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World Trust Fund (WTR)

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Wednesday 01 December, 2010

World Trust Fund

Half-yearly Report

Half-yearly Report

World Trust Fund

The World Trust Fund
Organization of the Fund
     
 
Chairman
 
PHILIP R. McLOUGHLIN 200 Bridge Street
(appointed on August 17th, 2010, Chatham, MA 02633 U.S.A.
previously Chairman of the Audit Committee)
 
 
JEREMY W. SILLEM 15 St. James’s Place
(retired on August 17th, 2010) London, SW1X 8AS, U.K.
 
 
Directors
 
DUNCAN BUDGE * 27 St. James’s Place
London, SW1A 1NR, U.K.
 
JAMES A. CAVE *†† 25 Hill Street
London, W1J 5LW, U.K.
 
JOHN M. HIGNETT ** Via Privata A. Bifani 3,
I-16038 Santa Margherita, Italy
 
ALEXANDER E. ZAGOREOS Jermain Hill Lane
Eagle Bridge, NY 12057 U.S.A.
 

Registered Office

Domiciliary, Registrar, Transfer

and Administrative Agent

 
State Street Bank Luxembourg S.A. State Street Bank Luxembourg S.A.
49, avenue J.F. Kennedy 49, avenue J.F. Kennedy
L-1855 Luxembourg L-1855 Luxembourg
 
Manager Independent Auditor
 
Lazard Asset Management LLC Deloitte S.A.
30 Rockefeller Plaza 560, rue de Neudorf
New York, NY 10112 U.S.A. L-2220 Luxembourg
 
Custodian, Listing and Paying Agent Financial Adviser and Broker
 
State Street Bank Luxembourg S.A. Arbuthnot Securities Limited
49, avenue J.F. Kennedy Arbuthnot House
L-1855 Luxembourg 20 Ropemaker Street
London EC2Y 9AR, U.K.
Chairman Emeritus
 
Walter A. Eberstadt, OBE
1035 Fifth Avenue, #16B
New York, NY 10028 U.S.A.

* Member of the Audit Committee

** Chairman of the Audit Committee, appointed on August 17th, 2010

Member of the Nominations Committee

†† Chairman of the Nominations Committee

 
The World Trust Fund
General Information
  • Unaudited semi-annual reports and audited annual reports are made available at the Registered Office of the Fund and are mailed to each registered Shareholder.
  • The Annual General Meeting of Shareholders is 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.
  • 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.
  • A dividend has not been paid since the Fund’s inception.
  • The Net Asset Value per Share is expressed in US Dollars (“USD”) and, since October 30th, 2009, the Fund’s shares are traded in Pounds Sterling (‘’GBP’’). For information purposes only, the Fund’s Net Asset Value per Share is, since October 30th, 2009, also reported in its GBP equivalent.
  • 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.
 
The World Trust Fund
Responsibility Statement

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

  • 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 as at September 30th, 2010 and for the financial period then ended; and
  • the Manager’s Review includes a fair review of the development and performance of the business and the position of the Fund, together with a description of the principal risks and uncertainties that it faces.

By order of the Board

Philip R. McLoughlin

Chairman

November 2010

 
The World Trust Fund
Chairman’s Statement

I am honored to have been elected Chairman of the Board of The World Trust Fund to succeed Jeremy Sillem, who retired after many years of service. On behalf of the Board, I want to thank Jeremy for his leadership and service to the Fund.

I would also like to advise you that John Hignett has been elected to replace me as Chairman of the Audit Committee. Furthermore, the Board has elected Howard Myles as a Director of the Fund, subject to the approval of the shareholders at an upcoming EGM. Howard has been closely involved with investment companies for many years, at UBS Warburg and, most recently, at Ernst & Young, where he was the head of the Investment Funds Corporate Advisory team until 2007. He serves currently as Chairman or non-executive director of a number of other investment companies.

As you will see from the Manager’s Review which follows, for the past six months the Fund has outperformed its benchmark, the MSCI All Country World Index. While we are encouraged by this performance, the investment environment continues to be unsettled and therefore challenging to portfolio managers. We believe that the Fund’s investment strategies are well-suited to take advantage of opportunities in the markets in which it invests. I would also note that the new discount control mechanism is now in effect and is being closely monitored by the Board.

I look forward to my role as Chairman of the Fund. While I am new to this position, I have been a member of the Board for some time. I would welcome any correspondence from shareholders regarding the Fund.

