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World Trust Fund (WTR)

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Friday 28 November, 2008

World Trust Fund

Half-yearly Report

Half-yearly Report

World Trust Fund

THE WORLD TRUST FUND

Société d'Investissement à Capital Fixe

Luxembourg

R.C. N° B 37.154

Unaudited Semi-Annual Report

September 30th, 2008

Table of Contents

Organization of the Fund

General Information

Responsibility Statement

Investment Policy

Interim Management Report

Statement of Net Assets

Shareholders’ Equity

Statement of Operations

Statement of Changes in Net Assets

Statistical Information about the Fund

Statement of Changes in Shares Outstanding

Statement of Investments and Other Net Assets

Notes to the Financial Statements

Organization of the Fund

Chairman  
 
JEREMY W. SILLEM Spencer House Partners LLP
15 St. James’s Place
U.K.-London, SW1A, 1NP
 
Directors
 
DUNCAN BUDGE * RIT Capital Partners Plc
27 St. James’s Place
U.K.-London, SW1A, 1NR
 
JAMES A. CAVE Salisbury Partners LLP
25 Hill Street
U.K.-London, W1J, 5LW
 
JOHN M. HIGNETT * Via Privata A, Bifani 3
I-16038 Santa Margherita, Italy
 
PHILIP R. McLOUGHLIN ** 200 Bridge Street
U.S.A.-Chatham, MA 02633
 
ALEXANDER E. ZAGOREOS Jermain Hill Lane
U.S.A.-Eagle Bridge, NY 12057
 
Registered Office STATE STREET BANK LUXEMBOURG S.A.
49, avenue J-F. Kennedy
L-1855 Luxembourg
 
Manager Lazard Asset Management LLC
30 Rockefeller Plaza
U.S.A.-New York, NY 10112
 
Custodian, Listing and Paying Agent STATE STREET BANK LUXEMBOURG S.A.
49, avenue J-F. Kennedy
L-1855 Luxembourg
 
 
Chairman Emeritus WALTER A. EBERSTADT, OBE
1035 Fifth Avenue, #16B
U.S.A.-New York, NY 10020

* Member of the Audit Committee

** Chairman of the Audit Committee

Domiciliary, Registrar, Transfer   STATE STREET BANK LUXEMBOURG S.A.
and Administrative Agent 49, avenue J-F. Kennedy
L-1855 Luxembourg
 
 
Independent Auditor ERNST & YOUNG
Société Anonyme
7, parc d’activité Syrdall
L-5365 Munsbach, Luxembourg
(until August 18th, 2008)
 
Deloitte S.A.
Société Anonyme
560, rue de Neudorf
L-2220 Luxembourg
(from August 19th, 2008)
 
Financial Adviser and Broker Arbuthnot Securities Limited
Arbuthnot House
20 Ropemaker Street
London EC2Y 9AR

General Information

1. Unaudited semi-annual reports and audited annual reports are made available at the Registered Office of the Fund and will be mailed to each registered Shareholder.

2. The Annual General Meeting of Shareholders will be held in Luxembourg each year at 3 p.m. on the third Tuesday in August or if any such day is not a business day for banks in Luxembourg, on the next following business day. Notices of General Meetings including their agenda, time and place and containing details of attendance, quorum and majority requirements under Luxembourg law will be sent to the registered address of Shareholders not less than 21 days before the date of the Meeting.

3. Annual reports (including audited accounts) will be posted to Shareholders not less than 21 days before the day fixed for the Annual General Meeting at which they are to be considered.

4. The Fund aims to achieve long term capital appreciation by investing primarily in companies whose shares trade at a discount to the underlying net asset value and are listed on international exchanges. These include investment companies (closed-end funds, investment trusts), holding companies, and other similarly traded companies. The Fund may also sell short stock indices, stocks, shares of exchange-traded funds or closed-end funds, not exceeding 100% of the Fund's net assets. The Fund may also utilize leverage.

5. Dividends may only be paid to the extent that they are covered by income received from underlying investments. The Articles of Incorporation provides that dividends shall not be paid out of surpluses arising upon the realization of investments. A dividend declared but not claimed by a shareholder after twelve years from the declaration thereof shall lapse and revert to the Fund. A dividend has not been paid since the Fund's inception.

6. The Net Asset Value is expressed in US Dollars.

7. The Shares of the Fund are listed on the London Stock Exchange. The quotation is published daily in the London edition of the “Financial Times” under “Investment Companies” and also on Bloomberg.

Responsibility Statement

We, the Directors of The World Trust Fund, confirm to the best of our knowledge that:

a) the financial statements which have been prepared in accordance with the applicable set of accounting standards (being the legal and regulatory requirements in Luxembourg relating to investment funds) give a true and fair view of the assets, liabilities, financial position and profit or loss of the Fund;

b) the Interim Management Report includes a fair review of the information required by the U.K. Disclosure and Transparency Rules 4.2.7R; and

c) the Interim Management Report includes a fair review of the information required by the U.K. Disclosure and Transparency Rules 4.2.8R.

By order of the Board

Jeremy W. Sillem
ChairmanChairman
November 2008November 2008

Investment Policy:

  • Investment Strategy and Asset Allocation
    • The Fund aims to achieve long-term capital appreciation by investing primarily in companies whose:

(i) shares trade at a discount to their underlying net asset value;

(ii) underlying assets give the Fund a globally diversified investment exposure; and

(iii) shares are listed or traded on international exchanges.

