Half Yearly Report

RNS Number : 2223Y

Atlantis Japan Growth Fund Ld

17 December 2010

 



 

Atlantis Japan Growth Fund Limited

Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands

Company No 30709

Statement of Interim Results

17th December 2010

The financial information set out in this announcement does not constitute the Company's statutory accounts for the period ending 31st October 2010

The financial information for the period ended 31st October 2010 is derived from the financial statements delivered for the same period.

Interim Management Report and Interim Manager's Report

For the six months ended 31st October 2010

PERFORMANCE

After peaking in April 2010, the Tokyo Market moved lower with most major indices hitting yearly lows in August. From August to October the market moved sideways to slightly higher.  For the six month period ended October the Topix was down 3.02% (US dollars, total return) and the Fund's NAV fell 8.87% giving up some of the outperformance in the year ended 30th April. Looking at the calendar year to 31st October, the Fund's NAV was up 0.75% while the Topix gained 4.10% (US dollars, total return). It should be noted that the stronger yen helped performance in dollar terms. The yen ended October at Y80.785 to the dollar, compared to an April close of Y94.465, a gain of 16.9%.

The Fund's under-performance was due in part to the Fund's overweight position in export and undervalued growth stocks such as Stanley Electric, Asahi Glass, Shin-etsu, Hamakyorex, Bit-Isle, PGM Holdings and others which underperformed during the period under review.  The Fund's gearing was also a contributor to the under-performance.  As we have stressed in the past, the Fund has a high tracking error and tends to outperform when the market is strong and underperform when the market is weak.

The Fund has no foreign exchange hedges and none are planned at this time. It should also be noted that the Fund has no exposure to bonds, convertibles, warrants, unlisted companies or derivatives.

Since the end of October the Tokyo market and the Fund have continued to recover from the August lows.

MARKET OUTLOOK

We think that the trend of the market will continue to be impacted by the perceived direction of the economy and the flow of funds into equities (demand and supply).

The economy had been showing good recovery into early summer due to strong exports and the government's easy money policy. However, the yen has continued to move sharply higher in recent months and this in turn has impacted export growth and is also squeezing profits for most exporters. Excluding the effects of the government eco programme, which has now expired or is being reduced depending on the product area, consumer spending remains anaemic and private capital investments are also weak as most companies, especially smaller companies, have become cautious on investing.

Domestic investors remained net sellers during the period under review. This was partly offset by net buying by overseas investors, but unfortunately not by enough to lift the market.

Given the uncertain outlook for the economy and continued net selling by domestic investors, we would expect the market to drift sideways, at least in the short term.

A continued strong yen would be negative for the market and the economy. We expect the yen to eventually top out and exports to strengthen once more. Export strength depends on overseas demand which in turn depends on overseas growth, especially in China, Asia and the US. We also expect private capital investment to begin to recover by next summer, again depending partly on how major companies view the world economy. However, over the next few quarters Japan could very well see GDP growth weaken and earnings growth during the first quarter of next fiscal year (ending March 2012) could become relatively depressed. We hope to see the economy characterised by solid growth from the second half of next fiscal year, which in turn might help lift employment, wages and consumer spending. In turn this could carry over into calendar year 2012. This should of course be considered a best case scenario.

Assuming that the economy does show signs of renewed growth, exports eventually get back on track, private capital investments strengthen, consumer spending slowly expands and the yen stabilses, we could see very good growth in corporate earnings during the second half of next fiscal year and into the following fiscal year ending March 2013. This should help improve investment sentiment and encourage local investors along with overseas investors to become net buyers of Japanese equities.

The danger is that the yen continues to move higher, world economic growth slows dramatically, exports weaken, consumer spending fails to recover and domestic investors stay on the sidelines or even remain net sellers.

OUR STRATEGY AND THE PORTFOLIO

Our strategy remains unchanged and we will continue to buy and hold undervalued companies which are characterised by above average earnings growth potential. We are looking at many companies involved in a wide range of businesses. At present we are holding 111 stocks, mostly medium sized and small companies but also some bigger names such as Sumitomo Mitsui Bank (a recent purchase), Fanuc and Sekisui House (another recent purchase). We are also holding many smaller companies; local companies that may be less known to overseas investors including Hamakyorex (trucking), Mani (medical instruments) and Kintetsu World (international freight forwarder).

Many of our stocks are cyclical growth companies that do well when the economy is growing, when certain industries are expanding or when certain products are in high demand. We are very much bottom-up investors when it comes to picking stocks but we also look at the big picture and how it will impact an industry and the companies operating within it.

