RNS Number : 0666G
New Star RBC Hedge250 IDX (1X GBP)
16 October 2008
HEDGE ETS
New Star RBC Hedge 250 Index Exchange Traded Securities
PCC Limited
(A closed-ended protected cell company incorporated in Guernsey with registered number 45501 under the provisions of The Companies
(Guernsey) Laws 1994 and The Protected Cell Companies Ordinance 1997 to 1998, as amended)
Statement of Final Results for the year ended 30 June 2008
New Star RBC Hedge 250 Index Exchange Traded Securities PCC Limited (the "Company" or "Hedge ETS") announces its results for the period
ended 30 June 2008.
Investment objective and summary policy
The investment objective of the Company is to provide access to performance representative of the hedge fund asset class. The investment
policy of the Company is to provide access to such performance through investment exposure to the RBC Hedge 250 Index� (the "Index").
The 1X Cell seeks to achieve its investment objective by entering into a swap agreement with Royal Bank of Canada designed to provide
unleveraged exposure to the performance of the Index.
The 3X Cell seeks to achieve its investment objective by entering into a swap agreement with Royal Bank of Canada designed to provide
approximately three times' exposure to the performance of the Index.
Financial Results Summary
For the year ended 30 June 2008
NAV per share has tracked the RBC Hedge 250 Index down, reflecting the decline in hedge fund industry returns over the period
Share price broadly trading around net asset value
Shareholders' funds at 30 June 2008 were $237.9 million
1X shares 3X shares
$ EUR � $ EUR �
NAV per share at 30 June 2008 1.0221 1.0140 1.0329 0.9402 0.9298 0.9511
% increase/(decrease) since (3.06)% (3.09)% (1.99)% (18.14)% (18.23)% (17.03)%
June 2007
% increase/(decrease) since 2.21% 1.40% 3.29% (5.98)% (7.02)% (4.89)%
launch*
Share price at 30 June 2008 1.01 1.01 1.03 0.92 0.93 0.95
% increase/(decrease) since (4.72)% (4.72)% (2.83)% (22.03)% (21.19)% (19.49)%
June 2007
% increase/(decrease) since 1.00% 1.00% 3.00% (8.00)% (7.00)% (5.00)%
launch*
* Hedge ETS launched on the 29 November 2006
Directors
Christopher Sherwell *+ (aged 60) is a non-executive director of a number of
(Chairman) investment-related companies. He was Managing Director
of Schroders (CI) Limited from 2000 until 2004 and
served as a director of various Schroders group
companies and investment funds. He remains a
non-executive director of Schroders (CI) Limited. His
other directorships include chairmanship of Goldman
Sachs Dynamic Opportunities Limited, a London listed
investment company, Hermes Absolute Return Fund
(Guernsey) Limited, a fund of hedge funds, and
Consulta (Channel Islands) Limited. Before joining
Schroders in 1993 he worked as Far East regional
strategist with Smith New Court Securities in London
and then Hong Kong. He was previously a journalist,
working for the Financial Times. He is a resident of
Guernsey.
John Duffield * (aged 69) is chairman and a shareholder of New Star
Asset Management Group PLC. He is also chairman of New
Star Asset Management Limited, New Star Asset
Management (Bermuda) Limited and New Star
International Investment Products Limited. He is a
resident of the United Kingdom.
John Hallam *+ (aged 59) and resident in Guernsey, is a Fellow of the
Institute of Chartered Accountants in England and
Wales and qualified as an accountant in 1971. He is a
former partner of PricewaterhouseCoopers having
retired in 1999 after 27 years with the firm both in
Guernsey and in other countries. He is currently
chairman of Cazenove Absolute Equity Ltd, EFG Private
Bank (Channel Islands) Ltd, M&G Recovery Investment Co
Ltd, Partners Group Global Opportunities Ltd and
Prodesse Investment Ltd as well as being a director of
a number of other financial services companies, some
of which are listed on the London Stock Exchange. He
served for many years as a member of the Guernsey
Financial Services Commission from which he retired in
2006 having been its Chairman for the previous three
years.
* denotes non-executive director
+ denotes independent director
Chairman's Report
This document comprises the annual report and accounts of the New Star RBC Hedge 250 Index Exchange Traded Securities PCC Limited for
the year to 30 June 2008. The Company seeks to provide access to performance representative of the hedge fund asset class through exposure
to the RBC Hedge 250 Index.
Performance
During the year to 30 June 2008, the net asset values (NAVs) of the 1X dollar, euro and sterling class shares fell 3.06%, 3.09% and
1.99% respectively.
Over the same period, the NAVs of the 3X dollar, euro and sterling class shares fell 18.14%, 18.23% and 17.03% respectively.
Share price rating
Early in the year under review, the shares moved from a premium to NAV to a discount but generally traded close to net asset value. To
support the share price from September, the directors actively repurchased shares at a narrow discount to NAV. In total 50.058 million 1X
shares and 8.147 million 3X shares were repurchased during the period to 30 June 2008.
The directors believe it is appropriate for the Company's shares to trade at or around NAV and intend - subject to market conditions,
accuracy of Index hedge fund valuations, availability of leverage under the Index Swap and closed periods - to utilise their ability to buy
back shares at a discount to NAV, exercise redemption facilities and issue shares to facilitate such a rating.
It is expected that share repurchases will continue be made at a narrow discount to the latest estimated NAV and share issues are
expected to be done at a small premium. This NAV is calculated using the Index value as reported on RBC's website, www.rbchedge250.com, and
the marked-to-market value of collateral held and the Company's fees and expenses, as set out in its latest prospectus.
Outlook
Over the summer of 2008, global economic conditions deteriorated, with the trade-off between economic growth and inflation worsening
significantly. This resulted in extended periods of weakness and volatility in global financial markets. Momentum in the emerging markets
and positive money supply trends may yet result in only a short period of global economic weakness but the credit crunch has increased the
risk of more serious dislocation. Market volatility does, however, provide potentially profitable opportunities for hedge funds, whose
incentivised and talented managers seek to generate absolute returns.
Christopher Sherwell
15 October 2008
Investment Manager's Report
Global equities were volatile and weak during the year under review, with the MSCI World Total Return Index falling 10.18% in dollar
terms amid fear that the credit crunch resulting from the US sub-prime mortgage crisis could lead to a US recession and a serious
deterioration in global economic growth.
With investors' risk aversion increasing despite monetary easing by the US Federal Reserve and the Bank of England, government bonds
benefited from a "flight to quality", with US Treasury bonds returning 10.32% as measured by the Merrill Lynch Global High Yield Index. By
contrast, lower-quality bonds underperformed, with high-yield corporate bonds falling 2.96% as measured by the Citi Group World Government
Bond Index.
In the commodities markets, oil rose 98.05% to $140.00 per barrel at 30 June 2008 in response to fears of supply shortages as a result
of economic growth in emerging markets while gold gained 41.84% to $922.6 per ounce at 30 June 2008 as a result of the fall in the dollar,
fears of financial dislocation and increased inflationary pressures.
In this environment a number of hedge fund strategies suffered and after taking account of the Company's expenses the NAV of the US
dollar 1X shares fell 3.06%.
Strategy allocation and returns
The allocations in the nine sub-strategies within the RBC Hedge 250 Index are rebalanced each month. For the year to 30 June 2008, the
rebalancing resulted in increased allocations in the credit, managed futures, mergers and special situations and multi-strategy
sub-strategies at the expense of convertible arbitrage, equity long/short, equity market neutral, fixed income arbitrage and macro
sub-strategies.
Returns for the sub-strategies comprising the RBC Hedge 250 Index for the year to 30 June 2008 are shown below:
Year to % Weighting Number
30 June of Funds
2008 30 June
% 30 June 2008
return 2008
Convertible arbitrage (5.20) 2.10 9
Credit (5.18) 12.60 32
Equity long/short 4.57 37.39 92
Equity market neutral 2.14 2.14 5
Fixed income arbitrage 4.11 3.48 12
Macro 2.64 7.89 20
Managed futures 14.89 6.52 15
Mergers & special situations (7.13) 10.77 26
Multi-strategy (7.02) 17.11 43
As can be seen from the table, five out of the nine strategies produced positive returns. Managed futures managers benefited from
positive momentum in commodities, fixed income and emerging market equities; macro managers were successful with their momentum trading in
energy and agricultural commodities while those equity long/short managers who were long of resources and short of financial and cyclical
stocks also achieved positive returns. Convertible arbitrage strategies, however, suffered as credit spreads widened and liquidity declined
in fixed income markets while mergers and special situations strategies were affected by the high level of volatility and the general
decline in corporate activity.
Outlook
During the third quarter of 2008, evidence emerged that global economic conditions had begun deteriorating significantly. Although the
US and the UK generated marginal economic growth in the second quarter, the eurozone economies contracted and policymakers in Japan declared
that the country was officially in recession. At the same time, heightened inflationary pressures caused by the combination of rising
commodity prices and loose monetary conditions reduced the ability of the major central banks to respond to economic weakness with interest
rate cuts. Such conditions and the associated increase in investors' risk aversion was reflected in a de-rating of global equities, which
were trading at 30 June 2008 on a trailing earnings multiple of 14.0 against 31.0 in April 2000. The market's dividend yield, meanwhile,
rose to a 15-year high of 2.74%.
The unusually substantial divergences of returns between asset classes, sectors and individual stocks are likely to continue in late
2008 and early 2009 in response to the difficult global economic conditions. In such an environment, hedge funds have the potential to make
gains from volatility and pricing anomalies in equity, fixed income, commodity and other markets and thus also have the potential to
generate superior returns compared to more traditional investment strategies.
New Star Asset Management (Bermuda) Limited
15 October 2008
Directors' Report
The Director's Report, which incorporates the Business Review, is designed to give shareholders an insight into the operations of the
Company.
Status and Activities
New Star RBC Hedge 250 Index Exchange Traded Securities PCC Limited (the "Company") is a closed-ended protected cell Company registered
and incorporated on 19 September 2006 in Guernsey under the provisions of the Companies (Guernsey) Law, 1994 and the Protected Cell
Companies Ordinance 1997 to 1998 (as amended). On 28 November 2006 the 1X dollar shares, 1X sterling shares, IX euro shares, 3X dollar
shares, 3X euro shares and 3X sterling shares were listed on the London Stock Exchange.
The investment objective of the Company is to provide access to performance representative of the hedge fund asset class. The investment
policy of the Company is to provide access to such performance through investment exposure to the RBC Hedge 250 Index (the "Index").
Investment Objective and Policy
The investment objective of the Company is to provide access to performance representative of the hedge fund asset class. The investment
policy of the Company will be to provide access to such performance through investment exposure to the RBC Hedge 250 Index (the "Index").
