Annual Report and Accounts

Atlantis Japan Growth Fund Ld 24 July 2003 FOR IMMEDIATE RELEASE RELEASED BY MANAGEMENT INTERNATIONAL (GUERNSEY) LIMITED ATLANTIS JAPAN GROWTH FUND LIMITED PRELIMINARY ANNOUNCEMENT THE BOARD OF DIRECTORS OF ATLANTIS JAPAN GROWTH FUND LIMITED ANNOUNCE AUDITED RESULTS FOR THE YEAR ENDED 30 APRIL 2003: BALANCE SHEET As at 30 April 2003 (Expressed in United States Dollars) 2003 2002 $'000 $'000 FIXED ASSETS Investments at market value 195,836 217,759 (cost $207,041,000; 2002 - $239,644,000) CURRENT ASSETS Due from brokers 1,082 1,380 Dividends and interest receivable 1,199 1,061 Bank balances 1,063 1,538 3,344 3,979 CURRENT LIABILITIES Due to brokers 811 794 Creditors and accrued expenses 381 456 Loans payable 25,193 23,356 26,385 24,606 NET CURRENT LIABILITIES (23,041) (20,627) TOTAL NET ASSETS $172,795 $197,132 Represented by: CAPITAL & RESERVES Called-up share capital 204 204 Share premium 192,650 192,650 Other reserves (20,059) 4,278 TOTAL SHAREHOLDERS' FUNDS $172,795 $197,132 NET ASSET VALUE PER ORDINARY $8.46 $9.65 SHARE Based on 20,435,627 (2002 - 20,435,627) ordinary shares and a Net Asset Value of $172,795,000 (2002 - $197,132,000) STATEMENT OF TOTAL RETURN (incorporating the Revenue Account) For the year ended 30 April 2003 (Expressed in United States Dollars) Revenue Capital Total $'000 $'000 $'000 Realised loss on sales of investments - (31,860) (31,860) Unrealised appreciation of investments - 10,680 10,680 Exchange gain/(loss) 133 (2,067) (1,934) Investment income 2,932 - 2,932 Deposit interest 20 - 20 3,085 (23,247) (20,162) Investment management fee 2,767 - 2,767 Custodian fees 188 - 188 Administration fees 218 - 218 Registrar and transfer agent fees 19 - 19 Directors' fees and expenses 113 - 113 Interest expense and bank charges 253 - 253 Insurance fees 28 - 28 Audit fee 19 - 19 Printing and advertising fees 57 - 57 Legal and professional fees 43 - 43 Listing fees 27 - 27 Miscellaneous expenses 3 - 3 3,735 - 3,735 DEFICIT ON ORDINARY ACTIVITIES BEFORE TAX (650) (23,247) (23,897) Tax on ordinary activities (440) - (440) DEFICIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS (1,090) (23,247) (24,337) DEFICIT PER ORDINARY SHARE : $(0.053) $(1.138) $(1.191) Based on the weighted average of 20,435,627 Ordinary Shares and the deficit Attributable to Equity Shareholders noted above. STATEMENT OF TOTAL RETURN (incorporating the Revenue Account) For the year ended 30 April 2002 (Expressed in United States Dollars) Revenue Capital Total $'000 $'000 $'000 Realised loss on sales of investments - (43,697) (43,697) Unrealised appreciation of investments - 22,707 22,707 Exchange loss (26) (721) (747) Investment income 2,629 - 2,629 Bond interest 5 - 5 Deposit interest 75 - 75 2,683 (21,711) (19,028) Investment management fee 3,044 - 3,044 Custodian fees 234 - 234 Administration fees 226 - 226 Registrar and transfer agent fees 25 - 25 Directors' fees and expenses 120 - 120 Interest expense and bank charges 304 - 304 Insurance fees 30 - 30 Audit fee 18 - 18 Printing and advertising fees 38 - 38 Legal and professional fees 32 - 32 Listing fees 5 - 5 Miscellaneous expenses 8 - 8 4,084 - 4,084 DEFICIT ON ORDINARY ACTIVITIES BEFORE TAX (1,401) (21,711) (23,112) Tax on ordinary activities (391) - (391) DEFICIT ATTRIBUTABLE TO EQUITY SHAREHOLDERS (1,792) (21,711) (23,503) DEFICIT RETURN PER ORDINARY SHARE : $(0.088) $(1.062) $(1.150) Based on the weighted average of 20,435,627 Ordinary Shares and the Deficit Attributable to Equity Shareholders noted above. STATEMENT OF CASH FLOWS For the year ended 30 April 2003 (Expressed in United States Dollars) 2003 2002 $'000 $'000 $'000 $'000 OPERATING ACTIVITIES Net cash outflow from operating activities (1,045) (1,370) SERVICING OF FINANCE Interest paid (258) (318) FINANCIAL INVESTMENT Purchase of investments (141,520) (178,195) Sale of investments 142,578 170,248 Net cash inflow/(outflow) from investing activities 1,058 (7,947) FINANCING Subscription of shares on conversion of warrants - 4,174 Decrease in cash (245) (5,461) RECONCILIATION OF NET CASH FLOW TO MOVEMENT IN NET DEBT Decrease in cash as above (245) (5,461) Exchange movements (2,067) (721) Movement in net debt in the year (2,312) (6,182) Net debt at 1st May (21,818) (15,636) Net debt at 30th April $(24,130) $(21,818) ATLANTIS JAPAN GROWTH FUND LIMITED CHAIRMAN'S STATEMENT FOR THE YEAR ENDED 30TH APRIL 2003 It is my pleasure to report to you in my capacity as Chairman of the Fund having taken over from Bill Brown at the Annual General Meeting last September. I'm sure that you will join with me in thanking Bill for his work on behalf of the Fund since its establishment in the spring of 1996. It has been another challenging year for investors in the Fund and Japan in general as 20 year lows for the market have recently been tested. Nearly $1.8 trillion has been wiped off the value of the Japanese market since the peak 13 years ago. Despite this difficult environment, your Fund has performed relatively well but it is of little consolation as we have been unable to deliver positive returns to you. For the reasons I am about to explain, we are hopeful that the foundations are currently being established for a sustained rise in absolute terms over the longer term. SHARE PRICE DISCOUNT The discount or