ABSOLUTE LIMITED Interim Report

Transcription

1 Dexion ABSOLUTE LIMITED 2008 Interim Report

2 Contents Pages Summary Information 1 Chairman s Statement 5 Responsibility Statement 7 Independent Review Report 8 Condensed Unaudited Balance Sheet 9 Condensed Unaudited Income Statement 10 Condensed Unaudited Statement of Changes in Shareholders Equity 11 Condensed Unaudited Cashflow Statement 12 Notes to the Condensed Unaudited Interim Financial Statements 13 Corporate Information 25 Glossary of Hedge Fund Strategies 26 Summary Information Principal Activity Dexion Absolute Limited ( the Company ) is a Guernsey registered closed ended investment company listed on the London Stock Exchange. Trading in the Company s ordinary shares commenced on 19 December Investment Objective and Investment Policy The Company s investment objective is to generate consistent long-term capital appreciation with low volatility and little correlation with the general equity and bond markets through a portfolio having a diversified risk profile. The Company s investment policy is to invest in an actively managed portfolio of hedge funds which is diversified by investment strategy, style and manager, to achieve attractive risk-adjusted returns with low correlation to equity and fixed interest benchmarks. Shareholder Information The Company announces its net asset value on a monthly basis together with a commentary on investment performance. Estimated net asset values are normally provided weekly. Share price, net asset value and performance information can also be found on the Company s website However, information on that website does not form part of, nor is it incorporated by reference into this document and that information is not available to certain overseas shareholders. Shareholder web conferences also take place and are announced via RNS. 1

3 Summary Information (continued) Financial Highlights 30 June 30 June 30 June 30 June Shares Shares US$ Shares A$ Shares Total Net Assets 1,128,083, ,357,239 US$232,837,880 A$103,429,061 Net Asset Value per Share US$ A$ Mid-Market Share Price US$ A$ Premium/(discount) to Net Asset Value 1.42% (0.20)% 0.13% 0.77% 31 December 31 December 31 December 31 December Shares Shares US$ Shares A$ Shares Total Net Assets 676,419, ,640,315 US$163,126,496 A$82,546,724 Net Asset Value per Share US$ A$ Mid-Market Share Price US$ A$ Premium to Net Asset Value 4.96% 5.33% 4.42% 4.68% 31 December 31 December 31 December 31 December C Shares C Shares C US$ Shares C A$ Shares Total Net Assets 370,602,323 68,874,810 US$55,859,610 A$14,665,470 Net Asset Value per Share US$ A$ Mid-Market Share Price US$ A$ Premium to Net Asset Value 4.15% 3.71% 4.20% 3.11% 30 June 30 June 30 June 30 June Shares Shares US$ Shares A$ Shares Total Net Assets 637,402, ,811,542 US$164,138,221 A$78,940,121 Net Asset Value per Share US$ A$ Mid-Market Share Price US$ A$ Premium/(discount) to Net Asset Value (0.12)% 1.28% 1.18% 0.64% Share Net Asset Value Performance Total Return (Base 100) 260 Dexion Absolute NAV ( ) 240 HFRI Fund of Funds Index (US$) 220 MSCI World Index Gross (TR) (US$) JPM Global Government Bond Index (TR) (US$) Dec-02 Jun-03 Dec-03 Jun-04 Dec-04 Jun-05 Dec-05 Jun-06 Dec-06 Jun-07 Dec-07 Jun-08 Note: Based on weekly data for Dexion Absolute, MSCI World Index Gross (TR) and JPM Global Government Bond Index (TR) and monthly data for HFRI FOF Index (weekly data not available). Dexion Absolute's Share NAV is expressed in whilst the comparative indices are expressed in US$. Dexion Absolute's Share NAV is hedged from US$ to and these hedging arrangements had a positive effect on the NAV performance over the period from inception to February 2006 and from February 2007 to date, but for the period from March 2006 to January 2007 the hedging arrangements had a negative effect on NAV performance. Source: Bloomberg (data) 2

4 Summary Information (continued) Portfolio composition at 1 July 2008 Numbers in brackets indicate number of managers Macro 11% (5) Long/Short Credit 14% (5) Portfolio Hedge 12% (8) Activist 10% (5) Multi-Strategy Opportunistic 20% (9) Long/Short Equities 33% (18) Note: Manager count excludes any manager holding less than 0.5% of the Company's assets from which the Company is withdrawing 100% of its investment. Allocations are net of cash effect and include, for portfolio hedge only, the delta-adjusted exposure derived from option hedges, if any. Source: Harris Alternatives LLC Performance by strategy (six months to 30 June 2008) Long/Short Credit Activist Long/Short Equities Multi-Strategy Opportunistic Portfolio Hedge Macro -15% -10% -5% 0% 5% 10% 15% 20% Note: Strategy returns are in US$ and net of underlying manager fees only, and not inclusive of Dexion Absolute's fees and expenses. Source: Harris Alternatives LLC 3