* The 1X Cell aims to provide exposure to the performance of the Index. It aims to achieve its investment objective by entering into
a swap agreement (the "Swap") with Royal Bank of Canada (the "Swap Counterparty"), designed to provide an unleveraged exposure to the
performance of the Index.
* The 3X Cell aims to provide exposure to approximately three times the performance of the Index. It aims to achieve its investment
objective by entering into a swap with the Swap Counterparty designed to provide approximately 3 times exposure to the performance of the
Index.
The assets of each Cell are invested by the Investment Manager and/or Investment Advisor in cash or highly rated cash and/or near cash
instruments. These instruments generally have a minimum credit rating of "Aa2" or "AA" for long term debt from the credit agency of Moody's
or Standard & Poor's and a minimum of "P-1" or "A-1+", respectively for short term debt from those same agencies, however the Company and
the Investment Manager may agree to alternative minimum credit ratings. The Investment Manager and the Investment Advisor seek to ensure
that the instruments held by each Cell generate a return so as to offset part or all (depending on the amount of leverage (if any)) of the
US dollar LIBOR based funding charges in respect of the relevant Cell. All or substantially all of these instruments are to be posted as
collateral and held by or on behalf of the Swap Counterparty for the purposes of securing each Cell's obligations to the Swap Counterparty
under the relevant Swap.
The Company may use derivatives, money market instruments and currencies for investment purposes. Risk will be spread in relation to
these investments by investment in highly rated cash and/or near cash instruments and the collateral arrangements associated with the Swaps.
Neither the Company nor any of the Cells borrow any monies directly. However, each Cell is able to take advantage of leverage embedded
within each relevant Swap, and the ability to make adjustments under each relevant Swap, for investment and liquidity purposes.
With regard to the 1X Cell, the Investment Manager and/or the Investment Advisor does not utilise leverage for investment purposes but
may do so for liquidity purposes. It is not anticipated that the leverage ratio will be more than 1.25 times exposure to the performance of
the Index. The leverage ratio may go above that temporarily due to market fluctuations.
With regard to the 3X Cell, the Investment Manager and/or the Investment Advisor may utilise leverage for investment and liquidity
purposes. The Investment Manager and/or the Investment Advisor target a leverage ratio of approximately three times exposure to the
performance of the Index and endeavours to maintain a leverage ratio of between 2.7 and 3.3 times. The leverage ratio may go outside this
range temporarily due to market fluctuations.
In the event that the Directors determine that the Index is no longer representative of the hedge fund asset class, the Directors may
invest in another index which they believe is representative of the hedge fund asset class (whereupon the Company's name would be changed to
remove the reference to the Index). The Company will not make any material change to its investment objective and investment policy without
Shareholder approval.
Results
The results attributable to shareholders for the year are shown below. A review of the results for the year may be found in the
Chairman's Report and the Investment Manager's Report. Details of the movement in the net asset value per share and the share price, which
the Company considers to be key performance indicators, are in the Financial Results Summary.
Taxation
With effect from 1 January 2008 exempt status for category D companies has been abolished and the standard rate of income tax for
Guernsey companies reduced to zero per cent. However the Company will be able to continue to apply for tax exemption under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 as a category B collective investment vehicle. A fixed annual fee of �600 per company is payable
to the States of Guernsey in respect of this exemption.
Management
The Investment Manager of the Company is New Star Asset Management (Bermuda) Limited (the "Investment Manager") and New Star Asset
Management Limited is the Investment Advisor (the "Investment Advisor"). The Investment Manager receives a periodic fee as described in note
3 of the financial statements. The agreement between the Company and both the Investment Manager and the Investment Advisor are terminable
on twelve months' notice. Termination of the Investment Management Agreement will not affect accrued rights, existing commitments or any
contractual provisions intended to survive termination and will be without penalty or any additional payment save that the Investment
Manager will pay the fees of the Investment Advisor accrued up to and including the date of termination and expenses properly incurred by
the Investment Advisor prior to the date of termination. The Board considers that, in the light of the performance of the Investment Manager
since the launch of the Company, the continuing appointment of New Star Asset Management (Bermuda) Limited as Investment Manager on the terms agreed is in the interests of shareholders as a whole.
Directors
The present members of the Board, who served throughout the year, are listed above. As at 30 June 2008 none of the Directors or their
families held any shares in the Company nor have they been granted any options to acquire shares in the Company. No Director is under
contract of service with the Company nor is any such agreement proposed. Directors are entitled to remuneration for their services as
described in Note 3.
Substantial Shareholdings
As at 30 September 2008 (being the latest practicable date prior to publication of this document) the Company was aware of the following
interests in the share capital of the Company that exceeded 5 per cent. of the issued share capital:
Number of Shares % of issued share capital
Euroclear Nominees Limited 86,040,651 48.4
New Star Asset Management 27,477,905 15.4
Limited
Risk Management Objectives and Policies
Investment in the Company involves a number of risks. Details of these risks are contained in the prospectus and supplement. Details of
the risks associated with financial instruments and the risk management policies employed are included in Note 8.
Going Concern
After making careful enquiries, the Directors have a reasonable expectation that the Company has adequate resources to continue in
operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial
statements.
Corporate Governance
The Company is committed to complying with the corporate governance obligations which apply to Guernsey registered companies and the
Board considers that the Company has done so during the year under review. The Guidance on Corporate Governance in the Financial Sector in
Guernsey ("the Code") issued by the Guernsey Financial Services Commission lays down certain principles from which an approach to corporate
governance appropriate to the circumstances of an individual organisation can be developed and implemented. The main provisions of the Code
are:
* The Board is responsible for the corporate governance of the organisation. Members of the Board should be proactive in recognising
and understanding the risks the organisation faces in achieving its business objectives and should demonstrate effective and prudent
management of those risks.
* The Board and management should analyse existing and prospective business, products and services to identify and measure the types
and significance of the current and potential risks to be managed and controlled, both individually and in the aggregate. The Board and
management should implement appropriate and prudent risk management policies and procedures and monitor their effectiveness through timely,
accurate and complete information systems.
* The Board should establish internal control procedures that are, in the Board's opinion, necessary and sufficient for the purposes
of managing operational risks and conducting the organisation's business having regard to its size, nature and complexity.
* The Board should ensure that collectively its members have sufficient expertise to understand and challenge the important issues
in relation to the operation and control of the organization.
* The Board should regularly review its composition, taking into account the nature, scale and complexity of the business, and the
requirements of any applicable laws, regulations, rules, guidelines and codes.
* The Board should regularly assess and document whether its approach to corporate governance achieves its objectives and,
consequently, whether the Board itself is fulfilling its own responsibilities.
The Company is not required to comply with the UK Combined Code on Corporate Governance as it is not domiciled in the UK. Nonetheless,
the significant ways in which the Company's actual corporate governance practice differs from the recommendations of the Combined Code on
Corporate Governance are detailed below.
The Board is comprised of three Directors, all of whom are non-executive. It is considered that all of the Board, with the exception of
Mr Duffield, are independent of the Investment Manager. Brief biographical details of the Directors can be found above. The structure of the
Board is such that it is considered unnecessary to identify a senior independent director.
The Directors meet quarterly and at other times when necessary. At the quarterly Board meetings the Directors receive a full report on
the Company's holdings and performance and give directions to the Investment Manager and Investment Advisor as to the investment objectives
and limitations. In addition, the Board receives information in relation to the financial position of the Company, the custody of assets and
other matters relevant to the business of the Company All three Directors attended the Company's four quarterly meetings and six ad hoc
board meetings, and in addition, Christopher Sherwell and John Hallam attended a further 6 meetings of committees of the board and /or ad
hoc board meetings.
As stated above, the Board is comprised of three non-executive directors, a majority of whom are independent. In these circumstances it
is believed a nominations committee is unnecessary and appointments of any new Directors will be considered by the Board as a whole. There
are no executive Directors and the Company does not have any employees. In the light of these circumstances, the Board has not appointed a
remuneration committee and all remuneration matters are considered by the Board as a whole.
The Company does not consider it necessary to establish an audit committee given the nature of the Company and the small size of the
Board. The Board will undertake all functions that would normally be delegated to the audit committee including reviewing annual and interim
results, receiving reports from the auditors, agreeing auditor's remuneration and assessing the effectiveness of the audit and internal
control environment. Where necessary, the Board will obtain specialist external advice from either its auditors or other advisers.
The Company's Articles of Association do not require Directors to seek re-election. However under the rules of the UK Listing Authority
Directors of investment companies who are not independent are required to seek annual re-election by shareholders. Accordingly Mr Duffield
will stand for re-election at the Annual General Meeting. The Directors recommend that he be re-elected because of his extensive financial
and investment experience.
Internal Control
The Board is responsible for establishing and maintaining the Company's systems of internal control and for
maintaining and reviewing their effectiveness. Internal control systems are designed to meet the particular
requirements of the Company and to manage, rather than eliminate, the risks of failure to achieve its objectives. The systems by their
very nature can provide reasonable, but not absolute, assurance against material misstatement, loss or fraud. The procedures which have been
established with a view to providing effective internal control include:
* The duties of investment management, accounting and custody of assets are segregated. The Company clearly defines the duties and
responsibilities of their agents and advisers. The appointment of agents is conducted by the Board after consideration of the qualities of
the parties involved; the Board monitors their performance and ongoing contractual arrangements.
* Investment management is performed by New Star Asset Management (Bermuda) Limited. The Board is
responsible for setting the overall investment policy and monitors the activity of the Investment Manager at regular Board meetings.
* The Board received regular reports on the Company's financial position, custody of assets and compliance with applicable
regulations.
* The Company delegates the investment management, accounting and custody of assets to third parties; these third parties each have
their own internal audit and compliance departments. It is therefore considered that, at present, there is no need for the Company to have
its own internal audit function.
Shareholder relations
All shareholders will have the opportunity to attend and vote at the Annual General Meeting during which the Directors will be available
to answer questions regarding the Company. In accordance with the requirements of Guernsey legislation the Company will provide at least 21
clear days notice of that meeting.
The Company reports to shareholders twice a year by way of the interim report and the annual report and accounts. The Company's interim
and annual reports are also published at www.newstaram.com. Net asset values are published on a monthly basis.
Annual General Meeting
The Annual General Meeting will be held on 13 November 2008 at 10.30am at Arnold House, St Julian's Avenue, St Peter Port, Guernsey, GY1
3NF, Channel Islands.
The Notice of Meeting contains reference to an Ordinary Resolution renewing the authority for:
* The Company to make market purchases of up to 14.99% of each share class; and
A Special Resolution renewing the Authority for:
* The Company to sell repurchased shares held in treasury at a price below the estimated Net Asset Value per Share as set out in the
Notice convening the AGM.
