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Final Results

Date : 07/29/2005 @ 3:01AM
Source : UK Regulatory (RNS & others)
Stock : Hsbc Euro Stg (HENS)
Quote : 146.75  0.0 (0.00%) @ 12:00AM
Hsbc European Absolute share price Chart

Final Results

RNS Number:4627P
HSBC European Absolute Limited
29 July 2005



                         HSBC EUROPEAN ABSOLUTE LIMITED

                                 AUDITED REPORT

                               FOR THE YEAR ENDED

                                 31 MARCH 2005

                                                                       Page

General Information                                                     1

Directors' Report                                                       3

Investment Adviser's Report                                             5

Chairman's Statement                                                    6

Independent Auditors' Report                                            8

Statement of Total Return                                               9

Statement of Movement in Equity Shareholders' Funds                     9

Balance Sheet                                                           10

Cash Flow Statement                                                     11

Notes to the Financial Statements                                       12

Schedule of Investments                                                 20

Significant Portfolio Changes                                           21


GENERAL INFORMATION


                                        
Manager, Company Secretary                HSBC Management (Guernsey) Limited
and Registered Office                     HSBC Private Bank Building
                                          Rue du Pre
                                          St Peter Port
                                          Guernsey GY1 1LU

Directors                                 Mr Raymond Philip Apsey (resigned 1st April, 2005)
                                          Mr Stuart Francis Carnegie
                                          Mr Ian Charles Domaille (Chairman)
                                          Mr Paul Fraser Dunning (resigned 1st April, 2005)
                                          Mr Stuart Walter Mitchell
                                          Mr Michael Quarrington (appointed 1st April, 2005)

Banker                                    HSBC Private Bank (Guernsey) Limited
                                          HSBC Private Bank Building
                                          Rue du Pre
                                          St Peter Port
                                          Guernsey GY1 1LU

Investment Adviser                        HSBC Republic Investments Limited
                                          5th Floor, 78 St James's Street
                                          London SW1A 1JB

Sponsor and Placing Agent                 HSBC Bank plc
                                          8 Canada Square
                                          London E14 5HQ

Solicitors to the Company                 Linklaters & Alliance
and to the Issue in England               One Silk Street
                                          London EC2Y 8HQ

Legal Advisers to the Company             Carey Olsen
and to the Issue in Guernsey              PO Box 98
                                          7 New Street
                                          St Peter Port
                                          Guernsey GY1 4BZ

Channel Islands Sponsor                   HSBC Management (Guernsey) Limited
                                          HSBC Private Bank Building
                                          Rue Du Pre
                                          St Peter Port
                                          Guernsey GY1 1LU

Independent Auditors                      KPMG Channel Islands Limited
                                          2 Grange Place
                                          PO Box 235
                                          St Peter Port
                                          Guernsey GY1 4LD

Registrar                                 Capita IRG (CI) Limited
                                          PO Box 328
                                          Landes du Marche
                                          Vale
                                          Guernsey, GY1 3TY

GENERAL INFORMATION - (CONTINUED)

                                        
Custodian                                 Investors Trust &
                                          Custodial Services (Ireland) Limited
                                          Block D
                                          Iveagh Court
                                          Harcourt Road
                                          Dublin 2

The Fund                                  HSBC European Absolute
                                          Limited (the "Company") is a Guernsey
                                          registered, closed-ended investment
                                          company. The Company was incorporated
                                          and registered in Guernsey on 23
                                          February, 2001, under The Companies
                                          (Guernsey) Laws 1994 to 1996 (as
                                          amended) with registered number 38010.
                                          The initial Shares in the Company were
                                          offered at a price of 100p each by 
                                          HSBC, the Intermediaries Offer and the 
                                          Offer for Subscription, and were also
                                          available in Euro denominated form in
                                          the form of European Depositary
                                          Receipts. The Company is listed on the
                                          Channel Islands Stock Exchange and the
                                          London Stock Exchange.

Objective                                 The objective of the
                                          Company is to seek to achieve equity
                                          like returns with lower levels of
                                          volatility. Its policy is to achieve
                                          this by investing in a diversified
                                          portfolio of hedge funds and managed
                                          accounts exposed to long/short
                                          strategies investing predominantly in 
                                          UK and European markets which are 
                                          managed to seek to provide investors 
                                          with an absolute total return and with 
                                          a lower volatility than equities 
                                          generally.

Net Asset Value                           The Net Asset Value
                                          ("NAV") of the Company is calculated
                                          monthly with the relevant valuation
                                          point being 5.00pm (Guernsey time) on
                                          the last Business Day of each month. A
                                          further two estimated NAVs are
                                          calculated and published each month.

DIRECTORS' REPORT

The results of operations are set out on page 9. A detailed review of activities
is contained in the Investment Adviser's Report on page 5.

In light of the performance of the Company since incorporation it is the view of
the Directors that it is in the best interests of the Shareholders to continue
with the current appointment of the Investment Adviser under the terms agreed.

Incorporation

The Company was incorporated in Guernsey on 23 February 2001.

The initial Shares in the Company were offered at a price of 100p each by HSBC,
the Intermediaries Offer and the Offer for Subscription, and were also available
in Euro denominated form in the form of European Depositary Receipts. At year
end there are 15.3 million equity shares in issue.

Principal activity

The Company's objective is to seek to achieve equity like returns with lower
levels of volatility. Its policy is to achieve this by investing in a
diversified portfolio of hedge funds and managed accounts exposed to long/short
strategies investing predominantly in UK and European markets which are managed
to seek to provide investors with an absolute total return and with a lower
volatility than equities generally.