Philip R. McLoughlin

Chairman

November 2010

 
The World Trust Fund
Investment Policy
  • Investment Strategy and Asset Allocation:
    • The Fund’s primary investment objective is to achieve long-term capital appreciation, primarily through investments in closed-end funds, investment trusts, holding companies, and other similarly traded companies whose shares are listed or traded on international exchanges, and generally at a discount to net asset value.
    • It is expected that a significant portion of the Fund’s assets will be invested in shares of closed-end funds and investment trusts.
    • The Fund typically invests in closed-end fund and investment trusts trading at a discount to their net asset value and then seeks to actively encourage boards and managements to take steps to enhance shareholder value.
    • The Fund continuously monitors potential and existing holdings, in addition to the overall macro-economic environment.
  • Risk Diversification:
    • The Fund seeks to provide broad exposure to the markets through holding a diversified portfolio of investment companies, including closed-end funds, investment trusts, holding companies and similarly traded companies. The Fund seeks to take a constructive and active role to help to reduce the discount at which the shares of the underlying companies trade.
  • Gearing and Hedging:
    • The Fund may use gearing (the ability to borrow). Presently, the Fund is not using any gearing, although the Board has authorized the Manager to use gearing in an amount not to exceed 15% of the Fund’s Net Asset Value. In the future, the Board may determine to increase the amount of gearing that the Manager is authorized to use to an amount not to exceed 25% of the Fund’s Net Asset Value. Shareholders should note that although gearing increases the possibilities for profit, it also increases the risk of losses.
    • The Fund is permitted to seek to hedge long positions by selling short stock indices, stocks, and shares of exchange-traded funds or closed-end funds. However, at this time, the Board has not authorized the Manager to use any such hedging techniques, although it may do so in the future. Shareholders should note that the use of such techniques involve risks, including the risk of a complete loss of value of short position.

Principal Risks and Uncertainties

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, may affect the success of the Fund.

The Fund invests in equity securities. The value of the Fund will be affected by changes in the market price of those securities. The securities business is speculative, prices are volatile and market movements are difficult to predict. The price of a stock is affected by individual company developments or sector specific events, and by general economic and financial conditions in those countries where the issuer of the stock is located or where the stock is listed for trading.

Certain underlying funds invest in Emerging Market securities. The securities markets of Emerging Market countries can be extremely volatile. The Fund’s performance will be influenced by political, social and economic factors affecting companies in Emerging Market countries. Emerging Market countries can generally have economic structures that are less diverse and mature, and political systems that are less stable, than those of developed countries.

The Fund primarily invests in closed-end funds and investment trusts. The shares of such funds may trade at prices at, below, or above their net asset value. There is no guarantee that a fund’s discount will ever be narrowed or eliminated. An investment in either type of fund is indirectly subject to all the risks associated with the investments made by the funds themselves.

The Fund may leverage its investment positions by borrowing funds from securities broker-dealers, banks or others. Such leverage increases both the possibilities for profit and the risk of loss.

The Fund may take short sale positions. Short selling can, in some circumstances, substantially increase the impact of adverse price movements on the Fund's portfolio. A short sale creates the risk of a theoretically unlimited loss, in that the price of the underlying security could theoretically increase without limit, thus increasing the cost to the Fund of buying securities to cover the short position.

The World Trust Fund
Manager’s Review

For the six months from April 1st, 2010 to September 30th, 2010

Performance

For the six months ended September 30th, 2010, the Fund’s net asset value rose 5.3%, versus a gain of 0.5% in the Fund’s benchmark, the MSCI All Country World Index. The Fund’s share price, as traded on the London Stock Exchange, rose 6.2%. Both are measured in U.S. Dollar terms.

The main contributing factors to the Fund’s out-performance were:

Security Selection

The Fund’s investments in North America, Europe, emerging markets, and global regions outperformed relevant indexes.

Geographic Allocation

The Fund had approximately 35% invested in emerging markets, which performed strongly. The Fund was significantly underweight the U.S., which helped the overall performance, as the U.S. market was down during the period. The Fund’s underweight position in Japan also helped, as the Japanese market lost 4.6%.

Restructuring and Corporate Events

Restructurings and corporate events at several major holdings helped create additional value. These events, some of which are detailed on page 11, include company restructuring, disposal or listing of underlying assets, increased dividend distribution, share buybacks and tender offers. In the case of tender offers, the Fund was able to redeem portions of its investments at or close to NAV, typically at a price substantially higher than that traded on the market.

Performance Chart: April 1st, 2010 to September 30th, 2010

[Graph omitted]

The performance chart above shows the growth of $100 invested in each component, starting with $100 on April 1 2010 and ending with the displayed value on September 30th, 2010.