5 Summary Information (continued) Monthly NAV Performance Since Inception GBP Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD % 0.02% 0.78% 1.37% 2.11% 1.56% -0.48% 0.27% 1.48% 0.72% 0.31% 2.39% 12.59% % 0.96% 0.38% -0.18% 0.03% 0.61% -0.06% 0.39% 0.86% 0.41% 1.70% 1.38% 8.13% % 1.54% 0.06% -0.87% 0.88% 1.38% 1.51% 0.86% 1.75% -1.41% 1.40% 1.72% 9.46% % 0.28% 0.71% 1.42% -1.52% -0.78% -0.08% 0.83% 0.35% 1.39% 1.44% 1.34% 8.13% % 0.85% 1.44% 1.70% 1.85% 1.05% 1.02% -1.43% 2.08% 2.73% -0.48% 0.62% 13.23% % 1.26% -2.34% 1.21% 2.27% -0.89% -2.12% EUR % 0.67% 1.64% -1.58% 1.16% 1.54% 4.78% % 0.15% 0.52% 1.31% -1.68% -0.91% -0.04% 0.55% 0.21% 1.30% 1.30% 1.23% 6.32% % 0.73% 1.29% 1.59% 1.72% 0.92% 0.91% -1.57% 1.88% 2.60% -0.65% 0.45% 11.38% % 1.18% -2.35% 1.07% 2.17% -0.97% -2.61% USD % 0.82% 1.74% -1.41% 1.32% 1.72% 5.66% % 0.25% 0.71% 1.54% -1.45% -0.71% -0.01% 0.92% 0.38% 1.45% 1.53% 1.33% 8.79% % 0.85% 1.45% 1.74% 1.81% 1.04% 1.01% -1.46% 2.06% 2.73% -0.57% 0.53% 12.99% % 1.10% -2.52% 0.98% 2.05% -1.10% -3.18% AUD % 1.54% 1.40% 4.46% % 0.88% 1.47% 1.73% 1.92% 1.08% 1.05% -1.45% 1.96% 2.67% -0.34% 0.63% 13.59% % 1.43% -2.23% 1.37% 2.41% -0.75% -1.28% Source: Bloomberg (data) Analysis of significant investments The ten largest holdings of the Company as at 30 June 2008 are set out below: Name of investment Strategy Book Market % of Cost Value Company s net assets TPG-Axon Partners Offshore Fund Limited Multi-Strategy Opportunistic 53,207,907 64,232, York Select Unit Trust Multi-Strategy Opportunistic 45,426,941 52,331, Lansdowne UK Equity Fund Limited Long/Short Equities 30,113,719 47,445, Touradji Global Resources Offshore Fund Macro 38,079,059 44,033, Icahn Fund Limited Activist 42,117,412 42,620, Lansdowne Global Financials Fund Limited Long/Short Equities 36,147,997 42,301, Clarium Capital Fund Limited Macro 23,871,454 41,221, Impala Fund Limited Long/Short Equities 36,912,124 40,357, Palomino Fund Limited Long/Short Credit 39,914,205 40,274, Longacre International Limited Long/Short Credit 36,300,818 38,901, ,091, ,719,

6 Chairman s Statement Introduction I have pleasure in presenting this interim update for the six months ended 30 June 2008 and would like to thank all shareholders for their continued support and interest. It is greatly appreciated, particularly in such challenging times. The period under review has been extremely difficult for investment managers globally. Contagion from the sub-prime crisis in the US began to spread globally in January and markets saw a sharp sell off which was extended in March as Bear Stearns collapsed. A rally during April and May proved short lived and markets began another swift decline in June. Financial and consumer sectors suffered due to debt and recession fears whilst at the same time the commodity and resource sector continued their strong bull run but this brought with it increasing fears of inflation. During the six month period to 30 June 2008, the net asset values of the Company s Shares, Shares, US$ Shares and A$ Shares fell by 2.12%, 2.61%, 3.18% and 1.28% respectively. By comparison, global equity markets fell with the MSCI World Total Return Index down 10.25% (in US$ terms) and global bond markets increased with the JPM Global Government Bond Total Return Index up 4.76% (in US$ terms). Over the same period the Company s shares traded at average premiums to their net asset values of 2.13%, 1.10%, 1.69% and 1.53% respectively and whilst the Shares ended the period at a discount to NAV of 0.20%, the, US$ and A$ Shares ended at a premium to NAV of 1.42%, 0.13% and 0.77% respectively. In response to significant interest in the Company s shares from a range of investors, the Company placed 9.99% of each class of its ordinary shares by way of an institutional bookbuilding process completed in February This placing, which was oversubscribed, raised 134.6m of new monies (before expenses) which was invested, or committed to be invested, on 3 March Investment review The Company s NAV declined during the first quarter amid high levels of market risk aversion but a portion of those losses were recovered during the second quarter. Four of the Company s hedge fund strategies sustained losses during the first half of 2008, while the portfolio hedge and macro strategies generated outsized gains over the period. The Company s long/short equities managers faced volatile and, at times, highly correlated markets in the first half, which hampered their ability to profit from equities trading at prices substantially different from their intrinsic values. Geographic specialists were hardest hit as inflationary pressures, widening credit troubles, and indications of a slowing global economy spread across European and Asian markets. In the face of this, the Company s generalist managers did generate profits over the period through short exposure to financial institutions and long positions in industrial and energy companies. The indiscriminate decline in global equity markets and the threat of reduced capital markets activity also impaired the Company s activist managers returns. Exposure to small-cap financials and equities in the Nordic region hurt portfolio performance during the first quarter. Although earnings surprises and a rebound in equities led to a moderate recovery in early Spring, renewed economic concerns triggered further declines more recently.the indiscriminate decline in global equity markets and the threat of reduced capital markets activity also impaired the Company s activist managers returns. 5