Directors

The Directors listed below were all appointed on 23 February 2001 except for Mr.
Michael Quarrington who was appointed on 1st April, 2005. Mr. Raymond Philip
Apsey and Mr Paul Fraser Dunning resigned on 1st April, 2005. Mr. Ian Charles
Domaille replaces Mr Raymond Philip Apsey as Chairman of the Company.

        Mr Raymond Philip Apsey (resigned 1st April, 2005)
        Mr Stuart Francis Carnegie
        Mr Ian Charles Domaille
        Mr Paul Fraser Dunning (resigned 1st April, 2005)
        Mr Stuart Walter Mitchell
        Mr Michael Quarrington (appointed 1st April, 2005)


Directors' Interests

None of the Directors has a service contract with the Company. Mr Stuart Walter
Mitchell is also a manager of and adviser to various investment funds and it is
possible that the Company may invest in one or more funds whose portfolio is
managed or advised by Mr Mitchell. Mr Ian Charles Domaille is a non-executive
director of the manager of various investment funds and a director of various
investment funds and it is possible that the Company may invest in one or more
funds of which Mr Domaille is a director, or non-executive director of the fund
manager. Mr Paul Dunning was a director of the Manager and the Investment
Adviser.


The Directors directly or indirectly hold the following shares in issue as at 31
March 2005:

Directors                                                                                                         Shares
Raymond Philip Apsey (resigned 1st April, 2005)                                                                    5,000
Stuart Francis Carnegie                                                                                            5,000
Ian Charles Domaille                                                                                               5,000
Paul Fraser Dunning * (resigned 1st April, 2005)                                                                  14,000
Stuart Walter Mitchell                                                                                             5,000
Michael Quarrington (appointed 1st April, 2005)                                                                      Nil


* Mr. Dunning was a director of the Manager and the Investment Adviser.


Secretary
                                        
HSBC Management (Guernsey) Limited held the office of Secretary throughout the
year.

Dividends

The Directors do not propose the payment of a dividend.


DIRECTORS' REPORT - (CONTINUED)

Independent Auditors

A resolution for the re-appointment of KPMG Channel Islands Limited is to be
proposed at the forthcoming Annual General Meeting.

Statement of the Directors' Responsibilities

The directors are responsible for preparing financial statements for each
financial year which give a true and fair view of the state of affairs of the
Company and of the profit or loss for that year and are in accordance with
applicable laws. In preparing these financial statements the directors are
required to:

  * select suitable accounting policies and then apply them consistently;

  * make judgements and estimates that are reasonable and prudent;

  * state whether applicable accounting standards have been followed subject
    to any material departures disclosed and explained in the accounts; and

  * prepare the financial statements on the 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 comply with
The Companies (Guernsey) Law 1994. They are also responsible for safeguarding
the assets of the Company and hence for taking reasonable steps for the
prevention and detection of fraud and other irregularities.


By order of the Board


____________________          __________________

Michael Quarrington          Ian Domaille
Director                     Director


Date: 27 July 2005


INVESTMENT ADVISER'S REPORT

For the period, 31 March 2004 to 31 March 2005, the net asset value per share
rose 8.22% in Euro terms and 11.76% in Sterling terms, the difference being due
to the strengthening of the Euro over the period. Assets in the portfolio
decreased from GBP 25.27 million to GBP 19.52 million over the period. European
stocks rose by c21% over the period (MSCI Europe). Two of the most significant
negative economic factors during the year were the strength of oil and the Euro
during the year. Both of these were a drag on the economic activity with the
Eurozone exhibiting 2% growth. Volatility in the equity markets remained at low
levels. Many equity hedge managers took advantage of the low volatility by
running gross exposures at the high end of their historic range. However,
returns were modest because of the lack of equity rationality, particularly
during the second and third quarter of 2004. Credit markets, supported by both
fundamental and technical factors, remained favourable for most of the year and
the portfolio's high yield manager posted strong returns. Returns from
multi-strategy holdings were positive as the investment managers were able to
exploit the high level of corporate activity.

Over the period, the allocation to the equity hedge managers was increased,
whilst the allocation to multi-strategy products was reduced. Market neutral
managers were fully redeemed. The portfolio continues to be diversified over a
range of different strategies and managers.

HSBC REPUBLIC INVESTMENTS LIMITED

27 June 2005



CHAIRMAN'S STATEMENT

In presenting the fourth Annual Report of HSBC European Absolute Limited, I
would like to thank you for your continued support and welcome all new
shareholders.

Since launch, 48 months ago, the Company's portfolio of investments in hedge
funds has become well established. The Company's portfolio has been designed in
accordance with the prospectus, to achieve equity like returns with volatility
lower than that of equities. In both these regards the Company has performed in
line with its stated objectives at the time of the launch.

The solid performance over the last reporting period was also reflected by the
external recognition received in 2004 where the Company was the only London
listed fund of hedge funds company to be short-listed for Investment Week's
Investment Trust Awards.

I am pleased to report that in the period from 1 April 2004 to 31 March 2005,
the Net Asset Value of the Company's shares appreciated 11.76% in Sterling terms
and 8.22% in Euro terms. Over the same period, traditional UK equity market and
fixed interest benchmarks, as measured by the FTSE All Share Index (total
return) and the FTSE Government Securities All Stocks Index (total return), rose
11.87% and 6.19% in Sterling terms and 9.26% and 3.58% in Euro terms
respectively. The HFR Fund of Funds Index (an index representing the performance
of funds investing with multiple hedge fund managers) returned 4.76% (in US
Dollars) and 7.58% and 4.90% in Sterling and Euro terms respectively over the
same period.