Performance to September 30th, 2010
            Annualized Returns
  6 Months 1-Year 3-Year   5-Year   10-Year
           
World Trust Fund Price £ 2.6% 17.1% -11.0% -0.6% 2.1%
World Trust Fund NAV £ 1.5% 14.7% -10.2% 0.3% 1.2%
           
World Trust Fund Price $ 6.2% 14.8% -18.5% -2.9% 2.8%
World Trust Fund NAV $ 5.3% 12.9% -17.8% -2.9% 2.0%

 

         

MSCI All Country World Index

 

MSCI World Index

0.5%

 

-0.6%

8.4%

 

6.8%

-7.5%

 

-8.3%

2.4%

 

1.3%

1.6%

 

0.8%

MSCI Emerging Markets Index

8.4%

20.2%

-1.48%

12.7%

13.4%

S&P 500 Index -1.4% 10.2% -7.2% 0.6% -0.4%

  Sept. 30th,   Fiscal Years Ending March 31st
2010 2010   2009**   2007**   2005**
     
Share Price (£) £1.80 £1.76 £1.04 £2.22 £1.53
Share Price ($)* $2.83 $2.66 $1.49 $4.38 $2.89
NAV($)* $3.19 $3.03 $1.77 $4.81 $3.23
NAV (£) £2.03 £2.00 £1.23 £2.44 £1.71
Discount to NAV* -11.30% -12.20% -15.50% -8.90% -10.70%

*Shown in U.S. Dollars and, since the conversion of UK Listing to £ on October 30th, 2009, converted using Foreign Exchange rate used by the Administrator.

** Split adjusted. Shares split on a 10 for 1 basis on February 3rd, 2010.

The Portfolio

The Fund seeks attractive investments around the world. Regional and country allocations are the result of our bottom-up stock selection process which is focused on identifying companies that trade at compelling discounts and own assets that are attractively valued.

Top 10 holdings (as of September 30th, 2010)  
Weight
First Pacific 6.9%
China Everbright Ltd 6.8%
Eurazeo 4.6%
New Germany Fund 4.6%
JPMorgan European Smaller Companies Inv Trust 4.6%
China Merchants China Direct Investments Ltd 3.9%
Swiss Helvetia Fund 3.8%
Gabelli Global Deal Fund 3.5%
JPMorgan Emerging Markets Inv Trust 3.4%
Advance Developing Markets Fund Ltd 3.3%

Total (Top 10)

45.4%

The list below shows the top five contributors and detractors to performance over the six-month period ended September 30th, 2010:

Contribution to NAV Returns – Top 5 Investments

Company   Contribution   Avg. % Portfolio
First Pacific +2.4% 5.8%
New Germany Fund +0.7% 4.3%
JPMorgan Emerging Markets Inv Trust +0.5% 3.1%
ASA Ltd +0.5% 2.3%
Aberdeen Emerging Markets Telecommunication +0.4% 3.1%

First Pacific, the Fund’s largest holding, was the greatest contributor to performance. It is a holding company listed in Hong Kong, with underlying businesses in telecommunications, consumer foods, mining, and infrastructure in Philippines and Indonesia. The stock rose 43% during the period.

Contribution to NAV Returns – Bottom 5 Investments

Company   Contribution   Avg. % Portfolio
China Everbright Ltd. -0.8% 7.3%
Eaton Vance Global Opportunities Fund -0.4% 1.4%
JPMorgan Japan Smaller Companies Trust -0.3% 1.8%
BioTech Capital Ltd -0.2% 0.7%
China Merchants China Direct Investments Ltd -0.2% 4.1%

Diversification

[Graph omitted]

Top 5 Country Weightings as of September 30, 2010

Country

  % World Trust Fund   % MSCI AC World Index
United States 16.6% 41.8%
China 13.6% 2.5%
Japan 6.8% 8.5%
U.K. 6.7% 8.6%
Philippines 5.4% 0.1%

The Fund’s regional and country allocations will vary, often significantly, from that of the benchmark. These variances are driven by the bottom-up stock selection process followed by the Fund and the fact that the Fund is managed in a benchmark agnostic fashion.

Portfolio Hedging

There was no portfolio hedging during the period.

Corporate Events & Restructuring

The investment strategy of the Fund is to invest in companies trading at discounts and then actively encourage boards and managements to enhance shareholder value through restructuring and certain corporate events. Some of the successful corporate events in which Lazard played an active role during the six-month period were as follows.

  • First Pacific – The Company announced its intention to pay out 25% of recurring earnings in the form of dividends, and a buyback program of $130 million.
  • ASA Limited – The Company announced a plan to conduct tenders should the average discount exceeded 10% in any 12-week period.
  • China Everbright – China Everbright Bank, in which China Everbright has a significant stake, had a successful IPO in August 2010.
  • New Germany Fund – In July 2010, the Board announced a plan to conduct four tenders should the average discount exceeded 10% in any 12-week period. Plans for share buybacks were also announced.
  • Gabelli Global Multi-media Fund – In April the company announced a dividend distribution policy of 10%. A dissident director was elected to the Board.
  • Advance UK Trust – The Trust is in the process of being liquidated.
  • Sunamerica Focused Alpha Growth Fund and Sunamerica Focused Alpha Large Cap Fund– Each Fund announced its intention to conduct tender offers.
  • Taiwan Fund – HSBC was terminated and Martin Currie was appointed as the new manager.
  • Emerging Markets Telecom – The Company broadened its investment focus to include infrastructure. The Board also announced a tender plan.