The Company has recently become aware that although share repurchases implemented pursuant to the shareholder authority remain below
14.99 per cent. of the aggregate number of shares in issue at the date that the relevant authority was granted, it has inadvertently
exceeded this authority by 3.51 per cent. in relation to one of the classes of shares, the 1 X US$ shares. This was due to an error in
determining the relevant number of shares in issue at the date the resolution was passed and, consequently, the maximum number of shares
that could be repurchased thereafter.
Shareholder approval is now being sought to renew the authority for the Company to continue to make repurchases of up to 14.99 per cent.
of each Class of Shares in issue at the date the resolution is passed.
Full details of all resolutions that it is intended to propose at the Annual General Meeting are set out in the Notice of Annual General
Meeting.
Christopher Sherwell
Director
John Hallam
Director
15 October 2008
Statement of Directors' Responsibilities
The Directors are required by company law to prepare financial statements that give a true and fair view of the affairs of the Company
at the end of the financial year and of the return of the Company for the year. The financial statements are prepared in compliance with the
required formats and disclosures of The Companies (Guernsey) Law, 1994, the Listing Rules of the UK Listing Authority, the rules of the
London Stock Exchange and with International Financial Reporting Standards.
In addition the Directors are required to:
* select suitable accounting policies and then apply them consistently;
* make judgments and estimates that are reasonable and prudent;
* state whether applicable accounting policies have been followed; and
* prepare financial statements on the going concern basis unless it is inappropriate to assume the Company will
continue in business
The Directors confirm that the financial statements comply with the above requirements.
The Directors are responsible for keeping adequate accounting records to ensure that the financial statements comply with the
requirements of the Companies (Guernsey) Law, 1994 and the Protected Cell Companies Ordinance, 1997 to 1998 (as amended). They are
responsible for safeguarding the assets of the Company and for taking reasonable steps for the prevention and detection of fraud and other
irregularities.
Statement under the Disclosure & Transparency Rule 4.1.12
The Directors confirm, to the best of their knowledge, that:
* the financial statements, prepared in accordance with the applicable accounting standards, give a true and fair
view of the assets, liabilities, financial position and profit or loss of the Company; and
* the Director's Report includes a fair review of the development and performance of the business and the position
of the Company, together with a description of the principal risks and uncertainties that the Company faces.
Christopher Sherwell
Director
John Hallam
Director
15 October 2008
Balance Sheet
as at 30 June 2008
Notes 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Assets
Financial assets at fair value 2, 6 177,304 47,387 224,691
through profit or loss
Cash and cash equivalents 7 15,327 1,501 16,828
Other receivables 48 32 80
Total assets 192,679 48,920 241,599
Liabilities
Redemption payable 2,524 - 2,524
Investment management fees payable 580 170 750
Administration fees payable 63 15 78
Audit fees payable 88 23 111
Share issuance costs payable - 9 9
Other payables 195 60 255
Total liabilities 3,450 277 3,727
Equity
Share premium 170,525 51,560 222,085
Retained earnings 18,704 (2,917) 15,787
Total equity 189,229 48,643 237,872
Total equity and liabilities 192,679 48,920 241,599
1XCell 3XCell
Net Asset Value
US$ share class US$106,287,0009 US$21,819,000
Euro share class EUR37,289,000 EUR8,120,000
Sterling share class �12,194,000 �7,061,000
Shares in issue
US$ share class 10 103,992,823 23,205,687
Euro share class 10 36,772,483 8,733,957
Sterling share class 10 11,806,460 7,423,862
Net Asset Value per share
US$ share class US$1.0221 US$0.9402
Euro share class EUR1.0140 EUR0.9297
Sterling share class �1.0328 �0.9511
Approved by the Directors
Christopher Sherwell
Director
John Hallam
Director
15 October 2008
Balance Sheet
as at 30 June 2007
Notes 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Assets
Financial assets at fair value through profit or 2, 6 256,978 68,526 325,504
loss
Cash and cash equivalents 7 1,741 554 2,295
Other receivables 73 20 93
Total assets 258,792 69,100 327,892
Liabilities
Investment management fees payable 334 98 432
Administration fees payable 44 13 44
Audit fees payable 16 4 20
Share issuance costs payable 206 100 306
Other payables 322 46 382
Total liabilities 923 261 1,184
Equity
Share premium 242,943 61,786 304,729
Retained earnings 14,926 7,053 21,979
Total equity 257,869 68,839 326,708
Total equity and liabilities 258,792 69,100 327,892
1X Cell 3X Cell
Net Asset Value
US$ share class US$129,705,000 US$36,377,000
Euro share class EUR59,412,000 EUR10,126,000
Sterling share class �23,846,000 �9,356,000
Shares in issue
US$ share class 10 123,030,271 31,674,110
Euro share class 10 56,778,461 8,905,835
Sterling share class 10 22,628,678 8,161,347
Net Asset Value per share
US$ share class US$1.0543 US$1.1485
Euro share class EUR1.0464 EUR1.1370
Sterling share class *1.0538 *1.1464
Income Statement
for the year ended 30 June 2008
Notes 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Income
Interest income 2 1,075 304 1,379
Other income 5 1 6
Total investment income 1,080 305 1,385
Expenses
Interest expense 94 109 203
Investment management fees 3 2,031 608 2,639
Directors' fees 3 97 26 123
Audit fees 3 142 34 176
Administration fees 3 214 68 282
Board meeting fees 186 45 231
Professional fees 177 48 225
Brokerage and commission expenses 156 46 202
Custodian fees 3 97 34 131
Printing expense 23 10 33
Set up cost 177 48 225
Other expenses 78 22 100
Total operating expenses 3,472 1,098 4,570
Net investment expense (2,392) (793) (3,185)
Net realised and unrealised
gains/(losses) on financial assets and
liabilities at fair value through
profit or loss and foreign exchange
Net realised gain/(loss) on financial 12,951 (6,010) 6,941
assets and liabilities at fair value
through profit or loss
Net unrealised loss on financial (5,283) (3,000) (8,283)
assets and liabilities at fair value
through profit or loss
Net realised loss on foreign exchange (1,498) (167) (1,665)
Total net realised and unrealised 6,170 (9,177) (3,007)
gains/(losses) on financial assets and
liabilities at fair value through
profit or loss and foreign exchange
Return/(loss) for the year 3,778 (9,970) (6,192)
1XCell 3XCell
Earnings/(loss) per Share
US$ share class 15 US$0.0173 US$(0.1579)
Euro share class 15 EUR0.0156 EUR(0.1868)
Sterling share class 15 �0.0153 �(0.1803)
Income Statement
for the period from 19 September 2006 (date of incorporation) to 30 June 2007
Notes 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Income
Interest income 2 418 99 517
Other income 1,064 593 1,657
Investment income 1,482 692 2,174
Expenses
Interest expense 4 1 5
Investment management fees 3 898 256 1,154
Directors' fees 3 43 11 54
Audit fees 3 73 17 90
Administration fees 3 70 20 90
Board meeting fees 50 12 62
Professional fees 8 2 10
Brokerage and commission expenses 30 30 60
Custodian fees 3 22 7 29
Other expenses 133 46 179
Operating expenses 1,331 402 1,733
Net investment income 151 290 441
Net realised and unrealised
gains/(losses) on financial assets and
liabilities at fair value through profit
or loss and foreign exchange
Net realised gain on financial assets 6,087 1,183 7,270
and liabilities at fair value through
profit or loss
Net unrealised gain on financial assets 9,537 5,845 15,382
and liabilities at fair value through
profit or loss
Net realised loss on foreign exchange (849) (265) (1,114)
Total net realised and unrealised 14,775 6,763 21,538
gains/(losses) on financial assets and
liabilities at fair value through profit
or loss and foreign exchange
Return for the period 14,926 7,053 21,979
1X Cell 3X Cell
Earnings per Share
US$ share class 15 US$0.0793 US$0.3987
Euro share class 15 EUR0.0956 EUR0.3408
Sterling share class 15 �0.0764 �0.3230
Statement of Changes in Equity
for the year ended 30 June 2008
1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Balance at 1 July 2007 257,869 68,839 326,708
Return for the year 3,778 (9,970) (6,192)
Share premium
Subscriptions, net of transfer between classes 17,388 1,098 18,486
Redemptions, net of transfer between classes (89,651) (11,288) (100,939)
Share issuance costs (155) (36) (191)
Total share premium (72,418) (10,226) (82,644)
Balance at 30 June 2008 189,229 48,643 237,872
Statement of Changes in Equity
for the period from 19 September 2006 (date of incorporation) to 30 June 2007
1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Balance at date of incorporation - - -
Return for the period 14,926 7,053 21,979
Share premium
Subscriptions, net of transfer between classes 246,062 62,462 308,524
Share issuance costs (3,119) (676) (3,795)
Total share premium 242,943 61,786 304,729
Balance at 30 June 2007 257,869 68,839 326,708
Cash Flow Statement
for the year ended 30 June 2008
1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Cash flows from operating activities
Return for the year 3,778 (9,970) (6,192)
Adjustments to reconcile return for the
year to net cash from operating
activities:
Purchase of investments (1,378,551) (380,717) (1,759,268)
Sale of investments 1,454,055 399,242 1,853,297
Unrealised gain on investments and swap 3,553 2,472 6,025
agreements
Decrease in unrealised gain 617 142 759
on open forward exchange contracts
Increase in investment management fees 246 72 318
payable
Increase in administration fees payable 18 2 20
Increase in audit fees payable 72 19 91
Decrease/(Increase) in other receivable 25 (12) 13
(Decrease)/Increase in other payables (128) 13 (115)
Net cash provided by operating activities 83,685 11,263 94,948
Cash flows from financing activities
Subscriptions, net of transfer between 17,388 1,098 18,486
classes
Redemptions, net of transfer between (87,127) (11,288) (98,415)
classes
Share issuance costs (154) (35) (189)
Decrease in share issuance costs payable (206) (91) (297)
Net cash used in financing activities (70,099) (10,316) (80,415)
Net increase cash and cash equivalents 13,586 947 14,533
Opening cash and cash equivalents 1,741 554 2,295
Ending cash and cash equivalents 15,327 1,501 16,828
Supplementary cash flow information:
Interest received 1,099 310 1,409
Interest paid (73) (94) (167)
Cash Flow Statement
for the period from 19 September 2006 (date of incorporation) to 30 June 2007
1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Cash flows from operating activities
Return for the period 14,926 7,053 21,979
Adjustments to reconcile return for the
period to net cash used in operating
activities:
Purchases of investments (1,253,709) (295,374) (1,549,083)
Sale of investments 1,003,398 230,465 1,233,863
Unrealised gain on investments and swap (6,014) (3,456) (9,470)
agreements
Increase in unrealised gain (653) (161) (814)
on open forward exchange contracts
Increase in investment management fees 334 98 432
payable
Increase in administration fees payable 34 10 44
Increase in other receivable (73) (20) (93)
Increase in other payables 350 53 403
Net cash used in operating activities (241,407) (61,332) (302,739)
Cash flows from financing activities
Subscriptions, net of transfer between 246,062 62,462 308,524
classes
Share issuance costs (3,120) (676) (3,796)
Increase in share issuance costs payable 206 100 306
Net cash provided by financing activities 243,148 61,886 305,034
Net increase cash and cash equivalents 1,741 554 2,295
Opening cash and cash equivalents - - -
Ending cash and cash equivalents 1,741 554 2,295
Supplementary cash flow information:
Interest received 395 93 488
Interest paid (4) (1) (5)
Notes to the Financial Statements
for the year ended 30 June 2008
1. Organisation
New Star RBC Hedge 250 Index Exchange Traded Securities PCC Limited (the "Company") is a closed ended protected cell company registered
and incorporated on 19 September 2006 in Guernsey under the provisions of the Companies (Guernsey) Law, 1994 and the Protected Cell
Companies Ordinance, 1997 to 1998 (as amended).