HEAL - EUR

          Jan      Feb      Mar      Apr      May      Jun      Jul      Aug      Sep      Oct      Nov     Dec
 2001                               0.47%    3.24%    -1.53%   -1.09%   -0.99%   -0.86%   -0.48%   0.34%   1.72%
 2002    0.43%    -0.36%   0.87%    0.01%    -0.44%   -1.27%   -0.92%   0.75%    -0.12%   -0.26%   0.07%   0.58%
 2003    0.05%    -0.45%   0.62%    -0.03%   1.27%    0.46%    0.92%    0.88%    0.22%    1.13%    0.69%   0.67%
 2004    2.14%    3.58%    -0.20%   0.35%    -0.81%   0.65%    -0.10%   -0.04%   1.84%    -0.05%   0.76%   2.48%
 2005    2.03%    1.19%    -0.32%

HEAL - GBP
          Jan      Feb      Mar      Apr      May      Jun      Jul      Aug      Sep      Oct      Nov     Dec
 2001                               0.07%    -1.76%   0.76%    0.58%    1.39%    -1.77%   -0.58%   0.47%   -0.37%
 2002    0.74%    -0.54%   1.13%    1.07%    2.84%    0.03%    -4.30%   2.16%    -1.02%   0.38%    1.38%   2.17%
 2003    0.58%    3.61%    1.79%    1.17%    4.24%    -2.91%   2.23%    -0.93%   1.43%    -0.51%   1.76%   2.46%
 2004   -1.21%    1.30%    -0.47%   1.73%    -2.03%   1.08%    -1.52%   1.84%    3.65%    1.49%    1.33%   3.52%
 2005   -0.34%    0.99%    -0.40%

This performance has been achieved in an environment of rising equity markets,
with the major European indices delivering returns in the 12% range: the FTSE
rose 11.87%, the CAC 12.2%, and the DAX 12.8% in local currency terms. The
period was, however, made up of two distinct halves. Up to mid-August 2004,
markets were under the pressure of macro economic concerns, in the form of high
commodity prices and fears of a slowdown in global economic growth. Thereafter,
these concerns were significantly reduced by very strong corporate earnings and
positive economic news from the US, which drove equity markets higher. Corporate
debt markets enjoyed a benign environment supported by strong cash flows and
generally good liquidity.


All strategies contributed positively over the reporting period with the
exception of market neutral which slightly detracted from the strong
performance. The allocation to market neutral was halved by September 2004 and
completely closed in March 2005. The bulk of returns stemmed from equity long/
short managers, which represent the largest allocation in the portfolio. Most of
the profits were generated on the long side, backed by improved corporate
earnings, renewed M&A activity and strong venture capital appetite. Small cap
stocks outperformed larger ones, an area in which a number of hedge fund
managers are active. Multi-strategy/event driven funds benefited from favourable
restructuring situations and improved corporate activity. Over the period, the
allocation to multi-strategy/event driven was decreased and equity long/short
was increased. Fixed Income, although the smallest allocation in the portfolio
performed very well, as high yield debt benefited from a continued spread
tightening environment until March 2005.






CHAIRMAN'S STATEMENT (CONTINUED)

Supported by strong asset performance and ongoing secondary market demand, the
Company's shares traded at an average discount to Net Asset Value of 1.4% over
the reporting period. However, as the Directors are keen to see the Company
continue to develop demand for its shares and to spread greater awareness of the
Company's activities, marketing initiatives continue to be a priority.

The Directors undertook to monitor demand for shares and continue to operate the
share buy back and redemption facility from time to time and have successfully
limited the discount to a net asset value at which the Company's shares have
traded.

The Investment Adviser believes that the Company's portfolio is as ever well
positioned for the coming months, and may also continue to benefit from positive
equity market sentiment.

I look forward to welcoming shareholders to the Annual General Meeting of the
Company in September, which will be held at St Martin's House, St Peter Port,
Guernsey, Channel Islands.




Mr. Ian Domaille


Chairman, HSBC European Absolute Limited

30 June 2005

INDEPENDENT AUDITORS' REPORT TO THE SHAREHOLDERS OF HSBC EUROPEAN ABSOLUTE
LIMITED


We have audited the financial statements for the year ended 31 March 2005 on
pages 9 to 19.


This report is made solely to the Company's members, as a body, in accordance
with Section 64 of the Companies (Guernsey) Law 1994. 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 auditors' 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 opinion we have formed.


Respective responsibilities of Directors and Auditors

The directors are responsible for preparing the directors' report and, as
described on page 4, the financial statements in accordance with applicable
Guernsey law and UK accounting standards. Our responsibilities, as independent
auditors, are established in Guernsey by law, the UK Auditing Practices Board
and by our profession's ethical guidance.

We report to you our opinion as to whether the financial statements give a true
and fair view and are properly prepared in accordance with The Companies
(Guernsey) Law 1994. We also report to you if, in our opinion, the directors'
report is not consistent with the financial statements, if the Company has not
kept proper accounting records, or if we have not received all the information
and explanations we require for our audit.

We read the other information accompanying the financial statements and consider
whether it is consistent with those statements. We consider the implications for
our report if we become aware of any apparent misstatements or material
inconsistencies with the financial statements.

Basis of audit opinion

We conducted our audit in accordance with UK Auditing Standards issued by the
Auditing Practices Board. An audit includes examination, on a test basis, of
evidence relevant to the amounts and disclosures in the financial statements. It
also includes an assessment of the significant estimates and judgements made by
the directors in the preparation of the financial statements, and of whether the
accounting policies are appropriate to the Company's circumstances, consistently
applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and
explanations which we considered necessary in order to provide us with
sufficient evidence to give reasonable assurance that the financial statements
are free from material misstatement, whether caused by fraud or other
irregularity or error. In forming our opinion we also evaluated the overall
adequacy of the presentation of information in the financial statements.

