«Geprüfter Jahresbericht per 29 September 2011 Seiten 1-19 Annual Report and Financial Statements for the year ended 29 September 2011 Pages 20-38 GL ...»
Japanese Yen 76.83 to USD 1 Japanese Yen 120.06 to GBP 1 Cash Flow The Fund is exempted from preparing a cash flow statement by the IMA SORP 2010 as substantially all its investments are highly liquid and carried at fair value, and it prepares a Statement of Change in Net Assets attributable to Unitholders. Consequently, the Fund has not prepared a cash flow statement.
2 Risk Management Policies The Fund's financial instruments comprise derivative and non-derivative investments, cash and liquid resources, issued units and various items such as debtors and creditors that arise directly from the Fund's operations. A substantial part of the Fund's assets are invested in hedge funds. These hedge funds are generally perceived to involve a greater degree of risk than pure equity funds. The Principal Manager may also invest in the Japanese equity markets, which are perceived to be less stable and more volatile than established main markets, such as those in Western Europe and the United States. The main risks arising from the Fund's investments are market price risk, foreign currency risk liquidity risk and credit risk. The Principal Manager may enter directly into hedging transactions in order to mitigate the Fund’s foreign currency risk exposure but not for speculative purposes.
GL Target Funds - Galileo Japan Fund Notes to the Financial Statements (continued)
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation that it has entered into with the Fund. Credit risk is reduced by dealing with reputable counterparties and holding a diversified portfolio. To reduce risk, no more than 20% of the Fund’s net assets will at any one time be invested in one single investment or fund or 30% in any one fund of funds.
The Fund maintains trading relationships with counterparties for foreign currency contracts. These relationships could result in concentration of credit risk. The loss incurred by the failure of a counterparty is generally limited to the net payment to be received by the Fund. The Fund considers the creditworthiness of each counterparty to a contract in evaluating potential credit risk and only enters into contracts with major financial institutions.
Numerical credit risk disclosures are not presented on grounds of significance.
Market Price Risk Market price risk arises mainly from uncertainty about future prices of the investments that the Fund holds. It represents the potential loss the Fund might suffer through holdings in the investment portfolio in the face of price movements. Adherence to investment guidelines and to investment and borrowing powers set out in the Prospectus mitigates the risk of excessive exposure to any particular security. The Principal Manager together with the Investment Adviser aims at holding securities of entities whose intrinsic qualities make them more likely to better withstand a market downturn and continuously reviews the portfolio to this end, whilst continuing to follow the investment objectives.
In the normal course of business, the Fund trades various financial instruments and enters into various investment activities with offbalance sheet risk, either directly or indirectly. These financial instruments include derivative contracts. Generally, these financial instruments represent future commitments to purchase or sell other financial instruments at specific terms at future dates. Each of these financial instruments contain varying degrees of off-balance sheet risk whereby changes in the market values of the securities underlying the financial instrument or the Fund’s satisfaction of the obligations may exceed the amount recognised in the Balance Sheet.
Numerical market price risk disclosures are not presented on grounds of significance.
Foreign Currency Risk Foreign currency risk is the risk that the value of a financial instrument will fluctuate because of changes in foreign exchange rates.
The base currency of the Fund is Japanese Yen and the Fund's principal exposure to foreign currency risk comprises its investments in assets priced in other currencies. It is the Fund's policy to hedge against this currency risk by entering into forward foreign currency contracts to sell the currency represented by the market value of these investments (see Note 13).
Liquidity risk is the risk that the Fund will encounter difficulties in realising assets or otherwise raising funds to meet financial commitments. The Fund aims to manage this risk by dealing only with reputable and creditworthy counterparties. The underlying funds value their assets in order to provide a NAV that reflects fair value. In some circumstances these companies may invest in illiquid assets for which they may use valuation techniques to arrive at constituent parts of that NAV. There is a risk that the underlying funds may not be able to realise their investments in an orderly manner. In these instances, the underlying funds may seek to suspend redemptions, and impose redemption gates and/or sidepocket investments. As the majority of the Fund's investments are in underlying funds this may also present a liquidity risk in the event the Fund cannot meet redemption requests in an orderly and timely fashion. Redemptions out of underlying funds may also only be on a weekly, monthly or quarterly basis and may require notice periods of between 1 and 90 days The Principal Manager may with the consent of the Trustee defer acceptance of redemption requests until it has raised sufficient investment proceeds to meet such applications without undue delay. In addition, the Fund’s Prospectus allows it to borrow up to 25% of its net asset value to mitigate potential liquidity problems that may arise. See note 15 for disclosure of the Funds existing borrowing facility as at 29 September 2011.
