Annual Financial Report

RNS Number : 9915B

Witan Pacific Investment Trust PLC

25 April 2012

 



WITAN PACIFIC INVESTMENT TRUST PLC

Our Investment Objective is to provide shareholders with a balanced portfolio of equity investments in the Asia Pacific region with the aim of outperforming the MSCI AC Asia Pacific Free Index (£)

Chairman's Statement

Market Background           

The market environment was characterised by periods of extreme volatility during 2011, as investor confidence was undermined by the effects of natural disasters, notably the tragic Tohoku earthquake, and unsettled by economic concerns such as inflation arising from strong commodity prices and by political uncertainties focused on the Eurozone's management of its sovereign debt problems.

As economic growth slowed, commodity prices fell back during the summer, reducing inflationary pressures and leading to a reversal in the trend towards tighter monetary policy by many of the region's central banks as well as some developed markets. This contributed towards a revival in investors' risk appetite, with the year concluding on a more hopeful note than seemed likely at the time of our half year report. Nonetheless, most equity markets lost value over the period.

The MSCI AC Asia Pacific Free Index (£) (our benchmark) recorded a total return in local currency terms of -10.7% during the year to 31 January 2012. The region's currencies strengthened, mitigating the decline in Sterling terms to -6%.

Performance

The weak tone of equity markets was felt more keenly in the Far Eastern region than elsewhere, coming after 2010's strong gains. The Company's NAV total return registered a decline of 4.1%, although this represents an outperformance of our benchmark, which saw a loss of 6% total return. Our discount widened at the end of the financial year, so the shareholder total return of -7.4% was weaker than the NAV total return and the benchmark. Although falls in value are never welcome, the decline was modest in relation to the total return of over 25% and shareholder total return of 30% enjoyed during the previous financial year, when the Company's portfolio also outperformed the benchmark significantly.

The Company's multi-manager strategy is in its seventh year. Since adoption of this investment approach the portfolio has outperformed its benchmark by some 2.6% per annum (source: WM Performance Measurement Services). Although both of the managers in place since 2005 have outperformed, the portfolio managed by Aberdeen Asset Managers (Aberdeen) has delivered stronger outperformance, averaging 4.6% p.a., while Nomura Asset Management (Nomura), which pursues a more diversified and index-aware approach, has outperformed by 0.6%. This pattern was also seen during the year to January 2012, when Aberdeen's portfolio delivered a positive return of 1.3%, 7.3% ahead of the benchmark, while Nomura's total return of -5.9% was 0.1% ahead of the 6% decline in the regional benchmark. Further details of each Manager's performance, country and stock selection are given in the Investment Review section of the Business Review.

The Board meets its Managers regularly throughout the year to monitor their progress, in person or more often via video link. This is supplemented by periodic site visits to meet the Managers and other members of their investment teams in their own offices. This provides an opportunity to discuss such issues as team personnel changes and management succession; to understand how coordination between offices is achieved; as well as in depth discussions on strategy and meeting a wider number of their investment teams. These important insights are less readily gleaned from the more regular communication channels of written reports and teleconferences. The last such visit (referred to in last year's Annual Report) was in February 2011.

Adoption of a more focused investment approach

A key rationale for the multi-manager strategy is the benefit of having differentiated investment approaches, which aims to smooth out the volatility of returns. In 2005, the Company engaged two Managers with very distinct styles, Aberdeen managing a concentrated portfolio with a preference for Asian markets over Japan, while Nomura's portfolio was more highly diversified at both the country and stock level. This mix has served the Company well, as evidenced by the outperformance delivered over the past 7 years, albeit that the more focused approach of Aberdeen has proved significantly more successful.

Accordingly, over the past year the Board has considered how to enhance the opportunities for outperformance across the whole portfolio, while retaining the broader benefits of the multi-manager structure. A wide range of managers with differing investment approaches was reviewed in a formal search process including the expertise of an external consultant, bfinance. Following careful analysis of the characteristics of a range of managers and their effects on the overall portfolio, two new Managers have been appointed to manage the portion of the portfolio managed (until April 2012) by Nomura. Aberdeen will continue to manage its portion of the portfolio (currently c. 55%) as before. The costs of the search fees were paid by the incoming managers, with appropriate safeguards to ensure competitive management fee terms were obtained, while the portfolio restructuring was handled by a specialised transition manager, to minimise direct and indirect costs.

The two new managers are Matthews International Capital Management (Matthews) and MW GaveKal Asia Limited (GaveKal).

Matthews is a well-established, successful specialist manager of Asian equities, based in San Francisco, with a strong franchise amongst US investors, although it is relatively unknown in the UK. It will manage c.35% of the Company's portfolio as a segregated mandate in accordance with its Asia dividend strategy, which aims for significant outperformance of the MSCI AC Asia Pacific Index, investing in a concentrated portfolio of 50-80 stocks. These are chosen across the market capitalisation spectrum using a bottom-up approach, with an emphasis on buy and hold strategy blending yield with potential growth.

