Directors of a range
of funds.
Substantial Shareholdings
At 14 April, 2011 the following interests in the share capital
of the Company exceeded 3% of the issued share capital:
Percentage
Number of issued
of shares share capital
BNY Mellon Nominees
Limited 4,208,216 4.23%
Citibank Nominees (Ireland)
Limited 6,863,449 6.90%
Euroclear Nominees Limited 58,185,957 58.52%
Nortrust Nominees Limites 3,800,000 3.82%
State Street Nominees
Limited 6,195,000 6.23%
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 27 August, 2010, the Company may
purchase, subject to various terms as set out in the Articles, a
maximum of 6,391,950 Ordinary Shares. During the year, the Company
purchased shares as detailed in Note 9 of 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
19 April, 2011
INVESTMENT POLICY
for the year ended 31 December, 2010
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, 2010
Number Percentage
of Fair Value of
in U.S. Net Asset
Securities Investments Dollars Value
Listed investments
Advertising
326,800 Tri-Stage Inc 5,819,397 6.55
5,819,397 6.55
Beverages
4,013,000 Oenon Holdings Inc 9,843,022 11.08
9,843,022 11.08
Engineering and Construction
2,215,800 Tomoe Corp 7,010,993 7.89
7,010,993 7.89
Health Care
8,400 Ain Pharmaciez Inc 293,701 0.33
372 Message Co 1,040,177 1.17
1,333,878 1.50
Internet
447 Next Co Ltd 498,311 0.56
498,311 0.56
Investment Companies
5,896,000 Gro-Bels Co Ltd 2,024,626 2.28
2,024,626 2.28
Pharmaceuticals
Towa Pharmaceutical Co
30,400 Ltd 1,681,432 1.89
1,681,432 1.89
Real Estate
1,952 Logicom Inc 981,506 1.10
4,426 Urbanet Corp 1,422,139 1.60
1,650,500 Yasuragi Co 7,104,801 8.00
9,508,446 10.70
REITs
Invincible Investment
53,422 Corp 8,667,808 9.75
Japan Office Investment
3,140 Corporation 3,916,335 4.41
Japan Rental Housing
7,327 Investments Inc 3,207,921 3.61
Prospect Epicure JREIT
7,898,895 Value Fund* 56,315 0.06
15,848,379 17.83
Retail
49,700 Askul Corp 1,028,255 1.16
350,200 Growell Holdings 8,727,084 9.82
318,000 Sekichu Co Ltd 1,481,972 1.67
Shaklee Global Group
541,000 Inc 2,839,686 3.19
3,043 Toridoll Corp 4,172,276 4.70
18,249,273 20.54
Storage/warehousing
2,033,000 Shibusawa Warehouse Co 7,155,641 8.05
7,155,641 8.05
Total listed investments 78,973,398 88.87
----------- -----------
Unlisted investments
Convertible bond
940,000,000 Azel Corp 4% 24/09/2012 115,282 0.13
900,000,000 Fintech Global 0% 08/02/2012 7,726,270 8.69
7,841,552 8.82
Corporate bond
315,700,000 Takefuji Corp 10% 14/4/2011 387,172 0.44
387,172 0.44
Total unlisted investments 8,228,724 9.26
Total investments 87,202,122 98.13
Net current assets 1,663,603 1.87
NET ASSETS 88,865,725 100.00
* Prospect Epicure JREIT Value Fund is classed as a related
party as the fund shares the same Investment Advisor as the
Company.
RESPONSIBILITY STATEMENT
For the year ended 31 December, 2010
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)
as adopted by the European Union 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, 2010.
(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
19 April, 2010
INDEPENDENT AUDITOR'S REPORT
TO THE MEMBERS OF PROSPECT JAPAN FUND LIMITED
We have audited the Financial Statements of Prospect Japan Fund
Limited for the year ended 31 December 2010 which comprise the
Statement of Comprehensive Income, Statement of Financial Position,
Statement of Changes in Equity, Statement of Cash Flows and the
related notes 1 to 15. The financial reporting framework that has
been applied in their preparation is applicable law and
International Financial Reporting Standards (IFRSs) as adopted by
the European Union.