At present we have high overweights to technology stocks (including parts companies), specialised chemical manufacturers, precisions, auto parts, glass, consumer goods, trucking and other niche manufacturers. We also have exposure to housing and real estate (both large and small), niche trading companies and some banking stocks. The latter include local banks such as Mie Bank which is located in Mie Prefecture. At this time we have little exposure to utilities (holding just one local gas company), construction, heavy industry, textiles, food, ship-building, shipping, mining, oil refining and finance.

Since we are now rather cautious on the short to medium term outlook for the economy and market, we are at present trying to expand our time horizon and are placing stress on thinking in terms of years. We realise that ignoring short term market trends can have a negative impact on our performance, at least in the short term. However we will continue to place stress on the longer term, a strategy that has worked well for us in the past.

As we mentioned in previous reports, it is difficult to predict the direction of the Japanese market at present. We do believe the market will eventually move higher and when it does we feel the Fund is well positioned to prosper.

Atlantis Fund Management (Guernsey) Limited

November 2010

Directors' Interim Report and Statement of Directors Responsibility

For the six months ended 31st October 2010

The Directors are pleased to present their interim Report and the Unaudited Financial Statements of the Company for the six month period ended 31st October 2010.

CAPITAL VALUES

At 31st October 2010 the value of net assets available to shareholders was $244,357,054 (30th April 2010 - $268,624,661) and the Net Asset Value per share was $11.96 (30th April 2010 - $13.14).

COMPANY'S OBJECTIVES, POLICIES AND STRATEGIES IN RESPECT OF FINANCIAL ASSETS

As an investment trust, the Company invests in securities for the long term. The financial investments held as assets by the Company comprise of equity shares. As such, the holding of securities, investing activities and financing associated with the implementation of the investment policy involves certain inherent risks. Events may occur that could result in either a reduction in the Company's net assets or a reduction of revenue profits available for distribution.

Set out below are the principal risks inherent in the Company's activities along with the actions taken to manage them. The Board reviews and agrees policies for managing these risks and these policies have remained substantially unchanged since 30th April 2006.

Market risk

Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.

The market risk is monitored by the Board on a quarterly basis and on a daily basis by the Investment Manager.

Currency risk

The Company's results for the period and net assets could be significantly affected by currency movements as most of the Company's assets are denominated in Yen. In order to reduce this risk the Company may hedge its exposure to the Japanese currency. The Company did not have any hedging arrangements in place at the period end.

Borrowing and Interest rate risk

The Company finances its operations mainly through its share capital and retained profits, including realised and unrealised capital profits. Additional bank borrowings may be used with a view to enhancing capital returns. However, the Company's Articles of Association provide that borrowing levels should not exceed 20% of Net Asset Value at the time any borrowing is effected. The level of gross borrowing as at 31st October 2010 was 5.0%, while at 30th April 2010 it was 11.8%. The level of net borrowings as at 31st October 2010 was 4.2% while at 30th April 2010 it was 11.1%.

The facility for Yen 2,000,000,000 was repaid on 13th October 2010 and the facility has not been renewed, but discussions are underway with potential providers to increase the borrowing facility.

Liquidity risk and cashflow risk

The majority of the Company's assets comprise readily realisable securities, which can be sold to meet funding commitments as necessary.  As at 26th November 2010 73.1% of the Company's assets can be realised within one to four weeks, 6.4% can be realised between one to three months and the balance of 20.5% will require greater than three months to be realised.

GOING CONCERN

The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. The use of the going concern basis is appropriate because there are no material uncertainties relating to events or conditions that may cast significant doubt about the ability of the Company to continue as a going concern.

INVESTMENT MANAGER

In the opinion of the Directors, in order to achieve the investment objectives and policies of the Company, and having taken into consideration the performance of the Company, the continuing appointment of the Investment Manager is in the interests of the shareholders as a whole.

BOARD COMPOSITION

Chris Jones retired from the board on 17th November 2010, there have been no other changes to the board during the period.

DIRECTORS' RESPONSIBILITY STATEMENT

We confirm, to the best of their knowledge, state that:

-              the condensed set of interim financial statements have been prepared in accordance with IAS 34 Interim Financial Reporting.;

-              as required by DTR 4.2.7R of the FSA's Disclosure and Transparency Rules, the interim management report includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-              the interim management report includes a fair review of the information concerning related party transactions required by DTR 4.2.8R

Details of Ten Largest Investments

Makita (440,000 shares, cost $12,562,100)

Makita manufactures and sells a wide range of power tools for professional and amateur users worldwide. The company also produces gardening and household products and provides parts, repairs and accessories. During the fiscal year ended March 2010, approximately 83% of Makita's sales were overseas. The company has over 100 service depots outside of Japan, with 28 located in the United States and 19 in China.