  • The Fund continuously monitors potential and existing holdings, in addition to the overall macro-economic environment.
  • Risk Diversification:
    • The Fund aims to provide broad exposure to the market through holding a diversified portfolio of investment companies, including closed-end funds, investment trusts, holding companies and similarly traded companies. The Fund aims to take a constructive and active role to help to reduce the discount at which the shares of the underlying companies trade.
  • Gearing:
    • The Fund may use gearing up to 25 percent of Net Asset Value.
    Manager’s Review

For the period March 31st, 2008 to September 30th, 2008

Market Overview

The current global economic and financial crisis has caused global equity markets to fall dramatically. Several well-known financial institutions have collapsed and governments around the world have been forced to create various bail-out packages. The MSCI World Index fell by 16.7% during the period covered by this report, while the MSCI Emerging Markets Index fell by 27.4%. The closed-end fund sector has suffered as well. Falling net asset values have negatively impacted the closed-end fund sector and the vast majority of closed-end fund discounts are at distressed levels that have not been seen in decades.

The financial crisis has resulted in heavy falls in equity markets with most trading at some of the lowest valuations in 10 years. Discounts on the U.S. listed closed-end funds are the widest in 10-years and U.K. listed investment trusts are at the widest discounts in 5 years. Some of our holdings listed on the local exchanges in Hong Kong are trading at levels seen only during the Asian meltdown when the economies and markets in the region collapsed. We continue to believe that these conditions provide an opportunity for The World Trust Fund (the “Fund”) to purchase assets at undervalued prices.

Performance

For the six months ended September 30, 2008, the Fund’s net asset value fell 33.7% to US$30.26 and the Fund’s shares fell 29.2%.

The following five factors contributed most to the serious underperformance during the period.

1. Discount Expansion. Discounts in closed-end funds increased substantially from single to double digits. Discounts in U.S.-traded closed-end funds doubled to 13.2% in the third quarter alone. This 13% discount compares to a long-term average of 4.4%.

2. Leverage. During the period, the portfolio’s leverage averaged 17%. This exacerbated the negative return. Although during the period the actual amount of borrowing was reduced, the fall in the value of the assets and the cost of buying back shares resulted in the leverage being 21% at the period end. Leverage has subsequently been reduced to zero.

3. High Exposure to Emerging Markets (versus zero in the MSCI World Index). Emerging Markets outperformed the MSCI World Index by 2.5% in the second quarter and underperformed the MSCI World Index by –11.7% in the third quarter. China, which represents 20% of the portfolio, was the worst performer.

4. Underweight in the U.S. The Fund’s large underweight position to the U.S. (22% versus 55% in the MSCI World Index) had a significant impact on the performance as the U.S. market outperformed the MSCI World Index by 11%. Despite the serious financial crisis unfolding in the U.S., investors continued to view the U.S. market as a relative safe haven

5. Currency Exposure. 40% of the Fund’s portfolio was in Sterling dominated closed-end funds, and while not all of these were invested in Sterling denominated assets, Sterling exposure was sizably more than the 10% weighting in the MSCI World Index. As Sterling fell by 10.4% over the period relative to the US dollar, more than most other major currencies, this detracted from the performance.

Notwithstanding the difficult market environment globally, we believe the current discount level in the closed-end fund universe is compelling. These types of discounts have only been available during the Asian meltdown and the Russian crisis. In addition, most major markets are trading at their lowest valuation in a decade, as measured by trailing price-to-earnings ratios and book values. Emerging markets are trading at record lows. The MSCI Emerging Markets Index is trading at 1x book value, a level reached only during the previous emerging markets crisis in 1998.

[Graph Omitted]

Performance (Annualized*) to September 30, 2008  
       
6 Months 1-Year 3-Year* 5-Year* 10-Year*
 
World Trust Fund Price -29.20% -44.60% -4.00% 9.40% 7.90%
World Trust Fund NAV -33.70% -47.30% -6.30% 8.10% 6.70%
 
MSCI World Index -16.7% -26.10% 0.80% 7.30% 3.80%
MSCI Emerging Index -27.40% -33% 8.70% 19% 14.80%
S&P 500 Index -10.90% -22% 0.20% 5.20% 3.10%
 
30/09/08   31/03/08   30/09/07   30/09/05   30/09/03
Share Price

US$ 28.93

US$ 40.88

US$ 52.25

US$ 32.70

US$ 18.50

NAV US$ 30.26 US$ 45.66 US$ 57.40 US$ 36.89 US$ 20.96
 

Portfolio

The construction of the portfolio has remained relatively unchanged during the period, although leverage has been decreased to zero. We continue to believe that there is considerable value in the Fund’s holdings, while continuing to favor emerging markets that enjoy solid fundamentals, including limited debt. Emerging markets currently trade at attractive levels, with single digit forward price-to-earnings ratios. China offers notable opportunities, with that market trading at the lowest valuation in over a decade. In addition, we are beginning to accumulate additional shares in U.S. domiciled funds, particularly those trading at discounts of over 20%. These funds tend to be invested in large-cap U.S. companies.

Top 10 holdings (excluding short positions) (as of Sept 30th, 2008)  
Weight
Investor AB 7.0%
Advance Developing Markets Trust 5.6%
Eurazeo 5.5%
John Hancock Tax-Advantaged Dividend Income Fund 5.2%
Morgan Stanley China A Share Fund 4.8%
Gabelli Dividend & Income Trust 4.1%
Alliance Trust 3.9%
Swiss Helvetia Fund 3.8%
Throgmorton Trust 3.7%
JPMorgan European Fledgeling Investment Trust 3.6%
 

The current top 10 holdings of the Fund account for 47.2% of net assets.