This report is made solely to the company's members, as a body,
in accordance with Section 262 of the Companies (Guernsey) Law,
2008. Our audit work has been undertaken so that we might state to
the company's members those matters we are required to state to
them in an auditor's report and for no other purpose. To the
fullest extent permitted by law, we do not accept or assume
responsibility to anyone other than the company and the company's
members as a body, for our audit work, for this report, or for the
opinions we have formed.
Respective responsibilities of directors and auditor
As explained more fully in the Statement of Directors'
Responsibilities, the Directors are responsible for the preparation
of the Financial Statements and for being satisfied that they give
a true and fair view. Our responsibility is to audit and express an
opinion on the Financial Statements in accordance with applicable
law and International Standards on Auditing (UK and Ireland). Those
standards require us to comply with the Auditing Practices Board's
Ethical Standards for Auditors.
Scope of the audit of the Financial Statements
An audit involves obtaining evidence about the amounts and
disclosures in the Financial Statements sufficient to give
reasonable assurance that the Financial Statements are free from
material misstatement, whether caused by fraud or error. This
includes an assessment of: whether the accounting policies are
appropriate to the company's circumstances and have been
consistently applied and adequately disclosed; the reasonableness
of significant accounting estimates made by the directors; and the
overall presentation of the Financial Statements. In addition, we
read all the financial and non-financial information in the Annual
Report to identify material inconsistencies with the audited
Financial Statements. If we become aware of any apparent material
misstatements or inconsistencies we consider the implications for
our report.
Opinion on Financial Statements
In our opinion the Financial Statements:
-- Give a true and fair view of the state of the company's
affairs as at 31 December 2010 and of its profit for the year then
ended;
-- Have been properly prepared in accordance with IFRSs as
adopted by the European Union; and
-- Have been prepared in accordance with the requirements of the
Companies (Guernsey) Law, 2008.
Emphasis of Matter - Going Concern
In forming our opinion on the Financial Statements, which is not
qualified, we have considered the adequacy of the disclosure made
in note 1 to the Financial Statements concerning the Company's
ability to continue as a going concern. The matters explained in
note 1 to the Financial Statements indicate the existence of a
material uncertainty which may cast significant doubt about the
likelihood of the Company continuing as a going concern. The
Financial Statements do not include the adjustments that would
result if the Company were not to continue as a going concern.
Matters on which we are required to report by exception
We have nothing to report in respect of the following:
Under the Companies (Guernsey) Law, 2008 we are required to
report to you if, in our opinion:
-- Proper accounting records have not been kept; or
-- The Financial Statements are not in agreement with the
accounting records; or
-- We have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review the part of
the Corporate Governance Statement relating to the Company's
compliance with the nine provisions of the June 2008 Combined Code
specified for our review.
Michael Bane
for and on behalf of Ernst & Young LLP
Guernsey, Channel Islands
19 April, 2011
STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December, 2010
Revenue Capital Total Revenue Capital Total
01.01.2010 01.01.2010 01.01.2010 01.01.2009 01.01.2009 01.01.2009
to to to to to to
31.12.2010 31.12.2010 31.12.2010 31.12.2009 31.12.2009 31.12.2009
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Notes Dollars Dollars Dollars Dollars Dollars Dollars
Investment
income 1,923,527 - 1,923,527 2,473,226 - 2,473,226
Interest
income 61,455 - 61,455 358,469 - 358,469
Foreign
exchange
movements 198,882 633,896 832,778 (283,041) 1,230,801 947,760
Gain on
financial
assets
at fair value
through
profit or
loss - 12,467,619 12,467,619 - 17,995,845 17,995,845
Total income 2,183,864 13,101,515 15,285,379 2,548,654 19,226,646 21,775,300
Management
4 fee (1,215,047) - (1,215,047) (946,982) - (946,982)
Other
5 expenses (627,617) - (627,617) (504,047) - (504,047)
Transaction
costs - (327,367) (327,367) - (155,891) (155,891)
Total
expenses (1,842,664) (327,367) (2,170,031) (1,451,029) (155,891) (1,606,920)
Gain for the
year before
tax 341,200 12,774,148 13,115,348 1,097,625 19,070,755 20,168,380
Withholding
3 tax (135,254) - (135,254) (173,126) - (173,126)
Gain for the
year after
tax 205,946 12,774,148 12,980,094 924,499 19,070,755 19,995,254
Total
comprehensive
income
for the year 205,946 12,774,148 12,980,094 924,499 19,070,755 19,995,254
Gain per
Ordinary
2 Share -
Basic &
Diluted 0.130 0.199
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, 2010
31.12.2010 31.12.2009
In U.S.