MW GaveKal is a joint venture based in Hong Kong between GaveKal (an independent investment research provider set up by Charles and Louis-Vincent Gave and Anatole Kaletsky, the well-known economic journalist) and Marshall Wace, an established manager of Absolute Return investment strategies. It will manage approximately 10% of the portfolio, taking a more top-down approach, seeking to allocate the assets under its management between Asian equities, bonds and cash, aiming for significant outperformance of the MSCI AC Asia Pacific index. The equity holdings have a growth bias, with GaveKal amalgamating its stock specific analysis with top-down decisions on country allocations as well as on the proportion to be held in cash or bonds, seeking to reduce volatility and downside risk.

The Company's weighting in Japan is likely to decline from 28% at the end of January 2012 to approximately 20% following the investment manager changes. In future, as for other markets, the allocation to Japan will be determined by its macro-economic and stock specific attractions, rather than being unduly influenced by the relatively high weighting Japan has in the benchmark index.

The Board is confident that the new managers' different but focused investment approaches will complement the style employed by Aberdeen, whilst delivering a well diversified balanced portfolio with an attractive mix of quality growth and dividend yield. It is expected that this will increase the scope for generating outperformance, although this is of course subject to the behaviour of markets and to the usual caveat of past performance being no guarantee of the future.

The Board would like to record its thanks to the managers at Nomura for their stewardship of the Company's assets since 2005 and their service to our shareholders in outperforming the benchmark index over the period.

Total Expense Ratio

The TER during the year excluding performance fees was 0.8% (2011: 0.7%). Including provision for performance fees, the TER was 1.5% (2011: 1.2%). The majority of this rise was the result, as outlined in the Half Year Report, of a change in the way we accrue for future performance fees. During the year, the Company decided to accrue fully for future performance fees, even where these were not yet liabilities. This more prudent approach had the effect of increasing the inclusive TER during the year by 0.2%. It is gratifying that even after deducting this increase, the Company outperformed the benchmark by 1.9% during the year.

Following the introduction of the more focused investment strategy described earlier, the Company's basic management fees are likely to rise in future years, as the new managers have higher base fees than those paid to Nomura. Aberdeen will continue to have a performance fee arrangement but the two new managers will not, so the gap between the TERs excluding and including performance fees will narrow. However the Board will continue to manage costs closely in accordance with its objective of keeping the TER below 1%.

As a Board we are very mindful of the impact of fees on investors' returns. Although the new managers have higher base fees, the overall fees payable are likely to be competitive given that outperformance will flow directly through to shareholders without additional fee deductions. The Board believes that the move to more focused management across the entire portfolio will prove to be of benefit to shareholders and it will of course monitor closely whether the return expectations are delivered.

Dividend

Dividends across the region and in the Company's portfolio have continued to grow strongly. In addition, the currencies of a number of the region's economies strengthened, increasing the value of these dividends when translated into sterling.

In view of this strength and the degree of dividend cover, for the year to 31 January 2012, the Company is increasing its annual dividend to 4.0p, a substantial increase of 42.9%. The healthy revenue position also allows the Company to add over £0.3m to its revenue reserves, which are available to smooth dividend payments during future lean periods for dividend income from the portfolio. The reserves now amount to more than 4 years' the proposed dividend payment.

Subject to shareholder approval, the final dividend will be paid on 22 June 2012 to shareholders on the register at the close of business on 25 May 2012 (ex-dividend 23 May 2012).

Share Buy-Backs

Your Board believes that it is in shareholders' interests to buy back the Company's shares when they are standing at a substantial and anomalous discount to their NAV, with the objective that the discount should be comparable to that of our peers, taking account of market conditions. The Company repurchased a total of 10,000 shares for cancellation during the year to 31 January 2012, and a further 65,000 shares have been bought back and cancelled up to the date of this report. It is intended to seek renewal of the buy-back authority at the forthcoming Annual General Meeting ("AGM"). Although no shares have been taken into treasury to date, the Board regards it as sensible to seek to renew the authority to take shares into treasury for re-sale in the market at a later date. This power will be used to issue shares only at NAV or a premium to NAV.

Shareholder Information

We outsource the day-to-day management of the Trust to Witan Investment Services Limited, whose team provides executive management services to the Company. The Company's web site www.witanpacific.com is an excellent and easy to use source of up-to-date information on the Trust. Witan Wisdom provides a cost effective facility for regular savers to invest either through a regular share savings scheme or through an ISA. Details of investing through Witan Wisdom are available at www.witanwisdom.com.

