Half Yearly Report

RNS Number : 9126T

Atlantis Japan Growth Fund Ld

13 December 2011

 



 

Atlantis Japan Growth Fund Limited

Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3QL, Channel Islands

Company No 30709

Statement of Interim Results

13th December 2011

The financial information set out in this announcement does not constitute the Company's statutory accounts for the period ending 31st October 2011

The financial information for the period ended 31st October 2011 is derived from the financial statements which will be delivered to the UK Listing Authority and submitted to the National Storage Mechanism and will be available for inspection at www.hemscott.com/nsm.do.

Interim Management Report and Investment Manager's Report

For the six months ended 31st October 2011

PERFORMANCE

The six month period ended 31st October 2011 was a difficult one for the Japanese markets, although Japan has outperformed other major markets. During this period the Fund has performed well with the net asset value of the Fund falling by 1.6% while the Topix dropped 5.0% in US dollar terms on a total return basis.  This compares with a decline of 11.06% in the MSCI World index in this volatile environment.

The market continued to be negatively impacted by the effects of the earthquake, tsunami and nuclear meltdown in March which impacted Japan's GDP and also disrupted the global supply chain (particularly those of the auto and electronics parts manufacturers). Other negatives for the economy and the market during the period included the stronger yen (bad for exports), the dysfunctional Kan government (Mr. Kan was recently replaced by Mr. Noda and the government is moving ahead again), the ongoing European financial crisis, the slowing world economy (especially China and the US) and a lowering of earnings estimates for the current fiscal year due to the weaker than expected economy.

Overseas investors were net sellers in both August and September and local investors were net sellers in most months during the period. There was a definite weakening of investor sentiment and many investors moved to the sidelines, which in turn resulted in depressed trading volumes and only a limited number of secondary issues.

We sold off some export-related companies but the Fund remained overweight in export-related industries which negatively impacted performance. As mentioned in previous reports, the Fund has a high tracking error and tends to outperform when the market is strong and underperform when it is weak.

The Fund has no foreign exchange hedges and none are planned at this time. It should also be noted that the Fund has no exposure to bonds, convertibles, warrants, unlisted companies or derivatives. The Fund has not hedged the yen and this has helped performance in dollar and sterling terms. As of 31st October, borrowings stood at Y1.85 billion and cash at Y442 million, resulting in net leverage of 12.3%.

MARKET OUTLOOK

We believe that the medium and long term trend of the market will continue to be influenced by actual and perceived GDP growth and, more importantly, the trend and expected trend of corporate earnings.

Major factors impacting the economy and earnings include exports, consumer spending, private capital investments, the yen (a strong yen is negative), government policy, developments related to the current European financial crisis and world economic growth (especially China, the US and Southeast Asia).

At present we remain optimistic that Japan will witness higher than average GDP growth next fiscal year ending March 2013 and the following year. This should result in corporate earnings growth of around 10-20% for next fiscal year and positive earnings growth for the following year. Higher earnings, low valuations in terms of price to book and price to earnings, and attractive dividend yields in real terms could lead to improving investor sentiment and higher stock prices.

Possible negatives include a sharply stronger yen (unlikely in our opinion), a deepening of the European financial crisis, the possibility of lower than expected economic growth in China, the US and Southeast Asia, or a dysfunctional government in Japan. The new Noda cabinet does seem to be moving in the right direction albeit rather slowly. There is of course always the small risk of natural disaster; something which we cannot predict.

Given the fact that investor sentiment for Japanese equities is now at a very low level and stock prices are very depressed, on a risk-reward basis Japanese stocks now look very attractive in our view.

OUR STRATEGY AND THE PORTFOLIO

Our investment criteria remain unchanged and we aim to find, buy and hold undervalued growing companies including some cyclical growth companies and recovery situations. We invest primarily in companies that (1) exhibit both top and bottom line growth, (2) look cheap in terms of their price to book ratio, price to earnings ratio and price to earnings growth, (3) have strong balance sheets, (4) have top quality management and (5) have the potential to grow earnings for several years to come.

We concentrate on stock selection rather than sector allocation but invest in a large number of companies in a wide range of businesses. As of 31st October the Fund held 94 stocks in its portfolio with the ten largest holdings accounting for 39.7% of the net asset value. We have little exposure to industrials including iron and steel, shipbuilding, fishing, non-ferrous metals and textiles. We are overweight in technology companies, auto parts, fine chemicals, trucking, retail and selected financials.

We have a concentration in medium sized and smaller stocks but do have exposure to some larger names including Makita (our biggest holding), Toyota, Keyence and Sumitomo Bank. While we do buy smaller stocks we limit our exposure so that we do not hold too high a percentage of a small company's shares in issue or become trapped in an illiquid stock.

We have recently been buying stocks focused on the domestic economy including a DIY chain store, a speciality chemical company, a software business and a discount office supply group. We have been adding to some of our existing holdings and have sold some companies that are failing to meet our earnings expectations including two glass companies; Asahi Glass and Nippon Electric Glass.