Notes In U.S. Dollars Dollars
Non-current assets
Financial assets at fair value
6 through profit or loss 87,202,122 61,297,442
Current assets
7 Receivables 896,627 2,109,751
Cash and cash equivalents 1,587,728 13,259,156
Total current assets 2,484,355 15,368,907
Current liabilities
8 Payables 820,752 508,491
Net current assets 1,663,603 14,860,416
Total assets less current
liabilities 88,865,725 76,157,858
Equity
9 Share capital account 99,634 100,030
9 Redemption reserve 92,027,074 92,299,301
9 Capital redemption reserve 315,875 315,479
Other reserves (3,576,858) (16,556,952)
Total equity 88,865,725 76,157,858
Ordinary Shares in issue 99,634,852 100,030,520
2 Net Asset Value per Ordinary Share 0.89 0.76
The Financial Statements were approved by the Board of Directors
on 19 April, 2011 and signed on its behalf:
John Hawkins Richard Battey
Chairman Director
STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December, 2010
Capital
Capital Capital Capital Reserve/
Share
Capital Redemption Redemption Revenue Reserve/ Reserve/ Exchange
Account Reserve Reserve Reserve Realised Unrealised Differences Total
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars
Balances at
1 January,
2010 100,030 315,479 92,299,301 (11,213,972) 42,638,373 (50,287,542) 2,306,189 76,157,858
Total comprehensive
income for the year
Gain/(loss)
for the year
after tax - - - 205,946 (15,019,257) 27,159,509 633,896 12,980,094
Capital
activities
Repurchase
of shares (396) 396 (272,227) - - - - (272,227)
Total capital
activities (396) 396 (272,227) - - - - (272,227)
Balances at
31 December,
2010 99,634 315,875 92,027,074 (11,008,026) 27,619,116 (23,128,033) 2,940,085 88,865,725
======== =========== =========== ============= ============= ============= ============ ===========
Capital
Capital Capital Capital Reserve/
Redemption Redemption Revenue Reserve/ Reserve/ Exchange
Share
capital Reserve Reserve Reserve Realised Unrealised Differences Total
In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S. In U.S.
Dollars Dollars Dollars Dollars Dollars Dollars Dollars Dollars
Balances at
1 January,
2009 100,615 314,894 92,616,639 (12,138,471) 61,155,877 (86,645,000) 1,075,388 56,479,942
-
Total comprehensive
income for the year
Gain/(loss)
for the year
after tax - - - 924,499 (18,517,504) 36,357,458 1,230,801 19,995,254
Capital
activities
Repurchase
of shares (317,338) - - - - (317,338)
Total capital
activities - - (317,338) - - - - (317,338)
Balances at
31 December,
2009 100,030 315,479 92,299,301 (11,213,972) 42,638,373 (50,287,542) 2,306,189 76,157,858
======== =========== =========== ============= ============= ============= ============ ===========
STATEMENT OFCASH FLOWS
for the year ended 31 December, 2010
01.01.2010 01.01.2009
to to
31.12.2010 31.12.2009
In U.S. In U.S.