7 Chairman s Statement (continued) The long/short credit strategy experienced losses when market participants abandoned risky assets in the first quarter, resulting in reduced valuations for both debt and equity holdings. The dramatic expansion of credit spreads triggered by a lack of liquidity in credit markets placed downward pressure on debt positions in the first quarter that included an automotive parts manufacturer and loan originators. When spreads narrowed in the second quarter, managers recovered a portion of the loss. The Company s multi-strategy opportunistic managers struggled during the first half of the period as tattered confidence in credit markets and the looming threat of a U.S. recession reduced market expectations for the opportunities identified by our managers. The strategy gained ground in the second quarter due to a rebound in equities and through exposure to investments in companies that benefited from rising commodity prices. On the positive side, the Company s portfolio hedge strategy yielded outsized gains that reduced overall volatility and protected the portfolio from the worst of the market downturn during the first half of the year. Short credit and equity positions in financials companies and economically sensitive industries yielded gains in January and February. More recently, earnings disappointments and a deteriorating business environment led to further profits. The Company s macro strategy reaped rewards from the high levels of volatility in first half of the year. The strategy excelled in January through tactical investments across asset classes and regions. Managers were rewarded for bearish positions in equities and from tactical trades that profited from the steepening U.S. Treasury yield curve. More recently, profitable opportunities were accessed through directional trades in crude oil. Investment outlook After a lull in volatility levels and an accompanying Spring rally in financial markets, investors have once again reacted with trepidation to historically high commodity valuations, rising inflation, and indications of spluttering economies in the U.S. and elsewhere. Credit spreads have widened amid fading hopes that the actions by the Federal Reserve and other central banks will reinforce financial institutions and arrest the further deterioration in overall credit quality. In the face of these adverse conditions, the Investment Adviser is confident that the Company s underlying managers will seek to minimize losses even as they target excellent long-term investment opportunities that have historically emerged from these types of market dislocations. The Board will continue to closely monitor the prevailing share price rating of each class of the Company s share capital and is prepared to take appropriate action to reduce any sustained imbalance between supply and demand as may be necessary from time to time. Peter P Walsh Chairman 26 August

8 Responsibility Statement We confirm that to the best of our knowledge: the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting; the Chairman s Statement meets the requirements of an interim management report, and includes a fair review of the information required by: (a) DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year; and (b) DTR 4.2.8R of the Disclosure and Transparency Rules, being related party transactions that have taken place in the first six months of the current financial year and that have materially affected the financial position or performance of the entity during that period; and any changes in the related party transactions described in the last annual report that could do so. By order of the Board Peter P Walsh Director 26 August

9 Independent Review Report to Dexion Absolute Limited Introduction We have been engaged by Dexion Absolute Limited ( the company ) to review the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 which comprises the Condensed Unaudited Balance Sheet, Condensed Unaudited Income Statement, the Condensed Unaudited Statement of Changes in Shareholders Equity, the Condensed Unaudited Cashflow Statement and the related explanatory notes. We have read the other information contained in the half-yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements. This report is made solely to the company in accordance with the terms of our engagement to assist the company in meeting the requirements of the Disclosure and Transparency Rules ( the DTRs ) of the UK s Financial Services Authority ( the UK FSA ). Our review has been undertaken so that we might state to the company those matters we are required to state to it in this 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 for our review work, for this report, or for the conclusions we have reached. Directors responsibilities The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the DTRs of the UK FSA. As disclosed in note 2, the annual financial statements of the company are prepared in accordance with International Financial Reporting Standards. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, Interim Financial Reporting. Our responsibility Our responsibility is to express to the company a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review. Scope of review We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK and Ireland) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the six months ended 30 June 2008 is not prepared, in all material respects, in accordance with IAS 34 and the DTRs of the UK FSA. KPMG Channel Islands Limited Guernsey 26 August