We have no price targets for the companies we buy and think in terms of years, not weeks or months. If earnings in an investee company are increasing at the rate of 20% per annum for example and the stock price is increasing at a similar pace we would probably hold the position indefinitely as long as we are satisfied with the management and continue to believe that earnings can maintain the current pace of growth.

Although the short term outlook for the market remains uncertain in our opinion, we are finding a wide range of attractive companies and we have many buy candidates. We think that Japanese stocks, especially on a selective basis, are very attractive for long term investors. We believe that it is an opportune time to be increasing one's exposure to Japanese equities.

AFMG Limited

Directors' Interim Report and Statement of Directors Responsibility

For the six months ended 31st October 2011

The Directors are pleased to present their interim Report and the Unaudited Financial Statements of the Company for the six month period ended 31st October 2011.

CAPITAL VALUES

At 31st October 2011 the value of net assets available to shareholders was $133,003,867 (30th April 2011 - $210,637,076) and the Net Asset Value per share was $1.33 (30th April 2011 - $1.35).

COMPANY'S OBJECTIVES, POLICIES AND STRATEGIES IN RESPECT OF FINANCIAL ASSETS

As an investment trust, the Company invests in securities for the long term. The financial investments held as assets by the Company comprise of equity shares. As such, the holding of securities, investing activities and financing associated with the implementation of the investment policy involves certain inherent risks. Events may occur that could result in either a reduction in the Company's net assets or a reduction of revenue profits available for distribution.

Set out below are the principal risks inherent in the Company's activities along with the actions taken to manage them. The Board reviews and agrees policies for managing these risks and these policies have remained substantially unchanged since 30th April 2006.

Market risk

Market risk arises mainly from uncertainty about future prices of financial instruments used in the Company's business. It represents the potential loss the Company might suffer through holding market positions in the face of price movements.

The market risk is monitored by the Board on a quarterly basis and on a daily basis by the Investment Manager.

Currency risk

The Company's results for the period and net assets could be significantly affected by currency movements as most of the Company's assets are denominated in Yen. In order to reduce this risk the Company may hedge its exposure to the Japanese currency. The Company did not have any hedging arrangements in place at the period end.

Borrowing and Interest rate risk

The Company finances its operations mainly through its share capital and retained profits, including realised and unrealised capital profits. Additional bank borrowings may be used with a view to enhancing capital returns. However, the Company's Articles of Association provide that borrowing levels should not exceed 20% of Net Asset Value at the time any borrowing is effected. The level of gross borrowing as at 31st October 2011 was 15.9%, while at 30th April 2011 it was 14.5%. The level of net borrowings as at 31st October 2011 was 12.3% while at 30th April 2011 it was 6.2%.

The facility for Yen 1,500,000,000 was repaid on 7th July 2011 and the facility for Yen 1,000,000 was repaid on 31st July 2011. On 7th July 2011 a new loan for Yen 850,000,000 was drawn and on 29th July 2011a new loan for Yen 1,000,000 was also drawn.

Liquidity risk and cashflow risk

Assuming a normal market environment, the majority of the Company's assets comprise readily realisable securities, which can be sold to meet funding commitments as necessary. As at 17th November 2011 based on the assumption, of one third of the volume for the last 3 months average volume, 81% of the Company's assets can be realised within one to four weeks, 3% can be realised between one to two months and the remaining 16% in excess of two months. We now have fewer issues in the portfolio and the average size has increased and the liquidity of the underlying portfolio has improved.

GOING CONCERN

The Directors believe that the Company has adequate resources to continue in operational existence for the foreseeable future. The use of the going concern basis is appropriate because there are no material uncertainties relating to events or conditions that may cast significant doubt about the ability of the Company to continue as a going concern.

INVESTMENT MANAGER

In the opinion of the Directors, in order to achieve the investment objectives and policies of the Company, and having taken into consideration the performance of the Company, the continuing appointment of the Investment Manager is in the interests of the shareholders as a whole.

BOARD COMPOSITION

There have been no other changes to the board during the period.

DIRECTORS' RESPONSIBILITY STATEMENT

We confirm, to the best of their knowledge, state that:

-              the condensed set of interim financial statements have been prepared in accordance with IAS 34 Interim 
Financial Reporting.;

-              as required by DTR 4.2.7R of the FSA's Disclosure and Transparency Rules, the interim management report 
includes a fair review of important events that have occurred during the first six months of the financial year and their impact on the condensed set of interim financial statements, and a description of the principal risks and uncertainties for the remaining six months of the financial year; and

-              the interim management report includes a fair review of the information concerning related party transactions required by DTR 4.2.8R

Details of Ten Largest Investments

The ten largest investments as at 31st October 2011 comprise a fair value of $58,788,386 (30th April 2011 $75,946,205) representing 34.6% of Net Asset Value (30th April 2011 34.6%) with details as below:

Makita (200,000 shares, cost $5,710,046)

Makita manufactures and sells a wide range of power tools for professional and amateur users worldwide. The company also produces gardening and household products and provides parts, repairs and accessories. During the fiscal year ended March 2010, approximately 83% of Makita's sales were overseas. The company has over 100 service depots outside of Japan, with 28 located in the United States and 19 in China.

