Final Results

RNS Number : 4402Y

Atlantis Japan Growth Fund Ld

07 July 2008

ATLANTIS JAPAN GROWTH FUND LIMITED

STATEMENT OF ANNUAL RESULTS

7 July 2008

The financial information set out in this announcement does not constitute the Company's statutory accounts for the year ended 30 April 2008.

The financial information for the year ended 30 April 2008 is derived from the financial statements delivered to the UK Listing Authority. The Auditors reported on those accounts, their report was unqualified and did not contain a statement under Section 65(3) of The Company (Guernsey) Law, 1994.

Chairman's Statement

For the Year ended 30th April 2008

The year to 30th April 2008 was a difficult period for the Tokyo Market and the Company. Both moved lower over the course of the year as the market responded to a steady stream of bad news from overseas and growing uncertainty on the domestic front. The negative sentiment kept stock prices under pressure, and even previously bullish overseas investors retreated into net selling. The selling pressure was often felt most keenly where liquidity has been traditionally low, that is, in the mid and smaller cap segment of the market. This compounded the performance difficulties for the Company, which has in past years maintained a high exposure to small and medium-sized stocks.

When the Company was established in 1996, the Investment Manager outlined their investment principles emphasising value and long-term earnings growth, and set forth the goal of outperforming the market and delivering positive returns over the long term. The Company has stayed loyal to these principles through the years in both good and bad markets, recognising that this approach has often meant a high tracking error relative to the leading market indices. In some years the Company has outperformed the market and in others, including the year under review, the Company has underperformed the market. However, over the long term the Company has still outperformed the market and delivered positive returns, in keeping with its original goal.

Stock markets are cyclical in nature and negative returns can sometimes persist not just months but for years. For this reason, even though portfolio investments are made primarily on the basis of individual company fundamentals and valuations, consideration should be given to the various macro-level factors that affect the long-term earnings outlook and other 'big picture' issues.

At the end of April Japanese stocks looked cheap, at least historically. The Tokyo First Market was trading at around 1.5x book value and around 17x estimated earnings for the fiscal year just ended and the dividend yield of around 1.7% was slightly higher than the yield on the bellwether 10-year Japanese government bond. Valuations were even lower on the Tokyo Second Market. Of course, while low valuations do not make all stocks a 'buy' and do not suggest the market will rebound immediately, they do offer a good reason to hold Japanese equities. Furthermore is the likely that the yen will remain a strong currency, while Japan maintain large trade and current account surpluses, low inflation, and otherwise stable environment.

The Company ended the year under review at a 14.2% discount to Net Asset Value per share. We see this as a reflection of both the weak performance of the Tokyo Market and the generally negative investor sentiment toward Japanese stocks and related closed-end investment trusts over that time. In the past, when the Tokyo Market was strong and investors were confident, the Company frequently traded at a premium to Net Asset Value. Indeed, this was the case just two years ago. At the time of writing the discount had fallen to circa 5% and sentiment towards the Japanese market appears to be improving.

Whilst market conditions were difficult during the past year, your board still believes that the stock market will in due course recover and that Japanese stocks will come back into favour. While it is impossible to predict the timing, we remain confident that your Company remains well positioned to take advantage of the recovery when it comes.

I am delighted to report that in November 2007, Takeshi Murakami accepted an invitation to join your Company's Board. He brings with him 38 years of experience in the securities industries in Osaka, Tokyo, New York and London.

Timothy Guinness

Chairman

July 2008

Investment Manager's Report

For the Year ended 30th April 2008

PERFORMANCE

The Company faced exceptionally difficult market conditions during the year to 30th April 2008. Indeed, the confluence of difficulties was such that it might even be described as the 'perfect storm.' In addition to a decline in the overall market, there were added pressures on those segments of the market that your Investment Manager normally favours, as both growth and value stocks fell out of favour and small stocks underperformed large stocks. At the same time, those segments of the market to which the portfolio had little or no exposure outperformed the overall market as investors flocked to commodity-related stocks and low-quality recovery situations, areas where the Investment Manager sees little attraction based on long-term fundamentals. Adding further to the difficulties was the Fund's leverage, which had a negative impact on performance as the value of equities in the portfolio declined.

As a result, the Company Published Net Asset Value finished the year to 30th April 2008 down 30.8%. This compares with declines of -8.30% for the Topix and -18.4% for the Tokyo Second Market index. Reflecting the greater pressure on small stocks and micro caps, where the Fund has considerable exposure, the MOTHERS index fell 24.1% and HERCULES index fell 24.0% over the same timeframe. (Note: All figures in US dollar terms.)

At the end of the year under review, the Company had borrowings of Y7.5 billion, (about $72 million), representing an increase of Y1 billion ($9.6 million), and cash of Y578 million ($5.5 million). This left the Company about 22.4% leveraged. There are no plans to increase leverage at this time. Since nearly all Company assets are denominated in Yen, a strong Yen has a positive impact on the NAV in US dollar terms and vice versa. At the end of the year under review, the Yen stood at 104.14/US dollar compared with Y119.575 one year earlier, representing a gain of 14.8%. The Company has no foreign exchange hedges and none are planned at this time.

MARKET COMMENT

One year ago, most investors and economists saw a generally sunny outlook for the Japanese economy and stock market. Storm clouds moved in unexpectedly, though, as a major credit crunch hit the US, impacting all major world financial markets and slowing world economic growth but doing little to stop the rise in oil and commodity prices.

While temporarily depressing the Tokyo market and clouding the outlook for the Japanese economy, the current difficulties are not at all like the 1990s. Now, most Japanese companies are in good shape - even banks. Profit margins are the highest in many years, balance sheets are strong, and operations are focused and lean. In the case of Japanese financial sector companies, we would note that subprime loan-related losses are actually very limited and, thus, will have little-to-no impact on leading companies.

This time around, the weakness in Japanese stocks can be traced largely to concerted selling by overseas investors, many of whom were looking to raise cash or move money into faster-moving emerging markets (which later fell). In contrast, we saw domestic investors stepping in as buyers in many months, accumulating shares particularly in response to severe weakness. As long-time investors in Japan will recognise, this represents an important shift in the investment patterns of domestic investors, who have for many years been net sellers rather than net buyers (with the main exception being business corporations).

That said, worries about fundamentals were not totally absent or unjustified, as the ongoing rise in commodity prices combined with the appreciation of the yen did indeed start to pinch profit margins as the year wore on. With it naturally taking time for companies to pass along higher costs and, in some cases, companies consciously refraining from passing the full cost increase in hopes of remaining competitive, the impact on margins has become increasingly evident since the January-March 2008 quarter.

At the current juncture commodity prices remain elevated, and we believe many commodities are significantly overpriced, and that an unsustainable bubble has been created that is unrelated to end-user demand. This does not apply to all commodities, though, as we are seeing some pressure on prices in Japan that are related more to supply than demand. As a result, we would expect interest rates to rise only modestly going forward, thus keeping interest rates relatively low.

With the Japanese economy clearly slowing, we look for real GDP growth in the current fiscal year (to March 2009) to ease to around +1%. We expect the worst of the slowdown to be over by late 2008 or early 2009, allowing real GDP growth to move back toward its potential growth rate of +1.5-2.0%. We anticipate a similar pattern for overall corporate earnings, with earnings flat to slightly down this fiscal year and improving growth next fiscal year.