Numerical liquidity risk disclosures are not presented on grounds of significance.
Risk Mitigation Measures
The Fund aims at mitigating the above mentioned risks through a number of measures and elements:
· By means of its selection and monitoring procedures, the Principal Manager sets high standards for the managers of its underlying funds (“the Acquired Funds”), the Sub-Managers, Investment Advisors, Administrators, Brokers and the Trustee.
· The fund of funds structure reduces the risk of the Fund as a whole considerably while potentially enhancing the overall performance. The investment in one single Acquired Fund is limited, at the time of purchase to 20% of the Fund’s net assets with any one single investment fund or - in the case of Individual Accounts – one Sub-Manager.
GL Target Funds - Galileo Japan Fund Notes to the Financial Statements (continued) · Typically, some of the Acquired Funds are equity hedge funds focussing on equity instruments, which use less leverage than those hedge funds which primarily invest in derivatives.
· The Funds may invest not only in equity hedge funds but also in traditional equity funds (which use no or very little leverage or stock options).
· Borrowing, short positions and the use of derivatives are limited on a consolidated basis for the Trust.
· In the case of Individual Accounts, the risk is in principle limited to the funds placed at the disposal of a limited liability entity established for this purpose between the relevant Fund and the Individual Account. There were no investments in Individual Accounts during the year.
3 Taxation Status The class funds of GL Target Funds are exempt from Guernsey income tax under the Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and are charged an annual exemption fee of GBP 600 of which Yen 26,430 (2010: Yen 30,042) is charged to the Fund.
4 Net capital gains/(losses)
GL Target Funds - Galileo Japan Fund Notes to the Financial Statements (continued) 8 Management, Trustee and Administration Fees The Principal Manager is entitled to a monthly fee at the maximum rate of 0.25% per month of the net asset value of the Fund of the preceding month (before accrual of any performance fee payable to the Principal Manager) payable in arrears. However, until further notice the Principal Manager proposes to charge 0.15% per month of the net asset value but may increase the fee to the maximum, subject to three months prior notice being given to Unitholders. The amount outstanding at the year end was Yen 3,489,320 (2010: Yen 4,070,633).
Payments are made out of the management fee for the distribution to institutional investors, distributors and distribution partners holding units beneficially for third-party investors.
Subject to various conditions detailed in the Prospectus, a performance fee will be payable to the Principal Manager which is to be 10% of the excess performance of the net asset value per Unit when compared to the appreciation that would have been obtained had the net asset value per Unit increased at the hurdle rate of 2.5% per annum. No performance fee was payable or paid during either period presented.
The Trustee receives a fee of 0.05% per annum, payable monthly in arrears, of the net asset value of the Fund for the first Yen 2,500 million, 0.04% per annum for the next Yen 2,500 - Yen 3,500 million and 0.025% per annum for the amount in excess of Yen 3,500 million and is calculated on each dealing day. The annual minimum fee is Yen 1,500,000. The amount outstanding at the year end was Yen 143,835(2010: Yen 143,836).
The Designated Manager receives an administration fee of 0.10% per annum, payable monthly in arrears, of the net asset value of the Fund for the first Yen 3,000 million, 0.085% per annum for the next Yen 3,000 - Yen 5,000 million and 0.075% per annum for the amount in excess of Yen 5,000 million and is calculated on each dealing day. The annual minimum fee is Yen 3,500,000. The amount outstanding at the year end was Yen 335,616 (2010: Yen 335,616).