Notes Dollars Dollars
Cash flows from operating activities
Net cash inflow from operating
10 activities 362,585 3,149,590
Cash flows from investing activities
Purchase of financial assets at
fair value through profit or loss (96,537,860) (50,666,124)
Sale of financial assets at fair
value through profit or loss 84,292,524 61,275,486
Net cash (outflow)/inflow from
financing activities (12,245,336) 10,609,362
Net cash (outflow)/inflow before
financing (11,882,751) 13,758,952
Cash flows from financing activities
9 Repurchase of shares (272,227) (317,338)
Net cash outflow from financing
activities (272,227) (317,338)
(Decrease)/increase in cash and
cash equivalents (12,154,978) 13,441,614
Reconciliation of net cash flow
to
movement in net funds
Net cash (outflow)/inflow (12,154,978) 13,441,614
Effects of foreign exchange rate
changes 483,550 (350,533)
Cash and cash equivalents at
the beginning of the year 13,259,156 168,075
Cash and cash equivalents at
the end of the year 1,587,728 13,259,156
NOTES TO THE FINANCIAL STATEMENTS
for the year ended 31 December, 2010
Note 1 Principal Accounting Policies
The following accounting policies have been applied consistently
in dealing with items which are considered to be material in
relation to the Company's Financial Statements:
Basis of preparation
The Financial Statements are prepared in accordance with
International Financial Reporting Standards ("IFRS") adopted for
use in the European Union, which comprise standards and
interpretations approved by the International Accounting Standards
Board (IASB) and are in compliance with The Companies (Guernsey)
Law, 2008. The Financial Statements have been prepared on a going
concern basis under the historical cost convention, as modified by
the revaluation of financial assets and financial liabilities at
fair value through profit or loss.
Going concern
The Directors believe that it is appropriate to continue to
adopt the going concern basis in preparing the Financial Statements
because the assets of the Company consist mainly of securities that
are readily 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 and the Directors expect that the
resolution referred to below will be defeated.
In accordance with the Company's Articles, the Board is required
every three years to include in the business to be considered by
shareholders at the Annual General Meeting a Special Resolution
that the Company should be wound up. This resolution requires 75%
of votes in favour for it to be passed. The next such resolution
will be tabled at the Fourteenth Annual General Meeting to be held
on 22 August, 2011. The future outcome of this vote represents a
material uncertainty which may cast significant doubt as to the
likelihood of the Company continuing as a going concern. The
Directors are however, of the opinion that Shareholders will react
positively to their recommendation to vote against the resolution,
and in favour of the continuation of the Company and that it is
therefore appropriate for the Financial Statements to be prepared
on a going concern basis. If the Directors had expected that the
resolution would be passed, and hence the Company would be wound
up, it would have been appropriate for these Financial Statements
to be prepared on a break up basis. Adjustments might then have
been required to the carrying amounts of the investments to reflect
their recoverable amounts and a provision would be required for the
costs of winding up the Company. The Financial Statements do not
include any adjustments that would result if the Company were not
able to continue as a going concern.
Presentation of information
Where presentational guidance set out in the Statement of
Recommended Practice ("SORP") for Investment Companies issued by
the Association of Investment Companies ("AIC") 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
SORP. Supplementary information which analyses the Statement of
Comprehensive Income between items of a revenue and capital nature
has been presented within the Statement of Comprehensive
Income.
Standards, amendments and interpretations effective during the
year
The following interpretations were applicable for the year but
had no impact on the financial position or performance of the
Company.
IAS 27 (amendments), Consolidated and Separate Financial
Statements;
IAS 39 (amendment), Financial instruments: Recognition and
Measurement - Eligible hedged items;
IFRS 1 (amendments), Additional exemptions for first-time
adopters;
IFRS 1 (revised and restructured), First-time Adoption of
International Financial Reporting Standards;
IFRS 2 (amendments), Share-based payments - Group cash-settled
share-based payment transaction;
IFRS 9 Financial Instruments Classification and Measurement;
IFRS 3 (revised) - Business combinations; and
IFRIC 17 Distributions of non-cash assets to owners
Standards, amendments and interpretations issued but not yet
effective
The following interpretations are mandatory for accounting
periods beginning on or after 1st January, 2011.
-- lAS 24 Related Party Disclosures (Amendments) - (effective
date - 1 January, 2011);
-- IAS 32 Financial instruments: Presentation - Classification
of Rights Issue- (effective 1 February, 2010).
-- IFRS 9 Financial Instruments: Classification and Measurement
- (effective 1 January, 2013).
IFRS 9 will change the way the Company classifies and measures
certain of its financial assets. The Company is currently in the
process of evaluating the potential effect of this standard. The
standard is not expected to have a significant impact on the
Financial Statements since the majority of the Company's financial
assets are designated at fair value through profit and loss.