Discounts

The Fund is listed on the London Stock Exchange and traded at an average discount of 11.2% during the 6-month period, ranging from a high of 13.3% to a low of 7.9%. At the end of the period, the Fund traded at a discount of 11.3%.

The Fund’s underlying investments traded at an average discount of 19%. When combined with World Trust Fund’s discount of 11.3%, the look-through discount was 30.3% at the end of the period, indicating that every $1 invested in the Fund is effectively worth $1.39 in assets.

Outlook and Update

The post financial crisis world continues to be challenging. As of this writing, the South Korea and North Korea are in the midst of renewed armed tensions. In Europe, the Irish debt crisis continues to cause uncertainty, and the Euro’s sustainability as a regional currency is in question. In China, monetary tightening is being accelerated. Given the uncertain macro environment, we are nevertheless cautiously optimistic. Companies worldwide are performing quite well operationally, with robust profitability. Positive ‘mega trends’ such as urbanization, favorable demographics and domestic demand growth in emerging markets are encouraging.

Over the past 19 years, the Fund has followed a simple strategy which has created value for shareholders – investing in companies trading at compelling discounts that own attractive underlying holdings. Today, this investment strategy has led the Fund to invest in opportunities with exposure to countries and regions we find attractive, namely the emerging economies of China and the Philippines as well as developed economies including the USA, Japan and the UK.

For the period from October 1st, 2010 through November 28th, 2010, the Fund gained 2.8%, compared with a rise of 2.6% in the MSCI All Country World Index.

November 2010   Lazard Asset Management
The World Trust Fund
Statement of Net Assets
(in USD)
September 30th, 2010   March 31st, 2010
ASSETS      
Securities portfolio at market value (Cost: USD 167,846,199) 187,630,923 182,908,202
Cash 94,461 3,634
Income receivable on portfolio 330,405 154,515
Receivable on sales of securities 23,798 105,049
Total assets 188,079,587 183,171,400
 
LIABILITIES
Payable on purchases of securities 46,391
Interest payable on bank liabilities 23,416 15,411
Expenses payable 368,286 436,265
Total liabilities 438,093 451,676
Net Assets at the End of the Period/Year 187,641,494 182,719,724
 
Number of Shares outstanding (see Note 6) 58,850,004 60,217,350
 
Net Asset Value per Share in USD (see Note 1) 3.19 3.03
Equivalent Net Asset Value per Share in GBP (see Note 1) 2.03 2.00
 
 
Shareholders’ Equity Represented by
(in USD)              
 
September 30th, 2010 March 31st, 2010
 
Original Capital: 93,317,380 Shares at USD 0.2 (see Note 6) 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 142,960,116 142,896,568
Cost of 2,767,346 Shares held in Treasury (see Note 5) (8,464,023) (5,041,042)
Cost of 31,700,030 Shares cancelled (see Note 6) (48,963,066) (48,963,066)
Total Capital and Reserves 176,283,633 179,643,066
Repurchase of 1,334,756 Warrants (8,631,613) (8,631,613)
Net realized profit for the Period/Year 202,878 63,548
Unrealized appreciation on securities 19,784,724 11,644,814
Unrealized appreciation/depreciation on foreign exchange 1,872 (91)
Total Shareholders’ Equity 187,641,494 182,719,724
The World Trust Fund
Statement of Operations
(in USD)
Period Ended   Period Ended
Sepember 30th, 2010 September 30th, 2009
INCOME        
Dividends, net 2,472,234 1,832,755
Interest on bank accounts 405 803
Total income 2,472,639 1,833,558
 
EXPENSES
Management fees (see Note 3) 659,492 541,444
Directors’ fees and expenses (see Note 8) 176,712 127,937
Professional fees 87,667 65,194
Custodian fees (see Note 7) 59,798 68,687
Central administration costs 53,908 13,104
Taxe d’abonnement (see Note 4) 44,413 40,592
Interest paid 38,305 141,779
Other expenses 83,249 148,467
Total expenses 1,203,544 1,147,204
Net Investment Income 1,269,095 686,354
 
NET REALIZED GAIN/LOSS
- on securities (1,103,356) (521,715)
- on forward foreign exchange contracts (2,908) (12,353)
- on foreign exchange 40,047 (56,095)
Total Net Realized Loss (1,066,217) (590,163)
 
