Half Yearly Financial Report

RNS Number : 8573Q

Weiss Korea Opportunity Fund Ltd

04 September 2014

 



WEISS KOREA OPPORTUNITY FUND LTD.

HALF-YEARLY FINANCIAL REPORT

FOR THE PERIOD ENDED 30 JUNE 2014

Weiss Korea Opportunity Fund Ltd. (the "Company") has today published its Half Yearly Financial Report for the period ended 30 June 2014. The Report will shortly be available for inspection via the Company's website  www.weisskoreaopportunityfund.com.

For further information please contact:

Northern Trust International Fund Administration Services (Guernsey) Limited

Cara De La Mare                                                                                                                                  [phone]

N+1 Singer

James Maxwell / Nick Donovan - Nominated Adviser

James Waterlow / Alan Geeves / Sam Greatrex - Sales                                                  [phone]

Summary information

The Company

Weiss Korea Opportunity Fund Ltd. ("WKOF" or the "Company") was incorporated with limited liability in Guernsey, as a closed-ended investment company on 12 April 2013. The Company's Shares were admitted to trading on the AIM Market of the London Stock Exchange (the "LSE") on 14 May 2013.

The Company is managed by Weiss Asset Management LP (the "Investment Manager"), a Boston-based investment management company registered with the Securities and Exchange Commission in the United States of America.

Investment Objective and Dividend Policy

The Company's investment objective is to provide Shareholders with an attractive return on their investment predominantly through long-term capital appreciation. The Company intends to return to Shareholders dividends received on an annual basis.

Investment Policy

The Company is geographically focused on South Korean companies. Specifically, the Company invests primarily in listed preferred shares issued by companies incorporated in South Korea, which in many cases are currently trading at a discount to the corresponding common shares of the same companies. The Investment Manager has assembled a portfolio of Korean preferred shares that it believes are undervalued and could appreciate based on criteria it selects. Some of the considerations that affect the Investment Manager's choice of securities to buy and sell may include the discount at which a preferred share is trading relative to its respective common shares, its dividend yield, its liquidity and its common shares weighting (if any) in the MSCI Korea 25/50 Net Total Return Index (the "Korea Index"), among other factors. Not all of these factors will necessarily be satisfied for particular investments. The Investment Manager will not generally make decisions based on corporate fundamentals or its view of the commercial prospects of the issuer. Preferred shares are selected by the Investment Manager at its sole discretion subject to the overall control of the Board.

The Company invests primarily in Korean preferred shares, but it may invest some portion of its assets in other securities, including exchange-traded funds, futures contracts and other types of options, swaps and derivatives related to Korean equities, as well as cash and cash equivalents. The Company does not have any concentration limits.

The Company has not hedged its exposure to foreign currency during the period ended 30 June 2014.

Shareholder Information

The Administrator is responsible for calculating the Net Asset Value ("NAV") per Share of the Company. The unaudited NAV per Ordinary Share is calculated on a weekly basis and at the month end by the Administrator, which is announced by a Regulatory News Service and is available through the Company's website www.weisskoreaopportunityfund.com.

Company financial highlights and performance summary for the period ended 30 June 2014

							As at
							30 June
							2014
							£
Total Net Assets							138,423,477
NAV per share							1.3183
Basic and diluted earnings per share							0.2481
Mid-Market Share price							1.3700
Premium to NAV							3.9%

As at 4 September 2014, the NAV per share had increased to £1.4765 and the share price stood at £1.41.

Total expense ratio

The annualised total expense ratio for the six months ended 30 June 2014 was 1.81%.

Chairman's Review

Dear Shareholders,

We are pleased to provide a Half-Yearly Financial Report on the Company. During the period from 1 January 2014 to 30 June 2014 (the "Period"), the Company's NAV per share increased from 106.98 pence to 131.83 pence, an increase of 23.23%, outperforming the reference MSCI Korea 25/50 Capped Index, which increased by 0.75% in pounds sterling. During that time period the Company's share price generally maintained a premium to NAV.

Notwithstanding the robust performance of the Company during the Period and since inception, we continue to believe that South Korean preferred shares and WKOF represent an outstanding value investment opportunity.  A report from the Investment Manager follows on pages 5 to 9.