Over the course of the period there were a number of investments that were significant detractors from performance. The list below shows the top five and the percentage of negative performance attributable to each.

Top 5 Detractors (as of September 30th, 2008)  
Dreman/Claymore Dividend & Income Fund -2.86%
Advanced Developing Markets Trust -1.84%
BlackRock World Mining Trust -1.77%
China Merchants China Direct Investments -1.51%
Eurazeo -1.44%
 

In total, these investments accounted for -9.5% of the Fund’s negative performance and were mainly attributable to excessive discount widening or exposure to underperforming assets classes, especially emerging markets.

Diversification

The Fund is broadly diversified in terms of regions and countries. The following chart shows the geographic allocation of the underlying holdings of the funds that the Fund is invested in.

Geographic Allocation of the long equity portfolio as percentage of net assets

[Graph Omitted]

Top 5 Country Weightings (as of Sept 30th, 2008) Long Only on a look-through basis

United States   21.7%
China 11.8%
U.K 10.7%
Japan 8.2%
Sweden 8.2%

The Fund’s significant exposure to emerging markets, particularly China, was a major source of underperformance relative to the MSCI World Index. We continue to favor China and maintain a high level of exposure to China because of its strong economic fundamentals and attractive valuations relative to other opportunities. The Fund’s underweight exposure to North American holdings detracted from returns because of the relative outperformance of the U.S. market and the dollar. We currently intend to maintain our exposure to China as we believe there is significant value in our holdings. In addition, we plan to increase our exposure to the U.S. market by purchasing additional shares in U.S. domiciled funds.

Portfolio Hedging

As of September 30th, 2008, the Fund did not have any short positions. During this six-month period, the Fund hedged its gold position in ASA as it was going through a restructuring. The Fund also hedged part of its exposure to emerging markets, as some of these positions such as the Korea Fund, Mexico Fund and Advanced Developing Markets Trust were going through restructuring as well. Short positions in the iShares MSCI Emerging Markets Index Fund, the Templeton Russia & East European Fund Inc. and SPDR Gold Shares contributed slightly to performance.

Corporate Action & Restructuring

With global markets under pressure and discounts widening, restructuring momentum continued to be strong, especially the U.K. and U.S. listed holdings. The Fund has played a role in many of these corporate actions. Some of the major corporate actions are listed below.

  • Advance Developing Markets – In June 2008, the company commenced a cash tender offer for 25% of the company’s shares at 95% of net asset value. To compensate remaining shareholders, the fund also announced a bonus issuance of subscription shares on a 1-for-5 basis with a three-year life.
  • Advance Focus Fund – In April 2008, the company proposed a voluntary winding up.
  • ASA In July 2008, the company agreed to tender for 25% of its outstanding shares at 98% of net asset value.
  • Korea Fund – In June 2008, the company tendered in-kind for 15% of its then outstanding shares at 98% of net asset value.
  • Mexico Fund – In April 2008, the company repurchased an additional 5% of its then issued shares through an in-kind tender distribution at 99% of net asset value. A further 5% is expected to be repurchased in the fourth quarter.
  • Templeton Emerging Markets Investment Trust – In April 2008, the board announced revised proposals to allow shareholders to tender up to 30% of the then issued share capital on an auction basis at a discount to the net asset value. In June, the company announced that 30% of the company’s shares had been tendered at a 4% discount to net asset value.
  • Throgmorton Trust – In April 2008, the company received a merger approach from another investment trust. After completing a thorough review, the board announced the awarding of the investment management contract to Blackrock Investment Management, while agreeing to tender for 40% of the issued shares at 98% of formulae asset value, for those shareholders that did not want to remain invested.

We believe the Fund is well positioned to benefit from potential corporate restructurings that seek to reduce wide discounts.

Discounts

U.S. listed closed-end funds started the second quarter with an average discount of 6%. By the end of the third quarter the average discount had increased to 13.2%. To put these figures in perspective, the 10-year U.S. average discount was only 4%. The average discount for closed-end funds in Asia went from 12.1% to 22.1% during the same period.

Fund Discount

The Fund’s average discount over the period averaged 8.4%. On an intra-day basis, market volatility resulted in the discount trading as wide as 13.3% and as narrow as 2.4%. On days when the discount appeared to be under pressure from natural selling and exceeded the 10% discount level, shares were repurchased in the market to alleviate some of this pressure.

Internal Discount

While the Fund’s value remained within a relatively tight discount range, the discounts of the funds that we invested in had a much more pronounced widening. The chart below shows the monthly movement of the average weighted discount of our portfolio holdings over the period covered by this report. At the end of the period, the discount was 22%, which is wider than at any period in the last 5 years. As of this writing, the internal discount has widened to 28%.

[Graph Omitted]

Outlook

The world is faced with one of the biggest global financial and economic crises in recent memory. During a period in which investors have withdrawn substantial funds from all asset classes (including money market funds), it is not surprising to see a dramatic widening in the discounts of our investments. It is possible that the worst is yet to come. Previously unlikely scenarios are now being considered as real possibilities, including numerous economies going into deep recession, a major drop in consumer spending, soaring unemployment rates, and widespread corporate bankruptcies.

Since the end of September, we have seen a unified cutting of interest rates in North America, Europe, Asia and Australia to try and stimulate economies. We have also seen several government interventions in an attempt to avoid bankruptcies of some leading global companies. There seems to be a recognition that the failure of some institutions could have dire consequences for equity markets across the world. We believe that in such uncertain times, it is essential that we stick to our investment discipline and focus both on discounts and on making sure that we have the necessary diversification to minimize risk.