9 Regulatory Status The Fund is authorised by the Guernsey Financial Services Commission as a Class B Collective Investment Scheme.
10 Related Parties GL Funds (Guernsey) Limited (the “Principal Manager") together with HSBC Custody Services (Guernsey) Limited (the “Trustee") are regarded as the controlling parties of the Fund by virtue of them acting in concert under the terms of the Trust Deed. Accrued management fees at 29 September 2011 amounted to Yen 3,489,320 (2010: Yen 4,070,633).
The Investment Adviser, GL Funds AG, is the parent company of the Principal Manager.
The fees payable to the Principal Manager, Designated Manager and the Trustee are explained in note 8 above.
The total amounts payable in respect of the current year are disclosed separately in the Statement of Total Return. Accrued Trustee fees at 29 September 2011 amounted to Yen 143,835 (2010: Yen 143,836). Accrued Administrator fees at 29 September 2011 amounted to Yen 335,616 (2010: Yen 335,616) The Principal Manager is also entitled to receive an initial charge up to a maximum of 3% of subscriptions for new Units.
The Trustee had custody of all the investments of the Fund at the year end. The bank balances were also held by the Trustee.
11 Net Asset Value and Units in Issue
The above analysis excludes short term debtors and creditors, as all material amounts are non-interest bearing.
The floating rate financial assets and liabilities comprise US Dollar and Japanese Yen denominated bank balances that bear interest based on the HSBC Internal Managed rate set daily by HSBC Treasury, based on HSBC balances and market conditions for the currency.
There is no interest arising on the Units nor is there a specified maturity date.
The Fund’s reporting currency is the Japanese Yen and the Fund’s exposure to foreign currency risk comprises the value of its investments, overdraft and its open forward currency contracts. The Fund’s non-Yen currency exposure that gives rise to a change in net asset value of the Fund was Yen 1,189,967,950 as at 29 September 2011 (2010:Yen 1,211,083,095). At 29 September 2011 the Fund held one open forward foreign exchange contract (see note 13) to manage the USD risk.
The Funds financial risk profile is described in note 2.
13 Forward Rate Foreign Exchange Contracts At 29 September 2011 the Fund had one open forward foreign exchange contract (2010: three open foreign exchange contracts) totalling USD 11,300,000 against Japanese Yen 866,529,200 (2010: USD 11,700,000 against Japanese Yen 1,004,547,900). This open position resulted in an unrealised loss of Yen 1,182,721 (2010: gain Yen 27,767,804) at the balance sheet date.
14 Fair Values Disclosure The fair value of the issued Units at the balance sheet date is considered to be the net asset value per Unit of the Fund at that date i.e. Yen 13,131 per Unit, Yen 1,977,041,811 in total (2010: Yen 13,661 per Unit, Yen 2,361,750,551 in total).
In the opinion of the Principal Manager there is no material difference between the book values and the fair values of the other financial assets and liabilities.
GL Target Funds - Galileo Japan Fund Notes to the Financial Statements (continued) 15 Borrowing Facilities On 13 August 2010 HSBC Custody Services (Guernsey) Limited, in its capacity as Trustee of the GL Target Funds, entered into an Uncommitted Multi-Currency Overdraft Facility Agreement with HSBC Bank plc, London in order to facilitate borrowing on behalf of the Fund. The maximum financing amount at any time for the Fund shall not exceed the equivalent of USD 8,000,000 or 25% of the eligible assets less the Borrower’s outstanding indebtedness and other liabilities, which ever the lesser; however, borrowing will not be permitted to exceed the limits set out in the principal documents of the Fund.
16 Performance Data
Past performance is no indication of current or future performance. These performance data do not take account of commissions and costs incurred on the issue and redemption of Units.
17 Portfolio Turnover Rate The Portfolio Turnover Rate (“PTR”) is a measurement of how frequently investments within a fund are bought and sold and has been calculated in accordance with guidelines issued on 25 January 2006 by the Swiss Funds Association.
The rate is derived by taking the net of total purchases and total sales of investments less the total of all issues and redemptions of Units during the period and dividing this by the average of the net fund assets.