Opinion

In our opinion the financial statements give a true and fair view of the state
of the Company's affairs as at 31 March 2005 and of its return for the year then
ended and have been properly prepared in accordance with The Companies
(Guernsey) Law 1994.



KPMG Channel Islands Limited


CHARTERED ACCOUNTANTS


Guernsey


Date: 27 July 2005






STATEMENT OF TOTAL RETURN FOR THE YEAR ENDED 31 MARCH 2005

                                                                                 2005                   2004          
                                                                  Note     GBP'000    GBP'000     GBP'000     GBP'000 
  Net gains on investments                                          2                   2,893                  3,329  
  Other (losses)/gains                                              3                    (25)                     23  
  Gross income                                                      4           6                     27              
  Expenses                                                          5        (533)                  (781)             
  Net expenses                                                                          (527)                   (754) 
  Net increase in Equity Shareholders' funds                                                                          
  from investment activities                                                           2,341                   2,598  


  STATEMENT OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS FOR THE YEAR ENDED 31 MARCH 2005                               


                                                                                 2005                   2004          
                                                                           GBP'000    GBP'000     GBP'000     GBP'000 
  Equity Shareholders' funds at the start of the year                                 25,262                  37,209  
  Movement due to issue and redemption of shares                                                                      
  Less: amounts paid/payable on redemptions                                (7,992)               (14,545)             
                                                                                      (7,992)                (14,545) 
  Net increase in Equity Shareholders' funds                                                                          
  from investment activities                                                           2,341                   2,598  
  Equity Shareholders' funds at the end of the year                                   19,611                  25,262  


  The Company has no other recognised gains and losses other than those noted above.                                  
 

                                                                                                                      
  BALANCE SHEET AS AT 31 MARCH 2005                                                                                   
                                                                                   2005                  2004         
                                                                    Note     GBP'000    GBP'000    GBP'000   GBP'000 
  Portfolio of investments                                                                                            
  Long Positions                                                                         19,522               25,271  
  Current assets                                                                                                      
  Debtors                                                             6          440                1,054             
  Cash and bank balances                                              7           81                  102             
                                                                                 521                1,156             
  Less                                                                                                                
  Creditors                                                           8        (117)                 (917)            
                                                                               (117)                 (917)            
  Net current assets                                                                        404                  239  
  Net assets                                                                             19,926               25,510  
  Shareholders' funds                                                                                                 
  Non equity share capital                                            9                     315                  248 
  Equity shareholders' funds                                         13                  19,611               25,262 
  Total equity shareholders' funds                                                       19,926               25,510  


  The financial statements on pages 9 to 19 were approved by the Board of Directors and are signed on its behalf by:  

  Michael Quarrington                                                                                                 
  Director                                                                                                            


  Ian Domaille                                                                                                        
  Director                                                                                                            


CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH 2005 

                                                                                                                 
                                                                           2005                    2004          
                                                          Notes    GBP'000     GBP'000     GBP'000     GBP'000   
        Net cash outflow from operating activities          15                     (592)                   (495) 
        Return on investments and servicing of finance                                                           
        Interest paid                                                   (20)                    (16)             
                                                                                    (20)                    (16) 
        Capital expenditure and financial investments                                                            
        Purchase of investments                                      (3,179)                (30,281)             
        Sale of investments                                           12,433                  45,701             
                                                                                   9,254                  15,420 
        Net cash inflow before financing                                           8,642                  14,909 
        Financing                                                                                                
        Repayment of loans                                             (733)                 (1,742)             
        New loans advanced                                                 -                     733             
        Cost of shares redeemed                                      (7,992)                (14,551)             
        Net cash outflow from financing                                          (8,725)                (15,560) 
        Decrease in cash in the year                        15                      (83)                   (651) 
 

NOTES TO THE FINANCIAL STATEMENTS


    1    PRINCIPAL ACCOUNTING POLICIES

         The following accounting policies have been applied consistently in
         dealing with items which are considered material in relation to the
         Company's financial statements:

         Basis of accounting

         The financial statements have been prepared under the historical cost
         convention adjusted by the revaluation of investments and in accordance 
         with applicable UK accounting standards.

         Investments

         Investments in investment funds are valued at the closing net asset 
         value per share for the underlying Investments that the Fund holds, as 
         at 5 pm (Guernsey time) on the Balance Sheet date. Realised and 
         unrealised surpluses and deficits on investments are included on the 
         Statement of Total Return. Purchase and sales of the investments are 
         accounted for on a trade date plus one basis.

         Revenue

         Investment income and bank interest is included on an accruals basis.

         Expenses

         Expenses are included on an accruals basis.

         Foreign currency transactions

         Assets and liabilities expressed in currencies other than GBP are
         translated into GBP at exchange rates ruling at the year end. Foreign
         currency transactions are translated at the rate of exchange ruling at 
         the date of the transaction. The Fund reports the realised exchange 
         gain or loss as well as the unrealised exchange appreciation or 
         depreciation on non-GBP denominated investments in the Statement of 
         Total Return. Any realised exchange gains or losses as well as 
         unrealised appreciation or depreciation arising from non-GBP 
         denominated payables and receivables and on foreign currency 
         transactions are reflected in the Statement of Total Return.

         Forward foreign exchange contracts

         The unrealised appreciation or depreciation on open forward foreign
         exchange contracts is calculated by reference to the difference between 
         the contractual rate and the rate to close out the contract. Unrealised
         appreciation is reported as an asset and unrealised depreciation is 
         reported as a liability in the Balance Sheet.

         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 Company.


NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)

2 NET GAINS ON INVESTMENTS

The net gains on investments during the year comprise:

                   The net gains on investments during the year comprise:                                  
                                                                                          2005        2004 
                                                                                       GBP'000     GBP'000 
                   Proceeds from sales of investments                                   11,768      42,988  
                   Original cost of investments sold                                   (10,711)    (38,704) 
                   Gains realised on investments sold                                    1,057       4,284  
                   Net appreciation thereon already recognised in earlier periods         (724)     (2,256) 
                   Net realised appreciation for the year                                  333       2,028  
                   Net unrealised appreciation for the year                              2,503         639  
                   Net gain on forward foreign currency contracts                           57         662  
                   Net gains on investments                                              2,893       3,329  

3    OTHER (LOSSES)/GAINS                                                                    
                                                                                          2005        2004 
                                                                                       GBP'000     GBP'000 
                   Other currency (losses)/gains                                           (25)         23  
                                                                                           (25)         23  
4    GROSS INCOME                                                                            
                                                                                          2005        2004 
                                                                                       GBP'000     GBP'000 
                   Interest income                                                           1          23  
                   Bank interest                                                             5           4  
                                                                                             6          27  
5    EXPENSES                                                                                
                                                                                          2005        2004 
                                                                                       GBP'000     GBP'000 
                   Payable to the manager and its associates                                               
                   Management fee                                                         (321)       (510) 
                   Performance fee                                                         (88)       (154) 
                                                                                          (409)       (664) 
                   Other expenses                                                                          
                   Audit fees                                                               (8)         (8) 
                   Directors fees and expenses                                             (45)        (45) 
                   Interest expenses                                                       (20)        (16) 
                   Other sundry expenses                                                   (51)        (48) 
                                                                                          (124)       (117) 
                   Total expenses                                                         (533)       (781) 


NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 

                                                                                             
6    DEBTORS                                                      
                                                                                          2005       2004 
                                                                                       GBP'000    GBP'000 
                   Amounts receivable on securities sold                                    96        761  
                   Amounts due from Manager                                                315        248  
                   Unrealised gain on forward contracts                                      3         12 
                   Other debtors                                                            26         33  
                                                                                           440      1,054  
7    CASH AND BANK BALANCES                                       
                                                                                          2005       2004 
                                                                                       GBP'000    GBP'000 
                   Cash and bank balances                                                   81        102  
                          
8    CREDITORS                                                    
                                                                                          2005       2004 
                                                                                       GBP'000    GBP'000 
                   Accrued directors fees                                                  (13)       (15) 
                   Loans payable                                                             -       (733) 
                   Accrued performance fees                                                (39)      (120) 
                   Accrued expenses due to Manager                                         (25)       (34) 
                   Other accrued expenses                                                  (40)       (15) 
                                                                                          (117)      (917) 
9 SHARE CAPITAL 

The authorised share capital of the Company as at 31 March 2005 was: 

                                                                                         
                                                                                     GBP 
                                100 Founder Shares of GBP1 each                      100 
                                250,000,000 Shares of GBP0.01                  2,500,000 
                                100,000,000 Unclassified Shares of GBP0.01     1,000,000 
                                                                               3,500,100 

    On incorporation, 2 Founder Shares were allotted to the subscribers to the
    Memorandum of Association. As Founder Shares are not participating shares of
    the Fund and do not form part of the Net Asset Value of the Fund, they are
    disclosed in the financial statements by way of this note only.


    The Unclassified Shares may be allotted and issued as Shares or Nominal
    Shares.

NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)


9    SHARE CAPITAL (CONTINUED)

    The movement in shares during the year is shown below:

                                                                    Nominal    Participating 
                                                                       2005             2005  
                           Number of shares at 1 April 2004      24,783,088       21,966,912  
                           Number of shares issued                6,707,379                - 
                           Number of shares redeemed                      -       (6,707,379) 
                           Number of shares at 31 March 2005     31,490,467       15,259,533 
 

                                                                                             
                                                                    Nominal    Participating 
                                                                       2004             2004  
                           Number of shares at 1 April 2003      11,587,273       35,162,727 
                           Number of shares issued               13,195,815                -  
                           Number of shares redeemed                      -      (13,195,815)  
                           Number of shares at 31 March 2004     24,783,088       21,966,912  

    During the year the Company purchased for cancellation a total of 6,707,379
    participating shares.

    Rights attaching to shares

    Unclassified Shares - The Directors may issue any of the Unclassified
    Shares of GBP0.01 each in the capital of the Company as one or more classes
    of Shares or as non-participating redeemable shares of GBP0.01 each (Nominal
    Shares). The shares may be issued as separate classes of redeemable
    participating preference shares.

    Nominal Shares - The Manager may only issue Nominal Shares at par and for
    the purpose of providing funds for the redemption of Shares. Nominal Shares
    do not carry voting rights. Nominal Shares do not carry any general right to
    dividends. However, a fixed dividend of GBP100 in aggregate shall be payable
    to the holders of Nominal Shares pro rata to their holdings in each year. In
    the event of a liquidation they rank pari passu inter se but only for a
    return of the nominal amount paid up on them. The Company may redeem at par
    all or any of the Nominal Shares for the time being issued and outstanding.

    Rights as to income - Subject to the rights of the holders (if any) of the
    Founder Shares and Nominal Shares, the redeemable participating preference
    shares carry the right to receive all the revenue profits of the Company
    available for distribution. The Founder Shares carry the right to receive
    out of the profits of the Company available for distribution a fixed
    cumulative preferential dividend at the annual rate of 0.01 per cent on the
    nominal amount of each share. For so long as there are Shares in issue, the
    Founder Shares do not confer any further right to participate in the
    Company's profits.