Board Changes

During the year a formal search was conducted for a new Director, to replace Dr. Les Atkinson, who retires from the Board this year after 13 years' service. The Board is pleased to announce that Dermot McMeekin has agreed to become a Director and will join the Board on 1 May 2012. He brings twenty years' experience of working with major companies in the Far East and the Board has no hesitation in recommending him for shareholders to confirm his election at the forthcoming AGM of the Company.

While welcoming our new Director, we also thank Les Atkinson for his mature and wise counsel over many years which, together with his sense of perspective and good humour, will be greatly missed.

Outlook

As 2012 began, many of the fears which weighed on equity markets during 2011 had receded. The threat of a second global banking crisis centred on Europe had diminished, while economic growth appeared to have been relatively resilient to last autumn's market shocks, with modest growth rather than a slip back into recession being the likeliest outlook for developed economies. This has come as a relief to equity markets, reducing the risk of downgrades in profit forecasts.

The fears of recession, allied to diminished inflation pressures from oil and other commodity prices, have altered the bias of central bank policies towards supporting growth rather than seeking to prevent inflation.

There are risks to this more positive picture, notably the possibility of a rise in oil prices if events take a turn for the worse in the Arabian Gulf. This would be negative for growth in oil consuming countries and stock markets would be adversely affected if any military conflict were to arise in the Middle East. It also remains to be seen whether China and India will be successful in squeezing inflation from their economies without growth slowing abruptly.

Given the need for debt reduction in the mature economies of the West and its likely dampening effect on growth in that region, the prospect of continued economic expansion in Asia underlines the long-term investment case for exposure to the Asia Pacific region. The Board believes that the Company's ability to invest in all the major Asia Pacific markets is attractive for investors, given the increasing economic interdependence within the region. Finally, the two new managers employ differing yet focused investment styles which complement Aberdeen's approach. This gives the Company access to a wider range of opportunities, providing scope to enhance the existing record of outperformance.

The AGM of the Company will be held on Thursday, 14 June 2012 at 12 noon in the Piper Room, Grocers' Hall, Princes Street, London EC2R 8AD, and I look forward to meeting as many of you as are able to attend the meeting.

Gillian Nott

Chairman

24 April 2012

Business Review

This Business Review provides shareholders and other readers with information about the Company's business and results for the year ended 31 January 2012 and comments on the main trends and factors likely to affect the future development of the business. It is divided into two sections: Corporate Review and Investment Review.

Corporate Review

Objectives and Strategy

The Company's investment objective is to provide shareholders with a diversified portfolio consisting principally of equity investments in the Asia Pacific region, designed to outperform the MSCI AC Asia Pacific Free Index ("MSCI Index") in Sterling terms. Although the Company's portfolio will be predominantly invested in equities, it may also hold bonds or cash from time to time, if the managers judge that this is desirable from the point of view of investment returns or capital preservation. From an investment perspective this means that your Company will seek to provide steady above average performance compared with the relevant MSCI Index in Sterling terms, expecting to achieve this principally through growth in capital, although income growth is also an increasing feature of the region's investment markets. Your Company aims to outperform by using an active multi-manager approach. Prior to 2012, the Company had two investment managers, who had been in place since 2005. In 2012, following a formal search process the Board replaced Nomura Asset Management U.K. Limited with two new Investment Managers. Managers' performance is subject to regular review, with the Board's objective being to utilise managers who offer the best prospects of outperforming the benchmark index referred to, with an acceptable level of diversification and risk.

During 2011, the Company put in place a modest level of gearing, which it envisages keeping in place over the medium term. Managers are permitted to hold cash for tactical purposes, which at a given time may reduce the effective gearing level below the level of the Company's borrowings. Gearing is expected to range between zero and 5% (31 January 2012: 3.4%). This will be financed by the Company's borrowing facilities which are short-term, since this maximises flexibility taking account of the portfolio's liquidity and is consistent with the modest level of gearing employed.

Your Company will distribute as much income as may be prudent on an annual basis to shareholders, while also aiming to increase the dividend in real terms over time, subject to market circumstances. The Board employs share buy-backs to manage the discount appropriately, expecting that the level will be comparable to that of its peers. Share buy-backs provide liquidity and enhance the NAV per share of the Company. In addition, your Company sponsors an ongoing marketing programme provided by Witan Investment Services Limited. This programme reaches out to both the private and professional investor using a blend of targeted marketing programmes.

The unbundling of the investment management services and other necessary services has provided greater transparency of the Company's cost base. Your Board takes care to ensure strict monitoring and control of costs and expenses. For the last financial year the total expense ratio (TER) including performance fees was 1.5% (2011 1.2%). Of the increase 0.2% was as a result of the one-off change to accrual of possible future years' performance fees. Excluding performance fees the TER was 0.8%, compared with 0.7% last year.