10 Condensed Unaudited Balance Sheet As at 30 June June 31 December Note Assets Financial assets designated at fair value through profit or loss 3 1,487,273,749 1,381,222,302 Sales awaiting settlement 8,606, ,054 Unrealised gain on forward currency deals awaiting settlement 706,208 2,129,287 Other receivables 859, ,159 Cash and cash equivalents 2,299, ,194,446 Total assets 1,499,745,022 1,485,057,248 Liabilities Unrealised loss on forward currency deals awaiting settlement (16,047) (2,695,952) Purchases awaiting settlement (7,658) Accounts payable and accrued expenses 4 (2,217,459) (13,301,544) Bank overdraft (17,017,253) (108,652,524) Total liabilities (19,258,417) (124,650,020) Net assets 1,480,486,605 1,360,407,228 Represented by: Shareholders funds and reserves Share premium 6(a) 588,213, ,973,147 Distributable Reserves 6(b) 892,273, ,434,081 Total shareholders funds and reserves 1,480,486,605 1,360,407,228 Net assets per share Net assets per share Net assets per US$ share 7 US$ US$ Net assets per A$ share 7 A$ A$ Net assets per C share Net assets per C share Net assets per C US$ share 7 US$ Net assets per C A$ share 7 A$ The condensed financial statements on pages 9 to 24 were approved by the Board of Directors on 26 August Peter P Walsh John E Hallam Director Director The note on pages 13 to 24 form an integral part of the condensed financial statements. 9

11 Condensed Unaudited Income Statement For the six months period ended 30 June June 30 June Note Income Net (losses)/gains on financial assets held at fair value through profit or loss 3(b) (31,764,607) 59,642,530 Net gains on forward currency contracts 3(b) 26,277,334 22,142,727 Net foreign exchange gain/(loss) 3(b) 3,993,323 (3,508,473) Interest income 1,060, ,232 Net investment (loss)/income (433,462) 78,457,016 Expenses Management fee 8 (10,647,351) (6,129,503) Performance fee 8 (7,212,810) Fund administration fee 8 (189,419) (95,973) Audit fee (36,657) (22,359) Other professional fees (152,409) (12,276) Directors remuneration and expenses 8 (51,392) (47,972) Custodian charges 8 (195,754) (190,822) Credit Facility fee (115,679) (127,959) Sundry expenses (465,529) (103,636) Interest expense (873,364) (78,488) Total expenses (12,727,554) (14,021,798) Total return for the period (13,161,016) 64,435,218 Basic & Diluted earnings per share 10 ( ) Basic & Diluted earnings per share 10 ( ) Basic & Diluted earnings per US$ share 10 (US$0.1101) US$ Basic & Diluted earnings per A$ share 10 (A$0.0592) A$ All items derive from continuing activities. The notes on pages 13 to 24 form an integral part of the condensed financial statements. 10

12 Condensed Unaudited Statement of Changes in Shareholders Equity For the six months period ended 30 June June 30 June Net assets attributable to equity shareholders at start of period 1,360,407, ,020,656 Issue of new shares 134,586,256 Issue costs (1,345,863) Return for the period (13,161,016) 64,435,218 Net assets attributable to equity shareholders at end of period 1,480,486, ,455,874 The notes on pages 13 to 24 form an integral part of the condensed financial statements. 11

13 Condensed Unaudited Cashflow Statement For the six months period ended 30 June June 30 June Operating activities Return for the period (13,161,016) 64,435,218 Adjustments: Net losses/(gains) on financial assets held at fair value through profit or loss 31,764,607 (59,642,530) Net gains on forward currency contracts (26,277,334) (22,142,727) Changes in operating assets and liabilities (Decrease)/increase in creditors (11,084,085) 1,664,148 Increase in debtors (111,106) (223,486) Net cash outflow from operating activities (18,868,934) (15,909,377) Investing activities Purchase of investments (366,954,176) (4,894,757) Proceeds from sale of investments 221,302,390 40,078,552 Realised gains on forward currency contracts 25,020,508 19,636,524 Net cash (outflow)/inflow from investing activities (120,631,278) 54,820,319 Financing activities Proceeds from issue of shares 134,586,256 Costs related to issue of shares (1,345,863) Net cash inflow from financing activities 133,240,393 (Decrease)/increase in cash and cash equivalents (6,259,819) 38,910,942 Cash at beginning of the period (8,458,078) (27,937,273) Cash and cash equivalents at the end of the period (14,717,897) 10,973,669 Analysis of cash at end of the period Cash at bank 2,299,356 11,782,101 Bank overdraft (17,017,253) (808,432) (14,717,897) 10,973,669 Included in the net cash flows from operating activities are: Interest income 769, ,723 Interest paid (823,043) (78,488) The notes on pages 13 to 24 form an integral part of the condensed financial statements. 12