-- IFRIC 14 Prepayments of a minimum funding requirement
(Amendments) - (effective date - 1 January, 2011).
-- IFRIC 19 Extinguishing Financial Liabilities with Equity
Instruments [Effective for financial years beginning on or after 1
July, 2010]
Improvements to IFRSs
In May 2010 the IASB issued improvements to IFRS, an omnibus of
amendments to its IFRS standards. The amendments have not been
adopted as they become effective for annual periods on or after 1
January, 2011. The Company expects no impact from the adoption of
the amendments on its financial position or performance. The
adoption of the amendment to IFRS 7 Financial Instruments:
Disclosures, is expected to have a limited impact on the disclosure
of credit risk.
Significant accounting judgements, estimates and assumptions
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,
2010.
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 99,851,377 and a net gain of US$12,980,094 (2009: on 100,517,026
Ordinary Shares and a net gain of US$19,995,254).
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 99,634,852 (2009: 100,030,520) and shareholders'
funds attributable to equity interests of US$88,865,725 (2009:
US$76,157,858). 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.
31.12.2010 31.12.2009
In U.S. In U.S.
Dollars Dollars
Net Asset Value per Ordinary Share
- Basic and Diluted 0.89 0.76
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 withholding tax 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 ("PAM(CI)Ltd") , 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$1,215,047 (2009:
US$946,982) of which US$109,725 (2009: US$97,163) 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
01.01.2010 01.01.2009
to to
31.12.2010 31.12.2009
In U.S. In U.S.
Dollars Dollars
Administration and secretarial
fees* 202,508 157,830
Custodian's fees and
charges** 103,813 54,768
General expenses 156,524 153,590
Directors' remuneration 127,698 93,148
Auditors'
fees 37,074 44,711
627,617 504,047
*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$202,508 (2009: US$157,830) of which US$18,288 (2009:
US$$16,194) 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$103,813 (2009: US$54,768) of which US$5,734
(2009: US$4,165) is due and payable at the year end.
Note 6 Financial Assets at Fair Value through Profit and
Loss
31.12.2010 31.12.2009
In U.S. In U.S.
Dollars Dollars
Opening book cost 111,584,984 141,771,667
Purchases at cost 96,651,544 55,180,765
Sale proceeds (83,052,915) (67,245,561)
Realised
loss (14,853,458) (18,121,887)
Closing book cost 110,330,155 111,584,984
Unrealised loss (23,128,033) (50,287,542)
Fair value as at 31
December 87,202,122 61,297,442
Note 7 Receivables
31.12.2010 31.12.2009
In U.S. In U.S.
Dollars Dollars
Amounts due from
brokers 206,780 1,446,389
Dividends receivable 689,847 623,431
Interest receivable - 39,931
896,627 2,109,751
Note 8 Payables
31.12.2010 31.12.2009
In U.S. In U.S.
Dollars Dollars
Amounts due to brokers 566,468 286,985
Other creditors 254,284 221,506
820,752 508,491
Note 9 Share Capital, Redemption Reserve & Capital
Redemption Reserve
Capital
Redemption Redemption
Share
Ordinary Shares Capital Reserve Reserve
In U.S. In U.S. In U.S.
Number of shares Dollars Dollars Dollars
Balance at 1
100,030,520 January, 2010 100,030 92,299,301 315,479
Shares repurchased
and
cancelled during
(395,668) the year (396) (272,227) 396
Balance at 31
99,634,852 December, 2010 99,634 92,027,074 315,875
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 27 August, 2010, the Company may
purchase a maximum of 6,391,950 Ordinary Shares, equivalent to
5.80% 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 Share of
In U.S.
Date Shares Dollars share capital
11 August, 2010 160,000 0.660 0.16%
19 November, 2010 8,668 0.670 0.01%
22 November, 2010 70,000 0.690 0.07%
23 November, 2010 30,000 0.690 0.03%
20 December, 2010 17,000 0.710 0.02%
22 December, 2010 110,000 0.720 0.11%
395,668 0.40%
Note 10 Reconciliation of Deficit on Ordinary Activities to Net
Cash Inflow from Operating Activities
31.12.2010 31.12.2009
In U.S. In U.S.