In the 2013 Annual Report, we noted the strong corporate governance features written into the Articles of the Company at inception, namely the medium-term redemption opportunities. Additionally, the Board has the authority to repurchase up to 40% of the shares of the Company. As stated in the Company's Admission Document, should the shares trade at a discount to NAV of greater than 5%, the Company has the ability to exercise this authority. We believe that our strong commitment to adding value through share repurchases and structural liquidity events will help maximize share value for investors.

As the Company's shares have recently traded at a discount to NAV, the Board intends to put in place the authority for the Company's broker, N+1 Singer, to buy back shares on the Company's behalf during close periods. Close periods occur in the weeks prior to the publication of Annual and Half -Yearly Financial Reports. When the Company is in a close period, the Board is unable to issue instructions on buy backs. The Board will arrange for N+1 Singer to have this discretion in the next close period, and subsequent close periods, prior to the publication of the Annual Report for 2014. We will keep Shareholders informed through a Stock Exchange announcement.

The Company's Annual General Meeting was held on 25 July 2014. All Directors stood for election and were re-elected. If you were unable to attend the meeting, the Board would be happy to answer any questions. Please contact the company at the address given on page 2 of this document.

The Company's first dividend of 1.44 pence per share was paid on 27 June 2014. As stated in the Admission Document, the Directors intend to return to Shareholders all dividends received, net of withholding tax, on an annual basis. South Korean companies typically pay a single annual dividend to shareholders of record near the end of the calendar year. However, the dividends are generally not announced or paid to shareholders until several months into the following calendar year. The Board has decided to schedule the Company's annual dividend distributions in the early summer; this timing helps ensure that dividends are paid out reasonably quickly after the Company receives them.

As also stated in the Admission Document, since its inception, the Company has not engaged in hedging activities or made use of leverage to fund investments, but the Company reserves the right to do so in the future.

I would like to thank Shareholders for their support, and look forward to the continued success of the Company in the future. I would also like to thank Weiss Asset Management, as well as the other service providers, all of whom have contributed greatly to the Company.

Sincerely,                                                                                                              

Norman Crighton

4 September 2014

Investment Manager's Report

For the six month period ended 30 June 2014

Introduction

The Company invests primarily in South Korean preferred shares. In South Korea, the term "preferred share" is a misnomer and Korean preferred shares are misunderstood by many Western investors. Korean preferred shares are more similar to non-voting common shares than the preferred shares in many other countries. In general, Korean preferred shares do not have a fixed dividend or a maturity date. Instead, the typical contractual terms of preferred shares state that their dividends will be incrementally higher than the dividends of their corresponding common shares. Hence, those preferred shares fully participate in dividend growth of the issuer. In spite of this, many Korean preferred shares trade at significant discounts to their corresponding common shares. For example, LG Electronics ordinary shares closed at ₩74,300 on 30 June 2014 while the preferred shares closed that day at ₩37,000 (roughly half the price of the ordinary shares). As a result of this anomaly, typically preferred shares' price-to-earnings ratios are substantially lower, and their dividend yields are higher than their corresponding common shares. For the Company's portfolio of preferred shares, the weighted average discount of preferred shares held was 39.8% as of 30 June 2014 (31 December 2013: 49.5%).[1]

Performance

The Company's NAV increased 23.23% from 31 December 2013 to 30 June 2014. By comparison, the MSCI Korea 25/50 Index[2] rose 0.75% over that period.[3]

The Company's returns were enhanced by a narrowing of the discount that many Korean preferred shares traded at relative to their corresponding common shares. While we are pleased about the returns we have generated for Shareholders thus far, we stress that investors should not rely on short term performance to forecast long term performance. In more than two decades of investing in closed-end funds, holding companies, non-voting equity shares and other undervalued securities around the world, we have witnessed gyrations of discounts that are not always explainable by changes in fundamentals. Our objective is to generate attractive returns over the long-term, net of fees. We believe that Korean preferred shares remain an exceptional investment opportunity, and we are optimistic about the long-term prospects of the portfolio.