(Fair value of $7,598,823 representing 5.1% of the Net Asset Value (30th April 2011: 6.9%))

JSR (380,000 shares, cost $7,092,805)

The company produces a wide range of petrochemical products including elastomers such as synthetic rubber, plastics, optical material, biomedical materials, emulsions, electronic materials, precision materials, display material, etc. The company's products are used in cars, lithium-ion batteries, fuel cells, health and medical care, building and construction and many other areas. The company has high market shares in many niche areas and we look for growing sales and earnings over the medium to longer term.

(Fair value of $7,389,024 representing 5% of the Net Asset Value (30th April 2011: N/A))

Hamakyorex (250,800 shares, cost $5,373,914)

Hamakyorex is active in two business segments. The company provides third party logistics services including consulting. It is also involved in trucking and covers most of Japan.

(Fair value of $7,218,882 representing 4.9% of the Net Asset Value (30th April 2011: 4.6%))

Toyota Motor (175,900 shares, cost $6,866,372)

Toyota is Japan's leading auto manufacturer and has a worldwide sales and production network. Toyota was impacted by parts shortages after the earthquake but is now recovering and we look for above average sales and earnings growth over the medium to longer term.

(Fair value of $5,947,342 representing 4% of the Net Asset Value (30th April 2011: N/A))

Kintetsu World Express (171,600 shares, cost $4,208,678)

Kintetsu is a leading Japanese freight forwarder and provides a wide range of services related to importing, exporting and distributing products, especially to and from Japan. The company is concentrating on air freight and is especially strong in business related to Asia and Japan's other leading trade partners. The business is very sensitive to Japanese trade flows which should expand over the longer term.

(Fair value of $5,288,274 representing 3.6% of the Net Asset Value (30th April 2011: 2.9%))

Toyota Tsusho (323,500 shares, cost $3,038,155)

Toyota Tsusho, 21.5% owned by Toyota Motors, is a medium/large scale trader involved in selling steel, autos and auto parts, chemicals, and non-ferrous metals. Overseas sales account for 54% of total turnover.

(Fair value of $5,206,128 representing 3.5% of the Net Asset Value (30th April 2011: 3.3%))

Bit-Isle (2,837 shares, cost $2,813,501)

The company runs data centres which house server racks used to store information and facilitate Cloud computing. The company has been expanding capacity and sales and earnings have been growing steadily. The company is expected to continue to maintain a high level of expansion as capacity increases.

(Fair value of $5,088,236 representing 3.4% of the Net Asset Value (30th April 2011: 2.7%))

Keyence (19.600 shares, cost $4,221,441)

Keyence designs factory automation systems and other related equipment including sensors for factories. Production is subcontracted out. In recent years the company has been growing its overseas business, especially in Asia, which is now becoming an important part of the company's total sales. Most of the company's employees are engineers and Keyence is well known for its high engineering standards. It has some of the highest profit margins in the industry.

(Fair value of $5,059,844 representing 3.4% of the Net Asset Value (30th April 2011: 3.2%))

Sumitomo Mitsui Financial (177,600 shares, cost $5,601,896)

Sumitomo Mitsui is one of Japan's leading city banks. It suffered for 20 years from the after-effects of the bubble period but is now growing again and is focusing on retail banking (including home mortgages), expansion into Asia, growth in domestic corporate services and its brokerage business. The shares are selling at a discount to book value, have an above average yield and look cheap in terms of PER and projected PER. We look for above average earnings growth in the medium to longer term.

(Fair value of $5,034,689 representing 3.4% of the Net Asset Value (30th April 2011: 3.1%))

Monotaro (500,000 shares, cost $1,409,388)

The company is an Osaka-based specialised mail order house and sells a wide range of products to smaller and medium sized companies via the internet/fax including imported products. The company provides quick delivery at low prices and has an outstanding growth record. We rate the management highly.

(Fair value of $4,957,145 representing 3.3% of the Net Asset Value (30th April 2011: 2.7%))

Comparisons at 31st October 2010 are as follows:-

			Fair	Percentage
Investment	Shares	Cost $	Value $	of NAV
Makita	440,000	12,562,100	15,370,180	6.3
Hamakyorex	471,400	10,100,730	11,133,641	4.6
Toyota Tsusho	650,800	6,111,997	10,061,883	4.1
Keyence	30,600	6,397,023	7,530,210	3.1
Nippon Electric Glass	505,000	4,234,381	6,476,202	2.7
Monotaro	625,800	3,527,979	5,887,331	2.4
Sakai Moving Service	271,700	5,639,605	5,724,248	2.4
Kintetsu World Express	246,900	5,424,374	5,699,926	2.3
Mani Inc	136,800	4,350,072	5,274,890	2.2
Nihon Chouzai	150,000	4,900,767	5,191,558	2.1