(Fair value of $15,370,180 representing 6.3% of the Net Asset Value (30th April 2010: 5.6%))

Hamakyorex (471,400 shares, cost $10,100,730)

Hamakyorex is active in two business segments. The company provides third party logistics services including consulting. It is also involved in trucking and covers most of Japan.

(Fair value of $11,133,641 representing 4.6% of the Net Asset Value (30th April 2010: 4.5%))

Toyota Tsusho (650,800 shares, cost $6,111,997)

Toyota Tsusho, 21.5% owned by Toyota Motors, is a medium/large scale trader involved in selling steel, autos and auto parts, chemicals, and non-ferrous metals. Overseas sales account for 54% of total turnover.

(Fair value of $10,061,883 representing 4.1% of the Net Asset Value (30^th April 2010: 3.8%))

Keyence (30,600 shares, cost $6,397,023)

Keyence designs factory automation and other related equipment including sensors for factories. Production is subcontracted out. In recent years the company has been growing its overseas business, especially in Asia, which is now becoming an important part of the company's total sales. Most of the company's employees are engineers and Keyence is well known for its high engineering standards and has some of the highest profit margins in the industry.

(Fair value of $7,530,210 representing 3.1% of the Net Asset Value (30th April 2010: 2.7%))

Nippon Electric Glass (505,000 shares, cost $4,234,381)

Nippon Electric Glass manufactures and sells flat panel and LCD displays for TVs. Over 82% of total sales for the year ended March 2010 were related to the display business and 70% of overall sales originate from overseas.

(Fair value of $6,476,202 representing 2.7% of the Net Asset Value (30th April 2010: 2.9%))

Monotaro (625,800 shares, cost $3,527,979)

Monotaro sells a wide range of products to individuals and smaller companies. They sell most products at discount prices and operate via the internet, telephone and fax. The company has been expanding the number of goods it handles and also increasing its customer base. A better economy should help lift sales, improve profit margins and result in rising earnings in coming years.

(Fair value of $5,887,331 representing 2.4% of the Net Asset Value (30th April 2010: 2.1%))

Sakai Moving Service (271,700 shares, cost $5,639,605)

Sakai Moving is one of the leading removals companies for individuals who are changing residence.  The company operates in all major Japanese population centres, has been gaining market share and has an outstanding long term growth record.  Although at present business is being negatively impacted by the weak economy, we expect continued growth over the longer terms and project a recovery in earnings growth from next year. (Fair value of $5,724,248 representing 2.4% of the Net Asset Value (30th April 2010: 2.1%))

Kintetsu World Express (246,900 shares, cost $5,424,374)

Kintetsu is a leading Japanese freight forwarder and provides a wide range of services related to importing, exporting, and distributing products, especially to and from Japan.  The company is concentrating on air freight and is especially strong in business related to Asia and Japan's other leading trade partners. The business is very sensitive to Japanese trade flows, which have recently been characterized by good recovery and growth.

(Fair value of $5,699,926 representing 2.3% of the Net Asset Value (30th April 2010: 2.2%))

Mani Inc (136,800 shares, cost $4,350,072)

Mani produces needles for dental use and medical instruments used in operations. About 70% of sales are overseas and in recent years the company has been boosting overseas production, especially in Vietnam. The company has high market shares in several of its product areas and we look for steady sales and earnings growth in coming years.

(Fair value of $5,274,890 representing 2.2% of the Net Asset Value (30th April 2010: 1.8%))

Nihon Chouzai (150,000 shares, cost $4,900,767)

Nihon Chouzai operates a nationwide chain of ethical pharmacy stores and has been steadily expanding its operations. Many of the company's stores are near major hospitals and we project steady sales and earnings growth in coming years. We also expect the company to continue increasing its market share over the next few years.