The investment objective of the Company is to provide access to performance representative of the hedge fund asset class. The investment
policy of the Company is to provide access to such performance through investment exposure to the RBC Hedge 250 Index (the "Index").
The Company has established two Cells, designated as the 1X Cell and the 3X Cell, so that subject to compliance with certain conditions
under Guernsey law, the liability of the Company attributable to one Cell can only be satisfied out of the assets of that Cell. Each Cell is
deemed a separate reporting segment the objectives of each are listed below:
* The 1X Cell aims to provide unleveraged exposure to the performance of the Index. It achieves its investment objective by entering
into a swap agreement (the "Swap") with Royal Bank of Canada (the "Swap Counterparty").
* The 3X Cell aims to provide approx three times the exposure to the performance of the Index. It achieves its investment objective by
entering into a swap agreement with the Swap Counterparty.
The assets of each Cell are invested in cash or highly rated cash and near cash instruments with the intention of generating returns so
as to offset certain US dollar LIBOR based funding charges under the Swap in respect of the relevant Cell although this cannot be
guaranteed. Substantially all of these instruments are posted under the terms of each Swap as collateral for the purposes of securing each
Cell's obligations to the Swap Counterparty.
The Index is a broad range of hedge funds constructed based on the RBC Hedge 250 Index Rules (the "Rules"). The Rules have been
established to produce a benchmark of the performance of the hedge fund asset class as represented by a group of hedge funds selected
pursuant to the Rules. The hedge funds that are eligible for inclusion may be limited to the extent necessary to allow RBC to hedge its
exposure with respect to the Index.
The Index was launched on 1 July 2005 and at inception gave approximately equal weightings to 250 funds representing nine strategies
within four sectors.
On 28 November 2006 the 1X Euro shares, 1X Sterling shares, 1X US$ shares, 3X Euro shares, 3X Sterling shares and 3X US$ shares were
listed on the London Stock Exchange.
Earnings per Share (EPS) have been calculated at share class level on a weighted average basis for the 1X Cell and the 3X Cell in the
base currency of each share class.
The market price of the Shares, as well as being affected by the Net Asset Value per Share of the relevant Class, also takes into
account prevailing interest rates, supply and demand for the Shares, market conditions and general investor sentiment. The market value of a
Share may vary considerably from the Net Asset Value per Share. Due to the presence of such a discount or premium to the Net Asset Value per
Share, and the difference between the mid-market Share price and the price at which Shares can be sold, the realisable value of a Share may
not fully reflect the relevant Net Asset Value per Share.
2. Significant Accounting Policies
(a) Statement of Compliance
The financial statements have been prepared in accordance with International Financial Reporting Standards issued by the International
Accounting Standards Board (IASB), interpretations issued by the International Financial Reporting Interpretations Committee of the IASB,
and the Companies (Guernsey) Law, 1994 as updated.
(b) Basis of Preparation
The financial statements are presented in United States dollars ("US$"). The financial statements have been prepared on a historical
cost basis, except for financial instruments classified at fair value through profit or loss that have been measured at fair value. The
preparation of the financial statements in accordance with International Financial Reporting Standards requires the Directors to make
estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial information and the reported amounts of revenues and expenses during the year. Actual results could differ from
such estimates.
Standards adopted by the Company
These financial statements are also subject to the new standard IFRS 7, Financial Instruments: Disclosures, and the complementary
Amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures. IFRS 7 introduces new disclosures relating to financial
instruments. This standard does not have any impact on the classification and valuation of the Company's financial instruments. In
accordance with the requirements of the Amendment to IAS 1, additional disclosures have been provided on the Company's objectives and
policies for its capital, which is represented by the net assets attributable to the holders of redeemable shares. The impact of the
adoption of IFRS 7 and the changes to IAS 1 has been to expand the disclosures provided in these financial statements regarding the
Company's financial instruments and management of capital
Interpretations to existing standards that are not yet effective or early adopted by the Company
The following interpretations are mandatory for the Company's accounting periods beginning on or after 1 January 2009:
* IFRS 8, Operating Segments (effective 1 January 2009)
* Amendment to IAS 32 and IAS 1 - Financial Instruments Puttable at Fair Value and Obligations Arising on Liquidation
The Company will consider applying these new standards and interpretations for its accounting period commencing 1 July 2009.
(c) Financial Assets and Financial Liabilities at Fair Value through Profit or Loss
Financial Instruments
(i) Classification
The Company has designated its investments into the financial assets at fair value through profit or loss category. This category has
two sub-categories: financial assets and liabilities held for trading, and those designated by management at fair value through profit or
loss at inception.
The Company has categorised its investments in bonds, swap agreements and forward foreign exchange contracts as held for trading. IAS 39
requires all derivatives, including swap agreements and forward foreign exchange contracts to be categorised as held for trading
notwithstanding that the Company holds such instruments for long term investment purposes. Derivatives are categorised as held for trading,
as the Company does not designate any derivatives as hedges for hedge accounting purposes as described under IAS 39.
(ii) Recognition
Purchases and sales of investments are recognised on trade date - the date on which the Company commits to purchase or sell the asset.
Investments are initially recognised at fair value and are derecognised when the rights to receive cash flows from the investments have
expired or the Company has transferred substantially all risks and rewards of ownership.
(iii) Measurement
Financial instruments categorised at fair value through profit or loss are measured at fair value, with transaction costs for such
instruments being recognised directly in the income statement. Gains and losses arising from changes in the fair value of the 'financial
assets at fair value through profit and loss' category are included in the income statement in the year in which they arise. Realised gains
and losses on disposals of financial instruments are calculated using "first-in-first-out" method of valuation.
(iv) Fair value measurement principles
Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an
arm's length transaction. The fair value of financial instruments is based on their quoted market prices on a recognised exchange or sourced
from a reputable broker/counterparty in the case of non-exchange traded instruments, at the balance sheet date without any deduction for
estimated future selling costs. Financial assets are priced at their current bid prices, while financial liabilities are priced at their
current offer prices.
If a quoted market price is not available on a recognised stock exchange or from a broker/counterparty, the fair value of the financial
instruments may be estimated by the directors using valuation techniques, including use of recent arm's length market transactions,
reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option pricing
models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions.
The fair value of derivative financial instruments at the reporting date generally reflects the amount that the Company would receive or
pay to terminate the contract at the reporting date. Many derivative financial instruments are exchange traded or are traded in the over the
counter market where market values are readily obtainable.
The Company normally determines the value of the swaps based on the information provided by the Swap Counterparty and calculates and
publishes figures for the Net Asset Value of each Cell and the Net Asset Value per Share of each Class before the final Index level for a
month end is determined, on the basis of a reasonably accurate estimate of the Index for that month end provided by RBC as swap
counterparty.
(v) Derecognition
A financial asset is derecognised when the Company no longer has control over the contractual rights that comprise that asset. This
occurs when the rights are realised, expired or are surrendered. A financial liability is derecognised when it is extinguished or when the
obligation specified in the contract is discharged, cancelled or expired.
Assets held for trading that are sold are derecognised and corresponding receivables from the buyer for the payment are recognised as of
the date the Company commits to sell the assets. The Company uses the "first in, first out" (FIFO) method to determine the gain or loss on
derecognition.
(vi) Offsetting
Financial assets and liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right
to set-off the recognised amounts and there is an ability and intention to settle on a net basis, or realise the assets and settle the
liability simultaneously.
(d) Cash and Cash Equivalents
Cash includes deposits with the Custodian. Cash equivalents are short-term highly liquid investments that are readily convertible to
known amounts of cash and are subject to an insignificant risk of changes in value.
(e) Foreign Currency Translation
(i) Functional and presentation currency
Items included in the Company's financial statements are measured using the currency of the primary economic environment in which it
operates ('the functional currency'). This is the United States dollar, which reflects the Company's investment objectives.
(ii) Foreign currency transactions
Monetary assets and liabilities denominated in currencies other than the United States dollar are translated into United States dollar
at the closing rates of exchange at each year end. Transactions during the year, including purchases and sales of securities, income and
expenses, are translated at the rate of exchange prevailing on the date of the transaction. Foreign currency transaction gains and losses
are included in realised and unrealised gain and loss on investments.
(f) Interest Income
Interest income is recognised on an accruals basis in line with contractual terms. Interest is accrued on a daily basis.
(g) Expenses
All expenses, including investment management fees and non-swap interest expense, are recognised in the Income Statement on an accruals
basis, with the exception of commissions payable to placing agents and the Investment Manager which have been deducted from gross
subscriptions received and all costs associated with the issuance of shares which have been deducted from share premium.
3 Fees and Expenses
Investment management fees
New Star Asset Management (Bermuda) Limited (the "Investment Manager") is paid by the Company an investment management fee of 0.85% and
1% per annum of the Net Asset Value for 1X Cell and 3X Cell, respectively (before deducting the amounts of that month's investment
management fees). The fee is calculated and paid monthly in arrears. Management fees of US$2,031,000 (period ended 30 June 2007: US$898,000)
and US$608,000 (period ended 30 June 2007: US$256,000) respectively for 1X Cell and 3X Cell were incurred during the year ended 30 June
2008, of which US$580,000 (30 June 2007: US$334,000) and US$170,000 (30 June 2007: US$98,000) was outstanding at the year end.
Administration fees
HSBC Securities Services (Guernsey) Limited, (the "Administrator" and "Company Secretary"), a company incorporated in Guernsey, is paid
an annual fee on a time cost basis (with an annual minimum of US$5,800) by the Company for corporate secretarial and administrative services
and is also reimbursed all reasonable out of pocket expenses owed to the Administrator. The Administrator is responsible for payment of all
of the Sub-Administrator's fees and expenses.