Portfolio

As of 30 June 2014, the Company owned preferred securities comprising 90% of NAV and shares of the iShares South Korea ETF valued at 6% of NAV. This 'liquidity buffer' allows us to take advantage of trading opportunities in preferred shares as they arise. The trailing price to earnings ratio of the Company as of 30 June 2014 was 8.6x,[4] and the trailing net dividend yield was 1.2%.[5]

Notably during the quarter, the weighted average discount of the Company's portfolio of preferred shares[6] narrowed from 46% to just under 40%. While the vast majority of this was driven by the Company's top 10 positions by market value, only four of the Company's preferred share holdings had their discounts widen during the quarter. Further, the four discounts that widened had a limited effect on the Company's overall portfolio; these securities' discounts only affected the Company's overall weighted average preferred share discount by 5 basis points, in aggregate.

Principal Risks and Uncertainties

There are a number of risks and uncertainties, which have not changed from those described in the 2013 Annual Report and Audited Financial Statements, which could have a material impact on the Company's performance over the remaining six months of the financial year and could cause actual results to differ materially from expected and historical results. A detailed explanation can be found in the Annual Report and Audited Financial Statements which can be found on the Company's website.

A Cross-Country Comparison of Non-voting Share Prices

Although Korean preferred share discounts have continued to narrow in 2014, they remain substantially wider than the discounts of many other non-voting share classes around the world (for example, Italian saver shares, German preferred shares and Brazilian preferred shares, or the diluted voting rights shares of Berkshire Hathaway). In this context, they are still anomalously large. Historically, non-voting and limited-voting shares in many other countries have either narrowed in discount, or have been bought back or consolidated with the ordinary share class, resulting in favorable outcomes for holders of non-voting or limited-voting shares.

South Korean Corporate Governance Update

There were no major developments in South Korean corporate governance during the period. A number of the most important reform proposals are still being considered. These proposals include cumulative voting [7] (which would give greater board representation to minority shareholders), electronic voting (which would ensure that minority shareholders are actually able to vote), and the requirement that companies have a separately elected auditor position on their board (which would be filled by an election where the controlling shareholder and its affiliates would have a maximum vote of 3%).

President Park, who made improved corporate governance an important part of her campaign last year, has pledged continued interest in this legislation, however there is no clear indication of whether these changes will be implemented.

One interesting development is that the incoming Finance Minister is calling for companies to pay higher dividends. While there are no formal bills as of this writing, several proposals have been floated to give a tax incentive for companies to either distribute earnings or reinvest them in their businesses. We may not agree that these measures would be good macroeconomic policy, but we do believe that increased dividends would be a catalyst for the narrowing of preferred share discounts.

Also, as of July 25th, the formation of new circular shareholdings is officially banned. Circular shareholdings allow a controlling family to maintain control of a group of companies despite having significantly less than a majority economic stake. The law does not affect existing circular holdings.

Closing Remarks

Despite the narrowing of discounts, the preferred (non-voting) shares of South Korean companies still offer attractive values. Non-voting South Korean shares are highly over-represented among all non-voting shares that are trading at large discounts to their voting share equivalents. Thus, there appears to be room for further convergence in prices.

Based on the customary measures of fundamental valuations such as price/earnings, the South Korean market is one of the cheapest of all major markets. In addition, many major Korean companies have large holdings of cash and liquid securities relative to their levels of debt. The prices of these companies may be depressed by the low dividend yields, as the Korean companies continue to retain earnings - payout ratios are low. South Korea's history of poor corporate governance may also explain the low valuations. However, we assess that the momentum for improved corporate governance is strong and that over time valuations will align with those in other markets. Therefore, we believe that Korean preferred shares offer both a compelling value compared with ordinary Korean shares and an exceptional value in absolute terms that will generate outsized gains over the long run for patient investors.

[1]Weighted average discount of preferred shares held is the average discount of the last traded price of the preferred shares held by the Company to the last traded price of the respective common shares of the same issuer, weighted by the market value of each investment on the report date.

[2] MSCI Korea 25/50 Net Total Return Index, denominated in British pounds.

[3]All return numbers are reported in British pounds. The Company does not generally hedge currency exposure.