(Fair value of $5,191,558 representing 2.1% of the Net Asset Value (30th April 2010:2.0%))

Comparisons

31st October 2009			Fair	Percentage
Investment	Shares	Cost	Value	of NAV
Makita	491,200	14,023,872	16,478,342	6.5
Hamakyorex	455,600	9,684,304	10,938,596	4.3
Dai-ichi Seiko	221,800	3,977,983	10,689,351	4.3
Toyota Tsusho	675,800	6,112,523	9,838,978	3.9
Ain Pharmaciez	266,900	4,627,088	7,724,782	3.1
Seven Bank	3,159	7,073,587	7,653,774	3.0
Shin-Etsu Chemical	120,000	5,921,528	6,406,841	2.5
Sakai Moving Service	271,700	5,639,604	6,016,927	2.4
Nippon Electric Glass	505,000	4,234,381	5,536,370	2.2
Mitsubishi UFJ Lease & Finance	179,370	6,341,283	5,427,410	2.2
30th April 2010			Fair	Percentage
Investment	Shares	Cost	Value	of NAV
Makita	491,200	14,023,872	15,147,045	5.6
Hamakyorex	455,600	9,684,304	12,009,146	4.5
Toyota Tsusho	675,800	6,346,785	10,137,179	3.8
Ain Pharmaciez	266,900	4,627,089	8,221,871	3.1
Nippon Electric Glass	505,000	4,234,381	7,682,052	2.9
Keyence	30,600	6,397,023	7,262,499	2.7
Shin-Etsu Chemical	120,000	5,921,528	6,897,793	2.6
Sumida Corp	483,400	7,272,744	6,544,949	2.4
Nomura Holdings	884,000	7,094,106	6,101,392	2.3
Kintetsu World Express	246,900	5,424,374	5,870,295	2.2
31st October 2010			Fair	Percentage
Investment	Shares	Cost	Value	of NAV
Makita	440,000	12,562,100	15,370,180	6.3
Hamakyorex	471,400	10,100,730	11,133,641	4.6
Toyota Tsusho	650,800	6,111,997	10,061,883	4.1
Keyence	30,600	6,397,023	7,530,210	3.1
Nippon Electric Glass	505,000	4,234,381	6,476,202	2.7
Monotaro	625,800	3,527,979	5,887,331	2.4
Sakai Moving Service	271,700	5,639,605	5,724,248	2.4
Kintetsu World Express	246,900	5,424,374	5,699,926	2.3
Mani Inc	136,800	4,350,072	5,274,890	2.2
Nihon Chouzai	150,000	4,900,767	5,191,558	2.1

Unaudited Statement of Comprehensive Income

For the Six Months Ended 31st October 2010

		(Unaudited)					(Unaudited)
		01-May-10 to 31-Oct-10					01-May-09 to 31-Oct-09
		Revenue	Capital	Total		Revenue	Capital	Total
Notes		$'000	$'000	$'000		$'000	$'000	$'000
	Income
3	(Losses)/Gains on investments held at fair value	-	(19,954)	(19,954)		-	69,687	69,687
	Exchange (loss)/gain	-	(3,698)	(3,698)		-	679	679
	Dividend income	2,391	-	2,391		2,485	-	2,485
		2,391	(23,652)	(21,261)		2,485	70,366	72,851
	Expenses
4	Investment management fee	1,844	-	1,844		1,795	-	1,795
5	Custodian fees	96	-	96		114	-	114
6	Administration fees	117	-	117		125	-	125
12	Reorganisation expenses	93		93		-	-	-
	Registrar and transfer agent fees	7	-	7		13	-	13
7	Directors' fees and expenses	66	-	66		75	-	75
	Transaction costs	-	205	205		-	315	315
	Insurance fees	13	-	13		13	-	13
	Audit fee	21	-	21		21	-	21
	Printing and advertising fees	21	-	21		23	-	23
	Legal and professional fees	52	-	52		28	-	28
	Listing fees	10	-	10		20	-	20
	Miscellaneous expenses	8	-	8		10	-	10
		2,348	205	2,553		2,237	315	2,552
	Finance cost
	Interest expense and bank charges	289	-	289		414	-	414
	(Loss)/Profit before tax	(246)	(23,857)	(24,103)		(166)	70,051	69,885
	Taxation	(165)	-	(165)		(174)	-	(174)
	(Loss)/Profit and total
	comprehensive loss for the period	(411)	(23,857)	(24,268)		(340)	70,051	69,711
8	(Deficit)/Earnings per ordinary share	$(0.020)	$(1.168)	$(1.188)		$(0.017)	$3.428	$3.411

All of the Company's income and expenses are included in the profit/loss for the period and therefore the profit for the period is also the Company's comprehensive income for the period, as defined by IAS 1(revised).  In arriving at the result for the period, all amounts above relate to continuing activities.