CHANGE IN UNREALIZED GAIN
- on securities 8,139,910 63,700,736
- on foreign exchange 1,963 19,175
Total Change in Unrealized Gain 8,141,873 63,719,911
Result of Operations 8,344,751 63,816,102
The World Trust Fund
Statement of Changes in Net Assets
(in USD)
Period Ended   Year Ended
September 30th, 2010 March 31st, 2010
     
Net Assets at the Beginning of the Period/Year 182,719,724 106,314,152
 
Net investment income 1,269,095 1,678,771
 
Net realized loss on securities (1,103,356) (1,328,099)
Net realized loss on forward foreign exchange contracts (2,908) (70,754)
Net realized gain/loss on foreign exchange 40,047 (216,370)
Total net realized loss (1,066,217) (1,615,223)
 
Change in unrealized gain on securities 8,139,910 76,323,545
Change in unrealized gain on foreign exchange 1,963 18,479
Total change in unrealized gain 8,141,873 76,342,024
 
Repurchase of Shares (3,422,981)
Net Assets at the End of the Period/Year 187,641,494 182,719,724
 
 
Statistical Information about the Fund
(in USD)
 
September 30th, 2010 March 31st, 2010 March 31st, 2009
 
Total Net Assets 187,641,494 182,719,724 106,314,152
Net Asset Value per Share in USD (see Note 1) 3.19 3.03 1.77
Equivalent Net Asset Value per Share in GBP (see Note 1) 2.03 2.00 1.23
 
 
Statement of Changes in Shares Outstanding
For the Period Ended September 30th, 2010 (See Note 6)
 
Number of Shares Outstanding at the Beginning of the Period 60,217,350
 
Number of Shares Repurchased (1,367,346)
 
Number of Shares Outstanding at the End of the Period 58,850,004
The World Trust Fund
Statement of Investments and Other Net Assets
September 30th, 2010 (in USD)
      % of
Market total net
Currency Shares   Description Cost   Value   assets
 
INVESTMENTS IN SECURITIES
 
TRANSFERABLE SECURITIES ADMITTED TO AN OFFICIAL STOCK EXCHANGE LISTING
 
Common Stocks
 
HKD 14,179,600 First Pacific Co 8,998,562 12,884,149 6.87
HKD 5,358,000 China Everbright Ltd 5,822,526 12,734,042 6.78
HKD 3,310,000 China Merchants China Direct Investments Ltd 7,660,390 7,235,299 3.86
HKD 18,020,250 Sinolink Worldwide Holdings Ltd 2,836,682 2,833,501 1.51
25,318,160 35,686,991 19.02
 
EUR 129,287 Eurazeo 4,564,423 8,675,933 4.62
 
PHP 15,160,000 Metro Pacific Investments Corp. 965,978 1,298,886 0.69
 
AUD 7,435,950 Biotech Capital Ltd 2,304,861 1,078,082 0.58
 
USD 997,500 Tau Capital Plc 997,500 379,050 0.20
 
GBP 475,000 Dolphin Capital Investors Ltd 832,280 330,183 0.18
GBP 61,400 Equest Investments Balkans Ltd 1,098,872 38,581 0.02
1,931,152 368,764 0.20
     
Total Common Stocks 36,082,074 47,487,706 25.31
 
Closed-End Funds
 
USD 601,253 New Germany Fund Inc 8,151,186 8,664,056 4.62
USD 564,000 Swiss Helvetia Fund Inc 7,851,647 7,083,840 3.78
USD 471,780 Gabelli Global Deal Fund 5,928,487 6,538,871 3.48
USD 325,396 Aberdeen Emerging Markets Ltd 4,393,812 6,042,604 3.22
USD 430,363 Gabelli Dividend & Income Trust 8,092,595 5,994,957 3.19
USD 377,655 MS Asia Pacific Fund Inc 4,736,521 5,940,513 3.17
USD 447,471 Clough Global Opportunities Fund 4,604,428 5,673,932 3.02
USD 147,069 ASA Ltd 3,155,003 4,456,191 2.37
USD 240,079 SunAmerica Focused Alpha Growth Fund 2,119,083 3,790,847 2.02
USD 442,800 Gabelli Global Multimedia Trust Inc 4,037,750 3,369,708 1.80
USD 81,175 Central Europe and Russia Fund Inc 3,448,694 3,033,510 1.62
USD 154,200 The Taiwan Fund Inc 2,163,426 2,579,766 1.37
USD 177,300 SunAmerica Focused Alpha Large-Cap Fund Inc 1,693,127 2,565,531 1.37
The World Trust Fund
Statement of Investments and Other Net Assets (continued)
September 30th, 2010 (in USD)
        % of
Market total net
Currency Shares   Description Cost   Value   assets
 
Closed-End Funds (continued)
 