Management Arrangements

The management of the Company's assets is entirely outsourced to third parties. Witan Investment Services Limited acts as Executive Manager to manage and monitor the outsourced structure and relationships and to assist the Board on investment strategy and marketing. In summary, the Board sets the Company's strategy and the Executive Manager monitors and implements this same strategy. The following table shows the investment management arrangements:

Management Structure 2011-12
Mandate	Investment Manager	Mandate Benchmark (£)	% of Initial Portfolio as at 31 May 2005	Actual % as at 31 January 2012
Asia Pacific	Aberdeen Asset Managers	MSCI AC Asia Pacific Free Index	50%	56%
Asia Pacific	Nomura Asset Management	MSCI AC Asia Pacific Free Index	50%	44%

Management Structure from April 2012
Mandate	Investment Manager	Mandate Benchmark (£)	Approximate Proportion managed from April 2012
Asia Pacific	Aberdeen Asset Managers	MSCI AC Asia Pacific Free Index	55%
Asia Pacific	Matthews International Capital Management	MSCI AC Asia Pacific Free Index	35%
Asia Pacific	MW GaveKal Asia	MSCI AC Asia Pacific Free Index	10%

Your Company has also appointed third parties for the various supporting services it requires. The principal providers are J.P. Morgan Chase Bank, N.A. for global custody, BNP Paribas Securities Services for investment accounting and administration and Phoenix Administration Services Limited for company secretarial services. From time to time, as required, the Company also buys in services for legal, investment consulting, financial and tax advice.

As a result of its outsourced structure the Company has no employees. Accordingly it has no direct impact on social matters. However it carefully reviews its Managers' reports on their policies relating to social issues and corporate governance standards and is generally satisfied with those policies. Our Managers are prepared to use their votes in these areas in the interests of the investments made on our behalf.

Dividend Policy

As the Chairman has said in her statement, the Company aims to grow its dividend in real terms over time, subject to the underlying trend in the Company's net income. The Company has substantial levels of revenue reserves available to smooth the effect of temporary fluctuations in dividends from investments, where this is viewed as prudent and beneficial for shareholders.

Buy-back Policy

Your Board believes that it is in shareholders' interests to buy-back the Company's shares when they are standing at a substantial and anomalous discount to the Company's net asset value (NAV). The purchase of shares priced at a discount to NAV per share will, all other things being equal, increase the Company's NAV per share and benefit the Company's share price.

The Board has an active marketing programme designed to promote and create demand for Witan Pacific shares. The Witan Pacific web site, www.witanpacific.com, is an excellent and easy to use source of up-to-date information on the Trust. Witan Wisdom provides a cost effective facility for regular savers to invest in the Company's shares, either through a regular share savings scheme or through an ISA. Details of investing through Witan Wisdom are available at www.witanwisdom.com.

Borrowings and Gearing

The Company has the power under its Articles of Association to borrow up to 100% of the adjusted total of capital and reserves. Essentially this allows the Board to seek to improve performance through gearing by borrowing amounts equivalent in value to shareholders' funds. In practice the Board would not, other than temporarily and in exceptional circumstances, borrow more than 20%. Over the past five years fully invested gearing has mostly varied between 0% and 5% with, on occasion, a small net cash position. During the year, the Company's existing borrowing facilities were amalgamated into a single £14m two-year facility. At the end of the year the Company was 3.4% geared.

Key Performance Indicators

Your Board assesses its performance in meeting the Company's objective against the following key performance indicators:

·     Net asset value return

·     Total shareholder return

·     Performance against the benchmark

·     Discount to net asset value

·     Dividend payout

·     Total expense ratio

The Board also reviews both absolute and relative volatility and risk statistics for the portfolio.

Principal Risks

Because the Company is a vehicle for overseas equity investment, it is likely in normal conditions to be fully invested, subject to the tactical positions of the Investment Managers. The prime risks, therefore, of investing in the Company, are a fall in equity prices and adverse movements in foreign currency exchange rates. There are also other risks relating to the selection of Investment Managers and the risks associated with any international or regional equity portfolio relating to strategy, country, industrial sector and stock selection. Your Board seeks to manage these risks through the regular monitoring and review of portfolio information including the managers' adherence to their investment mandates, the investment policies and stock selection activities of the Investment Managers and the appropriate application of gearing and liquidity criteria. Foreign currencies are reviewed on a regular basis, being inherent in investing in overseas securities.

The Company will also bear the risk of settlement default by clearing houses and exchanges and the risk of delayed repossession or disputed title of the Company's assets in the event of failure of the Custodian.

The adverse effects of a failure, however defined, by an individual Investment Manager are reduced by the multi-manager structure, the different styles of the Investment Managers and by the Board's regular reviews of the Investment Managers' performance against the relevant Key Performance Indicators. In addition, your Company also faces the risk that its objective and strategy become inappropriate due to changes in the financial services and savings market. This is a matter which is reviewed regularly at meetings of your Board. These reviews focus on investment policy, the role of marketing and the Witan Wisdom savings schemes and discount control policies, as well as wider industry trends.