premium on the Fund represents the share price relative to its net asset value. Whilst Japan has been out of favour with investors, the prevailing discount has widened. At times when investment in Japan is popular, the discount tends to narrow and it is possible for the share price to go to a premium to Net Asset Value. The discount on the Fund averaged 13.6% with a range of 3% to 20%* during the period, reflecting Japan's unpopularity with investors. You have empowered your Board to monitor this discount and repurchase shares if the discount moves out of line with Funds of a similar nature. Currently, the discount is not out of line with the peer group consequently, to date, no repurchases have been made. The Board will continue to monitor this situation and will take action if necessary. ATLANTIS JAPAN GROWTH FUND LIMITED CHAIRMAN'S STATEMENT (continued) FOR THE YEAR ENDED 30TH APRIL 2003 OUTLOOK It has been another difficult year for investment in Japan but the Investment Manager has met the challenge presented to them. The Japanese stock market has hit a series of new 20-year lows recently and much of the bad news must surely be reflected in share prices. The expectation is now that the stock market is in the bottom zone and that careful stock picking will be the best strategy during the coming year. With little sign of an immediate catalyst for a sustained rally, we are confident that our Manager can identify companies with growth potential. We expect another year of increasing corporate profits growth through restructuring and improved productivity. A gradual improvement in the Japanese economy would serve as a useful backdrop for corporate profit growth over the years ahead. With the yield on the long-term government bond yield paying a paltry 0.7%, the average yield on the Tokyo Stock Exchange of 1.5% may be seen as quite appealing. Some companies are paying in excess of 5% per annum! The Company maintains a heavy weighting in small and medium sized companies. Many smaller companies in Japan have market capitalisations less than their liquidation value and will be showing earnings growth this year. Over time, the Company may move to accumulate larger companies, but for now, better value can be found amongst the medium sized and smaller stocks. I would urge all investors in the Fund to remain patient. We hope that most of the pain is now behind us. Valuations in Japan appear compelling and should reap rewards for those prepared to take a long-term view. Tim Guinness Chairman June 2003 * Source: Bloomberg ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT FOR THE YEAR ENDED 30TH APRIL 2003 PERFORMANCE In the year ended 30th April 2003, the Company's Net Asset Value declined by 12.3% in U.S. dollar terms, with net assets per share standing at $8.46 at period-end. In comparison, the Tokyo First Market index (Topix) was down 20.7% in dollar terms while the Tokyo Second Market index declined by 6.1%. While the portfolio value fell, performance did manage to beat both the Topix and the Nikkei, the two most widely used indices. Since inception on 10th May 1996, Net Asset Value per share in U.S. dollars terms has fallen 14.7% compared with a 58.7% decline in the Topix and a 38.4% decline in the Tokyo Second Market index. The decline in value has been partly due to the weakness of the Japanese yen, which has depreciated by 12.0% against the US Dollar over this time frame. In yen terms, the Net Asset Value is down by 3.1% since inception. As of the end of April 2003, the Company had no foreign exchange hedges or foreign exchange contracts. During the year under review, the Japanese yen strengthened against U.S. dollar, with the yen-dollar exchange rate moving to Y 119.08/US$ from Y128.45/US$ one year earlier. The strengthening of the yen had a positive impact on the value of the portfolio in dollar terms. Borrowings totalled Y3 billion at the end of April 2003, equivalent to about 14.58% of the Net Asset Value. Cash stood at Y125 million, equivalent to about 0.6% of net assets. MARKET COMMENT The Japanese economy continued to limp along during the fiscal year ended March 2003. GNP grew at an annual rate of only about 1.6% (preliminary only) somewhat better than expected, but still disappointingly slow. Exports and consumer spending were the main locomotives of growth for the economy. Both public investment and housing investment fell during the year. Companies continued to restructure, in some cases aggressively, and earnings before taxes and extraordinary losses generally showed an impressive recovery. In the financial sector, however, banks and life insurance companies continued to report huge losses and a number of major banks came to the market with new preferred share issues to fortify their capital structure. Japan's central bank kept interest rates low, and the yield on the bellwether long-term government bond slipped below 0.7%, near the all-time low. Prices continued to decline as Japan remained in the grip of deflation, and economists continued to debate inflation targets as a possible cure for the weak economy. The Bank of Japan pumped additional money into the economy and has even been buying stocks as a means of providing further support to the big banks, which have been liquidating their stock portfolios. But, as