    Issued and fully paid share capital

                                                                                 2005       2005 
                      Non equity shares                              Number of shares    GBP'000 
                      Founder shares                                                2          - 
                      Nominal shares                                       31,490,467        315 
                      Total non equity shares                              31,490,469        315 
                      Equity shares                                                              
                      Redeemable participating preference shares           15,259,533        153 
                      Total shares in issue                                46,750,002        468 


NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED) 

9 SHARE CAPITAL (CONTINUED) 

                                                                                                 
                                                                                 2004       2004 
                      Non equity shares                              Number of shares    GBP'000 
                      Founder shares                                                2          - 
                      Nominal shares                                       24,783,088        248 
                      Total non equity shares                              24,783,090        248 
                      Equity shares                                                              
                      Redeemable participating preference shares           21,966,912        220 
                      Total shares in issue                                46,750,002        468 


10  RELATED PARTY TRANSACTIONS

    Financial Reporting Standard No. 8 - Related Party Transactions requires the
    disclosure of information relating to material transactions with parties who
    are deemed to be related to the reporting entity.

    Management Agreement

    Pursuant to the Management Agreement dated 7 March 2001, the Company
    appointed HSBC Management (Guernsey) Limited as the Manager of the Company.
    The Manager is paid periodic fees and (if applicable) performance fees. The
    periodic fees are paid monthly at a rate equivalent to 1.5% per annum of the
    value of the Company's net assets and are paid in arrears. Such fees are
    paid by the Company to the Manager, out of which the Manager discharges the
    fees to the Investment Adviser and Custodian. The performance fee (if
    applicable) equals to 10% of the excess of the growth in the Net Asset Value
    of the Company in the Performance Period over the Performance Hurdle. Any
    performance fee payable will be subject to a cap equal to 3% of the Net
    Asset Value of the Company in any one year. The performance fee outstanding
    at the year end was GBP38,975 (2004: GBP120,148). The management fee
    outstanding at the year end was GBP25,084 (2004: GBP34,325).

    The Management Agreement may be terminated by any party giving not less
    than six month's notice in writing to the other parties.

    The fund invests in HSBC funds that are also managed by HSBC Management
    (Guernsey) Limited.

    Investment Advisory Agreement

    Pursuant to the Investment Advisory Agreement dated 7 March 2001 the
    Company has appointed HSBC Republic Investments Limited as the Investment
    Adviser of the Company. The Investment Adviser fee is 0.75% per annum of the
    value of the Company's net assets, and is included in the management fee.

    Directors' Interests

    Michael Quarrington is also a director of the manager. Paul Dunning was
    also a director of the manager and the investment adviser. Both the
    directors do not draw a fee for their services as directors to the Fund.

    Loan

    The Company will have the ability to borrow up to 20% of its adjusted
    total of capital and reserves for short-term or temporary purposes as may be
    necessary for settlement of transactions, to facilitate redemption (where
    applicable) or to meet ongoing expenses. It is not intended for the Company
    to have any structural gearing.


11  CUSTODY AGREEMENTS

    Pursuant to the Custodian Agreement dated 12 March 2001 the Company
    appointed Investors Trust & Custodial Services (Ireland) Limited as the
    Custodian of the Company. The Custodian fee is included in the management
    fee.

12  TAXATION STATUS

    The Company is exempt from Guernsey income tax under the Income Tax
    (Exempt Bodies) (Guernsey) Ordinance 1989 and is charged an annual exemption
    fee of GBP600 per annum (2004: GBP600).

NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)

13  EQUITY SHAREHOLDERS' FUNDS

                                                                                          2005        2004 
                                                                                       GBP'000     GBP'000 
             At 1 April 2004                                                            25,262      37,209  
             Share premium received on net redemption of equity shares                  (7,992)    (14,545) 
             Net increase in Equity Shareholders' funds from investment activities       2,341       2,598  
             At 31 March 2005                                                           19,611      25,262 

    Profits available for distribution

    The total income earned by the Fund from its investments, less the
    ongoing costs and expenses of the Company other than management fees and
    bank interest expense, is available for distribution. For the year to 31
    March 2005 the expenses exceeded the income available for distribution; the
    total net expenses excluding amounts payable to manager and its associates
    and interest expense were GBP99,022. For the year to 31 March 2004 the total
    net expenses excluding amounts payable to manager and its associates and
    interest expense were GBP73,908.

14  FORWARD FOREIGN EXCHANGE CONTRACTS

    The following forward foreign exchange contracts were unsettled at 31
    March 2005.

               Settlement Date                     Amount Bought       Amount Sold    Counterparty    Unrealised Gain 
                                                                                                              GBP'000 
                29 April 2005                  EUR 1,801,202.35     USD 2,328,000              IBT                  3 

               Total unrealised gain on forward foreign exchange contracts                                          3

    The following forward foreign exchange contracts were unsettled at 31
    March 2004.

               Settlement Date                     Amount Bought       Amount Sold    Counterparty    Unrealised Gain 
                                                                                                              GBP'000 
                30 April 2004                      USD 3,150,000     EUR 2,954,301             IBT                 12 
              

          Total unrealised gain on forward foreign exchange contracts                                              12


NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)

15 RECONCILIATION OF OPERATING ACTIVITIES TO NET CASH OPERATING OUTFLOW

                                                                                   2005       2004 
                                                                                GBP'000    GBP'000 
                    Net operating expenses                                         (527)      (754) 
                    Other losses                                                    (25)         - 
                    Addback: Interest paid                                           20         16  
                    Decrease in debtors                                               7        125  
                    (Decrease) / increase in creditors                              (67)       118  
                    Net cash outflow from operating activities                     (592)      (495) 

                    Reconciliation of net cash flow to movement in net cash                        

                    Opening cash balance                                            102        200  
                    Decrease in cash for the period                                 (83)      (651) 
                    Foreign exchange gain                                            62        553  
                    Closing cash balance                                             81        102  

16  FINANCIAL INSTRUMENTS

    The investment techniques used expose the Company to risks such as market
    risk, foreign currency risk and credit risk as follows:

 a. Market price risk

    Market risk arises mainly from uncertainty about future prices of the
    financial instruments held. It represents the potential loss the Company
    might suffer through holding market positions that fluctuate in market
    value. The Investment Adviser considers the diversification of the portfolio
    as an investment strategy per the Company's investment objective and also in
    order to minimise the risk associated with particular countries or industry
    sectors.