Recent market turmoil has negatively impacted the Fund’s performance. The NAV as of November 19, 2008 was $17.24 and the share price was $16.13. The primary reasons for this negative performance was the Fund’s exposure to emerging markets, particularly China, which fell dramatically during October and early November, and the Fund’s underweight position in the U.S. In addition, discounts in the closed-end fund sector continued to widen and this widening continued to detract from performance.

Nevertheless, in spite of the challenges facing the economy, we are optimistic given the compelling equity valuations and the historic level of discounts in our underlying holdings. Further, during this difficult period, we will endeavor to unlock value for shareholders by encouraging corporate action designed to reduce or eliminate discounts.

November 2008   Lazard Asset Management
 
 
 

Principal Risks and Uncertainties

The success of the Fund may be affected by general economic and market conditions, such as widening discounts, interest rate changes, availability of credit, inflation rates, economic uncertainty, changes in laws, and national and international political circumstances. These factors may affect the level and volatility of securities that the Fund invests in. The manager actively monitors these factors and, to the degree possible, attempts to mitigate their negative impact on the Fund.

Statement of Net Assets
(in USD)
 
  September 30th, 2008 March 31st, 2008

ASSETS

Securities' portfolio at market value 227,283,194 323,118,463
Cash 4,686,733 252,354
Cash collateral (see Note 11) 103,544 969,556
Income receivable on portfolio 178,352 126,330
Total assets 232,251,823 324,466,703
 

LIABILITIES

Bank liabilities 46,995,000 37,070,000
Short sales of securities at market value - 874,395
Payable on purchases of securities - 4,212,223
Unrealised loss on forward exchange contracts 1,908,111 -
Interest payable on bank accounts 597,203 118,488
Expenses payable 527,625 843,787
Total liabilities 50,027,939 43,118,893
NET ASSETS at the End of the Period/Year 182,223,884 281,347,810
 
Number of Shares outstanding 6,021,735 6,161,735
 
Net Asset Value per Share 30.26 45.66
 
 
 
 
 
Shareholders' Equity Represented by
(in USD)
 
September 30th, 2008 March 31st, 2008
 
Capital: 9,331,738 Shares at USD 2.00 18,663,476 18,663,476
Share Premium 70,220,782 70,220,782
Legal Reserve 1,866,348 1,866,348
Profit brought forward 178,723,095 145,180,792
 
Total Capital and Reserves 269,473,701 235,931,398
Cost of 3,310,003 Shares cancelled -54,004,108 -48,963,066
Repurchase of 1,334,756 Warrants -8,631,613 -8,631,613
Net realized profit for the Period/Year 5,837,489 33,542,303
Unrealized appreciation/depreciation on securities -28,334,372 69,246,720
Unrealized appreciation on Short Sales of Securities - 225,274
Unrealized depreciation on Foreign Exchange -2,117,213 -3,206
   
Total Shareholders' Equity 182,223,884 281,347,810
 
Statement of Operations
(in USD)
   
For the Period Ended Year Ended
September 30th, 2008 March 31st, 2008
INCOME
Dividends, net 6,155,971 19,188,834
Interest on bank accounts 16,139 1,865
Total income 6,172,110 19,190,699
 
EXPENSES
Management fees (see note 3) 1,023,082 2,391,791
Interest paid 596,230 2,498,632
Custodian fees 166,217 340,674
Directors' fees (see note 8) 154,172 130,000
Taxe d'abonnement (see note 4) 58,439 159,735
Audit and supervisory fees 58,155 125,668
Central administration costs 16,109 31,573
Other expenses 82,070 142,879
Total expenses 2,154,474 5,820,952
NET INVESTMENT INCOME 4,017,636 13,369,747
 
NET REALIZED GAIN / LOSS
- on portfolio 4,615,768 19,328,027
- on foreign exchange -2,795,915 844,529
REALIZED RESULT 5,837,489 33,542,303
 
CHANGE IN UNREALIZED GAIN / LOSS
- on portfolio -97,806,366 -48,294,367
- on foreign exchange -2,114,007 -1,043
RESULT OF OPERATIONS -94,082,884 -14,753,107
 
REPURCHASE OF SHARES -5,041,042 -
 
TOTAL CHANGE OF NET ASSETS -99,123,926 -14,753,107
 
NET ASSETS AT THE BEGINNING OF THE PERIOD/YEAR 281,347,810 296,100,917
   
NET ASSETS AT THE END OF THE PERIOD/YEAR 182,223,884 281,347,810
 
Statement of Changes in Net Assets
(in USD)
   
  For the Period Ended Year Ended
September 30th, 2008 March 31st, 2008
 
Net Assets at the Beginning of the Period/Year 281,347,810 296,100,917
Net investment income 4,017,636 13,369,747
Net realized gain on sale of securities 4,615,768 19,328,027
Net realized gain/loss on foreign exchange -2,795,915 844,529
 
Net realized gain for the Period/Year 5,837,489 33,542,303
 
Change in unrealized loss on securities -97,806,366 -48,294,367
Change in unrealized loss on foreign exchange -2,114,007 -1,043
 
Repurchase of Shares -5,041,042 -
   
Net Assets at the End of the Period/Year 182,223,884 281,347,810
 
 
 
Statistical Information about the Fund
(in USD)
 
 
September 30th, 2008 March 31st, 2008 March 31st, 2007
 
Total Net Assets 182,223,884 281,347,810 296,100,917
Net Asset Value per Share 30.26 45.66 48.05
 