Finally, there are operational and regulatory risks. We are affected by a complex set of regulations and laws and changes in any of these may affect returns to shareholders.

All of these risks are regularly reviewed by the Company's Audit Committee. Your Board also takes professional legal, accounting and tax advice in advance, concerning any material proposed activity of your Company.

Operationally, the multi-manager structure is robust as each of the Investment Managers, the custodian and the fund accountants keep their own records which are reconciled on a monthly basis. In addition, our Executive Manager, Witan Investment Services Limited monitors the activities of all third parties and reports any issues to the Board.

Comprehensive contractual obligations and indemnification provisions have been put in place with each of the third party service providers. In order to qualify as an investment trust the Company must comply with sections 1158-59 of the Corporation Tax Act 2010 (CTA). A breach of these sections could result in the Company losing investment trust status and, as a consequence, capital gains realised within the Company's portfolio would be subject to Corporation Tax. The criteria are monitored by Witan Investment Services Limited on behalf of the Board.

The Company must comply with the provisions of the Companies Act 2006 ("the Companies Act") and, as the Company's shares are Premium Listed for trading on the London Stock Exchange, the Company must comply with the UK Listing Authority's Listing Rules and Disclosure and Transparency Rules ("UKLA Rules"). A breach of the Companies Act could result in the Company and/or the directors being fined or becoming the subject of criminal proceedings. Breach of the UKLA Rules could result in the suspension of the Company's shares which would in turn lead to a breach of the provisions of the CTA.

The Board relies on the Executive Manager, the Company Secretary and the Company's professional advisers to ensure compliance with the Companies Act and UKLA Rules. The Audit Committee regularly reviews these risks by considering a Risk Matrix which assesses the likelihood of such risks occurring and the severity of the potential impact of such risks. This enables the Board to take action and develop strategies in order to mitigate the effect of such risks to the extent possible.

Revised tax regulations covering Investment Companies take effect in 2012, which will apply to the Company's financial year ending 31 January 2013. In general, these are more flexible than the previous rules, while preserving the principles of portfolio diversification and distribution of income.

Priorities for 2012

The Board has agreed that over the coming year it would:

·     Monitor and assess the continuing and new Investment Managers' performance against the Company's MSCI AC Asia Pacific Free Index (£) benchmark.

·     Communicate the Company's objective more actively to individual and institutional buyers for whom the multi-manager approach offers an effective route to investment in the region.

·     Focus on the benefits for the Company and its investors of the FSA's Retail Distribution Review by ensuring that the Company's investment objectives are widely recognized by retail investors, financial advisers and discretionary managers.

·     Continue to employ moderate levels of strategic gearing to seek to enhance returns.

Investment Review

Following a year of strong returns in 2010, the Asia Pacific region was held back during 2011 by the prolonged setback in global investor confidence, as well as local factors linked to a rise in inflation and the consequent tightening cycle in many countries' monetary policy. The Asia Pacific region overall delivered a total sterling return of -6%, with Japan down 9% and the rest of the region showing a total return decline of 4%. Returns in Japan were adversely affected by the aftermath of the Tohoku earthquake in early 2011, while during the second half of the period the returns between Japan and the rest of the region were more closely matched (c. -5% in both cases). Japan displayed resilience during the period when markets sold off sharply in the late summer but failed to recover as sharply as the rest of the region when confidence began to flow back from October onwards.

The Company's investments were managed during the year by Aberdeen Asset Managers (56%) and Nomura Asset Management (44%). Although both have strong investment philosophies, their approaches differ substantially. Aberdeen are bottom up stock pickers, whose country weightings are dictated more by the stock selection process than by market weightings. Nomura operate by first assessing country and industry weightings before selecting stocks. Nomura held more than 200 stocks, while Aberdeen held a more concentrated portfolio of around 50 stocks.

During the year, the Company's NAV total return was -4.1%, 1.9% better than the 6.0% decline in the regional benchmark index. Gross of fees, Aberdeen's portfolio delivered a positive return of 1.3%, while Nomura's was marginally ahead of the index performance, at -5.9%. Since inception, Aberdeen's portfolio has outperformed by 4.6% p.a., while Nomura outperformed by 0.6% p.a.

The Company benefited from the underweight position in Japan, particularly in Aberdeen's portfolio. Market conditions also favoured their more stock-focused approach, in a year when stock market index levels generally fell.

As outlined in the Chairman's Statement, subsequent to the year end the Board decided to appoint two new managers with a more concentrated investment approach to take over the part of the Company's portfolio previously managed by Nomura.