USD 71,378 China Fund Inc 2,161,528 2,347,622 1.25
USD 68,066 Mexico Fund Inc 2,248,643 1,720,709 0.92
USD 97,900 Macquarie Global Infrastructure Total Return Fund Inc 1,506,718 1,617,308 0.86
USD 130,350 LMP Capital and Income Fund Inc 2,215,595 1,488,599 0.79
USD 78,483 Cohen & Steers Select Utility Fund Inc 2,124,264 1,249,449 0.67
USD 1,050,000 Prospect Japan Fund Ltd 2,203,391 635,250 0.34
USD 109,500 Liberty All Star Equity Fund 451,102 482,895 0.26
USD 45,543 H&Q Life Sciences Investors 531,001 436,757 0.23
USD 50,919 Vinacapital Vietnam Opportunity Fund Ltd 77,745 77,906 0.04
USD 35,980 Vinacapital Vietnam Opportunity Fund Ltd 55,474 56,309 0.03
73,951,220 75,847,130 40.42
 
GBP 750,000 JPM Fleming European Fledgeling Investment Trust Plc 6,733,080 8,659,583 4.61
GBP 693,500 JPM Fleming Emerging Markets Investment Trust Plc 2,241,732 6,318,629 3.37
GBP 880,523 Advance Developing Markets Trust Plc 1,712,137 6,248,665 3.33
GBP 983,009 Finsbury Technology Trust Plc 2,311,449 4,640,346 2.47
GBP 888,408 Polar Capital Technology Trust Plc 2,770,130 4,387,765 2.34
GBP 1,385,000 JPM Fleming Japanese Investment Trust Plc 4,806,250 3,481,113 1.85
GBP 1,400,000 JPM Fleming Japanese Smaller Companies Investment Trust Plc 9,113,388 2,947,007 1.57
GBP 200,000 Merrill Lynch World Mining Trust Plc 961,336 1,965,195 1.05
GBP 2,300,000 Fidelity Japanese Values Plc 2,541,655 1,806,534 0.96
GBP 779,900 International Biotechnology Trust Plc 1,463,895 1,626,379 0.87
GBP 500,000 Oryx International Growth Fund Ltd 1,828,471 1,551,263 0.83
GBP 797,700 F&C Private Equity Trust Plc 2,809,915 1,547,587 0.82
GBP 1,200,000 Schroder Japan Growth Fund Plc 1,640,920 1,475,075 0.79
GBP 162,950 Herald Investment Trust Plc 1,130,736 1,108,385 0.59
GBP 392,033 Utilico Emerging Markets Ltd 797,462 986,891 0.53
GBP 356,104 Advance Developing Markets Trust Plc 32,148 844,699 0.45
GBP 1,075,239 RAB Special Situations Co Ltd 3,164,659 515,173 0.27
GBP 249,688 Macau Property Opportunities Fund Ltd 418,394 500,099 0.27
GBP 25,000 North Atlantic Smaller Companies Investment Trust Plc 326,715 383,889 0.20
GBP 79,168 The Henderson Smaller Companies Investment Trust Plc 297,984 331,433 0.18
GBP 138,700 JPMorgan Emerging Markets Investment Trust Plc a) 0 287,062 0.15
GBP 265,000 RCM Technology Trust Plc 157,863 166,515 0.09
The World Trust Fund
Statement of Investments and Other Net Assets (continued)
September 30th, 2010 (in USD)
    % of
Market total net
Currency Shares   Description Cost   Value   assets
 
Closed-End Funds (continued)
GBP 280,000 JPMorgan Fleming Japanese Smaller Companies Investment Trust Plc a) 0 131,956 0.07
GBP 275,518 Advance UK Trust Plc a) 0 86,562 0.05
GBP 460,000 Fidelity Japanese Values Plc a) 0 48,776 0.03
GBP 45,606 Throgmorton Trust Plc a) 0 9,672 0.00
47,260,319 52,056,253 27.74
 
     
Total Closed-End Funds 121,211,539 127,903,383 68.16
 
Undertakings for Collective Investment
 
USD 84,851 Martin Currie Absolute Return Funds Ltd China 999,998 2,422,774 1.29
USD 100,000 Advance Umbrella Fund Plc Emerging Markets A 1,003,750 1,717,000 0.91
USD 1,317,000 Advance Frontier Markets Fund Ltd 1,317,000 895,560 0.48
3,320,748 5,035,334 2.68
 
GBP 1,004,992 Dexion Equity Alternative Ltd 1,612,830 1,598,476 0.85
GBP 20,800 F&C Event Driven Ltd 4,702 1,627 0.00
1,617,532 1,600,103 0.85
 