14 Notes to the Condensed Unaudited Financial Statements 1. General information Dexion Absolute Limited (the Company ) was incorporated with limited liability in Guernsey, Channel Islands as a closed-ended investment company on 26 November The Company s ordinary shares were initially listed on the London Stock Exchange on 19 December Significant accounting policies a) Statement of Compliance The condensed interim financial statements for the half year ended 30 June 2008 have been prepared in accordance with IAS 34, Interim Financial Reporting and the Disclosures and Transparency Rules ( DTRs ) of the UK s Financial Services Authority. The interim financial statements do not include all of the information required for full financial statements, and should be read in conjunction with the financial statements for the Company as at and for the year ended 31 December The financial statements of the Company as at and for the year ended 31 December 2007 were prepared in accordance with International Financial Reporting Standards ( IFRS ). The accounting policies used are the same as those used for the audited financial statements at 31 December For all periods up to and including the six months period ended 30 June 2007, the Company prepared its financial statements in accordance with UK GAAP. During 2007, the Company elected to adopt International Financial Reporting Standards (IFRS) for the first time in accordance with IFRS 1 (First-Time adoption of IFRS) and as a result, the financial statements for the financial statements for the year ended 31 December 2007, were the first the Company had prepared in accordance with IFRS. All applicable International Accounting Standards (IAS) and IFRS have been implemented. The transition from UK GAAP to IFRS had no material effect on the reported financial position, financial performance and cash flows of the Company. Certain cashflow items have been reclassified to enhance understanding of the prior period s results and to aid comparability with current year presentation. This has no impact on the movement in cash and cash equivalents. Applicable new standards and interpretations not yet effective IAS 8 requires disclosure of any impending change in accounting policy when an entity has yet to implement a new Standard or Interpretation that has been issued but not yet come into effect. In addition, it requires disclosure of known or reasonably estimable information relevant to assessing the possible impact that application of the new Standard or Interpretation will have on the entity s financial statements in the period of initial application. The following new Standards have been issued but are not effective for the year ending 31 December 2008 and have not been early adopted: In November 2006, the IASB issued IFRS 8 Operating Segments which becomes effective for annual accounting periods beginning on or after 1 January This standard requires disclosures on the financial performance of the operating segments 13

15 Notes to the Condensed Unaudited Financial Statements (continued) of the entity. The Company will apply IFRS 8 for its annual period commencing 1 January IAS 1 (amendment), Presentation of financial statements, effective for annual periods beginning on or after 1 January The standard requires entities to make new disclosures to enable users of the financial statements to evaluate the entity s objectives, policies and processes for managing capital. The Company has decided not to adopt the standard until its effective date. IAS 32 (amendment), Financial instruments: presentation and consequential amendments to IAS 1 Presentation of financial instruments, effective for annual periods beginning on or after 1 January The objective of the standard is to enhance financial statement users understanding of the significance of financial instruments to an entity s financial position, performance, and cash flows. In particular, the standard addresses classification of a financial instrument issued by an enterprise as a liability or as equity and disclosures about financial instruments, including information as to their fair values. The Company has decided not to adopt the standard until its effective date. b) Basis of accounting The financial statements are prepared in pounds sterling ( ), which is the Company s functional and presentation currency, rounded to the nearest pound. They are prepared on a fair value basis for financial assets at fair value through profit or loss and derivative financial instruments. Other financial assets and financial liabilities are stated at amortised cost. The preparation of 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 these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods. The following accounting policies have been applied consistently in dealing with items which are considered material in relation to the Company s condensed financial statements: c) Revenue recognition Interest income is recognised in the income statement as it accrues using the effective interest method. Dividend income is recognised when the right to receive payment is established. Income distributions from investment funds are recognised in the income statement as dividend income when declared. d) Expenses All expenses are accounted for on an accruals basis. 14

16 Notes to the Condensed Unaudited Financial Statements (continued) e) Financial instruments i) Classification The Company designates all of its investments upon initial recognition as financial assets at fair value through profit or loss. These include financial assets that are not held for trading purposes and which may be sold and represent a group of financial assets which is managed and its performance is evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the group is provided internally on that basis to the entity s key management personnel. These are principally investments in unlisted open-ended hedge funds. Financial instruments held for trading include forward foreign currency deals awaiting settlement. Financial assets that are classified as loans and receivables include sales awaiting settlement and other receivables. Financial liabilities that are not at fair value through profit or loss include purchases awaiting settlement and other accounts payable. The table in Note 3 details the categories of financial assets and liabilities held by the Company at the reporting date. ii) Recognition The Company recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. A regular way purchase and sale of financial instruments is recognised using trade date accounting. From this date any gains and losses arising from changes in fair value of the financial assets or financial liabilities are recorded. iii) Measurement Financial instruments are measured initially at fair value (transaction price). Transaction costs on financial assets and financial liabilities at fair value through profit or loss are expensed immediately. Subsequent to initial recognition, all instruments classified as fair value through profit or loss are measured at fair value with changes in their fair value recognised in the income statement in the period in which they arise. Financial assets classified as loans and receivables are carried at amortised cost using the effective interest rate method less impairment losses, if any. Financial liabilities, other than those at fair value through profit or loss, are measured at amortised cost using the effective interest rate. iv) Fair value measurement principles Investments in underlying funds which are not quoted on a recognised stock exchange or other trading facility will be valued at the net asset values provided by such entities or their administrators. These values may be unaudited or may themselves be estimates. In addition, these entities or their administrators may not provide values at all or in a timely manner and, to the extent that values are not available, those investments will be valued by the Investment Adviser using valuation techniques appropriate to those investments. The Investment Manager has no reason to believe that the valuations used are unreasonable. 15