Comparisons at 30th April 2011 are as follows:-

			Fair	Percentage
Investment	Shares	Cost $	Value $	of NAV
Makita	336,300	9,601,442	15,232,097	6.9
Hamakyorex	348,800	7,473,769	10,025,491	4.6
Toyota Tsusho	449,900	4,225,242	7,352,387	3.3
Keyence	27,300	5,879,864	7,061,440	3.2
Sumitomo Mitsui Financial	222,000	7,067,705	6,777,672	3.1
Kintetsu World Express	188,700	4,145,725	6,299,240	2.9
Japan Drilling Co	151,700	5,362,156	6,063,172	2.8
Bit-Isle-Inc	3,895	3,836,610	5,983,872	2.7
Monotaro	478,300	2,696,440	5,860,917	2.7
Adeka Corp	542,200	5,666,797	5,289,918	2.4

Comparisons at 31st October 2011 are as follows:-

			Fair	Percentage
Investment	Shares	Cost $	Value $	of NAV
Makita	200,000	5,710,046	7,598,823	5.1
JSR	380,000	7,092,805	7,389,024	5.0
Hamakyorex	250,800	5,373,914	7,218,882	4.9
Toyota Motor	175,900	6,866,372	5,947,342	4.0
Kintetsu World Express	171,600	4,208,678	5,288,274	3.6
Toyota Tsusho	323,500	3,038,155	5,206,128	3.5
Bit-Isle Inc	2,837	2,813,501	5,088,236	3.4
Keyence	19,600	4,221,441	5,059,844	3.4
Sumitomo Mitsui Financial	177,600	5,601,896	5,034,689	3.4
Monotaro	500,000	1,409,388	4,957,145	3.3

Unaudited Statement of Comprehensive Income

For the Six Months Ended 31st October 2011

		(Unaudited)					(Unaudited)
		01-May-11 to 31-Oct-11					01-May-10 to 31-Oct-10
		Revenue	Capital	Total		Revenue	Capital	Total
Notes		$'000	$'000	$'000		$'000	$'000	$'000
	Income
	Exchange gain/(loss)	-	369	369		-	(3,698)	(3,698)
	Dividend income	2,111	-	2,111		2,391	-	2,391
		2,111	369	2,480		2,391	(3,698)	(1,307)
	Expenses
3	Losses on investments held at fair value	-	2,355	2,355		-	19,954	19,954
4	Investment management fee	968	-	968		1,844	-	1,844
5	Custodian fees	79	-	79		96	-	96
6	Administration fees	119	-	119		117	-	117
	Reorganisation expenses	-	-	-		93		93
14	Redemption facility expenses	(240)	-	(240)		-	-	-
	Registrar and transfer agent fees	3	-	3		7	-	7
7	Directors' fees and expenses	140	-	140		66	-	66
	Transaction costs	-	323	323		-	205	205
	Insurance fees	16	-	16		13	-	13
	Audit fee	23	-	23		21	-	21
	Printing and advertising fees	21	-	21		21	-	21
	Legal and professional fees	100	-	100		52	-	52
	Listing fees	19	-	19		10	-	10
	Miscellaneous expenses	22	-	22		8	-	8
		1,270	2,678	3,948		2,348	20,159	22,507
	Finance cost
	Interest expense and bank charges	281	-	281		289	-	289
	Profit/(Loss) before tax	560	(2,309)	(1,749)		(246)	(23,857)	(24,103)
	Taxation	(147)	-	(147)		(165)	-	(165)
	Profit/(Loss) and total
	comprehensive income for the period	413	(2,309)	(1,896)		(411)	(23,857)	(24,268)
9	Earnings/(Deficit) per ordinary share	$0.003	$(0.018)	$(0.015)		$(0.020)	$(1.168)	$(1.188)

All of the Company's income and expenses are included in the loss for the period and therefore the loss for the period is also the Company's comprehensive income for the period, as defined by IAS 1(revised).  In arriving at the result for the period, all amounts above relate to continuing activities.

The total column in this statement represents the Company's Statement of Comprehensive Income, prepared in accordance with IFRS.  The supplementary revenue and capital columns are both prepared under guidance published by the Association of Investment Companies.

