Final Results

Atlantis Japan Growth Fund Ld 20 July 2004 FOR IMMEDIATE RELEASE RELEASED BY MANAGEMENT INTERNATIONAL (GUERNSEY) LIMITED ATLANTIS JAPAN GROWTH FUND LIMITED PRELIMINARY ANNOUNCEMENT THE BOARD OF DIRECTORS OF ATLANTIS JAPAN GROWTH FUND LIMITED ANNOUNCE AUDITED RESULTS FOR THE YEAR ENDED 30 APRIL 2004: BALANCE SHEET As at 30 April 2004 (Expressed in United States Dollars) 2004 2003 $'000 $'000 FIXED ASSETS Investments at market value 436,729 195,836 (cost $278,810,715 (2003 - $207,041,000) CURRENT ASSETS Due from brokers 1,897 1,082 Dividends and interest receivable 1,958 1,199 Bank balances 8,238 1,063 Prepayments 10 - 12,103 3,344 CURRENT LIABILITIES Due to brokers 5,985 811 Creditors and accrued expenses 744 381 Loans payable - 12,956 6,729 14,148 NET CURRENT LIABILITIES 5,374 (10,804) CREDITORS AMOUNTS FALLING DUE AFTER ONE YEAR Loans Payable 40,796 12,237 TOTAL NET ASSETS $401,307 $172,795 CAPITAL & RESERVES Called-up share capital 204 204 Share premium 192,650 192,650 Other reserves 208,453 (20,059) TOTAL SHAREHOLDERS' FUNDS $401,307 $172,795 NET ASSET VALUE PER ORDINARY $19.64 $8.46 SHARE (Based on 20,435,627 (2003 - 20,435,627) ordinary shares and a Net Asset Value of $401,306,971 (2003 - $172,795,474)) STATEMENT OF TOTAL RETURN (incorporating the Revenue Account) For the year ended 30 April 2004 (Expressed in United States Dollars) Revenue Capital Total $'000 $'000 $'000 Realised gain on sales of investments - 62,628 62,628 Unrealised appreciation of investments - 169,123 169,123 Exchange loss - (1,985) (1,985) Investment income 4,154 - 4,154 Deposit interest 16 - 16 4,170 229,766 233,936 Investment management fee 3,909 - 3,909 Custodian fees 236 - 236 Administration fees 196 - 196 Registrar and transfer agent fees 14 - 14 Directors' fees and expenses 126 - 126 Interest expense and bank charges 346 - 346 Insurance fees 30 - 30 Audit fee 27 - 27 Printing and advertising fees 36 - 36 Legal and professional fees 43 - 43 Listing fees 26 - 26 Miscellaneous expenses 5 - 5 4,994 - 4,994 (DEFICIT)/RETURN ON ORDINARY ACTIVITIES BEFORE TAX (824) 229,766 228,942 Tax on ordinary activities (430) - (430) (DEFICIT)/RETURN ATTRIBUTABLE TO EQUITY SHAREHOLDERS (1,254) 229,766 228,512 (DEFICIT)/RETURN PER ORDINARY SHARE : $(0.061) $11.243 $11.182 (Based on the weighted average of 20,435,627 Ordinary Shares and the deficit Attributable to Equity Shareholders noted above) STATEMENT OF TOTAL RETURN (incorporating the Revenue Account) For the year ended 30 April 2003 (Expressed in United States Dollars) Revenue Capital Total $'000 $'000 $'000 Realised loss on sales of investments - (31,860) (31,860) Unrealised appreciation of investments - 10,680 10,680 Exchange gain/(loss) 133 (2,067) (1,934) Investment income 2,932 - 2,932 Deposit interest 20 - 20 3,085 (23,247) (20,162) Investment management fee 2,767 - 2,767 Custodian fees 188 - 188 Administration fees 218 - 218 Registrar and transfer agent fees 19 - 19 Directors' fees and expenses 113 - 113 Interest expense and bank charges 253 - 253 Insurance fees 28 - 28 Audit fee 19 - 19 Printing and advertising fees 57 - 57 Legal and professional fees 43 - 43 Listing fees 27 - 27 Miscellaneous expenses 3 - 3 3,735 - 3,735 DEFICIT ON ORDINARY ACTIVITIES BEFORE TAX (650) (23,247) (23,897) Tax on ordinary activities (440) - (440) DEFICIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS (1,090) (23,247) (24,337) DEFICIT PER ORDINARY SHARE : $(0.053) $(1.138) $(1.191) (Based on the weighted average of 20,435,627 Ordinary Shares and the deficit attributable to Equity Shareholders noted above.) STATEMENT OF CASH FLOWS For the year ended 30 April 2004 (Expressed in United States Dollars) 2004 2003 $'000 $'000 $'000 $'000 OPERATING ACTIVITIES Net cash outflow from operating (1,323) (1,045) activities SERVICING OF FINANCE Interest paid (336) (258) FINANCIAL INVESTMENT Purchase of investments (215,812) (141,520) Sale of investments 211,028 142,578 Net cash (outflow)/inflow from (4,784) 1,058 investing activities Decrease in cash (6,443) (245) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Decrease in cash as above (6,443) (245) Exchange movements (1,985) (2,067) Movement in net debt in the year (8,428) (2,312) Net debt at 1st May (24,130) (21,818) Net debt at 30th April (32,558) (24,130) ATLANTIS JAPAN GROWTH FUND LIMITED CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 30TH APRIL 2004 When I wrote to you this time last year, the Asian region was slowly recovering from the ravages of a war in Iraq and the outbreak of SARS. The Tokyo Stock Exchange Price Index (TOPIX) had hit a 20 year low of 770.46 on 18th April 2003 and began to recover in early May that year. This recovery in the Japanese stock market, together with a slowly improving economy have been the major characteristics of the past year and have provided much needed relief for long term investors in Japan. I am delighted to report that your Fund has performed well over the year with an increase in net asset value of 132% in US Dollar terms compared with an increase of 60.9% in the TOPIX. Since the beginning of 2004, divergence of performance has been most