17 Notes to the Condensed Unaudited Financial Statements (continued) Open forward foreign currency contracts at the balance sheet date are valued at forward currency rates at that point. The unrealised appreciation or depreciation on open forward foreign currency contracts is calculated by reference to the difference between the contracted rate and the rate to close out the contract. v) Realised and unrealised gains and losses Realised gains and losses arising on disposal of investments are calculated by reference to the proceeds received on disposal and the average cost attributable to those investments, and are recognised in the income statement. Unrealised gains on investments are recognised in the income statement. vi) Derecognition The Company derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. f) Foreign currency transactions The financial statements of the company are presented in the currency of primary economic environment in which the company operates (its functional currency ). The Directors have considered the primary economic currency of the company and considered the currency in which the original capital was raised, distributions to be made and ultimately the currency capital would be returned on a break up basis. The Directors have also considered the currency to which the underlying investments are exposed. On balance, the Directors believe that pounds Sterling ( ) best represents the functional currency. For the purpose of the financial statements the results and financial position of the company are expressed in Sterling which is the presentation currency of the company. Transactions denominated in foreign currencies are translated at the rate of exchange ruling on the date of transaction. Assets and liabilities denominated in foreign currencies are translated into sterling at the exchange rate prevailing at the balance sheet date. Realised and unrealised gains or losses on currency translation are recognised in the income statement. Foreign currency differences relating to investments at fair value through profit or loss are included in gains and losses on investments (note 3). g) Cash and cash equivalents Cash comprises cash in hand and demand deposits. Cash equivalents, which include bank overdrafts, are short term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to insignificant changes in value. Cash, deposits with banks and bank overdrafts are stated at their principal amount. h) Issue costs Expenses associated with the issue of ordinary shares are borne exclusively by the shareholders of ordinary shares. These expenses, when incurred, are written off against share premium. During the period, issue expenses associated with the issue of ordinary shares amounted to approximately 1.3 million. 16

18 Notes to the Condensed Unaudited Financial Statements (continued) 3. Financial Instruments a) Categories of financial instruments 30 June December 2007 Amount % of Amount % of net assets net assets Financial assets at fair value through profit or loss: Designated as at fair value through profit or loss Investment in Hedge Funds 1,487,273, % 1,379,884, % Investment in Derivatives 1,337, % 1,487,273, % 1,381,222, % Financial assets held for trading Forward foreign currency contracts 706, % 2,129, % 706, % 2,129, % Loans and Receivables 11,765, % 101,705, % 11,765, % 101,705, % Total Assets 1,499,745, % 1,485,057, % Loans and receivables presented above represent sales awaiting settlement, cash and cash equivalents and other receivables as detailed in the condensed unaudited balance sheet. Financial liabilities at fair value through profit or loss: Financial liabilities held for trading Forward foreign currency contracts (16,047) (2,695,952) (0.20%) (16,047) (2,695,952) (0.20%) Financial liabilities measured at amortised cost (19,242,370) (1.31%) (121,954,068) (8.97%) (19,242,370) (1.31%) (121,954,068) (8.97%) Total Liabilities (19,258,417) (1.31%) (124,650,020) (9.17%) Financial liabilities measured at amortised cost presented above represent accounts payable, accrued expenses and bank overdraft as detailed in the condensed unaudited balance sheet. 17

19 Notes to the Condensed Unaudited Financial Statements (continued) b) Net gains and losses on financial assets at fair value through profit or loss 30 June 30 June Net gains/(losses) on financial assets at fair value through profit or loss Realised gains/(losses) on investments 32,113,269 (687,736) Movement in unrealised (losses)/gains on investments (63,877,876) 60,330,266 Realised gains on forward currency contracts 25,020,508 19,636,524 Unrealised gains on forward currency contracts 1,256,826 2,506,203 Net realised foreign exchange gains/(losses) 3,993,323 (3,508,473) (1,493,950) 78,276, Amounts payable and accrued expenses 30 June 31 December Performance fee 11,561,022 Management fee 1,898,329 1,247,223 Other professional fees 106,552 Fund administration fee 64,378 24,887 Custodian fee 99,494 52,109 Directors remuneration 23,000 Sundry expenses 121, ,751 Bank interest payable 10,398 2,217,459 13,301,544 18

20 Notes to the Condensed Unaudited Financial Statements (continued) 5. Share capital 30 June 31 December Authorised Unlimited number of shares of no par value 30 June 31 December No. of No. of Shares Shares Issued and fully paid Ordinary Shares of no par value 718,998, ,975,092 Ordinary Shares of no par value 105,829,915 65,809,625 Ordinary US$ Shares of no par value 83,565,450 56,684,593 Ordinary A$ Shares of no par value 25,925,646 20,427,485 C Shares of no par value 376,541,330 C Shares of no par value 70,033,313 C US$ Shares of no par value 56,783,703 C A$ Shares of no par value 14,898,000 Reconciliation of number of shares Shares of no par value Shares Shares US$ Shares A$ Shares Issued shares at the start of the period 421,975,092 65,809,625 56,684,593 20,427,485 Issue of new shares: Share Conversion 31 December , ,729 (117,764) (485,725) 9.99% Placing for Cash 65,304,042 9,612,154 7,589,952 2,354,734 C Share Conversion to Ordinary Shares 231,196,376 30,289,407 19,408,669 3,629,152 Number of shares at the end of the period 718,998, ,829,915 83,565,450 25,925,646 The rights attaching to the Ordinary Shares are as follows: a) the holders of existing Ordinary Shares shall confer the right to all other dividends in accordance with the Articles of Association of the Company. C Shares have no voting rights. b) ordinary shareholders present in person or by proxy or (being a corporation) present by a duly authorised representative at a general meeting has, on a show of hands, one vote and, on a poll, one vote for every share held. c) the capital and surplus assets of the Company remaining after payment of all creditors and attributable to ordinary shareholders shall, on winding-up or on a return (other than by way of purchase or redemption of own shares) after conversion, be divided amongst the shareholders on the basis of the capital attributable to the respective classes of ordinary shares at the date of winding up 19