    (b) Credit risk

    The Company is exposed to a credit risk on parties with whom it trades and
    also bears the risk of settlement default. The Company minimises
    concentrations of credit risk by undertaking transactions with a large
    number of customers and counterparties.

    (c) Foreign currency risk

    A portion of the financial assets of the Company are denominated in
    currencies other than the base currency with the effect that the Balance
    Sheet can be significantly affected by currency movements.

    The following table sets out the Company's total exposure to foreign
    currency risk.

    31 March 2005

                          Currency                        Total     Forward FX           Net 
                                                            GBP            GBP           GBP 

                          British Pound Sterling         33,261              -        33,261 
                          Euro                       18,342,290     1,254,026     19,596,316 
                          US Dollar                   1,234,957    (1,254,026)      (19,069) 
                          Total                      19,610,508              -    19,610,508 


NOTES TO THE FINANCIAL STATEMENTS - (CONTINUED)


16  FINANCIAL INSTRUMENTS (CONTINUED)

    (d) Fair values of financial assets and financial liabilities

    There is no material difference between the value of the financial assets
    and liabilities, as shown in the balance sheet, and their fair value.

    (e) Interest rate risk

    The majority of the Company's financial assets are equity shares and other
    investments which neither pay interest nor have a maturity date.

    (f) Liquidity risk

    The Company's assets comprise mainly readily realisable securities, which
    can be readily sold. The main liability of the Company is the redemption of
    any shares that investors may wish to sell.

17  SHAREHOLDERS' INTERESTS

    Bank of New York (Nominees) Limited held 9,712,919 (2004: 13,054,557)
    participating shares in the Fund at 31 March 2005. This represented 63.65%
    (2004: 59.43%) of the participating shares outstanding at the year end.

18  CONTINGENT LIABILITIES

     There are no contingent liabilities as at 31 March 2005 that require
     disclosure in the Financial Statements.

19   DIRECTORS' FEES

The Directors are paid the following fees.

Raymond Philip Apsey (resigned 1st April, 2005)                                                      GBP15,000 per annum
Stuart Francis Carnegie                                                                              GBP10,000 per annum
Ian Charles Domaille                                                                                 GBP20,000 per annum
Stuart Walter Mitchell                                                                               GBP15,000 per annum
Michael Quarrington (appointed 1st April, 2005)                                                      GBP15,000 per annum


    The Directors' fees outstanding at the year end was GBP13,492 (2004:
    GBP14,406). Paul Dunning (resigned 1st April, 2005) has waived his
    entitlement to fees.

20  COMPARATIVE FIGURES

The comparative figures are for the period from 1 April 2003 to 31 March 2004.

Certain of the prior year figures have been reclassed to conform to the current
year's presentation.

21  SUBSEQUENT EVENTS

    As of 30 June 2005, the Company (HEAL) introduced currency hedging on the
    Sterling shares to protect from fluctuations in the Euro/Sterling exchange
    rate. This was carried out by reclassifying Sterling shares previously held
    directly by Shareholders, i.e. not in the form of EDRs, into new Sterling
    Hedged Shares. At the same time, all shares previously represented by EDRs,
    were reclassified as new Euro Shares. Shareholders automatically received
    new Euro Shares if they held EDRs and/or Sterling Hedged Shares if they held
    their Shares directly unless they exercised the option to receive shares of
    the other class.

    Michael Quarrington was appointed a Director with effect from 1st April,
    2005 and has subsequently on 6th July 2005 purchased 5,000 shares in the
    Company.