While our main scenario sees the Japanese economy and the stock market getting back on track, there are several risks that should be identified. In particular, we are concerned about the possibility of continued high commodity prices and further financial problems overseas, either of which could work to prolong the slowdown in the world economy and delay the economic and stock market recovery in Japan.

We are of the view that major stock markets tend to move in long cycles, with both up-cycles and down-cycles that can last for many years. In the case of the Tokyo market, we found stocks bottoming in 1974-75 before moving into a long-term uptrend that lasted through the end of 1989, with intermittent bouts of consolidation. This was followed by a long downtrend during the 1990s, which though interrupted by a number of hopeful rallies did not ultimately find a bottom until early 2003.

With the economy and the corporate sector having already cleared the main structural problems that hindered the recovery during Japan's 'lost decade,' we believe the current consolidation in the Japanese stock market is effectively laying the foundation for a sustained, long-term rally that will eventually precipitate renewed interest in equities on the part of domestic investors.

We would expect valuations to be one of the main drivers of this shift into stocks by domestic investors, as Japanese stocks are now looking undervalued relative to most other domestic asset classes (including bonds, real estate, and bank deposits) while the appeal of overseas investments has dimmed as a result of foreign exchange risk. Indeed, at the current level we see Japanese stocks looking reasonable-to-cheap based on a number of metrics, including PER, book value, cash flow, and dividend yield, with the average dividend yield for Tokyo First Market stocks higher than the yield on the bellwether government bond and positive after adjusting for inflation.

THE COMPANY

Our investment strategy remains unchanged. We remain focused on value and long-term earnings growth, just as we have since the inception of the Company some twelve years ago. This means we still stress bottom-up stock picking that depends primarily on individual company fundamentals, and do not deliberately seek to track a particular index through a top-down, sector allocation approach.

In conjunction with this bottom-up approach, we spend a great deal of time on company visits and meetings with management. This takes us to see companies ranging from big to small and in all kinds of industries. Some are strictly domestic operators with businesses that are regional or national in scope, while others are also active in overseas markets. We strongly favour companies from which we can expect growing sales, improving profit margins, and positive free cash flow, and where we also find management that cares about returns to shareholders and good corporate governance.

We are less concerned about the industry in which the company operates, except of course when the industry dynamics are such that long-term earnings growth is unlikely or unpredictable, as is the case in many mature or commodity-oriented industries. In percentage terms, perhaps 75-80% of our decision is based on individual company fundamentals. Though our investment decisions are not made top-down, we do give considerable attention to macro-level information. This includes not just trends in the economy, commodity prices, and Government policy that can impact the company's business, but also the balance and focus of stock market buying and selling that can impact the stock price.

Because our main focus is on individual business, when we choose to invest we think of ourselves as part owners of the business. We are not short-term traders. We do not have a pre-set target price at which we plan to sell a stock. We do not think in terms of days, weeks, or even months. Rather, we are looking to hold a position for years on the condition that the outlook for the underlying business remains good and the stock has not become so overvalued that the share price cannot be sustained.

As investors are well aware, timing the stock market is extremely difficult. In our experience, it is rare for even professionals to buy at the very bottom or sell at the very top. We do not claim to be exceptional in this regard and, thus, before opening a position we always give due consideration to the possibility that the stock may decline after our initial purchase. In practice, this means we normally limit our initial investment when we are establishing a new position. This provides a measure of risk control and gives us room to accumulate more should the stock show further weakness.

In addition to our disciplined approach to buying, we also maintain strict standards for sales from the portfolio. Our general policy is to sell existing holdings when earnings are not meeting our expectations and do not appear likely to get back on track, or when we have otherwise lost confidence in management or the long-term earnings outlook. This not only keeps the portfolio comprised of companies that we believe have solid fundamentals, it also makes room for the new investment candidates that the Fund Manager uncovers in the course of his ongoing company visiting and research program.

Getting down to more specifics, until recently, we have been finding most of the best value and growth among medium-sized and smaller companies. We still are finding many good companies in this area of the market, but our visits to large companies have started to uncover more and more attractive investment candidates. These are good companies for the long term, in our view, but have simply been oversold due to market disappointment with the near-term earnings outlook. Examples that have already been added to the portfolio include Makita, Asahi Glass, Fanuc, Hoya. These were all companies that we had liked and followed for some time, but had simply held off on purchases for the portfolio because the valuations had not been sufficiently attractive until just recently.

We have also been adding to our position in Real Estate Investment Trusts (REITs), where we are finding both high dividend yields and many companies selling at below real book value. We must admit to poor timing in this regard, however, and acknowledge that our high exposure to REITs has been one of the factors behind the Company's recent underperformance. We still feel many Japanese REITs have good business models and attractive valuations. The better REITs are having little trouble in finding financing on favourable terms and are generally run conservatively, with leverage limited to around 50%. We especially like REITs that specialise in office buildings in the Tokyo metropolitan area, where office rents have been slowly rising and vacancy rates for buildings in prime locations are 2-3% or less. Our favourites here include Nomura Office, Mori Trust, and Nippon Commercial.

At the end of the year under review, the portfolio held a total of 200 stocks, including 7 REITs. The Company has no exposure to warrants and no convertible bonds, though the absence of convertible bond holdings is more a reflection of a lack of investment opportunities than a lack of interest on our part. The largest holdings usually account for 2-3% of the portfolio each, as shown on pages 16 -17. The Schedule of Investments on pages 18 to 24 provides details listing of all holdings in the portfolio, broken down by sector. As can be seen, the portfolio has relatively high exposure to some sectors and low exposure to other sectors. In particular, the portfolio is significantly overweighted in retail, services, electronics/technology, healthcare, machinery, real estate, financials, rubber, and land transportation, and underweighted in utilities, construction, fishing, textiles, and traditional 'smoke-stack' industries. Because our focus is on bottom-up stock picking, as discussed above, any overweighting or underweighting of a particular sector does not reflect a top-down decision. Rather, it is simply the end product of numerous stock picks based on individual company fundamentals.

The essence of our investment approach since the Company's inception in 1996 has always been individual stock-picking focused on value and long-term earnings growth. Very often, this means buying stocks when they are not popular and thus likely to be undervalued or at least reasonable priced. While this approach can be expected to outperform over the long term, at times it can result in temporary underperformance such as we have experienced this past year. However, if our stock selection is right, we believe we can continue to outperform over the long term.

Atlantis Fund Management (Guernsey) Limited

20 May 2008

Directors' Report

The Directors are pleased to present their twelfth Report and the Audited Financial Statements of the Company for the year ended 30th April 2008.

DIRECTORS' RESPONSIBILITIES

The Directors are responsible for preparing Financial Statements for each financial year which give a true and fair view of the state of affairs of the Company and of the profit 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 estimates that are reasonable and prudent;

– state whether applicable accounting standards have been followed subject to any material departures disclosed and explained in the Financial Statements; and

– prepare the Financial Statements on a going concern basis unless it is inappropriate to presume that the Company will continue in business.

We confirm, to the best of our knowledge, that:

this Annual Report and Financial Statements, prepared in accordance with International Financial reporting Standards, give a true and fair view of the assets, liabilities, financial position and loss of the Company; and

this Annual Report and Financial Statements includes information detailed in the Directors' Report, the Investment Manager's Report and Notes to the Financial Statements, which provides a fair review of the information required by:

DTR 4.1.8 and 4.1.9 of the Disclosures and Transparency Rules ('DTR') being a fair review of the Company business and a description of the principal risks and uncertainties facing the Company; and
DTR 4.1.11 of the DTR being an indication of important events that have occurred since the beginning of the financial year and likely future development of the Company.

The Directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Company and to enable them to ensure that the Financial Statements comply with The Companies (Guernsey) Law, 1994. 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 Directors are responsible for ensuring that the Directors' Report and other information included in the Annual Report is prepared in accordance with company law applicable in Guernsey. They are also responsible for ensuring that the Annual Report includes information required by the Listing Rules of the Financial Services Authority.

The Directors confirm that these Financial Statements comply with these requirements.

TAX STATUS

The Company is a Guernsey based closed-ended investment company, whose Ordinary Shares are listed on the London Stock Exchange. In the opinion of the Directors, the Company has conducted its affairs so as to be able to seek approved investment trust status from HM Revenue and Customs under section 842 Income and Corporation Taxes Act 1988 for the accounting year ended 30th April 2008.

Pursuant to arrangements between the Association of Investment Companies and HM Revenue and Customs, who have agreed that written approval of investment trust status can be granted within the Corporation Tax Self Assessment Regime, written approval for all accounting periods to 30th April 2007 has been received.

RESULTS

The Directors do not recommend the payment of a dividend.

Directors' Report

CAPITAL VALUES

At 30th April 2008 the value of net assets available to shareholders was $321,761,590 (2007 - $464,980,738) and the Net Asset Value per share was $15.75 (2007 - $22.75).

PREPARATION OF FINANCIAL STATEMENTS

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

DIRECTORS

The Directors listed on page 8 served throughout the year under review, except for Takeshi Murakami who was appointed to the board on 29th November 2007 and Yoshinobu Itai who retired on 4th October 2007 from the board.

Certain Directors had a beneficial interest in the Company by way of their investment in the ordinary shares of the Company.

The details of these interests as at 30th April 2008 are as follows:

T. Guinnes 10,000 ordinary shares

A. Martin Smith 2,500 ordinary shares

C. Jones 1,000 ordinary shares

Directors' Interests:

There were no relevant contracts in force during or at the end of the year in which any Director had an interest. There are no service contracts in issue in respect of the Company's Directors.

No Directors had a non-beneficial interest in the Company during the year under review.

SECRETARY

For the period 1 May 2007 to 31 October 2007 the Secretary was, HSBC Securities Services (Guernsey) Limited, effective 1 November 2007 the Secretary is Northern Trust International Fund Administration Services (Guernsey) Limited.

AUDITORS

Following the transfer of their business to Grant Thornton Limited with effect from 1st November 2007, RSM Robson Rhodes (Guernsey) Limited resigned as auditors on 31st October 2007. The Directors appointed their successor, Grant Thornton Limited, as auditors. This appointment will be ratified at the next annual general meeting, at which time a resolution to reappoint Grant Thornton Limited as auditors will be proposed. Grant Thornton Limited have indicated their willingness to continue in office.

Resolutions re-appointing them and authorising the Directors to fix their remuneration will be proposed at the Annual General Meeting.

Directors' Report

INVESTMENT MANAGER

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

CHANGE OF CUSTODIAN, ADMINISTRATOR, SECRETARY AND PRINCIPAL REGISTRAR

HSBC Securities Services (Guernsey) Limited ceased as secretary, administrator and principal registrar and HSBC Custody Services (Guernsey) Limited ceased as custodian of the Company with effect from 31 October 2007. Northern Trust International Fund Administration Services (Guernsey) Limited has been appointed as secretary, administrator and principal registrar, and Northern Trust (Guernsey) Limited as custodian with effect from 1 November 2007.

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

As an investment trust, the Company invests in securities for the long term. The financial investments held as assets by the Company comprise of equity shares (see the Schedule of Investments on pages 18 to 24 for a breakdown). As such, the holding of securities, investing activities and financing associated with the implementation of the investment policy involves certain inherent risks. Events may occur that could result in either a reduction in the Company's net assets or a reduction of revenue profits available for distribution.

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

Market risk

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

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

Currency risk

The Company's results for the year and net assets could be significantly affected by currency movements as most of the Company's assets are denominated in yen. In order to reduce this risk the Company may hedge its exposure to the Japanese currency. The Company did not have any hedging arrangements in place as at 30th April 2008 or 2007.

Interest rate risk

The Company finances its operations mainly through its share capital and retained profits, including realised and unrealised capital profits. Additional bank borrowings may be used with a view to enhancing capital returns. However, the Company's Articles of Association provide that borrowing levels should not exceed 20% of Net Asset Value at the time any borrowing is effected. The level of borrowing as at 30th April 2008 was 22.4%, while at 30th April 2007 it was 11.7%.

Liquidity risk, and cashflow risk

The majority of the Company's assets comprise readily realisable securities, which can be sold to meet funding commitments as necessary.

Christopher Jones Tim Guinness

Director Chairman

3rd July 2008

Corporate Governance

INTRODUCTION

The UK Financial Reporting Council issued a revised Combined Code on Corporate Governance in June 2006. The AIC also published its Code of Corporate Governance and a Corporate Governance Guide for Investment Companies in May 2007. The Company is currently a member of the AIC. Boards who report against the AIC Code and follow the AIC Guide no longer have to consider the Combined Code separately. The Board of Directors have provided a statement of the Company's compliance with the AIC corporate governance principles and how these principles have been applied.

THE BOARD

The Board is comprised of five independent non-executive directors including the Chairman, Timothy Guinness. The Board does not consider it necessary to appoint a senior independent director.

The Audit Committee is chaired by Christopher Jones and comprises Timothy Guinness and Andrew Martin Smith. During the year there were four Board Meetings and two Audit Committee Meetings. There will be at least two Audit Committee Meetings held each year. The role of the Audit Committee is reviewed in detail below. The Board has appointed a Nomination Committee, which comprises the Chairman and all other independent Directors. The Committee meets annually (or more often if necessary) and reviews the balance of skills, knowledge and experience of the Board. It is also responsible for considering and proposing suitable candidates for appointment to the Board where necessary and reviewing annual director performance evaluations.

The Board has not appointed a remuneration committee but being comprised of wholly independent directors, the whole Board considers these matters regularly. The Board considers Agenda Items formally laid out in the Notice and Agenda, which are formally circulated to the Board in advance of the Meeting as part of the Board Papers.

The primary focus at Board Meetings is a review of investment performance and associated matters such as leveraging, asset allocation, marketing/investor relations, peer group information and industry issues. The Board has not appointed a Management and Engagement Committee but has chosen to assess and review the performance of the contractual arrangements with the manager and investment adviser at each July Board Meeting by the entire Board who are independent non-executive directors. The table below shows the number of Board Meetings attended by each director during the accounting year.

Director Board Meetings Attended Audit Committee Meetings Attended

Timothy Guinness 4 2

Yoshinobu Itai (retired 4/10/2007) 3 -

Christopher Jones 4 2

Eric Boyle 4 -

Andrew Martin Smith 4 2

Takeshi Murakami (appointed 29/11/2007) 1 -

Directors are appointed initially until the following Annual General Meeting when, under the Company's Articles of Association it is required that they be re-elected by shareholders. Thereafter two directors shall retire by rotation, or if only one director is subject to retire by rotation he shall retire. The retiring directors will then be eligible for reappointment having been considered for reappointment by the Chairman and other directors. The Board evaluates its performance and considers the tenure of each director on an annual basis, and considers that the mix of skills, experience, ages and length of service to be appropriate to the requirements of the Company.