Performance for the year ended 31 January 2012 and from inception to 31 January 2012
	Inception Date	Value of Witan Pacific's assets managed at 31 January 2012 £m	% of Witan Pacific's managed assets	Performance Year to 31 January 2012 %	Benchmark Performance Year to 31 January 2012 %	Performance since inception to 31 January 2012* %	Benchmark Performance since inception to 31 January 2012* %
Aberdeen	31 May 2005	91.2	55.7	+1.3	-6.0	+13.3	+8.3
Nomura	31 May 2005	72.6	44.3	-5.9	-6.0	+8.9	+8.3

* Figures shown for the period since inception are compound annual rate. Source: WM Company

Matthews Asia - Asia Dividend Investment Approach

Matthews Asia, formed in 1991, has become the largest dedicated Asia specialist in the United States with $15bn of assets under management across several investment strategies. It is an independent privately owned firm with significant employee ownership based in San Francisco.

The Trust will invest in a segregated fund using Matthews' Asia Dividend strategy which is managed by Jesper Madsen and co-managed by Yu Zhang. Jesper Madsen has been involved in the strategy since launch, initially as co-manager. He has been at Matthews for eight years and has previous fixed income experience at Barclays Global Investors.

They use a fundamental bottom-up investment process to select companies with sustainable long term growth prospects, strong business models, quality management teams and reasonable valuations. They typically own 50-80 stocks in the portfolio with a relatively low level of trading activity. The strategy results in broadly diversified portfolio but one which can have some large sector or country positions relative to the index.

The Asia Dividend strategy focuses on the dividend income and potential growth in that income of the companies in which it invests. It is effectively a total return strategy, focusing on income and potential for capital growth and this approach anchors the stock selection process. Asian companies are becoming more aware of the importance of income to their investments and market growth in dividends is higher than in other regions.

Its investment philosophy rests on two factors. The first is that dividend payments are a sign of financial strength and the second is that reinvestment of dividends can contribute significantly to total returns.

The strategy has delivered strong performance since launch in 2006, outperforming through most market environments. Annual outperformance of the index has averaged 8% pa since launch and 5% during 2011. Its performance over recent years has come from both good country selection and good stock selection within countries. The manager has found that the focus on yield and growth has been a good discipline for navigating various market environments.

The Asia dividend portfolio invests across the region. As with other countries, it invests in Japanese companies on their merits as well as because Japan tends to have a diversifying impact on Asian portfolios. It currently invests about 25% of the fund in Japan, some 13% below the benchmark. Its main country overweight positions (which are determined by its stock selection preferences) are in China/Hong Kong, Singapore and Thailand. It has recently found fewer opportunities in India, South Korea and Australia and is underweight those regions.

At a sector level, the strategy currently favours Consumer Staples stocks which gives the fund exposure to Asian consumer growth. It is underweight Financials, IT and Materials stocks. The strategy invests in all sizes of company and has significant exposure to small and mid-cap stocks.

MW Gavekal - Asian Opportunities UCITS fund

MW Gavekal is a Hong Kong based joint venture between Marshal Wace LLP and Gavekal Holdings. Gavekal started managing client investments in 2003 and moved the funds into the joint venture in 2008.

Marshall Wace is a leading global asset manager, launched in 1998 which manages long only equity and hedge funds. It has well-resourced back office and risk management systems and provides these services to the joint venture. The combination offers an entrepreneurial small boutique backed up by the investment infrastructure of a larger company. The Asian Opportunities fund employs no leverage and is long only.

The portfolio is managed by Louis-Vincent Gave, a co-founder of Gavekal and Alfred Ho, ex CIO of Invesco Asia. They are supported by five analysts.

The investment universe consists of equities, bonds and cash, with the allocation between them determined by Louis Vincent Gave, who draws on the resources of Gavekal's macro-economic research. The equity weight has varied between 40 and 80% of the portfolio in recent years. Louis also manages the bond portfolio which invests in Asian bonds both in US $ and local Asian currencies. The equity portfolio is managed by Alfred Ho. He manages a growth oriented portfolio, focussing on earnings growth and valuation.

The portfolio has achieved strong relative returns compared with the index since inception. Due to the bond holdings in the portfolio, it has had a lower volatility than the index.

Income Statement

for the year ended 31 January 2012

	Year ended 31 January 2012			Year ended 31 January 2011
	Revenue return £'000	Capital return £'000	Total £'000	Revenue return £'000	Capital return £'000	Total £'000
(Losses)/gains on investments held at fair value through profit or loss	-	(8,201)	(8,201)	-	32,119	32,119
Exchange (losses)/gains	-	(25)	(25)	-	167	167
Income (note 2)	4,766	-	4,766	3,927	-	3,927
Management fees	(499)	-	(499)	(421)	-	(421)
Performance fees	-	(1,167)	(1,167)	-	(828)	(828)
Other expenses	(786)	(50)	(836)	(661)	(44)	(705)
Net return/(loss) before finance charges and taxation	3,481	(9,443)	(5,962)	2,845	31,414	34,259
Finance charges	(191)	-	(191)	(163)	-	(163)
Net return/(loss) on ordinary activities before taxation	3,290	(9,443)	(6,153)	2,682	31,414	34,096
Taxation on ordinary activities	(275)	-	(275)	(261)	-	(261)
Net return/(loss) on ordinary activities after taxation	3,015	(9,443)	(6,428)	2,421	31,414	33,835
Basic and diluted return/(loss) per Ordinary share - pence (note 3)	4.55	(14.25)	(9.70)	3.65	47.40	51.05

All revenue and capital items in the above statement derive from continuing operations.