SCHEDULE OF INVESTMENTS AS AT 31 MARCH 2005

  Security Description                         Holding                      Market value              % of total      
                                                                                 GBP'000              net assets      
  Mutual Funds                                                                                                        
  Euro (2004: 93.17%)                                                                                                 
  AlphaGen Velas Fund (The), Ltd. Class B      11,879                               962                    4.91    %  
  Blue Bay High Yield Return Fund, Ltd. -       8,584                               707                    3.60    %  
  Euro Class                                                                                                          
  Cantillon Europe, Ltd. - Class D Series      15,109                             1,334                    6.80    %  
  D1                                                                                                                  
  Crescendo European Fund, Ltd. - Euro          8,816                               879                    4.48    %  
  Class                                                                                                               
  Egerton European Equity Fund (The), Ltd.     44,526                             1,069                    5.45    %  
  - Class B                                                                                                           
  Eureka (Euro) Fund, Ltd. - Class A            8,073                               966                    4.93    %  
  Eureka Interactive Fund (Euro), Ltd.          6,869                               935                    4.77    %  
  Class A                                                                                                             
  Henderson European Absolute Return Fund,      6,549                             1,216                    6.20    %  
  Ltd. Euro Class                                                                                                     
  Incremental Leverage Fund, Inc. Class B       9,842                               754                    3.84    %  
  Jandakot Fund (The)                          10,535                             1,020                    5.20    %  
  Kairos Fund, Ltd. Class A                     5,801                               974                    4.97    %  
  Lansdowne European Fund, Ltd. Euro Shares     7,504                               713                    3.64    %  
  Lansdowne UK Equity Fund, Ltd. Euro          11,522                             1,342                    6.84    %  
  Shares                                                                                                              
  Leonardo Capital Fund Class A                 2,148                               628                    3.20    %  
  Meditor European Hedge Fund - Class C        15,153                             1,670                    8.52    %  
  Pegasus Fund (The), Ltd. Euro Shares         74,208                               738                    3.76    %  
  Polar Capital European Smaller Companies     15,000                             1,390                    7.09    %  
  Absolute Return Fund, Ltd. Class A                                                                                  
  Trident European Fund Class B                 5,005                               990                    5.05    %  
                                                                                 18,287                   93.25    %  
  U.S. Dollar (2004: 6.86%)                                                                                           
  Oz Europe Overseas Fund, Ltd. - Class B        1,678                            1,160                    5.91    %  
  Series 21                                                                                                           
  Oz Europe Overseas Fund, Ltd. - Class C           2                                 1                    0.01    %  
  Series 10                                                                                                           
  Oz Europe Overseas Fund, Ltd. - Class C           4                                 2                    0.01    %  
  Series 4                                                                                                            
  Oz Europe Overseas Fund, Ltd. - Class C          70                                37                    0.19    %  
  Series 5                                                                                                            
  Oz Europe Overseas Fund, Ltd. - Class C          39                                25                    0.13    %  
  Series 6                                                                                                            
  Oz Europe Overseas Fund, Ltd. - Class C           3                                 2                    0.01    %  
  Series 7                                                                                                            
  Oz Europe Overseas Fund, Ltd. - Class C           3                                 2                    0.01    %  
  Series 8                                                                                                            
  Oz Europe Overseas Fund, Ltd. - Class C          11                                 6                    0.03    %  
  Series 9                                                                                                            
                                                                                  1,235                    6.30    %  
  Total Value of Investments                                                     19,522                   99.55    %  

  Net current assets                                                                 89                    0.45    %  

  Total net assets attributed to equity                                           19,611                 100.00    %  
  shares                                                                                                              


  Portfolio Classification                                                                        % of Portfolio      

  - Securities with an official stock                                                                      61.90   %  
  exchange listing                                                                                                    
  - Securities dealt in on another                                                                         38.10   %  
  regulated market                                                                                                    
                                                                                                          100.00   %  
 

                                                                                                              
          SUMMARY OF SIGNIFICANT PORTFOLIO CHANGES FOR THE YEAR ENDED 31 MARCH 2005*  
                        
          Purchases                                                                                           

          Description                                                                     Nominal       Cost  
                                                                                                     GBP' 000 
          Leonardo Capital Fund                                                            4,294        1,223  
          Lansdowne European Fund, Ltd.                                                    7,504          670  
          JP Morgan Euro Liquidity Fund                                                  851,085          573  
          Trident European Fund                                                            3,413          535  
          Oz Europe Overseas Fund, Ltd. - Class B Series 21                                    94          63 
          Oz Europe Overseas Fund, Ltd. - Class C Series 7                                     90          50 
          Oz Europe Overseas Fund, Ltd. - Class C Series 5                                     70          39 
          Oz Europe Overseas Fund, Ltd. - Class C Series 2                                     16           9 
          Oz Europe Overseas Fund, Ltd. - Class C Series 9                                     11           6 
          Oz Europe Overseas Fund, Ltd. - Class C Series 4                                     10           5 
          Oz Europe Overseas Fund, Ltd. - Class C Series 1                                      7           4 
          Oz Europe Overseas Fund, Ltd. - Class C Series 8                                      3           2 
          Other Purchases                                                                                   - 
          Total Purchases                                                                               3,179 
 

                                                                                                                     
   Sales                                                                                                             

   Description                                                                                   Nominal    Proceeds 
                                                                                                            GBP' 000 
   Trident European Fund                                                                           8,950       1,420  
   Bailey Coates Cromwell Fund                                                                   15,000        1,149  
   AlphaGen Capella Fund (The), Ltd.                                                              6,158        1,071  
   Sthenos European Opportunity Fund - Class B                                                   12,277          937  
   Meditor European Hedge Fund                                                                    8,102          877  
   Polar Capital Market Neutral Absolute Return Fund, Ltd.                                        9,005          809  
   GLC Gestalt Europe Fund, Ltd.                                                                  6,515          747  
   Oz Europe Overseas Fund, Ltd. - Class B Series 21                                               1,043         701 
   Jandakot Fund (The)                                                                            6,681          658  
   Leonardo Capital Fund                                                                          2,146          644  
   JP Morgan Euro Liquidity Fund                                                                853,203          572  
   Eureka Interactive Fund (The), Ltd.                                                            3,793          483  
   Pegasus Fund (The), Ltd.                                                                      38,489          362  
   Incremental Leverage Fund, Inc.                                                                4,876          335  
   Kairos Fund, Ltd.                                                                              2,326          335  
   Crescendo European Fund, Ltd.                                                                  3,689          334  
   Blue Bay High Yield Fund                                                                       3,866          282 
   Oz Europe Overseas Fund, Ltd. - Class C Series 6                                                   48          26 
   Oz Europe Overseas Fund, Ltd. - Class C Series 2                                                   16          16 
   Oz Europe Overseas Fund, Ltd. - Class C Series 1                                                    7           7 
   Oz Europe Overseas Fund, Ltd. - Class C Series 4                                                    6           3 
   Other Sales                                                                                                     - 
   Total Sales                                                                                                11,768 

   * Significant portfolio changes are defined as the value of purchases or sales of                                 
   a security exceeding 2% of the net assets of the fund at the start of the period.                                 

   In any event, at a minimum, the 20 largest purchases and 20 largest sales must be shown.                          


                      This information is provided by RNS
            The company news service from the London Stock Exchange
END

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