Having served over ten years on the Board, Mr Jones is subject to annual re-election. The Board considers that he continues to be independent of mind and that his length of service and breadth of experience enhance the effective management of the Company.

Corporate Governance

INTERNAL CONTROLS

The Board has delegated the responsibility for the management of the Company's investment portfolio, the provision of custody services and the administration, registrar and corporate secretarial functions including the independent calculation of the Company's Net Asset Value and the production of the Annual Report and Financial Statements which are independently audited. Whilst the Board delegates responsibility, it retains responsibility for the functions it delegates out and is responsible for the systems of internal control. Formal contractual agreements have been put in place between the Company and providers of these services.

The Board of Directors directly on an ongoing basis and via its Audit Committee has implemented a system to identify and manage the risks inherent in such contractual arrangements by assessing and evaluating the performance of the service providers including financial, operational and compliance controls and risk management systems. On an ongoing basis compliance reports are provided at each Board Meeting from the Custodian, Northern Trust (Guernsey)* Limited and Administrator, Northern Trust International Fund Administration Services (Guernsey)** Limited and the Audit Committee reviews the SAS 70 reports on these service providers.

The extent and quality of the systems of internal control and compliance adopted by the Investment Manager and Investment Adviser, are also reviewed on a regular basis, and the primary focus at each Board Meeting is a review of investment performance and associated matters such as gearing, asset allocations, marketing/investment relations, peer group information and industry issues. The Board also closely monitors the level of discount and has the ability to enable the discount to be reduced by buying back shares in the Market should the discount be substantially greater than that of the Company's peer group.

The Board believes that it has implemented an effective system for the assessment of risk, but the Company has no staff, has no internal audit function and can only give reasonable but not absolute assurance that there has been no material financial misstatement or loss.

AUDIT COMMITTEE

An Audit Committee has been established whose responsibilities include:

- Review of draft Annual and Interim report and financial statements

- Review of independence and objectivity of the Auditors

- Review of audit fees

The Audit Committee was appointed by the Board on 10th June 2004 and comprises C. Jones as Chairman and A. Martin Smith and T. Guinness as Committee members.

The function of the Audit Committee is to ensure that the Company maintains the highest standards of integrity, financial reporting and internal control.

The Audit Committee will meet with the Company's external auditors normally twice a year to review the Annual and Semi-annual Accounts.

The Audit Committee may meet more frequently if the Audit Committee deems necessary or if required by the Company's Auditors.

The Company's Auditors shall be advised of the timing of the Audit Committee Meetings. The Audit Committee shall have access to the Compliance officers of the Investment Adviser, the Administrator, and the Custodian.

*HSBC Custody Services (Guernsey) Limited was custodian up to 31st October 2007

**HSBC Securities Services (Guernsey) Limited was Administrator up to 31st October 2007

Corporate Governance

The Company Secretary shall be the Secretary of the Audit Committee and shall attend all Meetings of the Audit Committee.

The duties and terms of reference of the Committee are:

1) To review and make recommendations on the appointment of the Company's Auditors, the scope of the audit, the audit fee and any questions of resignation or dismissal of the Auditors;

2) To discuss with the Auditors the nature and scope of the audit and to keep under review such scope and its cost-effectiveness;

3) To receive and review a Report from the Company's Auditors and to discuss any matters arising from the audit and recommendations made by them;

4) To review the Company's Semi-annual and Annual Accounts and any other financial information to be published by the

Company, in each case before issue or publication prior to their submission to the Board having particular regard to:

a) Whether the accounting policies continue to be appropriate to the business;

b) any changes in accounting policies or practice and whether they are appropriate to the business;

c) any important areas where judgement must be exercised e.g. valuation of unquoted investments;

d) any significant adjustments arising from the audit;

e) the going concern assumption; and

f) other legal or UK Listing Authority requirements.

5) To review the effectiveness of the internal controls systems of the service providers are adequate. To receive reports from the Company's service providers covering internal control systems and procedures supported either by SAS 70 or AAF 01/06 Reports. In light of the above, to review the Company's statement on internal controls prior to endorsement by the Board;

6) To monitor the Company's procedures for ensuring compliance with statutory, regulatory and other financial reporting requirements i.e. the Guernsey Financial Services Commission, the London Stock Exchange and the UK Listing Authority;

7) To review significant transactions outside the Company's normal business (e.g. Company share buy backs); and

8) To consider any other topics referred to it by the Board.

The Audit Committee is satisfied that auditor objectivity and independence is not impaired by the performance by Grant Thornton Limited of non-audit tax services. The Audit Committee considers that the appointment of a third party unfamiliar with the Company to carry out non-audit services would not benefit shareholders since they would incur unnecessary additional expense. Grant Thornton UK LLP is UK-based and provides non-audit tax advice to the Company. The auditors are Grant Thornton Limited, based in Guernsey.

The Audit Committee is authorised by the Board to investigate any activity within its terms of reference. It is authorised to obtain outside legal or other independent professional advice and to secure the attendance of outsiders with relevant experience and expertise if it considers this necessary.

SHAREHOLDER RELATIONS

The Board monitors the trading activity and shareholder profile on a regular basis and maintains contact with the Company's stock broker to ascertain the views of shareholders. Shareholder sentiment is also ascertained by the careful monitoring of the discount/premium that the shares are traded in the market against the NAV per share when compared to the discounts experienced by the Company's peer group. Shareholders where possible are contacted directly on a regular basis, and shareholders are invited to attend the Company's Annual General Meeting in person and ask questions of the Board of Directors and Investment Manager. Following the Annual General Meeting each year the Investment Manager gives a presentation to the shareholders.

The Company reports to Shareholders twice a year and a proxy voting card is sent to shareholders with the Annual Report and Financial Statements. The Registrar monitors the voting of the shareholders and proxy voting is taken into consideration when votes are cast at the Annual General Meeting. Shareholders may contact the Directors via the Company Secretary.

Investment Policy

The Investment Manager adopts a stock-driven investment approach. The Company's portfolio will be invested principally in companies quoted on the Tokyo Stock Exchange, the regional stock markets of Nagoya, Fukuoka, Osaka and Sapporo and the Japanese over-the-counter markets including JASDAQ, Mothers, Hercules, etc. Investment may also be made in companies listed elsewhere but controlled from Japan or with a material exposure to the Japanese economy. The Company may also invest in securities which are neither listed not dealt in on the Japanese over-the-counter market provided that immediately after any such investment is made the Company does not have more than 10 per cent. of its Net Asset Value so invested. The Company may borrow money with a view to enhancing capital returns. However, the Company's Articles of Association provide that borrowing levels should not exceed 20 per cent. of Net Asset Value at the time any borrowing is effected. Derivative instruments, other than equity warrants and convertible bonds which may be acquired as investments in their own right, will be used only for hedging purposes. The Company may hedge its exposure to the Japanese Yen, although the Investment Manager does not expect to hedge the Company's exposure to the Japanese yen unless its value relative to the US dollar declines significantly.

The management and impact of the risk associated with this investment policy are described in detail in the notes to the Financial Statements (Note 15).