Each Cell pays fees to the Administrator on a sliding scale basis. The rates are 0.06% per annum on the first US$37.5 million Net Asset
Value of each Cell, 0.05% per annum on the next US$37.5 million of the Net Asset Value of each Cell and 0.04% per annum on the remaining Net
Asset Value. These fees are accrued and calculated monthly and paid monthly in arrears. During the year ended 30 June 2008, administration
fees of US$214,000 (period ended 30 June 2007: US$70,000) and US$68,000 (period ended 30 June 2007: US$20,000) for the 1X Cell and 3X Cell,
respectively, were incurred, of which US$63,000 (30 June 2007: US$44,000) and US$15,000 (30 June 2007: US$13,000) was outstanding at the
year end.
Custodian fees
HSBC Institutional Trust Services (Ireland) Limited (the "Custodian") is paid a fee by each Cell equal to 0.03% per annum on the first
US$50 million Net Asset Value of each Cell and 0.02% per annum of the Net Asset Value of each Cell above US$50 million. The custody fee is
accrued and calculated monthly and paid monthly in arrears. During the year ended 30 June 2008, custodian fees of US$97,000 (period ended 30
June 2007: US$22,000) and US$34,000 (period ended 30 June 2007: US$7,000) were incurred by the 1X Cell and 3X Cell, respectively, of which
US$33,000 (30 June 2007: US$17,000) and US$11,000 (30 June 2007: US$5,000) was outstanding at the year end.
Registrar fees
Capita Registrars (Guernsey) Limited, (the "Registrar"), is paid a fee calculated on the basis of number of shareholders and the number
of transfers processed. During the year ended 30 June 2008, registrar fees of US$36,000 (period ended 30 June 2007: US$9,000) and US$13,000
(period ended 30 June 2007: US$2,000) were incurred by the 1X Cell and 3X Cell, respectively, of which US$23,000 (30 June 2007: US$4,000)
and US$21,000 (30 June 2007: US$3,000) were paid in advance to the Registrar at the year end.
Directors' fees
The directors are entitled to receive remuneration not exceeding *50,000 in aggregate for all of them for the first financial year of
the Company. Since December 2007 Christopher Sherwell is entitled to receive *25,000 per annum directors' fees, payable quarterly in advance
and John Duffield and John Hallam are entitled to receive *20,000 each per annum as directors, fees payable quarterly in advance. Directors'
remuneration for the year ended 30 June 2008 amounted to US$97,000 (period ended 30 June 2007: US$43,000) and US$26,000 (period ended 30
June 2007: US$11,000) for 1X and 3X Cell respectively, of which US$: Nil (30 June 2007: US$2,414) and US$: Nil (30 June 2007: US$820) was
payable at the year end.
Auditors' remuneration
Auditors' remuneration for the year amounted to US$176,000 (period ended 30 June 2007: US$90,000).
4. Taxation
With effect from 1 January 2008 exempt status for category D companies has been abolished and the standard rate of income tax for
Guernsey companies reduced to zero per cent. However the Company will be able to continue to apply for tax exemption under the Income Tax
(Exempt Bodies) (Guernsey) Ordinance, 1989 as a category B collective investment vehicle. A fixed annual fee of �600 per company is payable
to the States of Guernsey in respect of this exemption.
Guernsey does not levy capital gains tax (with the exception of dwellings profit tax) and therefore, the Company will not suffer any tax
in Guernsey on capital gains. Payments made by the Company to non Guernsey resident shareholders whether made during the life of the Company
or by distribution on the liquidation of the Company will not be subject to Guernsey tax. The Directors intend to conduct the affairs of the
Company so that it does not become resident in the United Kingdom for taxation purposes. As a result, and provided the Company does not
trade in the United Kingdom through a fixed place of business or agent situated therein that constitutes a "permanent establishment" for
United Kingdom taxation purposes and that all its trading transactions in the United Kingdom are carried out through a broker or investment
manager acting as an agent of independent status in the ordinary course of its business, the Company will not be subject to United Kingdom
corporation tax or income tax on its profits.
5. Dividend Policy
The Directors intend to seek certification of each Sterling Share class in the Company as having distributor fund status with a view to
ensuring that on a disposal of Sterling Shares (by way of redemption, transfer or otherwise) UK resident Shareholders are subject to capital
gains tax rather than income tax. It cannot be guaranteed, however, that the conditions necessary to obtain distributor fund status will
always be met.
It is not envisaged that any income or gains will be distributed on the US Dollar and Euro shares by way of dividend.
6. Financial Assets and Liabilities at Fair Value through Profit or Loss
Financial assets at fair value through profit or loss
Fair Value Fair Value Fair Value
As at 30 June 2008 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Held for trading
Bonds 175,440 46,550 221,990
Swap agreements 1,829 818 2,647
Forward foreign currency contracts 35 19 54
Total financial assets at fair value 177,304 47,387 224,691
through profit or loss
Fair Value Fair Value Fair Value
As at 30 June 2007 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Held for trading
Bonds 250,596 64,974 315,570
Swap agreements 5,730 3,392 9,122
Forward foreign currency contracts 652 161 813
Total financial assets at fair value 256,978 68,527 325,505
through profit or loss
The full amount of the bonds are pledged as collateral as explained in note 9.
7. Cash and Cash Equivalents
Fair Value Fair Value Fair Value
As at 30 June 2008 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Current deposits with banks 203 81 284
Margin accounts 15,124 1,420 16,544
Total cash and cash equivalents 15,327 1,501 16,828
Fair Value Fair Value Fair Value
As at 30 June 2007 1X Cell 3X Cell Total
US$ '000 US$ '000 US$ '000
Current deposits with banks 87 26 114
Margin accounts 1,654 528 2,182
Total cash and cash equivalents 1,741 554 2,296
Margin accounts represent cash transferred as collateral against swap agreements. To the extent not provided as collateral under the
swap agreements, the Company's Custodian holds each Cell's cash and cash equivalent balances.
8. Financial Instruments and Associated Risks
The Company's investing activities expose it to various types of risks, which are associated with the financial instruments and markets
in which it invests. These include market risk (which includes currency risk, interest rate risk and other price risk), credit risk and
liquidity risk. As an investment fund, the Company buys, sells or holds financial assets and liabilities in order to take advantage of
changes in market prices or rates.
Risk Management Structure
The Board of Directors' is ultimately responsible for identifying and controlling risks. The Board of Directors has delegated these
activities to the Investment Manager.
Risk Measurement and reporting system
Monitoring and controlling risks is primarily performed based on limits established by the Investment Manager. These limits reflect the
business strategy and market environment of the Company as well as the level of risk that the Company is willing to accept. In addition, the
Company monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and
activities.
Risk Mitigation
The Company has investment guidelines that set out its overall business strategies, its tolerance for risk and its general risk
management philosophy and have established processes to monitor and control economic hedging transactions in a timely and accurate manner.
The Company uses derivatives and other instruments for investment purposes and in connection with its risk management activities. The
Company's accounting policies in relation to derivatives are set out in Note 2.
The risk management policies employed by the Company are discussed below.
(a) Market Risk
Market risk is the risk that changes in foreign exchange rates, interest rates or other price factors will make an instrument less
valuable or more onerous. All investment portfolio financial instruments are measured at fair value, and all changes in market conditions
directly affect net income.
The Company's strategy on the management of market risk is driven by the Company's investment objective. The Company's market risk is
managed on a monthly basis by the Investment Manager in accordance with policies and procedures in place.
The investment objective of the Company is to provide access to performance representative of the hedge fund asset class. The investment
policy of the Company is to provide access to such performance through investment exposure to the RBC Hedge 250 Index (the "Index"). The
Index is a broad range of hedge funds constructed based on the RBC Hedge 250 Index Rules (the "Rules"). The Rules have been established to
produce a benchmark of the performance of the hedge fund asset class as represented by a group of hedge funds selected pursuant to the
Rules. The hedge funds that are eligible for inclusion may be limited to the extent necessary to allow RBC to hedge its exposure with
respect to the Index.
The Company may not achieve its investment objective. Meeting that objective is a target but the existence of such an objective should
not be considered as an assurance or guarantee that it can or will be met. The investment results of the Company are reliant upon the
performance of the Index. There is no assurance about the performance of the Index over the life of the Company and as a result Net Asset
Value per Share may not increase over its issue price and may decrease below its issue price.
Details of the Company's investment portfolio at the balance sheet date are disclosed in the schedule of investments. Details of the
nature and terms of derivative financial instruments outstanding at the balance sheet date are set out in Note 9.
(i) Currency risk
Currency risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
foreign exchange rates. The Company invests in securities and other investments that are denominated in currencies other than that of the
Sterling and Euro Share Classes. Accordingly, the value of these Share Classes may be affected favourably or unfavourably by fluctuations in
currency rates and therefore be subject to foreign exchange risks.
The Company has entered into a number of forward contracts for hedging purposes in an attempt to reduce the effects of foreign currency
fluctuations associated with the Sterling and Euro share classes. The gains/losses on forward contracts related to hedging of Sterling and
Euro share classes are only applicable to the net asset value calculation of those classes.
The following table sets out the Company's direct exposure to foreign currency at 30 June 2008 and 2007 at Sterling and Euro share class
level. This table also discloses management's best estimate of the effect on results for the year of a 5% change in the US Dollar exchange
rate against the Euro and the Sterling with all other variables held constant. In practice, the actual trading results may differ from the
below Sensitivity Analysis and the difference could be material.
Total Hedged Net 5% change in US$
effect on
profit/equity
1X Cell 2008 2008 2008 2008
'000 '000 '000 '000
Euro share class
Euro 37,288 (38,306) (1,018) (51)
Sterling share class
Sterling 12,178 (12,333) (155) (8)
Total Hedged Net 5% change in US$
effect on
profit/equity
3X Cell 2008 2008 2008 2008
'000 '000 '000 '000
Euro share class
Euro 8,120 (8,418) (298) (15)
Sterling share class
Sterling 7,052 (7,249) (197) (10)
Total Hedged Net 5% change in US$
effect on
profit/equity
1X Cell 2007 2007 2007 2007
'000 '000 '000 '000
Euro share class
Euro 59,086 (58,965) 121 6
Sterling share class
Sterling 23,740 (23,599) 141 7
Total Hedged Net 5% change in US$
effect on
profit/equity
3X Cell 2007 2007 2007 2007
'000 '000 '000 '000
Euro share class
Euro 10,068 (10,409) (341) (17)
Sterling share class
Sterling 9,314 (9,272) 42 2
(ii) Interest rate risk
Interest rate risk is the risk that the fair value of future cash flows of a financial instrument will fluctuate because of changes in
market interest rates. The majority of the Company's financial instruments are interest bearing and as a result the Company is subject to
significant amounts of risk due to fluctuations in the prevailing market interest rate. In addition to other interest rate-related risks, if
US dollar interest rates rise, the market price of the Shares may be adversely affected.
The Investment Manager monitors changes in interest rates applicable to the Company on a monthly basis and adjusts investments
accordingly to manage this risk.