 
 
Statement of Changes in Shares Outstanding
For the Period Ended September 30th, 2008
 
 
Number of Shares Outstanding at the Beginning of the Period 6,161,735
 
Number of Shares redeemed (140,000)
 
Number of Shares Outstanding at the End of the Period 6,021,735
 
Statement of Investments and Other Net Assets
September 30th, 2008
(in USD)
         
                     
Currency Shares Description Cost Market value % of
total net
                    assets
 
INVESTMENTS IN SECURITIES
 
TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGE LISTING
 
Common Stocks
HKD 3,310,000 China Merchants China Direct 7,660,390 5,882,664 3.23
HKD 3,006,000 China Everbright Ltd 3,064,305 4,653,293 2.55
HKD 6,083,000 First Pacific Co 4,533,333 3,196,281 1.75
HKD 655,000 Citic Pacific Ltd 3,626,292 1,881,105 1.03
HKD 18,020,250 Sinolink Worldwide Holdings 2,836,682 1,717,353 0.94
HKD 19,722,162 Enerchina Holdings Ltd 738,952 426,708 0.24
HKD 583,000 Fosun International 695,382 200,469 0.11
23,155,336 17,957,873 9.85
 
SEK 713,800 Investor AB B 10,105,122 13,118,670 7.20
 
EUR 123,131 Eurazeo 4,564,423 10,244,622 5.62
 
GBP 61,400 Equest Investments Balkans Ltd 1,098,872 859,635 0.47
GBP 475,000 Dolphin Capital Investors Ltd 832,280 671,361 0.37
GBP 465,165 Clean Energy Brazil Plc 884,858 450,712 0.25
2,816,010 1,981,708 1.09
 
USD 997,500 Tau Capital Plc 997,500 596,006 0.33
     
Total Common Stocks 41,638,391 43,898,879 24.09
 
Closed-End Funds
USD 870,600 John Hancock Tax-Advantaged Dividend Income Fund 16,031,245 9,811,662 5.38
USD 308,500 Morgan Stanley China A Share Fund Inc 12,102,609 8,900,225 4.88
USD 561,261 Gabelli Dividend & Income Trust 10,554,016 7,734,177 4.24
USD 564,000 Swiss Helvetia Fund Inc 7,851,647 7,066,920 3.88
USD 425,396 Emerging Markets Telecommunications Fund 5,744,109 6,414,972 3.52
USD 593,137 New Germany Fund Inc 8,056,229 6,346,566 3.48
USD 476,500 Neuberger Berman Dividend Advantage Fund Inc 10,437,667 6,308,860 3.46
USD 377,655 MS Asia Pacific Fund Inc 4,736,521 5,056,800 2.78
USD 956,564 Dreman/Claymore Dividend & Income Fund 14,637,079 4,983,698 2.74
USD 166,371 Mexico Fund Inc 5,496,269 4,159,275 2.28
USD 442,800 Gabelli Global Multimedia Trust Inc 4,037,750 3,219,156 1.77
USD 100,000 Central Europe and Russia Fund Inc 4,248,468 3,069,000 1.68
USD 221,200 MS Emerging Markets Fund Inc 2,246,194 2,904,356 1.59
USD 159,200 Gabelli Global Deal Fund 2,496,152 2,231,984 1.22
USD 153,861 LMP Capital and Income Fund Inc 2,691,853 1,778,633 0.98
USD 140,369 Cohen & Steers REIT and Utility Income Fund Inc 2,817,596 1,760,227 0.97
USD 52,320 China Fund Inc 1,857,218 1,394,328 0.77
USD 170,400 Korea Equity Fund Inc 2,251,364 1,354,680 0.74
USD 1,317,000 Advance Frontier Markets Fund Ltd 1,317,000 1,040,430 0.57
USD 85,654 Clough Global Opportunities Fund 1,344,971 1,032,131 0.57
USD 58,075 Korea Fund Inc 1,935,484 889,128 0.49
USD 47,576 Latin America Discovery Fund Inc 486,503 846,853 0.46
USD 1,050,000 Prospect Japan Fund Ltd 2,203,391 703,500 0.39
USD 42,200 H&Q Life Sciences Investors 503,284 446,476 0.25
USD 10,810 JF China Region Fund Inc 250,129 179,446 0.10
126,334,748 89,633,483 49.19
 