Independent Auditors' Report to the Members of

Atlantis Japan Growth Fund Limited

For the Year Ended 30th April 2008

We have audited the financial statements of Atlantis Japan Growth Fund Limited for the year ended 30th April 2008 which comprise the income statement, statement of changes in equity, balance sheet, cash flow statement and notes 1 to 16. These financial statements have been prepared under accounting policies set out therein.

This report is made solely to the Company's members as a body, in accordance with Section 64 of the Companies (Guernsey) Law, 1994. Our audit work has been undertaken so that we might state to the Company's members those matters we are required to state to them in an auditor's report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Company and the Company's members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of directors and auditors

The Directors' responsibilities for preparing the Annual Report and the Financial Statements in accordance with applicable Guernsey Law and International Financial Reporting Standards ('IFRS') are set out in the Directors' Report under the heading of Directors' Responsibilities.

Our responsibility is to audit the Financial Statements in accordance with relevant, legal and regulatory requirements and International Standards on Auditing (UK and Ireland).

We report to you our opinion as to whether the Financial Statements give a true and fair view and have been properly prepared in accordance with The Companies (Guernsey) Law, 1994. We also report to you if, in our opinion, the Directors' Report is inconsistent with the Financial Statements, if the Company has not kept proper accounting records, or if we failed to obtain all access, information and explanations we require for our audit. The information given in the Directors' Report includes that specific information presented in the Investments Manager's Report that is cross referred from the Directors Responsibilities section of the Directors' Report.

We read other information contained in the Annual Report and consider whether it is consistent with the audited Financial Statements. The other information comprises the Chairman's Statement, the Investment Manager's Report, the Directors' Report, the Corporate Governance Statement, the details of the Ten Largest Investments and the Schedule of Investments. We consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the Financial Statements. Our responsibilities do not extend to any other information.

Basis of audit opinion

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the Financial Statements. It also includes an assessment of the significant estimates and judgements made by the Directors in the preparation of the Financial Statements, and of whether the accounting policies are appropriate to the Company's circumstances, consistently applied and adequately disclosed.

We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the Financial Statements are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion, we also evaluated the overall adequacy of the presentation of information in the Financial Statements.

Opinion

In our opinion:

the financial statements give a true and fair view, in accordance with IFRSs of the state of the company's affairs as at 30th April 2008 and of the Company's loss for the year then ended; and
the financial statements have been properly prepared in accordance with the Companies (Guernsey) Law 1994.

Grant Thornton Limited

Chartered Accountants

Guernsey, C.I.

4th July 2008

Income Statement

For the Year Ended 30th April 2008

		2008			2007

		Revenue	Capital	Total	Revenue	Capital	Total
Notes		$'000	$'000	$'000	$'000	$'000	$'000
	Income
3	Losses on investments held at fair value	-	(134,330)	(134,330)	-	(140,569)	(140,569)
	Exchange (loss)/gain	(63)	(8,104)	(8,167)	(67)	2,440	2,373
	Dividend income	8,761	-	8,761	7,219	-	7,219

		8,698	(142,434)	(133,736)	7,152	(138,129)	(130,977)
	Expenses
4	Investment management fee	5,946	-	5,946	7,467	-	7,467
5	Custodian fees	191	-	191	256	-	256
6	Administration fees	242	-	242	274	-	274
6	Registrar and transfer agent fees	3	-	3	27	-	27
7	Directors' fees and expenses	233	-	233	197	-	197
	Transaction costs	-	915	915	-	915	915
	Insurance fees	96	-	96	49	-	49
	Audit fee	33	-	33	27	-	27
	Printing and advertising fees	42	-	42	37	-	37
	Legal and professional fees	46	-	46	43	-	43
	Listing fees	60	-	60	29	-	29
	Miscellaneous expenses	(10)	-	(10)	27	-	27

		6,882	915	7,797	8,433	915	9,348
	Finance cost
	Interest expense and bank charges	1,073	-	1,073	824	-	824

	Gain/(Loss) before tax	743	(143,349)	(142,606)	(2,105)	(139,044)	(141,149)

8	Taxation	(613)	-	(613)	(505)	-	(505)

	Profit/(Loss) for the year	130	(143,349)	(143,219)	(2,610)	(139,044)	(141,654)

9	Deficit per ordinary share			$(7.008)			$(6.932)

There are no recognised gains or losses arising in the period other than those dealt with in the Income Statement. In arriving at the result for the year, all amounts above relate to continuing activities.

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

Statement of Changes In Equity

For the Year Ended 30th April 2008

				Capital	Capital	Capital Reserve/
	Ordinary Share	Share	Revenue	Reserve/	Reserve/	Exchange
	Capital	Premium	Reserve	Realised	Unrealised	Differences	Total
	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Balances at 1 May 2007	204	192,650	(20,788)	328,877	(38,402)	2,440	464,981

Movements during the year
Realised gains on investments sold	-	-	22,992	(22,992)	-	-	-
Movement on unrealised loss on
revaluation of investments	-	-	112,253	-	(112,253)	-	-
Gains on foreign exchange	-	-	8,104	-	-	(8,104)	-
Deficit on ordinary activities	-	-	(143,219)	-	-	-	(143,219)

Balances at 30 April 2008	204	192,650	(20,658)	305,885	(150,655)	(5,664)	321,762

				Capital	Capital	Capital Reserve/
	Ordinary Share	Share	Revenue	Reserve/	Reserve/	Exchange
	Capital	Premium	Reserve	Realised	Unrealised	Differences	Total
	$'000	$'000	$'000	$'000	$'000	$'000	$'000
Balances at 1 May 2006	204	192,650	(18,178)	304,477	127,482	-	606,635

Movements during the year
Realised gains on investments sold	-	-	(24,400)	24,400	-	-	-
Movement on unrealised loss on
revaluation of investments	-	-	165,884	-	(165,884)	-	-
Gains on foreign exchange	-	-	(2,440)	-	-	2,440	-
Deficit on ordinary activities	-	-	(141,654)	-	-	-	(141,654)

Balances at 30 April 2007	204	192,650	(20,788)	328,877	(38,402)	2,440	464,981

Balance Sheet

As at 30th April 2008

		30-Apr-08	30-Apr-07
Notes		$'000	$'000
	Non Current Assets
2(f), 10	Financial assets at fair value
	through profit or loss	384,396	515,814


	Current Assets
	Due from brokers	3,808	798
2(d)	Dividends and interest receivable	3,976	3,340
	Other receivables	-	29
2(g)	Cash and cash equivalents	5,548	2,813

		13,332	6,980
	Current Liabilities
	Due to brokers	(3,213)	(2,634)
	Payables and accrued expenses	(735)	(820)
2(h), 11	Loans payable	(14,404)	-

		(18,352)	(3,454)
	Net Current (Liabilities)/Assets	(5,020)	3,526

	Non Current Liabilities
2(h), 11	Loans payable	(57,614)	(54,359)

	Net Assets	321,762	464,981

13	Equity
	Ordinary share capital	204	204
	Share premium	192,650	192,650
	Revenue reserve	(20,658)	(20,788)
2(I)	Capital reserve	149,566	292,915

	Net Assets Attributable to Equity Shareholders	321,762	464,981

	Net Asset Value per Ordinary Share*	$15.75	$22.75

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

20,435,627 (30th April 2007 - 20,435,627)

Approved by the Board of Directors on 3rd July 2008 and signed on its behalf by:

Christopher Jones Tim Guinness

Director Chairman

Cash Flow Statement

For the Year Ended 30th April 2008

	2008	2007
	$'000	$'000

Cash outflow from operating activities	(417)	(3,007)

Investing Activities
Purchase of investments	(209,855)	(201,319)
Sale of investments	204,511	205,716
Net cash (outflow)/inflow from
investing activities	(5,344)	4,397

Net cash (outflow)/inflow before financing	(5,761)	1,390

Cash flows from financing activities
Interest paid	(996)	(789)
Net loans drawn-down	26,923	-


Net cash inflow/(outflow) from financing activities	25,927	(789)

Net increase in cash and cash equivalents	20,166	601

Exchange movements	(17,431)	(338)

Movement in cash and cash equivalents in the year	2,735	263

Cash and cash equivalents at beginning of year	2,813	2,550

Cash and cash equivalents at end of year	5,548	2,813

Reconciliation of loss for period to net cash outflow
from operating activities
Net loss before taxation	(142,606)	(141,149)
Loss on investments held at fair value	134,330	140,569
Exchange loss/(gain)	8,167	(2,373)
Interest expense	1,073	824
Increase in debtors and accrued income	(607)	(217)
Decrease in creditors	(161)	(156)
Taxation	(613)	(505)

	(417)	(3,007)

Notes to the Financial Statements

For the Year Ended 30th April 2008

1. GENERAL

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

2. ACCOUNTING POLICIES

a) Statement of Compliance

At the date of authorisation of these financial statements, the following standards and interpretations, which have not been applied in these financial statements, were in issue but not yet effective:

- (IFRS 2 - Share Based Payments – Amendment relating to vesting conditions and cancellations

(Effective date - 1 January 2009)

- IFRS 3 - Business Combinations – Comprehensive revision on applying the acquisition method

(Effective date - 1 January 2009)

- IAS 1 - Presentation of Financial Statements – Comprehensive revision including requiring a statement of comprehensive income (Effective date - 1 January 2009)

- IAS 23 (Revised) - Borrowing costs – Comprehensive revision to prohibit immediate expensing

(Effective date - 1 January 2009)

- IAS 27 - IAS 28 and IAS 31 – Consequential amendments arising from amendments to IFRS 3

(Effective date - 1 January 2009)

- IAS 32 - Financial instruments presentation – Amendments relating to puttable instruments and obligations arising on liquidation (Effective date - 1 January 2009)

- IFRIC 12 - Service Concession Arrangements (Effective date - 1 January 2008)

- IFRIC 13 - Customer Loyalty Programmes (Effective date - 1 July 2008)

- IFRIC 14 - IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction (Effective date - 1 January 2008)

In November 2006, the IASB issued IFRS 8 'Opening Segments' which becomes effective for annual accounting periods beginning on or after 1 January 2009. This standard requires disclosures on the financial performance of the operating segments of the entity.

The Directors anticipate that the adoption of these Standards in future periods will have no material financial impact on the financial statements of the Company.

The Company has adopted for the first time IFRS 7 Financial Instruments: Disclosures and the complementary Amendment to IAS 1, Presentation of Financial Statements - Capital Disclosures.

b) Basis of Preparation

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

Where presentational recommendations set out in the Statement of Recommended Practice ('SORP') 'Financial Statements of Investment Companies', issued by the Association of Investment Companies in December 2005 do not conflict with the requirements of IFRS, the Directors have prepared the financial statements on a basis consistent with the recommendations in the SORP.

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

c) Presentation of Income Statement

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

d) Income Recognition

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

e) Expenses

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

f) Investments

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

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

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

g) Cash and Cash Equivalents

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

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

h) Loans Payable

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

i) Foreign Currencies

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

i) Foreign Currencies (continued)

Exchange differences arising from retranslating at the balance sheet date:

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

- other monetary items;

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

Foreign Currency Transactions

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

j) Taxation

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

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

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

Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for using the balance sheet liability method. A deferred tax liability is recognised in full for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Investment trusts which have approval as such under section 842 of the Income and Corporation Taxes Act 1988 are not liable for taxation on capital gains.

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

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

k) Financial Liabilities

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

l) Capital and Reserves

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

3. (LOSSES)/GAINS ON INVESTMENTS HELD AT FAIR VALUE

	2008	2007
	$'000	$'000

Proceeds from sales of investments	207,319	204,766
Original cost of investments sold	(229,396)	(179,451)

(Losses)/gains realised on investments sold during the year	(22,077)	25,315

Net unrealised depreciation for the year	(112,253)	(165,884)

	(134,330)	(140,569)

4. INVESTMENT MANAGEMENT FEE

The Company pays to the Investment Manager a fee accrued weekly and paid monthly in arrears at the annual rate of 1.5 per cent of the weekly Net Asset Value of the Company. For the year ended 30th April 2008, total investment management fees were $5,945,569 (2007 - $7,467,360) of which $389,430 (2006 - $543,879) is due and payable as at that date.

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

5. CUSTODIAN FEES

The Company pays to the Custodian a fee accrued weekly at a rate from 1 May 2007 to 31 October 2007 0.05 per cent of the total weekly Net Asset Value and from 1 November 2007 to 30 April 2008 0.03 per cent of the total weekly Net Asset Value subject to an annual minimum of US$20,000 of the assets held by the Custodian or Sub-Custodian, together with transactions charges. For the year ended 30th April 2008, total custodian fees were $191,097 (2007 - $256,186) of which $ 12,625 (2007 - $18,129) is due and payable as at that date.

6. ADMINISTRATION AND REGISTRAR FEES

The Company pays to the Administrator a fee accrued weekly and paid monthly in arrears at the annual rate of 0.20 per cent of the weekly Net Asset Value up to $50 million from 1 May 2007 to 31 October 2007 and 0.25 per cent of the weekly Net Asset Value up to $50 million from 1 November 2007 to 30 April 2008 and 0.10 per cent between $50 million and $100 million, 0.05 per cent between $100 million and $200 million and 0.025 per cent above $200 million, subject to an annual minimum of $125,000. In addition, an annual minimum retainer of $1,000 is payable in respect of maintaining the principal register of shareholders. For the year ended 30th April 2008, total administration and registrar fees were $244,855 (2007 - $301,308) of which $108,703 (2007 - $30,183) is due and payable as at that date.

7. DIRECTORS' FEES AND EXPENSES

Each of the Directors is entitled to receive a fee from the Company, being £20,000 per annum for the Chairman and £15,000 per annum for each of the other Directors. In addition, the Company reimburses all reasonably incurred out-of-pocket expenses of the Directors. For the year ended 30th April 2008, total directors' fees and expenses were $233,565 (2007 - $197,211) of which $Nil (2007 - $63,794) is due and payable as at that date.

8. TAXATION

	2008	2007
	$'000	$'000

Corporation tax at 30% (2006 - 30%)	-	-
Irrecoverable overseas tax	613	505
Tax charge in respect of the current year	613	505

Current Taxation

The current taxation charge for the year is different from the standard rate of corporation tax in the UK (30%). The differences are explained below.

	2008	2007
	$'000	$'000
Revenue gain/(loss) on ordinary activities before taxation	743	(2,105)

Theoretical tax at UK corporation tax rate of 30% (2007 - 30%)	223	(632)

Effects of:
Expenses in excess of taxable income	(39)	784
Relief for overseas tax suffered	(184)	(152)
Overseas tax written off	613	505
Actual current tax charge	613	505

The Company is an investment trust and therefore is not taxable on capital gains.