The following table details the Company's concentration to interest rate risks by fixed and variable interest rates.
1X Cell Less than 3 months
1 month 1-3 months to 1 year Total
30 June 2008 US$ '000 US$ '000 US$ '000 US$ '000
Variable interest rate
instruments
Swap agreements - 1,829 - 1,829
Cash and cash equivalents 15,327 - - 15,327
Fixed interest rate instruments
Bonds - 175,440 - 175,440
Total 15,327 177,269 - 192,596
1X Cell Less than 3 months
1 month 1-3 months to 1 year Total
30 June 2007 US$ '000 US$ '000 US$ '000 US$ '000
Variable interest rate
instruments
Swap agreements - 5,730 - 5,730
Cash and cash equivalents 1,741 - - 1,741
Fixed interest rate instruments
Bonds 250,596 - - 250,596
Total 252,337 5,730 - 258,067
At 30 June 2008, should interest rates have increased by 100 basis points with all other variables remaining constant, the decrease in
the return for the year would amount to approximately US$52,000 (2007: US$88,000). A decrease in interest rates of 100 basis points would
have had an equal but opposite effect. In practice, the actual trading results may differ from the above Sensitivity Analysis and the
difference could be material.
3X Cell Less than 3 months
1 month 1-3 months to 1 year Total
30 June 2008 US$ '000 US$ '000 US$ '000 US$ '000
Variable interest rate
instruments
Swap agreements - 818 - 818
Cash and cash equivalents 1,501 - - 1,501
Fixed interest rate instruments
Bonds - 46,550 - 46,550
Total 1,501 47,368 - 48,869
3X Cell Less than 3 months
1 month 1-3 months to 1 year Total
30 June 2007 US$ '000 US$ '000 US$ '000 US$ '000
Variable interest rate
instruments
Swap agreements - 3,392 - 3,392
Cash and cash equivalents 554 - - 554
Fixed interest rate instruments
Bonds 64,974 - - 64,974
Total 65,528 3,392 - 68,920
At 30 June 2008, should interest rates have increased by 100 basis points with all other variables remaining constant, the decrease in
the return for the year would amount to approximately US$531,000 (2007: US$451,000). A decrease in interest rates of 100 basis points would
have had an equal but opposite effect. In practice, the actual trading results may differ from the above Sensitivity Analysis and the
difference could be material.
(iii) Other price risk
Other price risk is the risk that the fair values or future cash flows of a financial instrument will fluctuate because of changes in
the market prices (other than those arising from currency risk or interest rate risk), whether caused by factors specific to an individual
investment, its issuer or all factors affecting all instruments traded in the market. As explained in note 10, each Cell invests in swap
agreements which are exposed to the performance of the Index.
The swap entered into by the 3X Cell is highly leveraged, which increases the potential for volatility in the performance of the 3X Cell
Shares. The use of leverage creates special risks and may significantly increase the 3X Cell's investment risk. Leverage creates the
opportunity for greater total return but, at the same time, increases the 3X Cell's exposure to capital risk and interest costs. Whilst the
use of leverage may cause the Net Asset Value of the 3X Shares to increase more rapidly than would otherwise be the case without leverage,
leverage may also cause the Net Asset Value of the 3X Shares to decrease more rapidly than would otherwise be the case without leverage.
An increase in one month USD LIBOR rates causes an increase in the payments due by the relevant Cell to the Swap Counterparty under the
swap entered into by each Cell, and such increase may cause the market price of the relevant Shares to fall. Considering the leverage under
the swap entered into by the 3X Cell, any fall in the market price of the 3X Cell Shares may be greater than would otherwise be the case
without leverage. As a result of the leverage within the 3X Cell, the amount of interest generated on the collateral provided by the 3X Cell
will be less than the funding charges payable under the swap as they are charged under the floating notional amount under the 3X Cell Swap
(which, assuming a leverage ratio of 3 times, is 3 times the collateral provided). Any increase in one month USD LIBOR increases this
shortfall and hence increases the potential losses to which the 3X Cell is exposed.
A sudden or sharp decline in the value of the notional interests in the Index and/or foreign exchange transactions under the swap
entered into by the 3X Cell may result in losses under the swap exceeding the value of the collateral posted by the 3X Cell in respect of
the swap (and any other assets of the 3X Cell), and in such circumstances investors in 3X Shares would lose their entire investment.
Neither the Company nor any of the Cells borrow any monies directly. However, each Cell is able to take advantage of leverage embedded
within each relevant swap, and the ability to make adjustments under each relevant swap, for investment and liquidity purposes.
With respect to the 1X Cell, the Investment Manager and/or Investment Advisor do not utilise leverage for investment purposes but may do
so for liquidity purposes. It is not anticipated that the leverage ratio will be more than 1.25 times exposure to the performance of the
Index. The leverage ratio may go above that temporarily due to market fluctuations.
With respect to the 3X Cell, the Investment Manager and/or Investment Advisor may utilise leverage for investment and liquidity
purposes. The Investment Manager and/or Investment Advisor target a leverage ratio of approximately 3 times exposure to the performance of
the Index and endeavour to maintain a leverage ratio between 2.7 and 3.3 times. The leverage ratio may go outside this range temporarily due
to market fluctuations.
Management's best estimate of the effect on results for the year due to a reasonably possible change in the Index, with all other
variables held constant is as follows. In practice the actual trading results may differ from the below sensitivity analysis and the
difference could be material.
Change 1X Cell 1X Cell 3X Cell 3X Cell
Market Index in Index 2008 2007 2008 2007
US$ '000 US$ '000 US$ '000 US$ '000
RBC Hedge 250 Index +5% 12,622 4,793 9,962 3,298
(b) Credit Risk
Credit risk is the risk that the counterparty to a financial instrument will fail to discharge an obligation or commitment that it has
entered into. Credit risk is generally higher when an OTC contract is involved because the counterparty for an OTC contract is not backed by
an exchange clearing house. The Company has credit risk from OTC contracts when two conditions are present (i) the OTC contracts have
unrealised gains, net of any collateral and (ii) the counterparty to the contract defaults. The credit risk related to exchange-traded
contracts is minimal because the exchange ensures that their contracts are always honoured. The Company did not hold any open
exchange-traded contracts as at 30 June 2008 and 2007.
The counterparty for all derivative transactions entered into by the Company is the Royal Bank of Canada ("RBC"). Each Cell is subject
to exposure to the creditworthiness of RBC as the counterparty and the risk of the inability of the counterparty to perform with respect to
its obligations under each swap agreement and forward foreign exchange contract, whether due to insolvency or other causes. However, under
the terms of each swap and the relevant collateral agreements, collateral held by or on behalf of RBC is held in custody and, in the event
of the insolvency of RBC the portion of collateral held by or on behalf of RBC (which is not needed to satisfy the Company's obligations
upon close-out of the swap agreements) is recoverable by the Company.
Substantially all of the cash held by the Company is held by RBC and HSBC. Bankruptcy or insolvency by RBC or HSBC may cause the
Company's rights with respect to the cash held by RBC or HSBC to be delayed or limited. The Company monitors its credit risk by monitoring
the credit rating of RBC or HSBC on a regular basis, as reported by Standard and Poor's, Moody's or Fitch. As at 30 June 2008 and 2007, RBC
and HSBC had a credit rating of AA.
The Company's investments in fixed income securities including Commercial Paper are also subject to credit risk. Commercial Paper is
only purchased where the issuer meets a minimum long term credit rating of AA and a short term credit rating of A1/P1 at the time of
purchase. In addition the Company also seeks to geographically diversify the issuer exposure, where possible. The directors monitor the
positions of the Company on an ongoing basis in order to mitigate the risks described above. This is formally undertaken and noted at the
Company's quarterly Board meetings, where the investment manager and the sub-administrator report to the Board.
The Company's fixed income securities exposed to credit risk, analysed by counterparty as a % of NAV are disclosed in the below table.
Latest rating 1 October 2008.
1X Cell 3X Cell
Issuer Credit Rating % of NAV % of NAV
ANZ National Bank AA 10.54 6.15
Banque Et Caisse AA+ 5.80 8.81
Clydesdale Bank AA- 10.54 10.25
Commonwealth Bank of Australia AA 5.27 -
Den Danske Bank (S&P short term rating) A1+ 5.79 4.10
Deutsche Bank AA- 10.54 10.25
Dexia Financial Products AA- 5.79 8.81
National Australia AA 5.79 8.81
Nationwide Building Society A+ 5.79 9.21
SG Australia Ltd (Fitch long term rating) AA- 10.54 10.24
Ulster Bank Finance AA- 10.54 10.25
Westpac Banking AA 5.79 8.81
30 June 2007
1X Cell 3X Cell
Issuer Credit Rating % of NAV % of NAV
United States of America AAA 97.18 94.39
Source: Standard & Poor's ong term ratings, unless otherwise stated.
The amount of credit exposure is represented by the carrying amounts of the Company's assets as disclosed in notes 6 and 7.
(c) Liquidity Risk
Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. The
Company's financial instruments also include swap agreements and forward foreign exchange contracts, which are traded over the counter and
which may be illiquid. As a result, the Company may not be able to liquidate quickly some of these instruments at an amount close to its
fair value in order to meet liquidity requirements, or to respond to specific events such as deterioration in the creditworthiness of any
particular issuer. Other than the swap agreements and forward foreign exchange contracts, the Company invests in instruments which are
readily realisable.
The Swap Counterparty may terminate the Swap in whole or in part in accordance with the conditions set out in the terms of the Swap and
without consultation with, consideration of, or regard for the Company. Such termination may result in realisation of losses for the
Company. The Company may by 3 business days' prior notice terminate a Swap for any reason at any time, such termination to become effective
at the end of the next quarter.
The following table shows the contractual, undiscounted cash flows of the Company's financial liabilities.