GBP 1,780,523 Advance Developing Markets Trust Plc 3,494,294 10,446,162 5.73
GBP 1,452,000 Alliance Trust Plc 8,746,784 7,376,462 4.05
GBP 3,679,400 Throgmorton Trust Plc 6,124,955 6,999,323 3.84
GBP 750,000 JPM Fleming European Fledgeling Investment Trust Plc 6,733,080 6,753,609 3.71
GBP 761,951 BlackRock World Mining Trust Plc 2,909,797 5,645,441 3.10
GBP 952,500 Templeton Emerging Markets Investment Trust Plc 3,164,729 5,313,051 2.92
GBP 793,500 JPM Fleming Emerging Markets Investment Trust Plc 2,564,981 4,775,302 2.62
GBP 1,325,000 Finsbury Technology Trust Plc 3,115,607 4,640,634 2.55
GBP 1,510,000 JPM Fleming Japanese Investment Trust Plc 5,813,931 3,906,026 2.14
GBP 774,000 Foreign & Colonial Investment Trust Plc 2,829,734 3,412,619 1.87
GBP 1,400,000 JPM Fleming Japanese Smaller Companies Investment Trust Plc 9,113,388 3,347,692 1.84
GBP 400,000 Scottish Mortgage Investment Trust Plc 2,427,910 3,264,133 1.79
GBP 270,000 JPM Fleming US Discovery Investment Trust Plc 2,827,231 3,112,927 1.71
GBP 1,899,000 Pacific Assets Trust Plc 1,690,655 2,667,149 1.46
GBP 1,467,850 Edinburgh Small Companies Trust Plc 2,710,777 2,609,618 1.43
GBP 797,700 F&C Private Equity Trust Plc 2,809,915 2,439,289 1.34
GBP 648,000 Polar Capital Technology Trust Plc 2,217,529 1,860,556 1.02
GBP 2,300,000 Fidelity Japanese Values Plc 2,541,655 1,788,962 0.98
GBP 779,900 International Biotechnology Trust Plc 1,463,895 1,740,115 0.95
GBP 500,000 Oryx International Growth Fund Ltd 1,828,471 1,706,736 0.94
GBP 1,200,000 Schroder Japan Growth Fund Plc 1,640,920 1,477,394 0.81
GBP 229,000 F&C Global Smaller Co Plc 651,345 1,397,466 0.77
GBP 425,000 INVESCO Perpetual European Absolute Return Trust Plc 1,166,685 1,027,598 0.56
GBP 650,000 Perpetual Japanese Investment Trust Plc 590,784 583,579 0.32
GBP 1,075,239 RAB Special Situations Co Ltd 3,164,659 535,252 0.29
GBP 100,000 Herald Investment Trust Plc 795,497 465,797 0.26
GBP 265,000 RCM Technology Trust Plc 157,863 103,649 0.06
GBP 31,213 3I European Technology Trust Plc 9,909 0 0.00
83,306,980 89,396,541 49.06
 
AUD 7,435,950 Biotech Capital Ltd 2,304,861 852,058 0.47
Total Closed-End Funds 211,946,589 179,882,082 98.72
 
Undertakings for Collective Investment
USD 84,851 Martin Currie Absolute Return Funds Ltd China 999,998 1,955,940 1.07
USD 100,000 Advance Umbrella Fund Plc Emerging Markets A 1,003,750 1,477,000 0.81
2,003,748 3,432,940 1.88
 
GBP 20,800 F&C Event Driven Ltd 28,838 22,557 0.01
Total Undertakings for Collective Investment 2,032,586 3,455,497 1.89
 
Warrants and Rights
USD 263,400 Advance Frontier Markets Fund Ltd 0 27,657 0.02
 
GBP 126,250 Clean Energy Brazil Plc 0 19,079 0.01
Total Warrants and Rights 0 46,736 0.03
 
OTHER TRANSFERABLE SECURITIES
 
Closed-End Fund
USD 195,906 Italy Fund Inc 0 0 0.00
Total Closed-End Fund 0 0 0.00
     
TOTAL INVESTMENTS IN SECURITIES 255,617,566 227,283,194 124.73
 
CASH AT BANKS 4,790,277 2.63
 
OTHER NET ASSETS/LIABILITIES -49,849,587 -27.36
   
TOTAL NET ASSETS 182,223,884 100.00
 

Notes to the Financial Statements

September 30th, 2008

NOTE 1 - GENERAL

The World Trust Fund (the “Fund”) is an investment company with limited liability organized as a « société anonyme » under the laws of the Grand Duchy of Luxembourg and Article 72-3 of the law of August 10th, 1915 regarding commercial companies. The Fund is governed by section II of the Luxembourg amended law of December 20th, 2002 (the Luxembourg amended law of March 30th, 1988 until February 13th, 2004) for Collective Investment Undertakings.

The Fund has been incorporated in Luxembourg on June 20th, 1991 for an unlimited duration. The Fund’s Articles of Incorporation (the “Articles”) have been published in the “Mémorial, Recueil des Sociétés et Associations” and they have been filed with the Registrar of the Luxembourg District Court, where copies thereof may be obtained. In addition, a legal notice concerning the issue of the Shares is on file with the Registrar of the Luxembourg District Court.

The Fund’s investment objective is to achieve long term capital appreciation through investments in closed-end funds whose shares are listed or traded on international exchanges and at a discount to net asset value.

NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES

a) Presentation of Accounts

The financial statements are presented in conformity with the legal and regulatory requirements in Luxembourg relating to investments funds. The Fund keeps its books and records in USD.

b) Valuation

1) The Net Asset Value (the “NAV”) per Share is calculated in accordance with Article 22 of the Articles on each Valuation Date (as defined in the Articles).

The NAV per Share is determined by dividing the Net Assets of the Fund, being the value of its assets less liabilities, by the number of Shares then in issue.

2) In calculating the NAV, income and expenditure are treated as accruing from day to day and the Articles provide, inter alia, that:

(i) securities which are quoted or dealt in on any stock exchange or other regulated market are valued at the settlement or closing price on the last full business day on which such exchange or market is open for trading preceding the applicable Valuation Date;

(ii) if securities are quoted, listed, traded or dealt in on more than one stock exchange or regulated market, the Board of Directors (the ”Board”) may select for the purposes of valuation the stock exchange or regulated market which they consider provides the fairest criterion of value for the relevant securities;

(iii) if securities, including closed-ended funds, are not quoted or dealt in on any stock exchange or regulated market or if, with respect to securities quoted or dealt in on any stock exchange or dealt in on any regulated market, the price as determined pursuant to paragraph (i) above is in the opinion of the Board, not representative of the fair market value of the relevant securities, the value of such securities will be determined by reference to their reasonably foreseeable sales price determined prudently and in good faith by and under the direction of the Board;

(iv) securities issued by any underlying open-end undertaking for collective investment are valued at their last available price or net asset value, as reported or provided by such undertaking or their agents.