Factors that may affect future tax charges

The investment trust has excess management expenses of $24,111,403 (2007 - $24,240,403) that are available to offset future taxable revenue. A deferred tax asset has not been recognised in respect of these amounts as they will be recoverable only to the extent that there is sufficient future taxable revenue.

9. (DEFICIT)/EARNINGS PER ORDINARY SHARE

The deficit per ordinary share figure is based on the net deficit for the year of $143,219,000 (2007 $141,654,000) and on 20,435,627 ordinary shares for each year, being the weighted average number of ordinary shares in issue during the year.

The (deficit)/earnings per ordinary share figure detailed above can be further analysed between revenue and capital, as below.

	2008	2007
	$'000	$'000

Net revenue profit/(loss)	130	(2,610)
Net capital loss	(143,349)	(139,044)
Net total loss	(143,219)	(141,654)

Weighted average number of ordinary shares
in issue during the year	20,435,627	20,435,627

	$	$
Revenue earning/(deficit) per ordinary share	0.006	(0.128)
Capital deficit per ordinary share	(7.014)	(6.804)
Total deficit per ordinary share	(7.008)	(6.932)

10. INVESTMENTS

	2008	2007
	$'000	$'000

Cost of investments brought forward	443,777	421,103
Cost of purchase of investments	210,644	202,125
Proceeds on disposal of investments	(207,319)	(204,766)
Realised (loss)/profit on disposal of investments	(22,077)	25,315
Cost of investments carried forward	425,025	443,777


Cost of investments	425,025	443,777
Unrealised (depreciation)/appreciation	(40,629)	72,037
Fair value of investments at year end	384,396	515,814

11. LOANS PAYABLE

Loan	Interest	Maturity	2008	2007
Amount	Rate	Date	$'000	$'000

3 year committed revolving
credit facility
Y1,500,000,000	1.00%	29th July 2008	14,404	-
Loan due for repayment within one year			14,404

3 year committed revolving
credit facility
Y1,500,000,000	1.00%	29th July 2008	-	12,545

3 year committed fixed rate
credit facility
Y1,500,000,000	1.90%	6th July 2009	14,404	12,544
Y1,500,000,000	1.71%	16th October 2009	14,404	12,544

5 year committed fixed rate
credit facility
Y1,000,000,000	2.05%	31st July 2011	9,602	-
Y2,000,000,000	1.63%	13th October 2010	19,204	16,726
Loan due for repayment greater than one year			57,614	54,359

			72,018	54,359

12. FORWARD CURRENCY CONTRACTS

At 30th April 2008 and 2007 the Company did not have any open forward currency contracts.

13. SHARE CAPITAL AND SHARE PREMIUM

a) Authorised 2008 2007

$'000 $'000

24,000,000 Ordinary Shares of US$0.01 each 240 240

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

Voting Rights

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

Entitlement to Dividends

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

Rights in a Winding-up

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

b) Issued
Ordinary Shares	Number of Shares	Share Capital	Share Premium
		$'000	$'000

In issue at 30th April 2008 and 2007	20,435,627	204	192,650

RECONCILIATION OF MOVEMENT IN SHAREHOLDERS' FUNDS

	2008	2007
	$'000	$'000
Deficit attributable to equity shareholders	(143,219)	(141,654)
Shareholders' funds at beginning of year	464,981	606,635
Shareholders' funds at end of year	321,762	464,981

FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

In accordance with its investment objectives and policies, the Company holds financial instruments which at any one time may comprise the following:

* securities held in accordance with the investment objectives and policies

* cash and short-term debtors and creditors arising directly from operations

* borrowing used to finance investment activity

* derivative transactions including investment in warrants and forward currency contracts

* options or futures for hedging purposes

The financial instruments held by the Company principally comprise equities listed on the stock market in Japan. The specific risks arising from the Company's exposure to these instruments, and the Manager/Investment Adviser's policies for managing these risks, which have been applied throughout the year, are summarised below.

Capital Management

The fair value of the Company's financial assets and liabilities approximate their carrying amounts at the balance sheet date.

The Company's objectives when managing capital are to safeguard the Company's ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain an optimal capital structure to reduce the cost of capital.

The Company may not borrow or otherwise use leverage exceeding 25% of its net assets for investment purposes, to meet redemption request or to settle facilities for specific investments such as bridge financing. In connection with the loan facility agreement with Bank N.V. (ING), the Company entered into a Guernsey law security interest agreement in favour of ING over its custody accounts held with Northern Trust (Guernsey) Limited.

Capital Management

The Company may purchase a maximum of 3,063,300 Ordinary Shares, equivalent to 14.99% of the Issued share capital of the Company as at 30th April 2008 provided that;

* The minimum price to be paid (exclusive of expenses) be US$0.001; and

* If the shares are trading on the London Stock Exchange at a discount to the lower of the undiluted or diluted Net Asset Value;

Currently no shares have been bought back under this scheme and this would have to be approved at the Company's AGM. There had been no change in the capital structure of the Company during the year.

Market Price Risk

The Company's investment portfolio - particularly its equity investments - is exposed to market price fluctuations which are monitored by the Manager/Investment Adviser in pursuance of the investment objectives and policies. Adherence to investment guidelines and to investment and borrowing powers set out in the scheme particulars mitigates the risk of excessive exposure to any particular type of security or issuer.

At 30th April 2008, the Fund's market price risk is affected by three main components: changes in market prices, currency exchange rates and interest rate risk. Currency exchange rate movements and interest rate movements, which are dealt with under the relevant headings below, primarily affect the fair values of the Fund's exposures to equity securities, related derivatives and other instruments. Changes in market prices primarily affect the fair value of the Fund's exposures to equity securities, related derivatives and other instruments.

Exceptional risks associated with investment in Japanese smaller companies may include:

a) greater price volatility, substantially less liquidity and significantly smaller market capitalisation, and

b) more substantial government intervention in the economy, including restrictions on investing in companies or in industries deemed sensitive to relevant national interests.

Market price sensitivity analysis

If the price of each of the equity securities to which the Fund had exposure at 30 April 2008 had increased or decreased by 5% with all other variables held constant, this would have increased or decreased net assets attributable to holders of redeemable participating shares of the Fund by:

	2008	2007
	+/-	+/-
Net Asset Value	US$ 19,219,824	US$25,790,700
Net Asset Value per share	US$ 0.94	US$ 1.26

No benchmark is used in the calculation of the above information.

Foreign Currency Risk

The Company principally invests in securities denominated in currencies other than United States Dollar, the functional currency of the Company. Therefore, the balance sheet may be affected by movements in the exchange rates of such currencies against the US Dollar. The Manager/Investment Advisor has the power to manage exposure to currency movements by using forward currency contracts. No such instruments were held at the date of these Financial Statements.

It is not the present intention of the Directors to hedge the currency exposure of the Company, but the Directors reserve the right to do so in the future if they consider this to be desirable.

The treatment of currency transactions other than in US Dollars is set out in Note 2 to the Financial Statements under 'Foreign Currencies'.