[4]The Average Trailing 12-Month P/E Ratio of Preferred Shares Held is based on the consolidated diluted earnings per share reported by Bloomberg over the trailing 12-month period, and is calculated as the total market value of the Company's preferred share portfolio divided by the trailing earnings allocable to the Company's portfolio on the report date. It does not account for any estimated or forecasted future earnings of WKOF's investments.

[5]Trailing Net Dividend Yield of Preferred Shares Held represents the weighted average dividend yield of the preferred shares owned by the Company over the 12-month period ending on the report date as reported by Bloomberg, after accounting for Korean taxes applicable to the Company, and weighted by the market value of each investment on the report date. This figure does not estimate or forecast future dividend payments on the Company's investments.

[6]The weighted average discount of the Company's portfolio of preferred shares is the average discount of the last traded price of the preferred shares held by the Company to the last traded price of the respective common shares of the same issuer, weighted by the market value of each investment on the report date.

[7] Cumulative voting is a voting system that allows shareholders to cast all of their votes for a single nominee for the board of directors when the company has multiple openings on its board. For example, an investor that owns one ordinary share of a company with two open board seats could choose to cast two votes for a single nominee, rather than casting a vote each for two different nominees.

Weiss Asset Management LP

7 August 2014

Top Ten Holdings

					Fair		% of
Investments			Holdings at		Value		Total Net
			30.06.2014		£		Assets
Samsung Electronics Co Ltd Preferred Share			27,982		17,129,253		12.37%
Hyundai Motor Company 1st Preferred Share			187,888		16,221,613		11.72%
Hyundai Motor Company 2nd Preferred Shares			124,691		11,377,478		8.22%
LG Chemical Ltd Preferred Shares			107,097		11,844,040		8.56%
LG Electronics Inc Preferred Shares			527,980		11,266,414		8.14%
Hyundai Motor Company 3rd Preferred Shares			110,581		8,876,650		6.41%
iShares MSCI South Korea Capped ETF			225,000		8,548,265		6.18%
Samsung SDI Co Ltd Preferred Shares			103,943		5,714,602		4.13%
CJ CheilJedang Corporation Preferred Shares			58,523		5,356,852		3.87%
CJ Corporation, 1st Preferred Shares			114,738		4,890,097		3.53%

In common with certain other funds, the Company has disclosed its ten largest holdings, representing 73.13% of Total Net Assets.

Directors

The Company has three non-executive Directors, all of whom are considered independent of the Investment Manager and details are set out below.

Norman Crighton (aged 48)

Mr Crighton is Chairman of the Company. He is also a non-executive director of Trading Emissions plc, Private Equity Investor plc, Global Fixed Income Realisation Limited and Rangers International Football Club Plc. Norman was, until May 2011, an investment manager at Metage Capital Limited where he was responsible for the management of a portfolio of closed-ended funds and has more than 22 years' experience in closed-ended funds having worked at Olliff and Partners, LCF Edmond de Rothschild, Merrill Lynch, Jefferies International Limited and latterly Metage Capital Limited. His experience covers analysis and research as well as sales and corporate finance. Norman is British and resident in the United Kingdom. Mr Crighton was appointed to the Board in 2013.

Stephen Charles Coe (aged 48)

Mr Coe is Chairman of the Audit Committee. He qualified as a Chartered Accountant with PricewaterhouseCoopers in 1990. From 1997 to 2006 he was a director of the Bachmann Trust Company Limited and managing director of Bachmann Fund Administration Limited. Between 2003 and 2006, Stephen was managing director of Investec Administration Services Limited and of Investec Trust (Guernsey) Limited prior to becoming self-employed in 2006 providing director services to financial services clients.

Currently, Mr Coe sits on the board of a number of listed companies including Kolar Gold Limited, an AIM listed gold exploration and development company incorporated in Guernsey, Black Sea Property Fund, a real estate investment fund focused on Bulgaria, and European Real Estate Investment Trust Limited, a European focused closed-ended property investment company. Stephen is also a non-executive director of Raven Russia Limited, a main market listed property investment specialist focused on Russia, Trinity Capital Limited, an AIM listed Indian real estate investment company and South Africa Property Opportunities plc, an AIM listed close ended investment fund focused on South African real estate assets. Stephen is British and resident in Guernsey. Mr Coe was appointed to the Board in 2013.