3) Purchases of securities are recorded at cost. Realized gains or losses on securities sold are computed on an average cost basis.

4) The value of cash in hand or on deposit, bills and notes payable on presentation, accounts due, prepaid expenses and dividends and interest declared and fallen due but not yet received generally consists of the nominal value of such assets. However, in the event that it seems improbable that such value can be realized, the value is determined by deducting a sum which the Board considers appropriate to reflect the realisable value of such assets.

5) Foreign currencies: Monetary assets and liabilities denominated in foreign currencies in the Statement of Net Assets are translated into USD at the rates of exchange ruling at the date of the report. Transactions in foreign currencies are recorded in USD based on the exchange rates applicable at the date of the transaction.

The following significant exchange rates have been applied for the conversion as of the date of the report:

        USD
1 AUD Australian Dollar 0.790250209
1 EUR Euro 1.407800340
1 GBP Pound Sterling 1.777850472
1 HKD Hong Kong Dollar 0.128785488
1 SEK Swedish Krona 0.144429360
 

c) Income Recognition

Interest and dividend income is recorded on an accrual basis, net of any withholding taxes in the relevant country.

NOTE 3 - MANAGEMENT AND PERFORMANCE RELATED FEES

The Manager is entitled to receive a fee at the rate of 0.75% per annum calculated each quarter on the basis of the average weekly NAV during the relevant quarter and paid quarterly.

At each fiscal year end the appreciation over the previous 2 year period of the Fund and the MSCI World Index with net reinvested dividends shall be calculated and converted into a per annum rate. If the rate of appreciation of the Fund so calculated (the ‘Actual Rate’) exceeds by more than 5% the rate of appreciation of the MSCI World Index so calculated (the ‘Reference Rate’), the Manager shall be entitled to a performance fee calculated by multiplying the NAV at the beginning of the 2 year period by:

(i) 5% of the excess over 5% and up to 10% of the Actual Rate over the Reference Rate, and

(ii) 10% of the excess, if any, over 10% and up to 15% of the Actual Rate over the Reference Rate, and

(iii) 15% of the excess, if any, over 15% and up to 20% of the Actual Rate over the Reference Rate, and

(iv) 20% of the excess, if any, over 20% of the Actual Rate over the Reference Rate and adding together the result, subject to the Reference Rate over the period being positive.

Out of its fees, the Manager will pay its own expenses and those of any investment advisers retained by it.

NOTE 4 - TAXES

As a Luxembourg investment company, under present laws the Fund is not subject to income taxes in Luxembourg. Irrecoverable taxes may be withheld at the source on dividends and interest received on investment securities.

According to the law of December 20th, 2002, the Fund is subject to Luxembourg subscription duty (“taxe d’abonnement”) at the rate of 0.05% per annum of its Net Assets, such tax being payable quarterly on the basis of the Total Net Assets of the Fund at the end of the relevant quarter.

However the value of investments in other investment companies already subject to Luxembourg subscription duty is no longer subject to this tax.

NOTE 5 - REPURCHASES OF SHARES

During the period under review the Fund made the following repurchases of shares:

1. 16 July 2008 – 90,000 shares at US$36.5 per share; and

2. 22 August 2008 – 50,000 shares at US$35 per share.

The shares bought back by the Fund were cancelled.

At an extraordinary general meeting (“EGM”) of the Fund held on 27 June 2008, the Fund was granted the authority to make market purchases of up to 10 per cent. of its issued share capital. Three further resolutions were proposed at this EGM, but since the requisite quorum was not obtained, a second EGM was held on 31 July 2008, at which the following resolutions were proposed and duly passed:

1. reducing the Fund’s share capital by cancelling the ordinary shares held in treasury and amending the articles of association (“Articles”) accordingly;

2. amending Article 20 of the Articles in order to comply with the Listing Rules and the price at which ordinary shares may be bought back by the Fund; and

3. amending the Articles in order to reflect a number of updates to the Luxembourg law of 10 August 1915 concerning commercial companies.

NOTE 6 - CAPITAL

The Fund was incorporated with an authorised Share capital of USD 30,000,000 represented by 15,000,000 Shares of a par value of USD 2 each.

The initial subscribed capital amounted to USD 45,000 and was represented by 4,500 Units (each Unit consists of five Shares and one Warrant).

All Units have been fully paid in cash of USD 45,000 together with total issue premiums of USD 180,000.

On September 27th, 1991 the Board decided to increase the capital to USD 17,777,490 by the issue of 8,888,745 additional Shares and 1,773,249 additional Warrants attached thereto, against payment in cash of a total of USD 17,732,490 and a total Share premium of USD 66,496,838. This increase was approved by notarial deed dated October 18th, 1991.

The Warrant holders could exercise their subscription rights in any of the years 1996 to 2001 inclusive. Each Warrant gave the right to subscribe to one Share at a price of USD 10.

By a resolution of the meeting of the Board dated June 6th, 2002, the Board decided to increase the capital by creation of 442,993 new Shares of USD 2 each, with a Share premium of USD 3,543,944. All the 442,993 Shares had been entirely subscribed and fully paid in cash, so that the amount of USD 4,429,930 is available to the Fund.

The balance of the Warrants had been converted into Shares in accordance with the prospectus.