Dollars Dollars
Return on ordinary activities
for the year 205,946 924,499
Amortisation on convertible
and corporate bonds - (255,796)
(Increase)/decrease in dividends receivable
and other receivables (26,485) 1,002,576
(Increase)/decrease
in other creditors 32,778 (103,023)
Foreign exchange gain 150,346 1,581,334
Net cash inflow from operating
activities 362,585 3,149,590
Note 11 Analysis of Financial Assets and Liabilities by
Measurement Basis
Investments Receivables
at fair
value and payables Total
In U.S. In U.S. In U.S.
Dollars Dollars Dollars
As at 31 December,
2010
Financial assets
Investments at fair value through
profit or loss 87,202,122 - 87,202,122
Cash and cash equivalents - 1,587,728 1,587,728
Receivables - 896,627 896,627
87,202,122 2,484,355 89,686,477
============ ============= ===========
Financial liabilities
Payables - 820,752 820,752
- 820,752 820,752
============ ============= ===========
Investments
at fair Receivables
value and payables Total
In U.S. In U.S. In U.S.
Dollars Dollars Dollars
As at 31 December,
2009
Financial assets
Investments at fair value through
profit or loss 61,297,442 - 61,297,442
Cash and cash equivalents - 13,259,156 13,259,156
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
============ ============== ===========
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 per annum. Mr.
Chris Sherwell was Chairman of the Audit Committee until he was
replaced by Mr. Richard Battey on 10 February, 2010.
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$152,307 (2009: US$627,832) 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 (2009: 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 27 August, 2010, the Company may
purchase a maximum of 6,391,950 Ordinary Shares, equivalent to
5.80% 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 imposed 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 2010, 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 appreciation 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, 2010 a 1%
positive/negative movement in the index would produce a
positive/negative movement in the net assets of the Company of
US$322,648 (2009: US$208,084) 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:
31.12.2010 31.12.2009
In US Dollars In US Dollars
Investments
Japanese Yen (Yen7,105,869,103,
2009:Yen5,609,161,250) 87,145,807 60,787,442
Sterling (GBP34,888, 2009:GBP315,956) 56,315 510,000
87,202,122 61,297,442
Other (Liabilities)/Assets
US Dollars (137,668) (120,735)
Sterling (GBP42,330, 2009:GBP35,315) (68,327) (57,000)
Japanese Yen (Yen152,447,021,
2009:Yen1,386,918,257) 1,869,598 15,038,151
1,663,603 14,860,416
The below details the Company's sensitivity to a 10% (31
December 2009: 10%) change in exchange rates against the US
Dollar.
31.12.2010 31.3.2009
In US Dollars In US Dollars
Impact on Statement of Comprehensive
Income in response to a
- 10% increase 8,093,510 6,844,993
============== ==============
- 10% decrease (9,891,804) (8,379,766)
============== ==============
Impact on Equity in response
to a
- 10% increase 8,093,510 6,844,993
============== ==============
- 10% decrease (9,891,804) (8,379,766)
============== ==============
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 however, in the Directors'
opinion no material impact is expected. 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.
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.
IFRS 7 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 for the year ended 31 December 2010.
Level 1 Level 2 Level 3 Total
In US Dollars In US Dollars In US Dollars In US Dollars
Assets
Financial
assets at
fair value
through
profit and
loss:
-Equity
Securities 78,973,398 - - 78,973,398
-Debt
Securities - 7,726,270 502,454 8,228,724
Total assets
as at 31
December
2010 78,973,398 7,726,270 502,454 87,202,122
============== ============== ============== ==============
The following table presents the movement in level 3 instruments
for the year ended 31 December, 2010 by class of financial
instrument.
Equity Debt
Securities Securities Total
In US Dollars In US Dollars In US Dollars
Opening balance - 101,870 101,870
Transfers into
level 3 - 387,172 387,172
Unrealised gains during
the year - 13,412 13,412
Closing balance - 502,454 502,454
=============== ============== ==============
Net unrealised loss for
the year included in the
Statement of
Comprehensive Income for
level 3 Investments held
at 31 December 2010 - (1,574,076) (1,574,076)
=============== ============== ==============
During the year a debt security was transferred to level 3 due
to the bankruptcy of the underlying investment.