Robert Paul King (aged 51)

Mr King is a non-executive director for a number of open and closed-ended investment funds and companies. He was a director of Cannon Asset Management Limited and their associated companies, from 2007 to 2011. Prior to this, he was a director of Northern Trust International Fund Administration Services (Guernsey) Limited (formerly Guernsey International Fund Managers Limited) where he had worked from 1990 to 2007. He has been in the offshore finance industry since 1986 specialising in administration and structuring offshore open and closed-ended investment funds. Robert is British and resident in Guernsey. Mr King was appointed to the Board in 2013.

Director's Responsibility Statement

The Directors are responsible for preparing the Unaudited Half-Yearly Financial Report (the "Condensed Financial Statements"), which have not been audited by an independent auditor, and confirm that to the best of their knowledge:

·      these Condensed Financial Statements have been prepared in accordance with International Financial Reporting Standards ("IFRS") and in accordance with International Accounting Standard 34 "Interim Financial Reporting" issued by the European Union and the AIM Rules of the LSE;

·      these Condensed Financial Statements include a fair review of important events that have occurred during the period and their impact on the Condensed Financial Statements, together with a description of the principal risks and uncertainties of the Company for the remaining six months of the financial period as detailed in the Investment Manager's Report; and

·      these Condensed Financial Statements include a fair review of related party transactions that have taken place during the six month period which have had a material affect on the financial position or performance of the Company, together with disclosure of any changes in related party transactions in the last Annual Report and Audited Financial Statements which have had a material affect on the financial position of the Company in the current period.

The Directors confirm that the Condensed Financial Statements comply with the above requirements.

On behalf of the Board,

Norman Crighton                                                                 Stephen Charles Coe

Chairman                                                                               Director

4 September 2014

Condensed Statement of Financial Position (Unaudited)

							As at
							30 June
							2014
						Notes	£
Assets
Current assets
Financial assets at fair value through
profit or loss							133,342,938
Cash and cash equivalents							5,322,399
Other receivables							11,999
Total assets							138,677,336
Liabilities
Current liabilities
Other payables							253,859
Total liabilities							253,859
Net assets							138,423,477
Represented by:
Shareholders' equity and reserves
Share capital						5	102,900,000
Other reserves							35,523,477
Total shareholders' equity							138,423,477
Net assets per Share						8	1.3183

There are no comparative figures as this is the Company's first interim financial period of operation.

The Condensed Financial Statements were approved and signed by the Board of Directors on 4 September 2014.

Norman Crighton                                                                                 Stephen Charles Coe

Chairman                                                                                               Director

The notes form an integral part of these Condensed Financial Statements.

Condensed Statement of Comprehensive Income (Unaudited)

					For the period ended
					30 June 2014
					£
Income
Net changes in fair value of financial assets
at  fair value through profit or loss					27,257,591
Other income					(74,328)
Net income					27,183,263
Expenses
Operating expenses					(1,144,014)
Total operating expenses					(1,144,014)
Operating profit for the period before tax					26,039,249
Withholding tax					16,364
Operating profit for the period after tax					26,055,613
Total comprehensive income for the period					26,055,613
Basic and diluted earnings per share					0.2481

There are no comparative figures as this is the Company's first interim financial period of operation.

All items derive from continuing activities.

The notes form an integral part of these Condensed Financial Statements.

Condensed Statement of Changes in Equity (Unaudited)

For the period ended 30 June 2014
				Share	Other
				capital	reserves	Total
				£	£	£
Balance at 1 January 2014				102,900,000	10,981,263	113,881,263
Total comprehensive income for the period				-	26,055,613	26,055,613
Transactions with Shareholders, recorded directly in equity
Distributions paid				-	(1,513,399)	(1,513,399)
Balance at 30 June 2014				102,900,000	35,523,477	138,423,477

There are no comparative figures as this is the Company's first interim financial period of operation.

The notes form an integral part of these Condensed Financial Statements.