The total column in this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS.  The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

Unaudited Statement of Changes In Equity

For the Six Months Ended 31st October 2010

		Ordinary Share		Share		Revenue
		Capital		Premium		Reserve
		$'000		$'000		$'000
Balances at 1st May 2010		204		192,650		(21,174)
Movements during the period
Realised loss on investments sold		-		-		7,343
Movement on unrealised loss on revaluation of investments		-		-		12,611
Loss on foreign exchange		-		-		3,698
Total comprehensive loss		-		-		(24,268)
Balances at 31st October 2010		204		192,650		(21,790)
		Ordinary Share		Share		Revenue
		Capital		Premium		Reserve
		$'000		$'000		$'000
Balances at 1st May 2009		204		192,650		(19,092)
Movements during the period
Realised loss on investments sold		-		-		16,471
Movement on unrealised gain on revaluation of investments		-		-		(86,158)
Gain on foreign exchange		-		-		(679)
Distribution (Note 12)						(1,022)
Total comprehensive income		-		-		69,711
Balances at 31st October 2009		204		192,650		(20,769)

Capital		Capital		Capital Reserve/
Reserve/		Reserve/		Exchange
Realised		Unrealised		Differences		Total
$'000		$'000		$'000		$'000
183,778		(74,714)		(12,119)		268,625
(7,343)		-		-		-
-		(12,611)		-		-
-		-		(3,698)		-
-		-		-		(24,268)
176,435		(87,325)		(15,817)		244,357
Capital		Capital		Capital Reserve/
Reserve/		Reserve/		Exchange
Realised		Unrealised		Differences		Total
$'000		$'000		$'000		$'000
202,155		(182,204)		(10,047)		183,666
(16,471)		-		-		-
-		86,158		-		-
-		-		679		-
						(1,022)
-		-		-		69,711
185,684		(96,046)		(9,368)		252,355

Unaudited Statement of Financial Position

As at 31st October 2010

		(Unaudited)		(Audited)
		31-Oct-10		30-Apr-10
Notes		$'000		$'000
	Non Current Assets
2(f)	Financial assets at fair value
	through profit or loss	253,499		297,262
	Current Assets
	Due from brokers	630		102
2(d)	Dividends and other receivables	1,812		2,305
2(g)	Cash and cash equivalents	1,885		2,043
		4,327		4,450
	Current Liabilities
	Due to brokers	(426)		(608)
	Payables and accrued expenses	(664)		(721)
2(h)	Loans payable	-		(21,172)
		(1,090)		(22,501)
	Net Current Assets/(Liabilities)	3,237		(18,051)
	Non Current Liabilities
2(h)	Loans payable	(12,379)		(10,586)
	Net Assets	244,357		268,625
	Equity
	Ordinary share capital	204		204
	Share premium	192,650		192,650
	Revenue reserve	(21,790)		(21,174)
2(l)	Capital reserve	73,293		96,945
10	Net Assets Attributable to Equity Shareholders	244,357		268,625
	Net Asset Value per Ordinary Share*	$11.96		$13.14

*Based on the Net Asset Value at the period end divided by the number of shares in issue: 20,435,627 (30th April 2010 - 20,435,627)

Unaudited Statement of Cash Flows

For the Six Months Ended 31st October 2010

		(Unaudited)		(Unaudited)
		31-Oct-10		31-Oct-09
		$'000		$'000
Reconciliation of(loss)/gain for period to net cash flow
from operating activities
Net (loss)/gain before taxation		(24,103)		69,885
Gain/(loss) on investments held at fair value		19,954		(69,687)
Exchange gain/(loss)		3,698		(679)
Interest expense		289		414
Decrease in debtors and accrued income		492		839
Decrease in creditors		(57)		(52)
Taxation		(165)		(174)
Cash flows from operating activities
Investing Activities		108		546
Purchase of investments		(39,692)		(83,469)
Sale of investments		62,587		85,655
Net cash inflow from investing activities
		22,895		2,186
Net cash inflow before financing		23,003		2,732
Cash flows from financing activities
Interest paid		(297)		(419)
Distribution		-		(1,022)
Net loans repaid		(21,172)		(12,959)
Net cash outflow from financing activities		(21,469)		(14,400)
Net increase/(decrease) in cash and cash equivalents		1,534		(11,668)
Exchange movements		(1,692)		(2,702)
Movement in cash and cash equivalents in the period		(158)		(14,370)
Cash and cash equivalents at beginning of period		2,043		17,056
Cash and cash equivalents at end of period		1,885		2,686

Notes to the Unaudited Financial Statements

For the Six Months Ended 31st October 2010

1.         GENERAL

             Atlantis Japan Growth Fund Limited (the "Company") was incorporated in Guernsey on
13th March 1996. The Company commenced activities on 10th May 1996.