marked, as small and medium sized companies, where the Investment Manager has identified the best opportunities, have outperformed larger companies. SHARE PRICE DISCOUNT The discount or premium on the Fund represents the share price relative to its net asset value. Shareholders in the Fund will be pleased to learn that as Japan has returned to favour with investors, the discount has narrowed considerably and the Fund has, at times, traded at a premium. The discount on the Fund averaged 7.7% during the period with a range of a discount of 16.7% on 30th April 2003 to a premium of 2.1% on 1st April 2004*. You have empowered your Board to monitor this discount and repurchase shares if the discount moves out of line with Funds of a similar nature. Currently, the discount is not out of line with the peer group consequently, to date, no repurchases have been made. The Board will continue to monitor this situation and will take action if necessary. OUTLOOK I am greatly encouraged by recent statistics indicating a modest recovery in the Japanese economy. It is still too early to be confident of a sustained recovery but GDP growth of 5.6% in the first quarter of 2004, admittedly from a low base, must give cause for optimism. An end to deflation and recovery in earnings would justify the rally in the stock market over the past year from the seemingly oversold levels of last year. However, the Japanese stock market is not immune to the forces affecting all worldwide stock markets currently including the prospect of higher US interest rates, oil prices, political extremism and a slowdown in the Chinese economy. Against this background, the Directors take comfort from the Investment Manager's cautious optimism and we continue to believe that the Fund is well positioned to take advantage of further improvements in the economy and stock market over the year ahead. The Fund maintains a high weighting in small and medium sized companies. Our Adviser, Ed Merner, continues to believe that the best growth and value opportunities are to be found in this area of the market. This strategy has served us well over the past year and there seems little reason to change. Finally, I am proud to be able to tell you that Money Observer presented your Company with the Best Japan Trust Award for 2004 for the third year running, and also Investment Week with the Best Japan Investment Trust of the Year Award for the fourth year running. Tim Guinness Chairman 10 June 2004 *Source: Bloomberg ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT FOR THE YEAR ENDED 30TH APRIL 2004 PERFORMANCE The improving economy and higher corporate earnings had a favourable impact on both the Tokyo Market and Net Asset Value ('NAV') of the Fund. For the year ended 30th April 2004 the NAV of the Fund was up 132%, reaching $19.64 per share. During the same period the Topix advanced 60.9% and the Tokyo Second Market increased 114.3%, all figures adjusted to US dollars. Since inception, in May 1996, the NAV per share of the Fund is up 97.98%, which compares with a decline of 33.5% for the Topix and an increase of 32% for the Tokyo Second Market, again all figures in US dollars. The Fund has borrowings of Y4.5 billion ($40.8 million) and cash (net of committed cash) stands at about Y448 million ($ 4 million). Based on the above, the Fund is about 10% leveraged. The Fund has no foreign currency hedges and none are planned at this time. Since almost all of the assets of the Fund are in Yen, a stronger Yen has a positive impact on the NAV in US dollar terms and vice versa. The Yen ended the year at Y110.185 to the US dollar compared with Y119.08 at the end of the previous year for a gain in the Yen of about 7.5%. MARKET OUTLOOK During the last twelve months the Japanese economy benefited from strong exports and rising capital investments. Industrial production increased and consumer spending showed some signs of a gradual recovery. The Bank of Japan continued its easy money policy and interest rates, although higher at the long end of the curve, remained at fairly low levels with the bell weather long government bond of 10 years yielding only around 1.53%. Despite some pressure on wholesale prices, the consumer price index was flat to slightly down. Corporate earnings continued to show recovery for the fiscal year ended March 2004 and pretax earnings were probably up around 17-18%, exact figures being released in June. For the current fiscal year ending in March 2005 we also expect positive earnings growth. GDP growth for the year ended March 2004 was probably around 3%, again no figures are yet available. For the current fiscal year we are projecting GDP growth of around 3% or higher. Unemployment, which had risen at one time during the last year, has recently improved and as of the end of March declined to 4.7%, the lowest since 2000. To date consumer spending is, at best, displaying only modest recovery due to lower bonuses and little in the way of salary increases in recent years. Higher medical payments and other insurance premiums have also had a negative impact on spending. However we sense that consumer confidence is slowly showing signs of recovery but in any case do not look for a consumer boom. ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT (continued) FOR THE YEAR ENDED 30TH APRIL 2004 In Japan, over the past 55 years there has been a close correlation between the trend of stock prices and the trend of corporate earnings, with stocks usually running ahead of the trend of earnings by 6-18 months. This relationship broke down in the mid 1960's when there was a massive over supply of stocks and again early last year when there was a massive over supply of shares caused by aggressive selling by local pension accounts and city banks, through the reduction of cross holdings, and reduced buying or even net selling in some months by overseas investors. However since April of last year, the market has been moving higher and investors have favoured the medium sized and smaller stocks. In Yen terms the Topix is up 48.9% but the Tokyo Second Market is up 98.3% over the same period. Factors expected to influence the market during the coming year include the trend of the economy and corporate earnings, Bank of Japan monetary policy, the Yen (an overly strong Yen is negative), the government (there is a general election for the Upper House in July), the world economy including economic trends in the US, China, and the EU, major world stock markets, and possible terrorist events. Most of the above look favourable. We also think that overseas investors will continue to be net buyers of Japanese equities. Perhaps 70-80% of the local pension fund selling is now completed and hopefully selling of cross holdings will become less of a negative in the future. On the plus side is the fact that companies are continuing to buy back their own shares, the number of new shares coming on the market is limited, and local investment trusts now seem to be new buyers. Individuals, many of whom are now trading via the internet, account for over 40% of daily trading and are net buyers in many weeks and months. Weak overseas markets, an unexpected slowing of economic growth, aggressive selling by overseas investors, or some sort of political crisis would probably have a negative impact on the market and stock prices. THE COMPANY Our basic strategy remains unchanged. As in the past we will continue to focus on long term earnings growth, price to book value, profit margins, return on equity, free cash flow, management, and dividend yield. The Manager and the team in Tokyo will continue to maintain a busy company visiting schedule with the aim of seeking out undervalued growth companies, often companies that are not yet well known, often companies not yet followed by brokers. Due to stock appreciation, the size of the portfolio has become much bigger, standing at over $400 million at year end. As a means of reducing risk and not having too much in any one stock, the Manager has elected to have a large number of stocks, now about 185, and in most cases any one holding accounts for no more than 2-3% of the portfolio. ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT (continued) FOR THE YEAR ENDED 30TH APRIL 2004 We look at all kinds of companies in all sorts of businesses and do not limit ourselves to any maximum or minimum market capitalisation. However at present we are finding the most value and growth in the smaller and medium sized issues, which partly explains the large number of stocks. Many smaller stocks have small floats and at times are difficult to buy and difficult to sell, especially if something goes wrong. Although we like and have exposure to some high technology companies we think that manufacturing will continue to account for a decreasing part of Japanese GDP and therefore have little exposure to heavy industry and 'Old Japan stocks'. We think the future, including future growth, will come more from the service, health care, specialized chain stores, wholesalers, generic drug companies, and many other service/retail related companies. We are also looking at a number of high technology companies and have holdings in several electronic related companies including some of the parts makers and semiconductor equipment manufacturers. Via stock picking, not sector allocation, the portfolio is heavily exposed to the service, retail, and to the trading/wholesalers. In the last year we have taken profits in many of the stocks in the portfolio, which had, in our opinion, performed too well and had become fully or over priced. We have tried to reinvest the funds generated into undervalued companies with good growth prospects, which still look undervalued, and in some cases remain depressed despite the good market. The Manager continues to have no exposure to warrants and is also no longer holding any convertible bonds. We are now looking at a number of convertibles and may consider purchase in the right issue at the right price. As in the past emphasis will continue to be placed on value and growth. Atlantis Fund Management (Guernsey) Limited July 2004 This information is provided by RNS The company news service from the London Stock Exchange

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