21 Notes to the Condensed Unaudited Financial Statements (continued) or other return of capital, and amongst the members of a particular class pro rata according to their holdings of shares of that class. d) the C Shares, C Shares, C US$ Shares and C A$ Shares converted into Shares, Shares, US$ Shares and A$ Shares respectively (ranking pari passu with the existing ordinary shares of the same class) on the basis of conversion ratios. Also in issue are two ordinary founder shares and one subordinated non-voting share credited as fully paid. 6. Reserves 30 June 31 December a) Share Premium Opening balance 454,973,147 Shares issued during the period 134,586, ,076,994 Costs related to the issue of ordinary shares (1,345,863) (8,103,847) Closing balance 588,213, ,973,147 6b) Distributable Reserves Special Capital Retained Reserve Reserve earnings Total 30 June 2008 Opening balance 699,194, ,754,462 (56,515,053) 905,434,081 Realised gains on investments 32,113,269 32,113,269 Unrealised losses on investments (63,877,876) (63,877,876) Net realised foreign exchange gains 3,993,323 3,993,323 Net gains on forward currency contracts 26,277,334 26,277,334 Retained net loss for the period (11,667,066) (11,667,066) Balance at 30 June ,194, ,260,512 (68,182,119) 892,273,065 20

22 Notes to the Condensed Unaudited Financial Statements (continued) Special Capital Retained Reserve Reserve earnings Total 31 December 2007 Opening balance 699,194, ,569,603 (30,743,619) 791,020,656 Realised losses on investments 2,566,236 2,566,236 Unrealised gain on investments 115,715, ,715,480 Net realised foreign exchange losses (11,457,041) (11,457,041) Net gains on forward currency contracts 33,360,184 33,360,184 Retained net loss for the period (25,771,434) (25,771,434) Balance at 30 June ,194, ,754,462 (56,515,053) 905,434, Net asset value The net asset value of each,, US$ and A$ share is determined by dividing the net assets of the Company attributed to the,, US$ and A$ shares by the number of,, US$ and A$ shares in issue at the period end as follows: Net assets attributable to Shares Net assets As at 30 June 2008 each share class in issue per Share Share 1,128,083, ,998, Share 234,357, ,829, US$ Share US$232,837,880 83,565,450 US$ A$ Share A$103,429,061 25,925,646 A$ Net assets attributable to Shares Net assets As at 31 December 2007 each share class in issue per Share Share 676,419, ,975, Share 149,640,301 65,809, US$ Share US$163,126,496 56,684,593 US$ A$ Share A$82,546,727 20,427,485 A$ C Share 370,602, ,541, C Share 68,874,810 70,033, C US$ Share US$55,859,610 56,783,703 US$ C A$ Share A$14,665,470 14,898,000 A$

23 Notes to the Condensed Unaudited Financial Statements (continued) 8. Significant Agreements and Related Parties a) Directors Remuneration & Expenses The annual basic Directors fees comprise 30,000 paid to Mr Walsh, the Chairman, 22,000 to Mr Hallam, the Senior Independent Director and the Audit Committee Chairman, and 20,000 each to Mr Ash and Dr Sharman. Mr Bowie has waived his right to his fee of 20,000. Fees outstanding at the period end were 23,000 (31 December 2007: Nil). b) Investment Manager Dexion Capital (Guernsey) Limited (the Manager ) is remunerated at a monthly rate of 0.125% of the Total Assets of the Company (out of which it pays the trail commission payable to qualifying investors) for the provision of investment management services. Additionally, the Manager is entitled to a performance fee, provided that (a) the value of the Total Assets at the end of one financial period (having made adjustments for any issues or repurchases of,, US$ or A$ shares, or arising from conversion of C Shares or from conversion from or to Ordinary Shares of other classes and for any contingent or accrued but unpaid liabilities), be at least 103% of the value of Total Assets at the end of the previous financial period end, and (b) the value of Total Assets at the end of the financial period is greater than the value of the Total Assets (as adjusted) at the end of any previous financial year. This fee amounts to 10% of the amount by which the year-end value of Total Assets exceeds the greatest value of the Total Assets at the end of any previous financial year, subject to a maximum fee in any one period of 4% of the value of the Total Assets at the end of the relevant year. The performance fee is payable annually in arrears. The Investment Management Agreement may be terminated by either party giving to the other not less than twelve months notice, or otherwise in circumstances (inter alia) where one of the parties has a receiver appointed over its assets or if an order is made or an effective resolution passed for the winding up of one of the parties or if, following a continuation vote not being passed, a resolution for the winding-up of the Company is passed. The Manager is responsible for the fees payable to Harris Alternatives LLC (the Investment Adviser ) who has been appointed to transact on a fully discretionary basis investment management transactions in accordance with the terms of the Investment Management Agreement as well as the fees payable to Dexion Capital Plc (the Investment Consultant ). Fees outstanding at the period end were 1,898,329 (31 December 2007: 12,808,245). c) Administrator The Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited performs administrative duties for which it is remunerated at a rate of 0.06% per annum of the Total Assets of the Company up to 75 million, 0.05% per annum of the next 50 million of Total Assets, 0.04% of the next 125 million, 0.03 per cent of the next 250 million, 0.025% of the next 200 million per annum and 0.02% of the Total Assets thereafter, payable monthly in arrears (subject to a minimum annual fee of 50,000). Fees outstanding at the period end were 64,378 (31 December 2007: 24,887). 22

