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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