2.         ACCOUNTING POLICIES

a) Statement of Compliance

             The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), which comprise standards and interpretations approved by the European Union and International Accounting Standards, and Standing Interpretations Committee interpretations approved by the IASC that remain in effect.

The condensed interim financial statements for the half year ended 31st October 2010 have been prepared in accordance with IAS 34, 'Interim Financial Reporting' and the Disclosures and Transparency Rules ("DTRs") of the UK's Financial Services Authority.

The condensed interim financial statements do not include all of the information required for full financial statements, and should be read in conjunction with the financial statements for the Company as at and for the year ended 30th April 2010. The financial statements of the Company as at and for the year ended 30th April 2010 were prepared in accordance with International Financial Reporting Standards ("IFRS").

Except as described below, the accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its financial statements as at and for the year ended 30th April 2010.

             b) Basis of Preparation

             The financial statements have been prepared on a historical cost basis, except for the measurement at fair value of investments.

             Where presentational recommendations set out in the Statement of Recommended Practice ("SORP") "Financial Statements of Investment Companies", issued by the Association of Investment Companies in January 2009 do not conflict with the requirements of IFRS, the Directors have prepared the financial statements on a basis consistent with the recommendations in the SORP.

             All financial assets and financial liabilities are recognised (or derecognised) on the date of the transaction by the use of 'trade date accounting'.

             c) Presentation of Statement of Comprehensive Income

             In order to better reflect the activities of an investment trust company supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income.

             d) Income Recognition

             Dividends arising on the Company's investments are accounted for on an ex-dividend basis. Investment income is accounted for gross of withholding tax.

             e) Expenses

             All expenses are recognised on an accruals basis and have been charged against revenue, with the exception of transaction costs, which have been charged against capital.

             f) Investments

             The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors and other key management personnel.

Accordingly, upon initial recognition the investments are designated by the Company as 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Statement of Comprehensive Income, and allocated to the capital column of the Statement of Comprehensive Income at the time of acquisition). Subsequently, the investments listed overseas are valued at 'fair value', which is bid price (where a bid price is available) or otherwise at fair value based on published price quotations.

             Gains and losses on non-current asset investments are included in the Statement of Comprehensive Income as capital.

             g) Cash and Cash Equivalents

             Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

             For the purposes of the Statement of Cash Flow, cash and cash equivalents consist of cash and cash equivalents, as defined above, net of outstanding bank overdrafts.

             h) Loans Payable

             All loans are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account discount or premium on settlement. Any costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan.

i) Foreign Currencies

             The Company's investments are predominately denominated in Japanese yen. The Company's obligation to shareholders is denominated in US dollars and when appropriate, the Company may hedge the exchange rate risk from yen to US dollars. Therefore, the functional currency is US dollars, which is also the presentational currency of the Company. Transactions involving currencies other than US dollars, are recorded at the exchange rate ruling on the transaction date. At each Statement of Financial Position date, monetary items and non-monetary assets and liabilities that are fair valued, which are denominated in foreign currencies, are retranslated at the closing rates of exchange.

             Exchange differences arising from retranslating at the Statement of Financial Position date:

             -  investments and other financial instruments measured at fair value through profit or loss; and

             -  other monetary items; and

             -  arising on settlement of monetary items, are included in the Statement of Comprehensive Income and allocated as capital if they are of a capital nature, or as revenue if they are of a revenue nature.

Foreign Currency Transactions

Foreign currency assets and liabilities, including investments at valuation, are translated into U.S. Dollars at the rate of exchange ruling at the Statement of Financial Position date.  Investment transactions and income and expenditure items are translated at the rate of exchange ruling at the date of the transactions.  Gains and losses on foreign exchange are included in the Statement of Comprehensive Income.

             j) Taxation

             The tax expense represents the sum of the tax currently payable and deferred tax.

             The tax currently payable is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Statement of Financial Position date.

             In line with the recommendations of the AIC SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the "marginal basis". Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

             Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. A deferred tax liability is recognised in full for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.