Unaudited Statement of Changes In Equity

For the Six Months Ended 31st October 2011

									Capital		Capital		Capital Reserve/
			Ordinary Share		Share		Revenue		Reserve/		Reserve/		Exchange
			Capital		Premium		Reserve		Realised		Unrealised		Differences		Total
Notes			$'000		$'000		$'000		$'000		$'000		$'000		$'000
	Balances at 1st May 2011		-		126,804		(21,795)		87,649		32,767		(14,788)		210,637
															-
	Movements during the period														-
	Redemptions		-		(75,738)		-		-		-		-		(75,738)
	Shares bought into Treasury														-
3	Gain on investments sold		-		-		(13,695)		13,695		-		-		-
3	Movement on gain on valuation of investments		-		-		16,051		-		(16,051)		-		-
	Loss on foreign exchange		-		-		(369)		-		-		369		-
	Total comprehensive deficit		-		-		(1,896)		-		-		-		(1,896)
	Balances at 31st October 2011		-		51,066		(21,704)		101,344		16,716		(14,419)		133,004
									Capital		Capital		Capital Reserve/
			Ordinary Share		Share		Revenue		Reserve/		Reserve/		Exchange
			Capital		Premium		Reserve		Realised		Unrealised		Differences		Total
			$'000		$'000		$'000		$'000		$'000		$'000		$'000
	Balances at 1st May 2010		204		192,650		(21,174)		183,778		(74,714)		(12,119)		268,625
															-
	Movements during the period
3	Realised loss on investments sold		-		-		7,343		(7,343)		-		-		-
3	Movement on unrealised gain on revaluation of investments		-		-		12,611		-		(12,611)		-		-
	Loss on foreign exchange		-		-		3,698		-		-		(3,698)		-
	Distribution (Note 19)						-		-		-		-		-
	Total comprehensive income		-		-		(24,268)		-		-		-		(24,268)
			-		-				-		-		-
	Balances at 31st October 2010		204		192,650		(21,790)		176,435		(87,325)		(15,817)		244,357

Unaudited Statement of Financial Position

As at 31st October 2011

		(Unaudited)		(Audited)
		31-Oct-11		30-Apr-11
Notes		$'000		$'000
	Non Current Assets
2(f)	Financial assets at fair value
	through profit or loss	165,742		231,434
	Current Assets
	Due from brokers	842		1,252
2(d)	Dividends and other receivables	1,317		2,359
2(g)	Cash and cash equivalents	5,473		17,499
		7,632		21,110
	Current Liabilities
	Due to brokers	(566)		(1,071)
	Due to shareholders	(15,543)		(9,513)
	Payables and accrued expenses	(596)		(719)
2(h)	Loans payable	(23,666)		(30,604)
		(40,371)		(41,907)
	Net Current Liabilities	(32,738)		(20,797)
	Net Assets	133,004		210,637
	Equity
	Ordinary share capital	-		-
8	Share premium	51,066		126,804
	Revenue reserve	(21,704)		(21,795)
2(l)	Capital reserve	103,641		105,628
11	Net Assets Attributable to Equity Shareholders	133,004		210,637
	Net Asset Value per Ordinary Share*	$1.33		$1.35

*Based on the Net Asset Value at the period end divided by the number of shares in issue:

100,105,443 (30th April 2011 - 156,182,220)

Approved by the Board of Directors on 9^th December 2011

Unaudited Statement of Cash Flows

For the Six Months Ended 31st October 2011

			31-Oct-11		31-Oct-10
Notes			$'000		$'000
	Reconciliation of loss for the period to net cash flow
	from operating activities
	Loss before taxation		(1,749)		(24,103)
3	Loss on investments held at fair value		2,355		19,954
	Exchange (gain)/loss		(369)		3,698
	Interest expense		281		289
	Decrease in debtors and accrued income		1,042		492
	Decrease in creditors		(123)		(57)
	Taxation		(147)		(165)
	Net cash flows from operating activities		1,290		108
	Investing Activities
	Purchase of investments		(110,814)		(39,692)
	Sale of investments		174,014		62,587
	Net cash inflow from investing activities		63,200		22,895
	Net cash inflow before financing		64,490		23,003
	Cash flows from financing activities
	Interest paid		(258)		(297)
	Redemptions		(69,708)		-
	Net loans repaid		(6,393)		(21,172)
	Net cash outflow from financing activities		(76,359)		(21,469)
	Net (decrease)/increase in cash and cash equivalents		(11,869)		1,534
	Exchange movements		(157)		(1,692)
	Movement in cash and cash equivalents in the period		(12,026)		(158)
	Cash and cash equivalents at beginning of period		17,499		2,043
	Cash and cash equivalents at end of period		5,473		1,885

Notes to the Unaudited Financial Statements

For the Six Months Ended 31st October 2011

1.         GENERAL

             Atlantis Japan Growth Fund Limited (the "Company") was incorporated in Guernsey on
13th March 1996. The Company commenced activities on 10th May 1996.

2.         ACCOUNTING POLICIES

a) Statement of Compliance

The financial statements of the Company have been prepared in accordance with International Financial Reporting Standards ("IFRS"), which comprise standards and interpretations approved by the European Union and International Accounting Standards, and Standing Interpretations Committee interpretations approved by the IASC that remain in effect.

The condensed interim financial statements for the half year ended 31st October 2011 have been prepared in accordance with IAS 34, 'Interim Financial Reporting' and the Disclosures and Transparency Rules ("DTRs") of the UK's Financial Services Authority.

The condensed interim financial statements do not include all of the information required for full financial statements, and should be read in conjunction with the financial statements for the Company as at and for the year ended 30th April 2011. The financial statements of the Company as at and for the year ended 30th April 2011 were prepared in accordance with International Financial Reporting Standards ("IFRS").

Except as described below, the accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its financial statements as at and for the year ended 30th April 2011.

             b) Basis of Preparation

             The financial statements have been prepared on a historical cost basis, except for the measurement at fair value of investments.