1X Cell Less than 3 months No stated
30 June 2008 1 month 1-3 months to 1 year maturity
US$ '000 US$ '000 US$ '000 US$ '000
Financial liabilities
Redemption payable 2,524 - - -
Investment management fees 580 - - -
payable
Administration fees payable 63 - - -
Audit fees payable - - 88 -
Share issuance costs payable - - - -
Other payables (Note 4) - - 195 -
Total liabilities 3,167 - 283 -
1X Cell Less than 3 months No stated
30 June 2007 1 month 1-3 months to 1 year maturity
US$ '000 US$ '000 US$ '000 US$ '000
Financial liabilities
Redemption payable - - - -
Investment management fees 334 - - -
payable
Administration fees payable 34 - - -
Audit fees payable - - 16 -
Share issuance costs payable 206 - - -
Other payables (Note 4) - - 333 -
Total liabilities 574 - 349 -
3X Cell Less than 3 months No stated
30 June 2008 1 month 1-3 months to 1 year maturity
US$ '000 US$ '000 US$ '000 US$ '000
Financial liabilities
Investment management fees 170 - - -
payable
Administration fees payable 15 - - -
Audit fees payable - - 23 -
Share issuance costs payable 9 - - -
Other payables (Note 4) - - 60 -
Total liabilities 194 - 83 -
3X Cell Less than 3 months No stated
30 June 2007 1 month 1-3 months to 1 year maturity
US$ '000 US$ '000 US$ '000 US$ '000
Financial liabilities
Investment management fees 98 - - -
payable
Administration fees payable 10 - - -
Audit fees payable - - 4 -
Share issuance costs payable 100 - - -
Other payables (Note 4) - - 49 -
Total liabilities 208 - 53 -
9. Derivative Contracts
Typically, derivative contracts serve as components of the Company's investment strategy and are utilised primarily to structure and
hedge investments to enhance performance to the Company (the Company does not designate any derivatives as hedges for hedge accounting
purposes as described under IAS 39). The derivative contracts that the Company holds are swap agreements and forward foreign exchange
contracts.
The Company records its derivative activities on a fair value basis. Fair values are determined by performing calculations using quoted
market prices. Fair value of the swaps is determined based on the information provided by the Swap Counterparty. For OTC contracts, the
Company enters into master netting agreements with its counterparties, therefore, assets represent the Company's unrealised gains, less
unrealised losses for OTC contracts in which the Company has a master netting agreement. Similarly, liabilities represent net amounts owned
to counterparties on OTC contracts.
* Swap agreements
Swap agreements ("swaps") represent agreements that obligate two parties to exchange a series of cash flows at specified intervals based
upon or calculated by reference to changes in specified prices or rates for a specified amount of an underlying asset or otherwise
determined notional amount. The payment flows are usually netted against each other, with the difference being paid by one party to the
other. Therefore amounts required for the future satisfaction of the swap may be greater or less than the amount recorded.
Each Swap is valued on the basis of the latest available valuation provided by the Swap Counterparty. The valuation of each Swap is
dependent, among other things, on the Index Administrator determining the Index level in accordance with the Index Rules. The Index level
may reflect estimates of the net asset value of all or some of the hedge funds provided by administrators or managers of the relevant hedge
funds. Further, the Index level may be estimated by the index administrator, RBC Capital Markets Corporation ("Index Administrator").
The realised gain or loss depends upon the prices at which the underlying financial instruments of the swap are valued at the swap's
settlement date and is included in the income statement. Unrealised gains or losses are fair valued in accordance with the accounting policy
stated in Note 2 and the resulting movement in the unrealised gain or loss is recorded in the income statement.
As at 30 June 2008 and 2007, the following swap agreements were included in the Company's balance sheet at fair value through profit or
loss:
Nominal Unrealised gain Nominal Unrealised gain
1X Cell 2008 2008 2007 2007
US$ '000 US$ '000 US$ '000 US$ '000
RBC Hedge 250 Index 250,250 1,829 213,250 5,730
Exchange Traded
Securities Index
Swap
Nominal Unrealised gain Nominal Unrealised gain
3X Cell 2008 2008 2007 2007
US$ '000 US$ '000 US$ '000 US$ '000
RBC Hedge 250 Index 202,160 818 138,160 3,392
Exchange Traded
Securities Index
Swap
Under the terms of the swap relating to 1X and 3X Cells both Cells are required to post collateral to secure their obligations to the
Swap Counterparty at the outset of the swap equal to the full value of the initial notional amount under the swap for the 1X Cell and
approximately one third of the initial notional amount under the swap for the 3X Cell. In addition, during the life of the swap, the Company
may be required to post further collateral to secure its obligations to the Swap Counterparty under the swap in the event that the leverage
ratio under the swap reaches 1.5 times in relation to the 1X Cell and four times in relation to the 3X Cell, in order to reduce the leverage
ratio.
(b) Forward foreign exchange contracts
A forward foreign exchange contract involves an obligation to purchase or sell a specific currency at a future date; at a price set at
the time the contract is made. Forward foreign exchange contracts are valued by reference to the forward price at which a new forward
contract of the same size and maturity could be undertaken at the valuation date. The unrealised gain or loss on open forward foreign
exchange contracts is calculated as the difference between the forward rate for the transaction specified in the contract and the forward
rate on the valuation date as reported in published sources, multiplied by the face amount of the forward contract. Realised and unrealised
gains and losses are recognised in the income statement. Realised gains or losses include net gains or losses on contracts which have
settled or for which offsetting contracts have been entered into.
As at 30 June 2008 and 2007, the following forward foreign exchange contracts were included in the Company's balance sheet at fair value
through profit or loss:
Nominal Unrealised gain Nominal Unrealised gain
1X Cell 2008 2008 2007 2007
US$ '000 US$ '000 US$ '000 US$ '000
US$/GBP 31/07/2008 153 - - -
US$/EUR 31/07/2008 156 - - -
GBP/US$ 31/07/2008 12,426 33 - -
EUR/US$ 31/07/2008 38,207 2 - -
GBP/US$ 31/07/2007 - - 23,704 212
EUR/US$ 31/07/2007 - - 59,291 440
Total 50,942 35 82,995 652
Nominal Unrealised gain Nominal Unrealised gain
3X Cell 2008 2008 2007 2007
US$ '000 US$ '000 US$ '000 US$ '000
GBP/US$ 31/07/2008 7,258 19 - -
EUR/US$ 31/07/2008 8,418 - - -
GBP/US$ 31/07/2007 - - 9,314 83
EUR/US$ 31/07/2007 - - 10,467 78
Total 15,676 19 19,781 161
10. Share Capital
Authorised:
The authorised share capital of the Company consists of two Management Shares of no par value and an unlimited number of ordinary shares
of no par value.
Issued:
The Company is a closed-ended protected cell investment company. Two management shares have been allotted in respect of the non cellular
assets of the Company to the Investment Manager and to the nominee of the Administrator. There have been no other transactions in the non
cellular assets of the Company.
Ordinary shares are entitled to dividends payments out of distributable profits attributable to the relevant ordinary share class in
accordance with the Laws. The management shares do not carry any right to dividends except on non-cellular profits (if any).
A holder of ordinary shares in a class or cell and a holder of management shares present in person or represented in accordance with the
Articles at a general meeting of the Company or a Cell or a Class meeting shall on a poll have one vote in respect of each relevant ordinary
share or management share registered in the name of such person.
The Company is closed-ended and shareholders have no right whatsoever under the Articles to require the Company to repurchase or redeem
their shares.
Transactions in ordinary shares during the year ended 30 June 2008 were as follows:
Class 1X Cell 3X Cell
US$ shares shares shares
Opening balance 123,030,271 31,674,110
Shares issued 16,181,772 150,510
Shares redeemed (35,219,220) (8,618,933)
Closing balance 103,992,823 23,205,687
Class 1X Cell 3X Cell
Euro shares shares shares
Opening balance 56,778,461 8,905,835
Shares issued 340,589 187,984
Shares redeemed (20,346,567) (359,862)
Closing balance 36,772,483 8,733,957
Class 1X Cell 3X Cell
Sterling shares shares shares
Opening balance 22,628,678 8,161,347
Shares issued 107,905 305,822
Shares redeemed (10,930,123) (1,043,307)
Closing balance 11,806,460 7,423,862
Transactions in ordinary shares during the year ended 30 June 2007 were as follows:
Class 1X Cell 3X Cell
US$ shares shares shares
Opening balance - -
Shares issued 123,714,340 31,674,110
Shares redeemed (684,069) -
Closing balance 123,030,271 31,674,110
Class 1X Cell 3X Cell
Euro shares shares shares
Opening balance - -
Shares issued 56,778,461 9,116,783
Shares redeemed - (210,948)
Closing balance 56,778,461 8,905,835
Class 1X Cell 3X Cell
Sterling shares shares shares
Opening balance - -
Shares issued 22,628,678 8,161,347
Shares redeemed - -
Closing balance 22,628,678 8,161,347
11. Exchange Rates
The following exchange rates were used to translate assets and liabilities into the reporting currency (United States dollar) at 30 June
2008 and 30 June 2007:
2008 2007
US$: Euro 1 : 0.63540 1: 0.73972
US$: Sterling 1 : 0.50274 1: 0.49836
12. Other Related Parties
Except for John Duffield who is chairman of the Investment Manager and New Star Asset Management Limited (the "Investment Advisor"),
which receives fees as per Note 3, none of the directors was a party to any transaction which was unusual in its nature or conditions or
significant to the business of the Company or has any actual or potential conflicts of interests between their duties to the Company and
their private interests or other duties.
As at 30 June 2008 none of the directors or their families held any shares in the Company (30 June 2007: None).
13. Cross Cell and Cross Class Liability
The Company has been constituted as a protected cell company under Guernsey law. A protected cell company is a multi-cellular company
whose principal feature is that each cell has its own distinct assets which are not available to creditors of other cells of that company or
the company as a whole. Jurisdictions other than Guernsey may not be prepared to accept that creditors of a particular Cell are prevented
from gaining access to the assets of other Cells or that creditors of a multi-cellular company as a whole do not have access to those assets
specifically designated as cellular assets.
Where a Cell utilises a higher level of leverage than another Cell (such as the 3X Cell compared to the 1X Cell), there is a higher risk
that the assets of the higher leveraged Cell will be insufficient to satisfy the claims of any creditors of that Cell.
The Company issued more than one Class of Share in each Cell. Although the Articles of the Company require the establishment of accounts
for each Class of Shares and the attribution of assets and liabilities to the relevant Class, if the liabilities of a Class exceed its
assets, creditors of the Company may have recourse to the assets attributable to the other Classes in that Cell. As at the date of this
document, the directors are not aware of any such existing or contingent liability.
14. Valuation Date
The Net Asset Value of the year relates to 30 June 2008 and 29 June 2007, being the last Business Day before the year end.
15. Earnings per Share
The Company may raise more capital or repurchase shares or permit redemptions and this may affect future earnings per Share.
Earnings per Share (EPS) have been calculated at share Class level on a weighted average basis for the 1X Cell and the 3X Cell in the
base currency of each share Class.
2008 2007
1X Cell 3X Cell 1X Cell 3X Cell
Earnings per Share class
US$ share class US$2,121,000 US$(4,472,000) US$7,508,000 US$7,888,000
Euro share class EUR744,000 EUR(1,664,000) EUR3,349,000 EUR2,196,000
Sterling share class �243,000 �(1,447,000) �1,380,000 �2,029,000
Weighted average number of shares
US$ share class 122,556,884 28,343,113 94,717,002 19,781,738
Euro share class 47,640,226 8,912,789 35,031,230 6,441,358
Sterling share class 15,920,553 8,018,984 18,056,665 6,281,483
Earnings per Share
US$ share class US$0.0173 US$(0.1579) US$0.0793 US$0.3987
Euro share class EUR0.0156 EUR(0.1868) EUR0.0956 EUR0.3408
Sterling share class �0.0153 �(0.1803) �0.0764 �0.3230
16. Comparative Figures
The comparative figures are for the period from 19 September 2006 (date of incorporation) to 30 June 2007. The comparative figures have
been regrouped and/or rearranged to make them comparable with the current period figures.