The total columns of this statement represent the Profit and Loss Account of the Company. The revenue return and capital return columns are supplementary to this and are prepared under guidance published by the Association of Investment Companies.

The Company had no recognised gains or losses other than those disclosed in the Income Statement.

Reconciliation of Movements in Shareholders' Funds

	Called up share capital £'000	Share premium account £'000	Capital redemption reserve £'000	Capital reserves £'000	Revenue reserve £'000	Total £'000
Year ended 31 January 2012
At 31 January 2011	16,561	5	41,010	95,762	10,944	164,282
Net (loss)/ return on ordinary activities after taxation	-	-	-	(9,443)	3,015	(6,428)
Dividends paid in respect of year ended 31 January 2011	-	-	-	-	(1,855)	(1,855)
Write back of dividends over twelve years old	-	-	-	-	72	72
Purchase of own shares	(2)	-	2	(19)	-	(19)
At 31 January 2012	16,559	5	41,012	86,300	12,176	156,052
Year ended 31 January 2011
At 31 January 2010	16,577	5	40,994	64,475	9,915	131,966
Net return on ordinary activities after taxation	-	-	-	31,414	2,421	33,835
Dividends paid in respect of year ended 31 January 2010	-	-	-	-	(1,392)	(1,392)
Purchase of own shares	(16)	-	16	(127)	-	(127)
At 31 January 2011	16,561	5	41,010	95,762	10,944	164,282

for the year ended 31 January 2012

Balance Sheet

at 31 January 2012                               

	2012 £'000	2011  £'000
Fixed assets
Investments held at fair value through profit or loss	161,334	168,757
Current assets
Debtors	1,796	799
Cash at bank and short-term deposits	2,462	2,059
	4,258	2,858
Creditors: amounts falling due within one year
Bank loan	(7,000)	(5,900)
Other	(2,181)	(1,433)
	(9,181)	(7,333)
Net current liabilities	(4,923)	(4,475)
Total assets less current liabilities	156,411	164,282
Provisions for liabilities and charges	(359)	-
Net assets	156,052	164,282
Capital and reserves
Called up share capital	16,559	16,561
Share premium account	5	5
Capital redemption reserve	41,012	41,010
Capital reserves	86,300	95,762
Revenue reserve	12,176	10,944
Total shareholders' funds	156,052	164,282
Net asset value per Ordinary share - pence (note 5)	235.60	247.99

Cash Flow Statement

for the year ended 31 January 2012

	2012 £'000	2012 £'000	2011 £'000	2011 £'000
Net cash inflow from operating activities		2,140		541
Servicing of finance
Bank and loan interest paid	(238)		(149)
Net cash outflow from servicing of finance		(238)		(149)
Capital expenditure and financial investment
Purchases of investments	(43,913)		(46,406)
Sales of investments	43,191		43,474
Capital expenses paid	(50)		(41)
Net cash outflow from financial investment		(772)		(2,973)
Equity dividends paid		(1,783)		(1,392)
Net cash outflow before financing		(653)		(3,973)
Financing
Drawdown of loan	1,100		-
Repurchase of own shares	(19)		(127)
Net cash inflow/(outflow) from financing		1,081		(127)
Increase/(decrease) in cash		428		(4,100)
Reconciliation of net cash flow to movements in net debt
Increase/(decrease) in cash as above		428		(4,100)
Net cash inflow from drawdown of loan		(1,100)		-
Exchange movements		(25)		167
Movement in net debt in the year		(697)		(3,933)
Net (debt)/funds at 1 February		(3,841)		92
Net debt at 31 January		(4,538)		(3,841)

Notes to the Accounts

for the year ended 31 January 2012

1.  Basis of accounting

The financial statements have been prepared on a going concern basis and under the historical cost convention, modified to include revaluation of fixed asset investments at fair value and in accordance with the Companies Act 2006, accounting standards applicable in the United Kingdom and with the Statement of Recommended Practice 'Financial Statements of Investment Trust Companies' revised December 2009 (the revised SORP). The accounting policies have been applied consistently throughout the year.