             The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

             Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

             k) Financial Liabilities

Financial liabilities are recognised when the Company becomes a party to the contractual agreements of the instrument.  Trade and other payables are initially recognised at their nominal value and subsequently measured at amortized cost less settlement payments.  Financial liabilities are derecognised from the Statement of Financial Position only when the obligations are extinguished either through discharge, cancellation or expiration.

             l) Capital and Reserves

The capital reserve distinguishes between gains/(losses) on sale or disposals and valuation gains/(losses) on investments.  The capital reserve consists of realised gains/(losses) on investments, movement in valuation gains/(losses) on investments and gains/(losses) relating to foreign exchange.

3.         GAINS/(LOSSES) ON INVESTMENTS HELD AT FAIR VALUE

		31 October 2010		31 October 2009
		$'000		$'000
Proceeds from sales of investments		(70,458)		83,765
Original cost of investments sold		63,115		(100,236)
Losses realised on investments sold during the period		(7,343)		(16,471)
Net unrealised (depreciation)/gain for the period		(12,611)		86,158
(Losses)/gains on investments held at fair value		(19,954)		69,687

4.         INVESTMENT MANAGEMENT FEE

             The Company pays to the Investment Manager a fee accrued weekly and paid monthly in arrears at the annual rate of 1.5 per cent of the weekly Net Asset Value of the Company. For the period ended 31st October 2010, total investment management fees were $1,844,480 (2009 - $1,794,883) of which $293,586 (2010 - $327,591) is due and payable as at that date.

             Under the terms of the Investment Management Agreement dated 18th March 1996, the Investment Manager, Atlantis Fund Management (Guernsey) Limited, will continue in office until a resignation is tendered or the contract is terminated. In both circumstances, a resignation or termination must be given with a notice period which must not be less than twelve months, and be in accordance with the Investment Management Agreement. Fees payable to the Investment Adviser are met by the Investment Manager.

5.         CUSTODIAN FEES

             The Company pays to the Custodian a fee accrued weekly at a rate of 0.03 per cent of the total weekly Net Asset Value of the assets held by the Custodian or Sub-Custodian, together with transactions charges.

Charges for the year ended 31st October 2010 total custodian fees were $95,544 (2009 - $114,263) of which $26,124 (2010- $20,704) is due and payable as at that date.

6.         ADMINISTRATION FEES

             The Company pays to the Administrator a fee accrued weekly and paid monthly in arrears at the annual rate of 0.18 per cent of the weekly Net Asset Value up to $50 million and 0.135 per cent between $50 million and $100 million, 0.0675 per cent between $100 million and $200 million and 0.02 per cent above $200 million.  In addition, an annual minimum retainer of $1,000 is payable in respect of maintaining the principal register of shareholders.

For the period ended 31st October 2010, total administration and registrar fees were $116,840 (2009 - $138,847) of which $19,812 (2010 - $20,773) is due and payable as at that date.

7.         DIRECTORS' FEES AND EXPENSES

             Each of the Directors is entitled to receive a fee from the Company, being £20,000 per annum for the Chairman and £15,000 per annum for each of the other Directors. In addition, the Company reimburses all reasonably incurred out-of-pocket expenses of the Directors. For the period ended 31st October 2010, total directors' fees and expenses were $66,080 (2009 - $75,248) of which $11,013 (2010 -$4,189) is due and payable as at that date.

8.         (DEFICIT)/EARNINGS (PER ORDINARY SHARE)

             The loss per ordinary share figure is based on the net loss for the period of ($24,267,607) (2009 $69,711,109) and on 20,435,627 ordinary shares for each year, being the weighted average number of ordinary shares in issue during the period.

             The (deficit) per ordinary share figure detailed above can be further analysed between revenue and capital, as below.

		2010		2009
		$'000		$'000
Net revenue loss		(411)		(340)
Net capital (loss)/profit		(23,857)		70,051
Net total (loss)/profit		(24,268)		69,711
Weighted average number of ordinary shares
in issue during the period		20,435,627		20,435,627
		$		$
Loss per ordinary share		(0.020)		(0.017)
Capital (deficit)/profit per ordinary share		(1.168)		3.428
Total (deficit)/profit per ordinary share		(1.188)		3.411

9.         RELATED PARTY TRANSACTIONS

Certain Directors had a beneficial interest in the Company by way of their investment in the ordinary shares of the Company.  The details of these interests at 31st October 2010 are as follows:

				Ordinary Shares	Ordinary Shares
				2010	2009
T. Guinness				10,000	10,000
A. Martin Smith				2,500	2,500
C. Jones (retired 17 November 2010)				1,000	1,000

There were no relevant contracts in force during or at the end of the period in which any Director had an interest.  There are no service contracts in issue in respect of the Company's Directors.  No Directors had a non-beneficial interest in the Company during the period under review.