The following table analyses within the fair value hierarchy the
Company's financial assets and liabilities (by class) measured at
fair value for the year ended 31 December 2009.
Level 1 Level 2 Level 3 Total
In US
In US Dollars In US Dollars In US Dollars Dollars
Assets
Financial assets
at fair value
through profit
and loss:
-Equity
Securities 55,786,740 - - 55,786,740
-Debt Securities - 5,408,832 101,870 5,510,702
Total assets as
at 31 December
2009 55,786,740 5,408,832 101,870 61,297,442
============== ============== ============== ===========
Equity Debt
Securities Securities Total
In US Dollars In US Dollars In US Dollars
Opening balance - 9,128,642 9,128,642
Purchases - 947,786 947,786
Sales - (7,121,170) (7,121,170)
Transfers into
level 3 - - -
Gains recognised in profit
and loss - (2,853,388) (2,853,388)
Closing balance - 101,870 101,870
=============== ============== ==============
Net unrealised loss for the
year included in the
Statement of Comprehensive
Income for level 3
Investments held at 31
December 2009 - (5,950,958) (5,950,958)
=============== ============== ==============
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 tables
below analyse 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
December Up to 1 1 week to 6-12
2010 week 1 month 1-6 months months Total
In US In US In US In US In US
Dollars Dollars Dollars Dollars Dollars
Financial
assets
Financial assets at fair
value
through
profit or
loss 11,922,074 10,927,329 47,981,374 16,371,345 87,202,122
Dividends
receivable - 83,276 606,571 - 689,847
Interest
receivable - - - - -
Cash and
cash
equivalents 1,587,728 - - - 1,587,728
Securities
sold
receivable 206,780 - - - 206,780
Financial
liabilities
Amounts due
to brokers (566,468) - - - (566,468)
Other
creditors - (177,890) (76,394) - (254,284)
Total 13,150,114 10,832,715 48,511,551 16,371,345 88,865,725
=========== =========== =========== =========== ===========
As at 31
December Up to 1 1 week to 6-12
2009 week 1 month 1-6 months months Total
In US In US In US In US In US
Dollars Dollars Dollars Dollars Dollars
Financial
assets
Financial assets at fair
value
through
profit or
loss 11,576,566 13,351,342 27,675,237 8,694,297 61,297,442
Dividends
receivable - 270,445 352,985 - 623,430
Interest
receivable - - 39,932 - 39,932
Cash and
cash
equivalents 13,259,156 - - - 13,259,156
Securities
sold
receivable 1,446,389 - - - 1,446,389
Financial
liabilities
Amounts due
to brokers (286,985) - - - (286,985)
Other
creditors - (166,797) (54,709) - (221,506)
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 Statement of financial position 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 19 April, 2011. Subsequent events have been evaluated
until this date.
The Company has made the following share buybacks subsequent to
the year end and up to the date of these Financial Statements:
Price Percentage
per of
Issued
Shares Share Share
Date GBP Capital
15 March
2011 100,000 0.63 0.10%
18 March
2011 100,000 0.69 0.10%
200,000 0.20%
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 99,634,852 Ordinary
Shares in issue as at 31 December, 2010. 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 or securities 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
will 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, age 79, 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. Mr
FitzWilliam-Lay was appointed to the Board on 18 November,
1994.
Rupert Evans, age 72, is a Guernsey advocate and former partner
in the firm of the Guernsey legal advisors, Mourant Ozannes. He is
now a consultant to Mourant Ozannes. He is a non-executive director
of the Manager and of a number of investment companies. Mr Evans is
resident in Guernsey. Mr Evans was appointed to the Board on 18
November, 1994.
John Hawkins, age 68, 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. Mr Hawkins was appointed
to the Board on 4 April, 2004.
Christopher Sherwell, age 63, 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. Mr Sherwell was appointed to the Board on 27
September, 2004.
Richard Battey, age 59, 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. Mr Battey was appointed to the Board on 10 February,
2010.
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
FR DKDDBCBKKPQB
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