     
Total Undertakings for Collective Investment 4,938,280 6,635,437 3.53
 
 
OTHER TRANSFERABLE SECURITIES
 
Money Market Instrument
 
USD 5,604,397 State Street Institutional Investment Trust 5,604,397 5,604,397 2.99
Total Money Market Instrument 5,604,397 5,604,397 2.99
 
Closed-End Funds
 
GBP 31,213 3I European Technology Trust Plc b) 9,909 0 0.00
 
USD 195,906 Italy Fund Inc c) 0 0 0.00
     
Total Closed-End Funds 9,909 0 0.00
     
TOTAL INVESTMENTS IN SECURITIES 167,846,199 187,630,923 99.99
 
CASH AT BANK 99,487 0.05

 

The World Trust Fund
Statement of Investments and Other Net Assets (continued)
September 30th, 2010 (in USD)
 
OTHER NET ASSETS/LIABILITIES (88,916) (0.04)
   
TOTAL NET ASSETS 187,641,494 100.00
 
a) Subscription shares
b) This security was in liquidation as of May 10th, 2005; may receive liquidation payment in the future.
c) This security was in liquidation as of February 13th, 2003; may receive liquidation payment in the future.
 
The World Trust Fund
Notes to the Financial Statements
September 30th, 2010

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 amended 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 primary investment objective is to achieve long-term capital appreciation, primarily through investments in closed-end funds, investment trusts, holding companies, and other similarly traded companies whose shares are listed or traded on international exchanges, and generally at a discount to net asset value.

The currency in which the Fund’s Shares are traded was changed from USD to GBP on October 30th, 2009.

The equivalent Net Asset Value (‘’NAV’’) per Share in GBP represents the NAV per Share in USD converted with the exchange rate at September 30th, 2010 (Note 6).

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 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 per Share, 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 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-end funds, are not quoted or dealt on any stock exchange or regulated market or if, with respect to securities quoted or dealt on any stock exchange or dealt 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 asset

Note 2 - Significant Accounting Policies (continued)

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 transactions.

The following significant exchange rates have been applied for the conversion as of September 30th, 2010:

      USD
1 AUD Australian Dollar 0.966549650
1 EUR Euro 1.363250316
1 GBP Pound Sterling 1.570899403
1 HKD Hong Kong Dollar 0.128885080

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 daily NAV per Share during the relevant quarter and paid quarterly.

At each fiscal year end, the appreciation over the previous 2 year period of the Fund against the Benchmark 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 Benchmark so calculated (the “Reference Rate”), the Manager shall be entitled to a performance related fee at the rate of:

(i) 5% of the amount by which the NAV per Share has exceeded by 5% or more, but by less than 10%, and

(ii) 10% of the amount by which the NAV per Share has exceeded by 10% or more, but by less than 15%, and

(iii) 15% of the amount by which the NAV per Share has exceeded by 15% or more, but by less than 20%, and

(iv) 20% of the amount by which the NAV per Share has exceeded by 20% or more;

(in each case) per annum the compound growth rate of the Benchmark during the two preceding years, provided that the growth of the Benchmark during such period is positive.

As published in the January 2nd, 2010 circular to all shareholders, an adjustment has been made to the NAV per Share used for the purpose of calculating any performance fee payable in respect of the two-year period starting March 31st, 2008, in order to reflect the Fund’s underperformance of its Benchmark in the period March 31st, 2008 to March 31st, 2009. As such, for calculation of performance fee purposes only, the reference NAV for March 31st, 2009 has been adjusted, from USD 1.77 to USD 2.56.

At an extraordinary general meeting (the “EGM”) of the Fund held on February 2nd, 2010, the proposed change of the Fund’s Benchmark from MSCI World Index to the MSCI All Country World Index was approved. The new Benchmark has been adopted by the Fund from April 1st, 2009. For the period ended September 30th, 2010, there was no performance fee payable by the Fund.

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 amended 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 ended September 30th 2010, the Fund made the following repurchases of its shares, to be held in Treasury:

  • July 12th, 2010 - 270,000 shares at GBP 1.655 per Share
  • July 19th, 2010 - 515,000 shares at GBP 1.64 per Share
  • July 22nd, 2010 - 543,000 shares at GBP 1.88 per Share
  • September 9th, 2010 - 39,346 shares at GBP 1.96 per Share

Note 6 - Capital

The Fund has authorised Share capital of USD 30,000,000 represented by 150,000,000 Shares of a par value of USD 0.2 each.

The initial subscribed capital amounted to USD 45,000 and was represented by 45,000 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.

At an EGM of the Fund held on June 27th, 2008, the Fund was granted the authority to make market purchases of up to 10% 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 July 31st, 2008, at which the following resolutions were proposed and duly passed:

1. reducing the Fund’s Share capital by cancelling the 3,170,003 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.