2.  Investment income

	2012 £'000	2011 £'000
Income from investments held at fair value through profit or loss:
Overseas dividends	4,103	3,503
UK dividends	167	125
Scrip dividends	493	292
Total dividend income	4,763	3,920
Other income:
Bank interest	3	4
Underwriting commissions	-	3
Total other income	3	7
Total income	4,766	3,927

3.              Return per Ordinary share

The total return per Ordinary share is based on the net loss attributable to the Ordinary shares of £6,428,000 (2011 net return: £33,835,000) and on 66,244,320 Ordinary shares (2011: 66,274,098) being the weighted average number of shares in issue during the year.

The total return can be further analysed as follows:

	2012 £'000	2011 £'000
Revenue return	3,015	2,421
Capital (loss)/return	(9,443)	31,414
Total (loss)/return	(6,428)	33,835
Weighted average number of Ordinary shares	66,244,320	66,274,098
Revenue return per Ordinary share - pence	4.55	3.65
Capital (loss)/return per Ordinary share - pence	(14.25)	47.40
Total (loss)/return per Ordinary share - pence	(9.70)	51.05

The Company does not have any dilutive securities.

4.  Dividends

Dividends on Ordinary shares	Record date	Payment date	2012 £'000	2011 £'000
Final dividend (2.10p) for the year ended 31 January 2010	28 May 2010	25 June 2010	-	1,392
Write back of dividends over twelve years old			(72)	-
Final dividend (2.80p) for the year ended 31 January 2011	27 May 2011	24 June 2011	1,855	-
			1,783	1,392

The proposed final dividend for the year ended 31 January 2012 is subject to approval by shareholders at the AGM and has not been included as a liability in these financial statements.

The total dividend payable in respect of the financial year which meets the requirements of Section 1158 of the Corporation Tax Act 2010 is set out below.

	2012 £'000
Revenue available for distribution by way of dividend for the year	3,015
Proposed final dividend of 4.00p for the year ended 31 January 2012 (based on 66,169,868 Ordinary shares in issue at 24 April 2012)	(2,647)
Undistributed revenue for Section 1158 CTA purposes*	368

*Undistributed revenue comprises 7.7% of income from investments of £4,763,000 (see note 2).

5. Net asset value per Ordinary share

Net asset values are based on net assets of £156,052,000 (2011: £164,282,000) and on 66,234,868 (2011:66,244,868) Ordinary shares in issue at the year end.

6. Statement of Directors' Responsibilities

The Directors are responsible for preparing the Annual Report, the Directors' Remuneration Report and the Financial Statements in accordance with applicable law and regulations.

Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Company and of the net return or loss of the Company for that year. In preparing these financial statements, the Directors are required to:

·     select suitable accounting policies and then apply them consistently;

·     make judgements and accounting estimates that are reasonable and prudent;

·     state whether applicable UK Accounting Standards have been followed subject to any material departures disclosed and explained in the financial statements respectively; and

·     prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Company will continue in business.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company's transactions and disclose with reasonable accuracy at any time the financial position of the Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

The financial statements are published on www.witanpacific.com, which is a website maintained by the Company's Executive Manager, Witan Investment Services Limited ("Witan"). The Directors are responsible for the maintenance and integrity of the Company's website. The work carried out by the Auditors does not involve consideration of the maintenance and integrity of the website and accordingly, the Auditors accept no responsibility for any changes that have occurred to the Annual Report and Financial Statements since they were initially presented on the website. Legislation in the United Kingdom governing the preparation and dissemination of the financial statements may differ from legislation in other jurisdictions.

Each of the Directors confirm that to the best of their knowledge:

·     the financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law), give a true and fair view of the assets, liabilities, financial position and net return of the Company; and

·     the Annual 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 it faces.

7. Financial Statements - Availability and Comparative Information

The financial information contained in this announcement does not constitute statutory accounts for the year ended 31 January 2012 or 31 January 2011 as defined by the Companies Act 2006 but is derived from those accounts. The statutory accounts for the year ended 31 January 2011 have been delivered to the Registrar of Companies and those for the year ended 31 January 2012 will be delivered following the Company's Annual General Meeting. The Independent Auditor's report on those accounts was unqualified and did not contain any statements under section 498 (2) or (3) of the Companies Act 2006.

Copies of the Annual Reports and Financial Statements for the year ended 31 January 2012 will be posted shortly to those shareholders who have elected to receive printed copies. Details of the ability to view or download the Annual Reports and Financial Statements from the Company's website at www.witanpacific.comwill be posted or e-mailed to the remaining shareholders in accordance with their respective election. Copies of the Annual Reports and Financial Statements can also be requested from the Registered Office of the Company.  

Phoenix Administration Services Limited

Company Secretary

24 April 2012

The content of the Company's web-pages and the content of any website or pages which may be accessed through hyperlinks on the Company's web-pages is neither incorporated into nor forms part of the above announcement.

 

END

 

 

FR SEIFMLFESELL