Condensed Statement of Cash Flows (Unaudited)

			For the period ended
			30 June 2014
		Notes	£
Cash flows from operating activities
Total comprehensive income for the period			26,055,613
Adjustments for:
Net change in fair value of financial assets held at fair value profit or loss			(27,257,591)
Decrease in debtors			1,987,504
Decrease in creditors			(434,389)
Net cash generated in operating activities			351,137
Cash flows from investing activities
Purchase of financial assets at fair value through profit or loss			(14,973,560)
Proceeds from the sale of financial assets at fair value through profit or loss			17,639,278
Net cash inflows from investing activities			2,665,718
Cash flows from financing activities
Distributions paid		3	(1,513,399)
Net cash outflows from financing activities			(1,513,399)
Effects of exchange rate fluctuations			(50,182)
Net increase in cash and cash equivalents			1,453,274
Cash and cash equivalents at the beginning of the period			3,869,125
Cash and cash equivalents at the end of the period			5,322,399

There are no comparative figures as this is the Company's first interim financial period of operation.

Operating cash flows includes dividends received of £1,896,154 net of taxes withheld of £417,154.

The notes form an integral part of these Condensed Financial Statements.

Notes to the Unaudited Condensed Financial Statements

1.  General information

The Company was incorporated with limited liability in Guernsey, as a closed-ended investment company on 12 April 2013. The Company's Shares were admitted to trading on the AIM Market of the LSE on 14 May 2013.

The Company's investment objective, policy and dividend policy is disclosed in the summary information.

The Investment Manager of the Company is Weiss Asset Management LP.

2. Significant accounting policies

a)     Statement of Compliance

The Condensed Financial Statements of the Company for the period ended 30 June 2014 have been prepared in accordance with International Financial Reporting Standards ("IFRS") and in accordance with International Accounting Standard 34 "Interim Financial Reporting" issued by the European Union and the AIM Rules of the London Stock Exchange. They give a true and fair view and are in compliance with the Companies (Guernsey) Law, 2008.

b)     Basis of preparation

The Condensed Financial Statements are prepared in pounds sterling (£), which is the Company's functional and presentation currency. They are prepared on a historical cost basis modified to include financial assets at fair value through profit or loss.

The Condensed Financial Statements, covering the period from 1 January to 30 June 2014, is not audited.

The same accounting policies and methods of computation have been applied to the Condensed Financial Statements as in the Annual Report and Audited Financial Statements at 31 December 2013. The presentation of the Condensed Financial Statements is consistent with the Annual Report and Audited Financial Statements.

The Condensed Financial Statements do not include all the information and disclosures required in the Annual Report and Audited Financial Statements and should be read in conjunction with the Annual Report and Audited Financial Statements at 31 December 2013. The Audit Report on those accounts was not qualified.

The preparation of the Condensed Financial Statements requires management to make estimates and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities at the date of Condensed Financial Statements. If in the future such estimates and assumptions, which are based on management's best judgement at the date of the Condensed Financial Statements, deviate from the actual circumstances, the original estimates and assumptions will be modified as appropriate in the period in which the circumstances change.

c)     Going Concern

The Directors believe that it is appropriate to adopt the going concern basis in preparing the Condensed Financial Statements in view of its holding in cash and cash equivalents and liquid investments and the income deriving from those investments, meaning the Company has adequate financial resources to meet its liabilities as they fall due.

d)     Standards, amendments and interpretations not yet effective

At the date of approval of these Condensed Financial Statements, the following standards and interpretations, which have not been applied in these Financial Statements, were in issue but not yet effective:

IFRS 9, 'Financial instruments', was updated in October 2010. The standard addresses the classification and measurement of financial assets. IFRS 9 divides all financial assets that are currently in the scope of IAS 39 into two classifications - those measured at amortised cost and those measured at fair value. The standard is not expected to be applicable until 1 January 2018 but is available for early adoption. IFRS 9 requires that the effects of changes in credit risk of liabilities designated as at fair value through profit or loss are presented in other comprehensive income unless such treatment would create or enlarge an accounting mismatch in profit or loss, in which case all gains or losses on that liability are presented in profit or loss. Other requirements of IFRS 9 relating to classification and measurement of financial liabilities are unchanged from IAS 39. Its adoption is not expected to have a significant impact on the Company's financial statements because the majority of the Company's financial assets are designated as at fair value through profit or loss and there are presently no financial liabilities designated as at fair value through profit or loss.