At an EGM of the Fund held on February 2nd, 2010, the following resolutions were proposed and unanimously passed:

1. subdivision of the Share capital of the Fund so that shareholders receive 10 New Ordinary Shares of nominal value USD 0.2 each in exchange for each existing Share;

2. amending Article 20 of the Articles to reflect the amendments of the Luxembourg law of 10 August 1915 concerning commercial companies in relation to share buy backs;

3. granting the Board authority to repurchase up to 14.99% of the Fund’s issued Share capital, provided that certain conditions are met.

Note 6 - Capital

The Fund has authorised Share capital of USD 30,000,000 represented by 150,000,000 Shares of a par value of USD 0.2 each.

The initial subscribed capital amounted to USD 45,000 and was represented by 45,000 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.

At an EGM of the Fund held on June 27th, 2008, the Fund was granted the authority to make market purchases of up to 10% 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 July 31st, 2008, at which the following resolutions were proposed and duly passed:

1. reducing the Fund’s Share capital by cancelling the 3,170,003 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.

At an EGM of the Fund held on February 2nd, 2010, the following resolutions were proposed and unanimously passed:

1. subdivision of the Share capital of the Fund so that shareholders receive 10 New Ordinary Shares of nominal value USD 0.2 each in exchange for each existing Share;

2. amending Article 20 of the Articles to reflect the amendments of the Luxembourg law of 10 August 1915 concerning commercial companies in relation to share buy backs;

3. granting the Board authority to repurchase up to 14.99% of the Fund’s issued Share capital, provided that certain conditions are met.

From February 3rd, 2010, following the subdivision, the Official List of the Fund’s Share capital amounts to 60,217,350 Ordinary Shares.

Following the repurchases during the period ended September 30th, 2010, the Fund’s issued Share capital consists of 58,850,004 Ordinary Shares with voting rights.

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

Each of the Directors is paid a fee for his services at such a rate as the Board had determined 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 17th, 2010) 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 due to each Director for the period ended September 30th, 2010 were as follows:

 
Duncan Budge £ 12,500
James A. Cave £ 12,500
John M. Hignett £ 14,361
Philip R. McLoughlin £ 15,611
Jeremy W. Sillem £ 13,220
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 USD. This will be done in expectation of the USD strengthening against other currencies, and only for hedging purposes.

As of the date of the report, the Fund was not engaged in any forward exchange contracts or currency options.

Note 10 - Securities Lending

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

Note 11 - 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
Directors
Philip R. McLoughlin

(Chairman )

10,000

-
Duncan Budge - -
James A. Cave - -
John M. Hignett 412,400 -
Alexander E. Zagoreos 577,750 -
 
Chairman Emeritus
Walter A. Eberstadt, OBE 245,000 245,000
 
Manager
Kun Deng, CFA 202,700 -

Note 12 - 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 13 – 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

City of London Investment Management Co. Ltd 12,842,310 21.82%
Clients of Lazard Frères & Lazard Asset Management 10,821,830 18.39%
CCLA Investment Management Ltd 6,000,000 10.20%
Lehman Brothers International (Europe)* 4,443,230 7.55%
1607 Capital Partners LLC 3,067,500 5.21%

*The company has been in administration with PricewaterhouseCoopers since September 15th, 2008.

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.

Note 14 - 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 15 - 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 16 - Total Expense Ratio (TER)

For the period ended September 30th, 2010, the TER was calculated using the following formula:

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

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 from April 1st, 2010 until September 30th, 2010
  • transaction costs and any other costs incurred in connection with currency hedging are not included in the TER

Note 16 - Total Expense Ratio (TER) (continued)

TER without
Performance Fees
  TER with
Performance Fees*
 
1.37% 1.37%

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

Note 17 - Line of Credit Advanced

The Fund has an unsecured USD 25 million Line of Credit Agreement (the “Agreement”) with Citibank, N.A. Interest on borrowings is payable at the Federal Funds rate plus 2.25%, on an annualized basis. Under the Agreement, the Fund has also agreed to pay a 0.25% per annum fee on the amount of the commitment. As of September 30th, 2010, the Fund had no borrowings under the Agreement.

Note 18 – Subsequent Event

Since September 30th, 2010, the Fund has made the following repurchases of its shares, to be held in Treasury:

  • November 19th, 2010 – 50,000 shares at GBP 1.875 per Share
  • November 22nd, 2010 – 60,000 shares at GBP 1.875 per Share
  • November 23rd, 2010 – 120,000 shares at GBP 1.87 per Share

Following these repurchases, the Fund’s issued share capital consists of 58,620,004 Ordinary Shares with voting rights (excluding 1,597,346 Ordinary Shares which are held in Treasury).

Listing Category: Premium - Equity Closed-ended Investment Funds