The Company's net currency exposure is as follows:

Currency exposure
	Sterling	Japanese yen
As at 30th April 2008:	$'000	$'000

Assets
Cash and cash equivalents	7	5,492
Investments held at fair value	-	384,396
Other assets	-	7,582
Total assets	7	397,470

Liabilities
Loans payable	-	(72,018)
Other liabilities	-	(3,213)
Total liabilities	-	(75,231)

Total net assets	7	322,239

	Sterling	Japanese yen
As at 30th April 2007:	$'000	$'000

Assets
Cash and cash equivalents	-	2,813
Investments held at fair value	-	515,814
Other assets	29	4,138
Total assets	29	522,765

Liabilities
Loans payable	-	(54,359)
Other liabilities	(106)	(2,759)
Total liabilities	(106)	(57,118)

Total net (liabilities)/assets	(77)	465,647

Due to the immateriality of the monetary exposure of the Sterling and Japanese yen at year end we have not prepared a sensitivity analysis.

Interest Rate Risk

Substantially all the Company's financial assets and liabilities are non-interest bearing and any excess cash and cash equivalents are invested at short-term market interest rates. As a result, the Company is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates.

As at 30 April 2008, the Company only has significant exposure to interest rate risk regarding the loan facility and cash and cash equivalents.

Increases in interest rates may increase the costs of the Company's borrowings. The rate of interest on each ING drawdown loan for each interest period is the percentage rate per annum which is the aggregate of the applicable; (i) margin, (ii) LIBOR and (iii) mandatory cost. Interest on the loan is payable monthly in arrears. For the year ended 30 April 2008 the interest accrued on the loan was US$201,597.

Interest rate risk profile

The following financial assets and liabilities disclosures exclude prepayments and taxation debtors and creditors:

Interest risk profile

	Cash flow	Fair value
	interest	interest	Total
	rate risk	rate risk
As at 30th April 2008:	$'000	$'000	$'000

Financial assets
Cash and bank balances	5,548	-	5,548
Total financial assets	5,548	-	5,548

Financial liabilities
Loans payable	-	(72,018)	(72,018)
Total financial liabilities	-	(72,018)	(72,018)

Net financial assets/(liabilities)	5,548	(72,018)	(66,470)

	Cash flow	Fair value
	interest	interest	Total
	rate risk	rate risk
As at 30th April 2007:	$'000	$'000	$'000

Financial assets
Cash and bank balances	2,813	-	2,813
Total financial assets	2,813	-	2,813

Financial liabilities
Loans payable	-	(54,359)	(54,359)
Other financial liabilities	-	(125)	(125)
Total financial liabilities	-	(54,484)	(54,484)

Net financial assets/(liabilities)	2,813	(54,484)	(51,671)

The cash flow interest rate risk comprises those financial assets and liabilities with a floating interest rate, for example cash deposits at local market rates. Cash and cash equivalents earn interest at the prevailing market interest rate. Although this portion of the Net Asset Value is not subject to fair value risk as a result of possible fluctuations in the prevailing market interest rates, the future cashflows of the Company could be adversely or positively impacted by decreases or increases in those prevailing market interest rates.

The fair value interest rate risk comprises those financial assets and liabilities with a fixed interest rate, for example loans payable and loan interest payable.

	Weighted average		Weighted average period for
	interest rate		which rate is fixed (years)
	2008	2007	2008	2007
Japanese yen
Loans payable	1.63%	1.57%	1.33	2.43

Fair Value

All assets and liabilities are carried at fair value with the exception of short term borrowings which are carried at amortised cost using the effective interest rate method.

Short term Debtors and Creditors

Trade and other receivables do not carry interest and are short term in nature. They are stated at nominal value as reduced by appropriate allowances for irrecoverable amounts in the case of receivables.

Liquidity Risk

Liquidity risk is the risk that the Company will encounter in realising assets or otherwise raising funds to meet financial commitments.

As at 30 April 2008, the Company had drawn down a loan facility of JPY 7,500,000,000 ($ 72,018,435). In connection with the facility agreement, the Company entered into a Guernsey law security interest agreement in favour of ING over its custody accounts held with Northern Trust (Guernsey) Limited. The loan may only be applied for investment leverage purposes only and must be repaid on the latest of (i) the day falling 364 days from the date of the draw down of the loan, and (ii) any extension date agreed between the Company and ING.

The Company invests primarily in listed securities.

The maturity analysis of the Company's financial assets and liabilities (excluding prepayments and tax balances) at 30th April 2008 is as follows:

	Up to 1 year	1 to 5	Total
	or on demand	years
As at 30th April 2008:	$'000	$'000	$'000

Financial assets
Cash and bank balances	5,548	-	5,548
Investments held at fair value	384,396	-	384,396
Other financial assets	7,784	-	7,784
Total financial assets	397,728	-	397,728

Financial liabilities
Loans payable	(14,404)	(57,614)	(72,018)
Other financial liabilities	(3,948)	-	(3,948)
Total financial liabilities	(18,352)	(57,614)	(75,966)

Total interest sensitivity gap	379,376	(57,614)	321,762

	Up to 1 year	1 to 5	Total
	or on demand	years
As at 30th April 2007:	$'000	$'000	$'000

Financial assets
Cash and bank balances	2,813	-	2,813
Investments held at fair value	515,814	-	515,814
Other financial assets	4,138	-	4,138
Total financial assets	522,765	-	522,765

Financial liabilities
Loans payable	-	(54,359)	(54,359)
Other financial liabilities	(3,454)	-	(3,454)
Total financial liabilities	(3,454)	(54,359)	(57,813)

Total interest sensitivity gap	519,311	(54,359)	464,952

Credit risk

Credit risk is the risk that an issuer or counterparty will be unable or unwilling to meet a commitment that it has entered into with the Company.

In accordance with the investment restrictions as described in its placing Memorandum, the Company may not invest more than 10% of the Company's gross assets in securities of any one company or issuer. However, this restriction shall not apply to securities issued or guaranteed by a government or government agency of the Japanese or US Governments. In adhering to these investment restrictions, the Company mitigates the risk of any significant concentration of credit risk arising on broker and dividend receivables.

As the Company invests primarily in publicly traded equity securities the Company is not exposed to credit risk from these positions. However, the Company will be exposed to a credit risk on parties with whom it trades and will bear the risk of settlement default. The Company minimises concentrations of credit risk by undertaking transactions with a large number of regulated counterparties on recognised and reputable exchanges. All transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of default is considered minimal, as delivery of securities sold is only made once the broker has received payment. Payment is made on a purchase once the securities have been received by the broker. The trade will fail if either party fails to meet its obligation. The Company is exposed to credit risk on cash and investment balances held with the Custodian. The Investment Manager regularly reviews concentrations of credit risk.

The Custodian of the Fund, Northern Trust (Guernsey) Limited which is part of the Northern Trust Company has a rating of (AA-), which was rated by Standard & Poor`s. The net assets exposed to credit risk at year end amounted to US$390,539,000 (2007 US$516,791,000).

16. Reconciliation of Net asset Value to Published Net Asset Value

	2008	Per Share
	$'000	$

Published Net Asset Value	323,824	15.85
Unrealised loss on revaluation of securities at bid prices	(2,062)	(0.10)
	321,762	15.75

	2007	Per Share
	$'000	$

Published Net Asset Value	466,835	22.84
Unrealised loss on revaluation of securities at bid prices	(1,854)	(0.09)
	464,981	22.75

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

This information is provided by RNS

The company news service from the London Stock Exchange

END

FR SSUSUWSASEDW

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