10.       RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NET ASSET VALUE

		31 Oct 2010		Per Share
		$'000		$
Published Net Asset Value		245,605		12.02
Unrealised loss on revaluation of securities at bid prices		(1,248)		(0.06)
		244,357		11.96
		30 April 2010		Per Share
		$'000		$
Published Net Asset Value		269,530		13.19
Unrealised loss on revaluation of securities at bid prices		(905)		(0.05)
		268,625		13.14

In accordance with IFRS the Company's investments have been valued at bid price. However, in accordance with the Company's prospectus for the purposes of determining the daily net asset value per share the investments are valued at mid prices.

11.       LOAN REPAYMENTS

Yen 2,000,000,000 was repaid on 13th October 2010.

12.       REORGANISATION EXPENSES

The following costs have been incurred and accrued in respect of proposals put forward to shareholders

	2010		2009
	$'000		$'000
Costs incurred incurred in association with the redemption facility proposals (October 2010)	(159)		-
Over accrual of reorganisation expenses (April 2010)*	66		-
P&L Movement for the period	(93)		-

*The over accrual of expenses relates to proposals put forward to shareholders at the EGM held on 1st April 2010 which were not passed. Some of the costs that had been accounted for were subsequently not paid and a write back of the accrual has taken place during the current accounting period.

13.       SUBSEQUENT EVENTS

On 18th October 2010 the Company announced new proposals to try and increase liquidity in the Company's shares and to minimise the discount.

The key elements of the proposals are described below:

1)                the Company retaining its investment trust status and remaining listed on the London Stock Exchange;

2)                reorganising the Company's share capital to permit investors to request the redemption of part or all of their
                   shareholding on a four-monthly basis.  The redemption value will be based upon the realisation value of the
                   portfolio, less an exit charge set initially at 4% and scaling down to 2% at the fifth redemption opportunity. 
                   This charge will be retained by the Company and will enhance the NAV per share for continuing
                   shareholders;

3)                giving the Board discretion to decline such redemption requests when it considers it is in the interests of
                   shareholders as a whole;

4)                reclassifying and redenominating the existing Dollar shares into Sterling shares, so as to enable the shares
                   to qualify for inclusion in the UK national indices;

5)                renewing the Company's share buy back powers and holding any shares so bought back in treasury;

6)                reissuing any shares from treasury at a discount narrower than that at which they were bought back; and

7)                giving the Board authority to issue new shares in the Company, if demand so warrants.

Following the approval of these proposals, shareholders will have a first redemption opportunity shortly after the capital restructuring is completed.  The first redemption opportunity will be open to all shareholders on the Company's register as at the close of business on 15^th October 2010 in respect of shares held continuously and beneficially from that date until the first redemption closing date.  Thereafter all registered shareholders who have continuously and beneficially held their shares from the previous redemption date will be able to request the redemption of those shares at the next redemption opportunity. 

The first redemption value will be based upon the value realised from a pro-rata pool of assets of the Company, according to the percentage of shareholders who request redemption, less an exit charge of 4%.  This exit charge will reduce to 3% on the third redemption opportunity, and be further reduced to 2% on the fifth redemption opportunity.  The exit charge will remain at 2% for all redemption opportunities thereafter.

EGM

At an EGM held on 15th December 2010, all the resolutions (summarised above), including the special resolutions to implement the Redemption Facility, subdivision, redesignation and redenomination of shares, amendment to the memorandum and adoption of new articles were resoundingly approved by shareholders.

Shareholders representing over 70 percent of the shares voted at the EGM and the overwhelming majority of votes cast were in favour of the resolutions.

Accordingly, CREST accounts were credited on 16th December 2010 with ten New Ordinary Shares of no par value denominated and traded in Sterling (rather than US Dollars), for each existing ordinary share held. The number of New Ordinary Shares in issue will be 204,356,270.

From 16th December 2010, the Company's daily Net Asset Value have been announced in both Sterling and US Dollars.

Appointment of Corporate Broker to the Company

Effective 24th November 2010 Singer Capital Markets Limited ("SCM") has been appointed as the corporate broker to the company charging an annual fee of £25,000.

Changes to the Board

Chris Jones retired from the Board on 17th November 2010, there have been no other changes to the Board during the period.

There have been no other events subsequent to the period ended 31 October 2010.

 

END

 

 

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