             Where presentational recommendations set out in the Statement of Recommended Practice ("SORP") "Financial Statements of Investment Companies", issued by the Association of Investment Companies in January 2009 do not conflict with the requirements of IFRS, the Directors have prepared the financial statements on a basis consistent with the recommendations in the SORP.

             All financial assets and financial liabilities are recognised (or derecognised) on the date of the transaction by the use of 'trade date accounting'.

             c) Presentation of Statement of Comprehensive Income

             In order to better reflect the activities of an investment trust company supplementary information which analyses the Statement of Comprehensive Income between items of a revenue and capital nature has been presented alongside the Statement of Comprehensive Income.

             d) Income Recognition

             Dividends arising on the Company's investments are accounted for on an ex-dividend basis. Investment income is accounted for gross of withholding tax.

             e) Expenses

             All expenses are recognised on an accruals basis and have been charged against revenue, with the exception of transaction costs, which have been charged against capital.

             f) Investments

             The Company's business is investing in financial assets with a view to profiting from their total return in the form of income and capital growth. This portfolio of financial assets is managed and its performance evaluated on a fair value basis, in accordance with a documented investment strategy, and information about the portfolio is provided internally on that basis to the Company's Board of Directors and other key management personnel.

f) Investments (continued)

Accordingly, upon initial recognition the investments are designated by the Company as 'at fair value through profit or loss'. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Statement of Comprehensive Income, and allocated to the capital column of the Statement of Comprehensive Income at the time of acquisition). Subsequently, the investments listed overseas are valued at 'fair value', which is bid price (where a bid price is available) or otherwise at fair value based on published price quotations.

             Gains and losses on non-current asset investments are included in the Statement of Comprehensive Income as capital.

             g) Cash and Cash Equivalents

             Cash and cash equivalents comprise cash at bank and in hand and short-term deposits with an original maturity of three months or less.

             For the purposes of the Statement of Cash Flow, cash and cash equivalents consist of cash and cash equivalents, as defined above, net of outstanding bank overdrafts.

             h) Loans Payable

             All loans are initially recognised at cost, being the fair value of the consideration received, less issue costs where applicable. After initial recognition, all interest bearing loans and borrowings are subsequently measured at amortised cost. Amortised cost is calculated by taking into account discount or premium on settlement. Any costs of arranging any interest-bearing loans are capitalised and amortised over the life of the loan.

i) Foreign Currencies

             The Company's investments are predominately denominated in Japanese yen. The Company's obligation to shareholders is denominated in US dollars and when appropriate, the Company may hedge the exchange rate risk from yen to US dollars. Therefore, the functional currency is US dollars, which is also the presentational currency of the Company. Transactions involving currencies other than US dollars, are recorded at the exchange rate ruling on the transaction date. At each Statement of Financial Position date, monetary items and non-monetary assets and liabilities that are fair valued, which are denominated in foreign currencies, are retranslated at the closing rates of exchange.

             Exchange differences arising from retranslating at the Statement of Financial Position date:

             -  investments and other financial instruments measured at fair value through profit or loss; and

             -  other monetary items; and

             -  arising on settlement of monetary items, are included in the Statement of Comprehensive Income and allocated as capital if they are of a capital nature, or as revenue if they are of a revenue nature.

Foreign Currency Transactions

Foreign currency assets and liabilities, including investments at valuation, are translated into U.S. Dollars at the rate of exchange ruling at the Statement of Financial Position date.  Investment transactions and income and expenditure items are translated at the rate of exchange ruling at the date of the transactions.  Gains and losses on foreign exchange are included in the Statement of Comprehensive Income.

             j) Taxation

             The tax expense represents the sum of the tax currently payable and deferred tax.

             The tax currently payable is based on the taxable profit for the period. Taxable profit differs from net profit as reported in the Statement of Comprehensive Income because it excludes items of income or expense that are taxable or deductible in other years and it further excludes items that are never taxable or deductible. The Company's liability for current tax is calculated using tax rates that were applicable at the Statement of Financial Position date.

             In line with the recommendations of the AIC SORP, the allocation method used to calculate tax relief on expenses presented against capital returns in the supplementary information in the Statement of Comprehensive Income is the "marginal basis". Under this basis, if taxable income is capable of being offset entirely by expenses presented in the revenue return column of the Statement of Comprehensive Income, then no tax relief is transferred to the capital return column.

             Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. A deferred tax liability is recognised in full for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under section 1158 of the Corporation Tax Act 2010 are not liable for taxation on capital gains.

             The carrying amount of deferred tax assets is reviewed at each Statement of Financial Position date and reduced to the extent that it is no longer probable that sufficient taxable profits will be available to allow all or part of the asset to be recovered.

             Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset is realised. Deferred tax is charged or credited in the Statement of Comprehensive Income, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

             k) Financial Liabilities

Financial liabilities are recognised when the Company becomes a party to the contractual agreements of the instrument.  Trade and other payables are initially recognised at their nominal value and subsequently measured at amortized cost less settlement payments.  Financial liabilities are derecognised from the Statement of Financial Position only when the obligations are extinguished either through discharge, cancellation or expiration.

             l) Capital and Reserves

The capital reserve distinguishes between gains/(losses) on sale or disposals and valuation gains/(losses) on investments.  The capital reserve consists of realised gains/(losses) on investments, movement in valuation gains/(losses) on investments and gains/(losses) relating to foreign exchange.

m) Treasury Shares

Where the Company purchases its own share capital (whether into treasury or cancellation), the consideration paid, which includes any directly attributable costs (net of income taxes) is recognised as a deduction from equity shareholders' funds through the special reserve, which is a distributable reserve.

When such shares are subsequently sold or reissued, and consideration received, net of any directly attributable incremental transaction costs and the related income tax effects, is recognised as an increase in equity and the resulting surplus or deficit on the transaction is transferred to/from the special reserve.

Shares held in treasury are not taken into account in determining NAV per share detailed In Note 8 and earnings per share detailed in Note 9.

2.         LOSSES ON INVESTMENTS HELD AT FAIR VALUE

		31-Oct-11		31-Oct-10
		$'000		$'000
Proceeds from sales of investments		173,604		63,115
Original cost of investments sold		(159,585)		(70,458)
Gains/(losses) on investments sold during the period		14,019		(7,343)
Net valuation loss for the period		(16,374)		(12,611)
Loss on investments held at fair value		(2,355)		(19,954)

4.         INVESTMENT MANAGEMENT FEE

             The Company pays to the Investment Manager a fee accrued daily and paid monthly in arrears at the annual rate of 1 per cent (1.50 per cent up to 28th February 2011) of the weekly Net Asset Value of the Company for the Company.  

In addition to the fee disclosed above, the Company pays to the Investment Manager a fee accrued daily and paid on the payment of distribution from the redemption pool at the annual rate of 1 per cent of the weekly Net Asset Value of the Company for the redemption pool.

For the period ended 31st October 2011, total investment management fees were $968,040 (2010 - $1,844,480) of which $127,988 (2010 - $293,586) is due and payable as at that date.

             Under the terms of the Investment Management Agreement dated 18th March 1996, the Investment Manager, AFMG Limited, will continue in office until a resignation is tendered or the contract is terminated. In both circumstances, a resignation or termination must be given with a notice period which must not be less than twelve months, and be in accordance with the Investment Management Agreement. Fees payable to the Investment Adviser are met by the Investment Manager.

5.         CUSTODIAN FEES

             The Company pays to the Custodian a fee accrued weekly at a rate of 0.03 per cent of the total weekly Net Asset Value of the assets held by the Custodian or Sub-Custodian, together with transaction charges.

Redemption Pool Fees

The custodian shall also be entitled to receive a fee from the Company of 0.03 per cent per annum of the Net Asset Value of any redemption pool together with transaction charges.

For the period ended 31st October 2011, total custodian fees were $79,074 (2010 - $95,544) of which $22,909 (2010- $26,124) is due and payable as at that date.

6.         ADMINISTRATION FEES

             The Company pays to the Administrator a fee accrued weekly and paid monthly in arrears at the annual rate of 0.18 per cent of the weekly Net Asset Value up to $50 million and 0.135 per cent between $50 million and $100 million, 0.0675 per cent between $100 million and $200 million and 0.02 per cent above $200 million.   

Redemption Pool Administration Fees

At each redemption date a charge in respect of the preparatory work for the set-up and calculation of investment and redemption prices at £7,500 will be payable.

An additional fee will be payable on the market value of the assets of that redemption pool of:

Market Value                                                                              Annual Rate

Up to US$25,000,000                                                                               0.18%

             US$25,000,001 to US$50,000,000                                                         0.135%                                    

             Thereafter                                                                                             0.0675%

For the period ended 31st October 2011, total administration fees were $119,536 (2010 - $116,840) of which $74,244 (2010 - $19,812) is due and payable as at that date.

7.         DIRECTORS' FEES AND EXPENSES

             Each of the Directors is entitled to receive a fee from the Company, being £30,000 per annum for the Chairman, £27,500 for the chairman of the audit committee and £25,000 per annum for each of the other Directors. In addition, the Company reimburses all reasonably incurred out-of-pocket expenses of the Directors. For the period ended 31st October 2011, total directors' fees and expenses were $140,359 (31st October 2010 - $66,080) of which $67,172 (31st October 2011 -$11,013) is due and payable as at that date.

8.         SHARE CAPITAL AND SHARE PREMIUM

			31-Oct-11		31-Oct-10
a) Authorised			$'000		$'000
204,356,270 Ordinary Shares of no par ( 2010 - 24,000,000 of $0.01)			204		240

The Company may also issue C shares being a convertible share in the capital of the company of no par value.  C shares shall not have the right to attend or vote at any general meeting of the Company. The holders of C shares of the relevant class shall be entitled, in that capacity to receive a special dividend such amount as the directors may resolve to pay out of the net assets attributable to the relevant C share class and from income received and accrued attributable to the relevant C share class for the period up to the conversion date payable on a date falling before, on or after the conversion date as the Directors may determine.  There are no C shares currently in issue.