There are no other standards, amendments or interpretations that are not yet effective that would be expected to have a material impact on the Company.

e)     Operating Segments

The Board has considered the requirements of IFRS 8 'Operating Segments', and is of the view that the Company is engaged in a single segment of business, being an investment strategy tied to listed preferred shares issued by companies incorporated in South Korea. The Board, as a whole, has been determined as constituting the chief operating decision maker of the Company.

3. Dividends to shareholders

Dividends, if any, will be paid annually in June each year. An annual dividend of 1.44 pence per share (£1,513,399) was approved on 5 June 2014 and paid on 27 June 2014, in respect of the period from 12 April 2013 (date of incorporation) to 31 December 2013.

4. Significant accounting judgements, estimates and assumptions

The preparation of the Condensed Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expense and the accompanying disclosures. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities affected in future periods.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, or in the period of revision and future periods if the revision affects both current and future periods.

Judgements

In the process of applying the Company's accounting policies, management has made the following judgements, which have the most significant effect on the amounts recognised in the Condensed Financial Statements.:

Functional currency

The Condensed Financial Statements of the Company are presented in the currency of the primary economic environment in which the Company operates (its 'functional currency'). The Directors have considered the currency in which the original capital was raised, distributions will be made and ultimately the currency in which capital would be returned in a liquidation. On balance, the Directors believe that pounds sterling best represents the functional currency of the Company.

5. Share capital

As at

30 June

2014

Authorised

Unlimited Ordinary Shares at no par value

-

Issued at no par value

105,000,000 unlimited Ordinary Shares at no par value

-

Reconciliation of number of Shares

As at

30 June

2014

No. of Shares

Ordinary Shares at the beginning of the period

105,000,000

Total Ordinary Shares in issue at the end of the period

105,000,000

Share capital account
					As at
					30 June
					2014
					Share Capital
					£
Share Capital at the beginning of the period					102,900,000
Total Share Capital at the end of the period					102,900,000

The Share Capital of the Company consists of an unlimited number of Ordinary Shares of no par value.

Ordinary shares

The Company has a single class of Ordinary Shares which were issued by means of an initial public offering on 14 May 2013, at 100 pence per Share.

The rights attaching to the Ordinary Shares are as follows:

a)     the holders of Ordinary Shares shall confer the right to all dividends in accordance with the Articles of Incorporation of the Company.

b)    the capital and surplus assets of the Company remaining after payment of all creditors shall, on winding-up or on a return (other than by way of purchase or redemption of own Ordinary Shares) be divided amongst the Shareholders on the basis of the capital attributable to the Ordinary Shares at the date of winding up or other return of capital.

c)     the Shareholders present in person or by proxy or (being a corporation) present by a duly authorised representative at a general meeting has, on a show of hands, one vote and, on a poll, one vote for every Share.

d)    On 20 March 2017, being 56 days before the fourth anniversary of admission (the "Realisation Date"), the Shareholders are entitled to serve a written notice (a "Realisation Election") requesting that all or a part of the Ordinary Shares held by them be redesignated to Realisation Shares, subject to the aggregate NAV of the continuing Ordinary Shares on the last business day before the Reorganisation Date being not less than £50 million. A Realisation Notice, once given is irrevocable unless the Board agrees otherwise. If one or more Realisation Elections are duly made and the aggregate NAV of the continuing Ordinary Shares on the last business day before the Realisation Date is less than £50 million, the Directors may propose an ordinary resolution for winding up of the Company and may pursue a liquidation of the Company instead of splitting the Portfolio into the Continuation Pool and the Realisation Pool.

6. Related party transactions and Material Agreements

Related party transactions

a)     Directors Remuneration and expenses

The Directors of the Company are remunerated for their services at such a rate as the Directors determine provided that the aggregate amount of such fees does not exceed £150,000 per annum.