17. Approval of Financial Statements
The Financial Statements were approved by the Directors on 15 October 2008. The above financial information is derived from the
statutory accounts for the years ended 30 June 2008 and 30 June 2007, on both of which the auditors have issued an unqualified opinion. The
information does not constitute statutory accounts.
The accounts for the year ended 30 June 2007 have been filed with the Guernsey Financial Services Commission and the accounts for the
year ended 30 June 2008 will be filed in due course.
The accounts for the year ended 30 June 2008 will be sent to shareholders in September and will be available from the investment manager
at 1 Knightsbridge Green, London SW1X 7NE or on the Company's webpage:
www.newstaram.com/alternative-investments/closed-end-funds/
Schedule of Investments
1X Cell
As at 30 June 2008
Quantity/ Nominal Financial Assets at Fair Fair Value % of Net Assets
Value US$ '000
through Profit or Loss
Fixed income
20,000,000 ANZ National Bank Euro 19,938 10.54
Commercial Paper
13/08/2008
11,000,000 Banque Et Caisse Euro 10,966 5.80
Commercial Paper
15/08/2008
20,000,000 Clydesdale Bank Euro 19,939 10.54
Commercial Paper
13/08/2008
10,000,000 Commonwealth Bank of 9,969 5.27
Australia Euro Commercial
Paper 13/08/2008
11,000,000 Den Danske Bank Euro 10,963 5.79
Commercial Paper
15/08/2008
20,000,000 Deutsche Bank Euro 19,937 10.54
Commercial Paper
13/08/2008
11,000,000 Dexia Financial Products 10,963 5.79
Euro Commercial Paper
15/08/2008
11,000,000 National Australia Bank 10,963 5.79
Euro Commercial Paper
15/08/2008
11,000,000 Nationwide Building 10,960 5.79
Society Euro Commercial
Paper 15/08/2008
20,000,000 SG Australia Ltd Euro 19,938 10.54
Commercial Paper
13/08/2008
20,000,000 Ulster Bank Finance Euro 19,938 10.54
Commercial Paper
13/08/2008
11,000,000 Westpac Banking Euro 10,966 5.79
Commercial Paper
15/08/2008
Total fixed income 175,440 92.72
Swap
250,250,000 RBC Hedge 250 Index Swap 1,829 0.96
Total swap 1,829 0.96
Forward foreign exchange
contracts
12,426,453 GBP/US$ 31/07/2008 33 0.02
153,474 US$/GBP 31/07/2008 - -
38,206,665 EUR/USD 31/07/2008 2 -
156,901 USD/EUR 31/07/2008 - -
Total forward foreign 35 0.02
exchange contracts
Financial assets at fair 177,304 93.70
value through profit or
loss
Cash at bank 15,327 8.10
Other net liabilities (3,402) (1.80)
Net asset value 189,229 100.00
3X Cell
As at 30 June 2008
Quantity/ Nominal Financial Assets at Fair Fair Value % of Net Assets
Value US$ '000
through Profit or Loss
Fixed income
3,000,000 ANZ National Bank Euro 2,991 6.15
Commercial Paper
13/08/2008
4,300,000 Banque Et Caisse Euro 4,287 8.81
Commercial Paper
15/08/2008
5,000,000 Clydesdale Bank Euro 4,985 10.25
Commercial Paper
13/08/2008
2,000,000 Den Danske Bank Euro 1,993 4.10
Commercial Paper
15/08/2008
5,000,000 Deutsche Bank Euro 4,984 10.25
Commercial Paper
13/08/2008
4,300,000 Dexia Financial Products 4,285 8.81
Euro Commercial Paper
15/08/2008
4,300,000 National Australia Bank 4,285 8.81
Euro Commercial Paper
15/08/2008
4,500,000 Nationwide Building 4,484 9.21
Society Euro Commercial
Paper 15/08/2008
5,000,000 SG Australia Ltd Euro 4,985 10.24
Commercial Paper
13/08/2008
5,000,000 Ulster Bank Finance Euro 4,985 10.25
Commercial Paper
13/08/2008
4,300,000 Westpac Banking Euro 4,286 8.81
Commercial Paper
15/08/2008
Total fixed income 46,550 95.69
Swap
202,160,000 RBC Hedge 250 Index Swap 818 1.70
Total swap 818 1.70
Forward foreign exchange
contracts
7,258,310 GBP/US$ 31/07/2008 19 0.04
8,418,101 EUR/US$ 31/07/2008 - -
Total forward foreign 19 0.04
exchange contracts
Financial assets at fair 47,387 97.43
value through profit or
loss
Cash at bank 1,501 3.09
Other net liabilities (245) (0.52)
Net asset value 48,643 100.00
1X Cell
As at 30 June 2007
Quantity/ Nominal Financial Assets at Fair Fair Value % of Net Assets
Value US$ '000
through Profit or Loss
Fixed income
251,080,000 US Treasury Bill 4.35% 250,596 97.18
19/07/2007
Total fixed income 250,596 97.18
Swap
213,250,000 RBC Hedge 250 Index Swap 5,730 2.21
Total swap 5,730 2.21
Forward foreign exchange
contracts
23,704,444 GBP/US$ 31/07/2007 212 0.08
59,290,964 EUR/US$ 31/07/2007 440 0.17
Total forward foreign 652 0.25
exchange contracts
Financial assets at fair 256,978 99.64
value through profit or
loss
Cash at bank 1,741 0.68
Other net liabilities (850) (0.32)
Net asset value 257,869 100.00
3X Cell
As at 30 June 2007
Quantity/ Nominal Financial Assets at Fair Fair Value % of Net Assets
Value through Profit or US$ '000
Loss
Fixed income
65,000,000 US Treasury Bill 4.35% 64,974 94.39
19/07/2007
Total fixed income 64,974 94.39
Swap
138,160,000 RBC Hedge 250 Index Swap 3,392 4.92
Total swap 3,392 4.92
Forward foreign exchange
contracts
10,466,595 EUR/US$ 31/07/2007 78 0.11
9,313,812 GBP/US$ 31/07/2007 83 0.12
Total forward foreign 161 0.23
exchange contracts
Financial assets at fair 68,527 99.54
value through profit or
loss
Cash at bank 554 0.81
Other net assets (242) (0.35)
Net asset value 68,839 100.00
General Information
Directors Christopher Sherwell (Chairman, Independent Non-Executive)
John Duffield (Non-Executive)
John Hallam (Independent Non-Executive)
Registered Office New Star RBC Hedge 250 Index Exchange Traded
Securities PCC Limited
PO Box 208
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY 1 3NF
Channel Islands
Investment Manager New Star Asset Management (Bermuda) Limited
31 Queen Street
PO Box HM 1871
Hamilton HM HX
Bermuda
(Licensed to conduct investment business by the Bermuda
Monetary Authority)
Investment Advisor New Star Asset Management Limited
1 Knightsbridge Green
London SW1X 7NE
United Kingdom
(Authorised and regulated by the Financial Services Authority)
Company Secretary and HSBC Securities Services (Guernsey) Limited
Administrator
PO Box 208
Arnold House
St. Julian's Avenue
St. Peter Port
Guernsey GY 1 3NF
Channel Islands
Sub-Administrator HSBC Securities Services (Ireland) Limited
HSBC House
Harcourt Centre
Harcourt Street
Dublin 2
Ireland
Custodian HSBC Institutional Trust Services (Ireland) Limited
HSBC House
Harcourt Centre
Harcourt Street
Dublin 2
Ireland
Auditors Ernst & Young LLP
14 New Street
St. Peter Port
Guernsey GY1 4AF
Channel Islands
English Solicitors Simmons and Simmons
CityPoint
One Ropemaker Street
London EC2Y 9SS
United Kingdom
Guernsey Lawyers Ozannes
PO Box 186
1 Le Marchant Street
St. Peter Port
Guernsey GY1 4HP
Channel Islands
Registrar Capita Registrars (Guernsey) Limited
2nd Floor
No. 1 Le Truchot
St. Peter Port
Guernsey GY1 4 AE
Channel Islands
Receiving Agent, UK Paying Agent Capita IRG Plc
and Transfer Agent The Registry
34 Beckenham Road
Beckenham
Kent BR3 4TU
United Kingdom
Savings Directive
EU Council Directive 2003/48/EC of 3 June 2003 (the 'Savings Directive')
The following is based on the Company's understanding of certain aspects of the law and practice currently in force in Guernsey and the
UK applicable to the Company and to persons who are resident or ordinarily resident and, where relevant, domiciled in Guernsey or the UK for
tax purposes and who hold the Shares as an investment. This summary does not constitute legal advice and there can be no guarantee that the
tax position or proposed tax position at the date of this document or at the time of investment will endure indefinitely.
Investors should consult their professional advisers on the possible tax and other consequences of their subscribing for, purchasing,
selling or redeeming shares under the laws of their country of incorporation, establishment, citizenship, residence or domicile. If you are
in any doubt as to your tax position, or if you may be subject to tax in a jurisdiction other than Guernsey or the UK, you should consult
your professional adviser.
The Savings Directive targets certain payments made in a member state of the European Union (a "Member State") to individuals and
certain other entities ("Beneficiaries") residing in another Member State. The payments within scope of the Savings Directive are those
payments that are considered "interest payments" for the purposes of the Savings Directive ("Taxable income"). Under the Savings Directive,
Member States are required to provide the tax authorities of the Beneficiary's Member State with details of payments of Taxable income made
and the identity of the respective Beneficiaries. This is achieved by Member States requiring paying agents located in their jurisdiction to
provide relevant information to them, which they in turn pass on to the Member State in which the Beneficiary is based.
Guernsey has introduced equivalent legislation to the regime set out in the EU Savings Tax Directive, providing for the operation of a
withholding tax system or an exchange of information with the relevant tax authorities. Under the terms of the relevant equivalent
legislation and/or bilateral agreements entered into, or proposed to be entered into, by Guernsey and guidance in respect thereof, the
Directive or relevant equivalent legislation will apply to a fund established in Guernsey only if, unlike the Company, it is a collective
investment fund and so is equivalent to a UCITS.
Accordingly it appears that the United Kingdom does not regard the Directive as applicable to the Company, so that a paying agent
established in the United Kingdom would not have any obligations under the Directive. It is unclear whether other jurisdictions will adopt
the same interpretation of the Directive.
This information is provided by RNS
The company news service from the London Stock Exchange
END
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