The Fund is required by Luxembourg law to transfer 5% of its yearly net profits to a non distributable legal reserve until such reserve amounts to 10% of the Fund’s nominal Share capital, this reserve is not available for dividend distribution.

NOTE 7 - CUSTODIAN FEES

The Custodian receives, under the terms of the Custodian Agreement, fees for its services at rates to be agreed from time to time between the Fund and the Custodian in accordance with Luxembourg practice.

NOTE 8 – DIRECTORS’ FEES AND EXPENSES

Each of the Directors shall be paid a fee for his services at such a rate (if any) as the Board shall determine provided that the aggregate of such fees shall not exceed USD 500,000 per annum (in respect of the resolution of the Annual General Meeting held on August 19th, 2008) or such higher amount as may from time to time be determined by the Shareholders in General Meeting.

The Directors may also be paid all reasonable travelling, hotel and other expenses properly incurred by them in the course of their duties relating to the Fund.

The fees accrued by each Director for the 6 months period ended September 30th, 2008 were as follows:

Duncan Budge   £ 12,500
James A. Cave £ 12,500
John M. Hignett £ 12,500
Philip R. McLoughlin £ 15,000
Jeremy W. Sillem £ 17,500
Alexander E. Zagoreos £ 12,500
Walter A. Eberstadt, OBE $ 7,500 *
 

* Consultancy fees to Chairman Emeritus.

NOTE 9 - COMMITMENTS

Occasionally, the Fund will hedge its currency exposure against the U.S. dollar. This will be done in expectation of the U.S. dollar strengthening against other currencies, and only for hedging purposes.

As of the date of the report, the Fund was engaged in the following forward exchange contracts:

Forward Exchange Contracts   Unrealised appreciation/depreciation
 
Sale EUR 8,193,158 / Purchase USD 11,457,148 USD -117,609
Maturity November 13th, 2008
 
Sale USD 11,556,286 / Purchase EUR 8,193,158 18,472
Maturity November 13th, 2008
 
Sale GBP 61,134,614 / Purchase USD 106,788,110 -2,333,144
Maturity November 13th, 2008
 
Sale USD 108,597,083 / Purchase GBP 61,134,614 524,170
Maturity November 13th, 2008
   
Total Net Unrealized Depreciation on Forward Exchange Contracts USD -1,908,111
 

As of the date of the report, the Fund was not engaged in any outstanding currency option.

NOTE 10 - SECURITIES LENDING

As of the date of the report, the Fund had no securities lending facility in place.

NOTE 11 - COLLATERAL

The Fund has provided cash collateral to UBS as the prime broker, in respect of short positions. The value of the collateral amounted to USD 103,544. The Fund has the facility to deposit investments with UBS to be used as cash collateral for short positions.

NOTE 12 - BENEFICIAL AND NON-BENEFICIAL INTEREST OF THE DIRECTORS AND RELATED

PARTIES IN THE SHARE CAPITAL

As of the date of the report, the beneficial and non-beneficial interests of the Directors and related parties in the Share capital are the following:

  Beneficial

Shares

  Non-Beneficial

Shares

Duncan Budge 0 0
James A. Cave 0 0
John M. Hignett 38,100 0
Philip R. McLoughlin 0 0
Jeremy W. Sillem 12,300 2,540
Alexander E. Zagoreos 57,755 0
Kun Deng (Manager) 20,270 0
 
Chairman Emeritus
Walter A. Eberstadt, OBE 28,500 28,500
 

NOTE 13 - DIRECTORS’ INTEREST IN SIGNIFICANT CONTRACTS

Alexander E. Zagoreos is a Senior Advisor to Lazard Asset Management LLC. Walter A. Eberstadt was a limited Managing Director of Lazard Frères & Co. LLC through December 31st, 2005. Mr. Eberstadt is the Chairman Emeritus of the Fund and provides consultancy services to the Fund.

NOTE 14 - SUBSTANTIAL SHAREHOLDING

As of the date of the report, the Board was aware of the following interests in the Shares of the Fund:

 

Shares

  Percentage

of Issued Capital

Clients of Lazard Frères & Lazard Asset Management

2,009,397

32.61%

RIT Capital Partners Plc* 1,169,880 18.99%
Lehman Brothers International (Europe) 444,323 7.21%
 

All issued Shares of the Fund are on deposit with a registered clearing house and, accordingly, with the exception of those Shareholdings of which the Board has been notified, the Board is not in a position to state the exact size of any Shareholdings in the Fund.

* Duncan Budge is a Director of RIT Capital Partners Plc.

NOTE 15 - CHANGES OF THE INVESTMENT PORTFOLIO

The changes of the investment portfolio referring to the period of the report are available at the registered office of the Fund without any fee.

NOTE 16 - TAXATION OF INTEREST INCOME (SAVINGS DIRECTIVE)

In accordance with the circular resolution of June 30th, 2005, the Board confirms the fiscal status of the Fund as out of the scope of the European Directive 2003/48/EC on taxation of savings income in the form of interest payments.

NOTE 17 – TOTAL EXPENSE RATIO (TER)

For the period ended September 30th, 2008, the TER was calculated using the following formula:

Total operation expenses / Average net assets X 100 = TER% / 2

where:

  • the operating expenses represent expenses recorded on the Statement of Operations
  • the average net assets represent the arithmetic mean of the total net assets over the period
  • transaction costs and any other costs incurred in connection with currency hedging are not included in the TER
          TER without Performance Fees       TER with Performance Fees*
1.24% 1.24%

* As of the date of the report, the Fund had not accrued any Performance Fees.