24 Notes to the Condensed Unaudited Financial Statements (continued) d) Secretary With effect from 1 January 2008, Dexion Capital (Guernsey) Limited has replaced Northern Trust International Fund Administration Services (Guernsey) Limited as Company Secretary. Fees outstanding at the period end were 5,000 (31 December 2007: Nil). e) Custodian Northern Trust (Guernsey) Limited ( the Custodian ), is remunerated at an annual rate of 0.07% of Total Assets of the Company up to 75 million, 0.065% per annum of the next 50 million of Total Assets, 0.06% per annum of the next 125 million of Total Assets, 0.05% per annum of the next 250 million of Total Assets, 0.04% per annum of the next 200 million of Total Assets and 0.03% per annum of the Total Assets thereafter, payable monthly in arrears and subject to a minimum fee of 18,000 per annum. Fees outstanding at the period end were 99,494 (31 December 2007: 52,109). 9. Taxation The Company is registered for taxation purposes in Guernsey where it pays an annual exempt status fee of 600 under The Income Tax (Exempt Bodies) (Guernsey) Ordinances Earnings per share The calculation of the return per,, US$, and A$ Share is based on the total return for the year attributable to,, US$, and A$ shareholders and on the weighted average number of,, US$, and A$ shares in issue during the period ended 30 June 2008 as follows: Total return Weighted attributable average no. to each of shares Return share class in issue per Share Share ( 21,627,279) 539,694,933 ( ) Share ( 5,652,846) 80,049,195 ( ) US$ Share (US$7,043,209) 63,979,515 (US$0.1101) A$ Share (A$1,202,522) 20,302,798 (A$0.0592) 30 June 2007: Share 48,802, ,771, Share 10,657,476 69,636, US$ Share US$12,603,422 59,496,000 US$ A$ Share A$6,284,287 20,423,152 A$ Ultimate Controlling Party In the opinion of the Directors on the basis of shareholdings advised to them, the Company has no ultimate controlling party. 23

25 Notes to the Condensed Unaudited Financial Statements (continued) 12. Events occurring after the balance sheet date Share Conversion The facility to convert between share classes operated in respect of the 30 June 2008 Conversion Calculation Date and resulted in an increase in the number of shares in the Class and US$ Class of 6,884,711 and 6,462,445 respectively and a decrease in the number of shares in the Class and A$ Class of 11,247,032 and 2,100,124 respectively. 13. Seasonality The Company operations are not affected by seasonality or cyclicality and as such they have no impact on the interim financial statements. 14. Distribution policy The Directors do not expect income (net of expenses) to be significant and do not currently expect to declare any dividends. In the event that future net income is significant, the Directors may consider the distribution of net income in the form of dividends. 24

26 Corporate Information Directors PP Walsh Chairman TC Ash RMJ Bowie JE Hallam P Sharman Administrator Northern Trust International Fund Administration Services (Guernsey) Limited Trafalgar Court, Les Banques St Peter Port Guernsey GY1 3QL Brokers RBS Hoare Govett Limited (formally Hoare Govett Limited) 250 Bishopsgate London EC2M 4AA Custodian Northern Trust (Guernsey) Limited Trafalgar Court Les Banques St Peter Port Guernsey GY1 3DA Manager and Secretary Auditors Dexion Capital (Guernsey) Limited KPMG Channel Islands Limited PO Box 676 PO Box 20 1 Le Truchot 20 New Street St Peter Port St Peter Port Guernsey Guernsey GY1 3SZ GY1 4AN Investment Adviser Registrar Harris Alternatives, LLC Capita Registrars (Guernsey) Limited 227 West Monroe Street Longue Hougue House 60th Floor St Sampson Chicago Guernsey Illinois GY2 4JN United States of America Advocates to the Company Investment Consultant Ogier Dexion Capital plc Ogier House 9 Bridewell Place St Julian s Avenue London St Peter Port EC4V 6AW Guernsey United Kingdom GY1 1WA Registered Office UK Solicitors to the Company 1 Le Truchot Bingham McCutchen (London) LLP St Peter Port 41 Lothbury Guernsey London EC2R 7HF Website Performance and portfolio information for shareholders can be found at: 25