has too often been the case, the measures taken thus far have proved too little and too late. From our perspective, the Tokyo market has recently been driven more by technical factors (that is, demand and supply) than fundamentals. Corporations continued to sell off crossholdings, though this was more than offset by the many companies that bought back their own shares. In fact, with the exception of the banks and insurance companies, Japanese corporations were large net buyers of equities during the year under review. Overseas investors were also net buyers, and local investment trusts were small net buyers but had only a limited impact on the market. Pension funds were aggressive major sellers, especially during the latter half of the year, as they moved to liquidate their portfolio holdings and return the money to the government pension fund, which usually accepts only cash and is heavily weighted in bonds. Individual local investors, although mostly net buyers in recent months, were on the sell side during the year. An encouraging sign at this time is net buying by overseas investors, local retail investors, and corporate investors. Unfortunately, buying from these investors has been more than offset by aggressive selling on the part of corporate pension funds, which as mentioned earlier, are returning money to the government-run pension fund. Over the last one-year period, the Japanese market has slumped to a series of lows, with the Nikkei index hitting a twenty-year low only recently. Uncertainties continue to hang over the market, including the expectation of continued selling by pension funds, the still-weak domestic economy, and the absence of effective government action. Outside of Japan, there is also concern over the outlook for world economy and, most recently, the spread of SARS. The clouded outlook notwithstanding, we believe that at current levels the Japanese stock market has already discounted most of the bad news, and that the market is now in the process of finding a bottom from which to build. Some support for stock prices should come from improving corporate earnings, which are expected to see another year of positive growth in the March 2004 fiscal year. THE COMPANY The portfolio now includes investments in 168 separate issues, including one convertible bond investment that accounts for just under 0.6% of Net Asset Value. The portfolio is about 14% leveraged, reflecting the Manager's confidence in finding attractive issues and strong conviction that the market will eventually move higher over the medium to longer term. We would hasten to add, however, that thanks to a combination of low borrowing costs and dividend income from a number of relatively high-yielding issues in the portfolio, portfolio income is more than covering the cost of borrowing at this time. As mentioned in last year's annual report, the Manager plans no hedges or currency swaps at this time, but will continue to keep an open mind as to the possible future use of such strategies if and when deemed prudent. ATLANTIS JAPAN GROWTH FUND LIMITED INVESTMENT MANAGER'S REPORT (continued) FOR THE YEAR ENDED 30TH APRIL 2003 At the present time, the portfolio is heavily weighted toward the retail, service, health care, real estate investment trusts (REITs) and technology sectors. Underweighted sectors include financials, iron/steel, utilities, chemicals, shipping, construction, and most 'smokestack' industries and low-tech manufacturing. The Manager continues to believe that the best value and growth is to be found among smaller and medium-sized companies and, accordingly, the portfolio is heavy weighted in this direction. The portfolio is underweighted in large-cap stocks, including many well-known blue chips that are considered to have gone ex-growth or are overvalued. The Manager continues to emphasise long-term growth potential and value. In addition, the portfolio includes investments in a number of recovery-type situations that also appear to have long-term growth potential; in many cases, these companies are benefiting from restructuring. A steady stream of new listings has also been providing the Manager with buy candidates; frequently, good investment opportunities in new issues have been found after a stock has fallen to unusually low levels after listing. With a number of companies in the portfolio being small in terms of market capitalisation, the Manager generally limits exposure to any one stock. This partially explains the high number of stocks included in the portfolio. The portfolio has no exposure to warrants at this time and no warrant purchases are planned. Despite weak stock market conditions, the Manager is encouraged by the large number of cheap stocks that are available to choose from. Many are selling at extremely low levels, in some cases twenty-year or even all-time lows. As always, the Manager is maintaining a busy company visit schedule. These ongoing efforts are aimed at finding interesting buy candidates as well as keeping abreast of the latest developments at companies already represented in the portfolio. Ed Merner Atlantis Fund Management (Guernsey) Limited May 2003 This information is provided by RNS The company news service from the London Stock Exchange

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