The annual Directors' fees comprise £26,000 payable to Mr Crighton, the Chairman, £22,000 to Mr Coe as Chairman of the Audit Committee and £20,000 to Mr King.

During the period ended 30 June 2014, director fees of £34,000 were charged to the Company and £17,000 remained payable at the period end. 

b)     Shares held by related parties

The Directors who held office at 30 June 2014 and up to the date of this Report held the following numbers of Ordinary Shares beneficially:

						Ordinary	% of issued
						Shares	share capital
Norman Crighton						20,000	0.02%
Stephen Coe						10,000	0.01%
Robert King						15,000	0.01%

The Investment Manager is principally owned by Dr. Andrew Weiss and certain members of the Investment Manager's senior management team.

As at 30 June 2014, Dr. Andrew Weiss and his immediate family members held an interest in 6,427,550 Ordinary Shares representing 6.12 per cent. of the issued share capital of the Company.

As at 30 June 2014, employees of the Investment Manager, their respective immediate family members or entities controlled by them or their immediate family members held an interest in 2,468,333 Ordinary Shares representing 2.35 per cent. of the issued share capital of the Company.  

Material Agreements

c)     Investment Management Fee

The Company's Investment Manager is Weiss Asset Management LP. In consideration for the services provided by the Investment Manager under the Investment Management Agreement dated 8 May 2013, the Investment Manager is entitled to an annual management fee of 1.5% of the Company's NAV accrued daily and payable within 14 days after each month end. The management fee is subject to a minimum annual amount of £1 (one) million per annum for the first 48 months following Admission. The Investment Manager is also entitled to reimbursement of certain expenses incurred by it in connection with its duties.

The Investment Management Agreement will continue in force until terminated by the Investment Manager or the Company giving to the other party thereto not less than 12 months' notice in writing, such notice not to expire prior to the fourth anniversary of admission other than in limited circumstances.

During the period ended 30 June 2014, investment management fees and charges of £909,896 were charged to the Company and £178,334 remained payable at the period end.

7. Fair value measurement

IFRS 13 requires the Company to establish a fair value hierarchy that prioritises the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements).

The three levels of the fair value hierarchy under IFRS 13 are set as follows:

Level 1 Quoted prices (unadjusted) in active markets for identical assets or liabilities;

Level 2 Inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (that is, as prices) or indirectly (that is, derived from prices); and

Level 3 Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety.

If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a Level 3 measurement. Assessing the significance of a particular input to the fair value measurement requires judgement, considering factors specific to the asset or liability.

The determination of what constitutes 'observable' requires significant judgment by the Company. The Company considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market.

The following table presents the Company's financial assets and liabilities by level within the valuation hierarchy as of 30 June 2014:

							Total
							30 June
				Level 1	Level 2	Level 3	2014
				£	£	£	£
Financial assets at fair value through
profit or loss:
Korean preferred shares				124,794,673	-	-	124,794,673
Korean Exchange Traded Fund				8,548,265	-	-	8,548,265
Total assets				133,342,938	-	-	133,342,938

The Company recognises transfers between levels of the fair value hierarchy as of the end of the reporting period during which the transfer has occurred. There were no transfers between levels during the period.

Investments whose values are based on quoted market prices in active markets, and are therefore classified within Level 1, include Korean preference shares and Exchange Traded Funds.

The Company held no Level 2 or 3 investments as at or during the period ended 30 June 2014.

8. NAV reconciliation

The Company announces its NAV, based on bid value, to the LSE after each weekly and month end valuation point. The following is a reconciliation of the NAV per share attributable to Ordinary shareholders as presented in these financial statements, using IFRS to the NAV per share reported to the LSE:

						As at 30 June 2014
							NAV per
							Participating
						NAV	Share
						£	£
Net Asset Value reported to the LSE						138,423,477	1.3183
Net Assets Attributable to Shareholders per Financial Statements						138,423,477	1.3183

The published NAV per Share and accounting NAV per Share is £1.3183.

9. Subsequent events

These Condensed Financial Statements were approved for issuance by the Board on 4 September 2014. Subsequent events have been evaluated until this date.

 

END

 

 

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