The rights which the ordinary shares convey upon the holders thereof are as follows:

Voting Rights

(i) on a show of hands, every Member who is present shall have one vote; and ii) on a poll a Member present in person or by proxy shall be entitled to one vote per ordinary share held.

Entitlement to Dividends

The Company may declare dividends in respect of the ordinary shares.

Rights in a Winding-up

The holders of ordinary shares will be entitled to share in the Net Asset Value of the Company as determined by the Liquidator.

b) Issued
Ordinary Shares	Number of Shares		Share Capital		Share Premium
			$'000		$'000
In issue at 31st October 2011	100,105,443		-		51,066

Reconciliation of number of shares			Number of Shares
Shares of no par value
Issued shares at the start of the period			156,182,220
issue of new shares
redemption of shares			(55,551,777)
Purchase of shares into Treasury			(525,000)
Number of shares at the end of the period			100,105,443
Shares held in Treasury
Opening balance at the start of the period			-
Shares bought in to Treasury at the start of the period			525,000
Treasury shares cancelled			-
Number of shares at the end of the period			525,000

9.         DEFICIT PER ORDINARY SHARE

             The deficit per ordinary share figure is based on the net deficit for the period of ($1,896,046) (2010 - ($24,267,607)) and on 126,502,407 being the weighted average number of shares in issue at 31st October 2011(2010 20,435,627 before the stock split).

             The deficit per ordinary share figure can be further analysed between revenue and capital, as below.

		31-Oct-11		31-Oct-10
		$'000		$'000
Net revenue profit/(deficit)		413		(411)
Net capital deficit		(2,309)		(23,857)
Net total deficit		(1,896)		(24,268)
Weighted average number of ordinary shares
in issue during the period		126,502,407		204,435,627
		$		$
Revenue profit per ordinary share		0.003		(0.020)
Capital deficit per ordinary share		(0.018)		(1.168)
Total deficit per ordinary share		(0.015)		(1.188)

10.       RELATED PARTY TRANSACTIONS

Certain Directors had a beneficial interest in the Company by way of their investment in the ordinary shares of the Company.  The details of these interests at 31st October 2011 are as follows:

				Ordinary Shares		Ordinary Shares
				31-Oct-11		31-Oct-10
T. Guinness				100,000	*	10,000
A. Martin Smith				25,000	*	2,500
N. Lamb				10,000		-

*The increase in shares during the period was as a result of the 10:1 stock split which took place in December 2010.

There were no relevant contracts in force during or at the end of the period in which any Director had an interest.  There are no service contracts in issue in respect of the Company's Directors.  No Directors had a non-beneficial interest in the Company during the period under review.

11.       RECONCILIATION OF NET ASSET VALUE TO PUBLISHED NET ASSET VALUE

					31-Oct-11		Per Share
					$'000		$
Published Net Asset Value					148,817		1.33
Redemptions paid on 31/10/2011					(15,543)		-
Loss on revaluation of securities at bid prices					(270)		-
					133,004		1.33
					30-Apr-11		Per Share
					$'000		$
Published Net Asset Value					211,394		1.35
Loss on revaluation of securities at bid prices					(757)		-
					210,637		1.35

In accordance with IFRS the Company's investments have been valued at bid price.  However, in accordance with the Company's prospectus for the purpose of determining the monthly net asset value per share the investments are valued at mid price.

12.       REDEMPTION FACILITY

Shareholders have the opportunity to make redemptions of part or all of their shareholding on a four monthly basis with the Board's discretion in declining any redemption requests  The following redemptions were made during the period:-

Redemption date		Shares redeemed		US$'000
30/06/2011		43,877,672		(60,195)
31/10/2011		11,674,105		(15,543)
		55,551,777		(75,738)

13.       LOAN REPAYMENTS

Yen 1,500,000,000 was repaid on 7th July 2011 and Yen 1,000,000 was repaid on 31st July 2011.

14.       REDEMPTION FACILITY EXPENSES

Costs associated with the funds reorganisation to enable the redemption facility included a closing accrual at 30th April 2011 of US$ 240,342.  As no other costs have been incurred in the current period this has now been reversed and appears as a credit for this amount in the Statement of Comprehensive Income.

15.       SUBSEQUENT EVENTS

Distribution from the 31st October 2011 Redemption Pool

The Board of Atlantis Japan Growth Fund Limited approved an interim payment ("interim distribution") of equivalent to 75.97 pence per share (US 119.64 cents), in respect of those ordinary shares which were validly accepted for redemption at the third Redemption Point, 31st October 2011.

This payment follows the sale of approximately 99% of the investments held in the Redemption Pool. A final distribution will be declared and announced once all remaining investments have been sold.  The interim distribution was paid on 28th November 2011.

There have been no other events subsequent to the period ended 31st October 2011

 

END

 

 

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