AJG.L Regulatory News (AJG)

Atlantis Japan Growth Fund Ltd - Annual Results for the year ended 30th April 2017

PR Newswire

London, August 1

ATLANTIS JAPAN GROWTH FUND LIMITED(“AJGF” or the “Company”)(a closed-ended investment company incorporated in Guernsey with registration number 30709)

LEI 5493004IW0LDG0OPGL69

Annual Results for the year ended 30th April 201731st July 2017(Classified Regulated Information, under DTR 6 Annex 1 section 1.1)

The financial information set out below does not constitute the Company's statutory accounts for the year ended 30th April 2017. All figures are based on the audited financial statements for the year ended 30th April 2017.

The financial information for the year ended 30th April 2017 noted below is derived from the financial statements delivered to the UK Listing Authority.

The annual report and audited financial statements for the year ended 30th April 2017 will shortly be posted to shareholders and will also be available on the company website: www.atlantisjapangrowthfundlimited.com 

 Introduction

INVESTMENT OBJECTIVE

Atlantis Japan Growth Fund Limited (the “Company”) aims to achieve long term capital growth through investment wholly or mainly in listed Japanese equities.

INVESTMENT POLICY

The Company may invest up to 100 per cent of its gross assets in companies quoted on any Japanese stock exchange including, without limitation, the Tokyo Stock Exchange categorised as First Section, Second Section, JASDAQ, Mothers and Tokyo PRO, or the regional stock exchanges of Fukuoka, Nagoya, Sapporo and Osaka Securities Exchange.

The Company may also invest up to 20 per cent of its Net Asset Value (the “NAV”) at the time of investment in companies listed or traded on other stock exchanges but which are either controlled and managed from Japan or which have a material exposure to the Japanese economy.

The Company may also invest up to 10 per cent of its NAV at the time of investment in securities which are neither listed nor traded on any stock exchange or over-the-counter market.

In general, investment will be through investments in equity shares in, or debt issued by, investee companies. However, the Company may also invest up to 20 per cent of its NAV at the time of investment in equity warrants and convertible debt.

The Company will not invest in more than 10 per cent of any class of securities of an investee company. The Company will not invest in derivative instruments save for the purpose of efficient portfolio management.

The Company may not invest more than 10 per cent in aggregate, of the value of its total assets in other listed closed-ended investment funds except in the case of investment in closed-ended investment funds which themselves have published investment policies to invest no more than 15 per cent of their total assets in other listed closed-ended investment funds, in which case the limit is 15 per cent.

The Company may borrow, with a view to enhancing capital returns, up to a maximum of an amount not exceeding 20 per cent of NAV at the time of borrowing.

Investment Policy for the Redemption Pool

At each redemption point the Company may (a) notionally allocate assets and liabilities into a separate pool (the "redemption pool") for the purpose of funding valid redemption requests for that redemption point or (b) fund the valid redemption requests from available cash. With regard to the redemption pool, the Company aims to liquidate the necessary assets to meet qualifying redemption requests in a timely manner, and to minimise the impact that such redemptions will have to existing shareholders and the Company as a whole.

The management and impact of the risk associated with the investment policies are described in detail in the Notes to the Financial Statements (See Note 15).

INVESTMENT MANAGER AND INVESTMENT ADVISER

Tiburon Partners LLP has been appointed as Investment Manager of the Company since 1st August 2014.

Atlantis Investment Research Corporation (“AIRC”) has been appointed as the Investment Adviser to the Company.

AIRC, established in Tokyo, will, through Taeko Setaishi and her colleagues, advise the Investment Manager on the day-to-day conduct of the Company’s investment business, the role it has played since the launch of the Company in May 1996.

Chairman’s StatementFor the financial year ended 30th April 2017

The year ended 30th April 2017 marked the first anniversary of the appointment of Taeko Setaishi as the Company’s lead fund adviser in succession to Ed Merner – although the team approach continues at AIRC with Ed remaining very much involved in the day to day process. I believe that Taeko is proving to be a great asset to the Company as its lead advisor and look forward to her conviction-led, bottom-up stock selection process continuing to perform well.

Being long-term in nature, Taeko’s investment style can face short-term challenges. The year ended 30th April 2017, whilst generally positive for investors in Japan, was somewhat challenging for the Company given its focus on investing in medium sized and smaller growth companies which underperformed during the period under review. Many of the best performing companies were cyclical lower quality recovery stocks, an area in which the Company has little or no exposure. The Company’s undiluted NAV per share in GBP increased by 17.9% during the course of the year whereas the TOPIX in GBP increased by 26.9%. The Company’s relative performance was also negatively impacted by a large scale purchasing programme of Exchange Traded Funds undertaken by the Bank of Japan and the Japanese Government Investment Pension Fund which served to boost the large-cap stocks.

Compared to the Japanese smaller companies peer group, the Company performed well, the average NAV performance of the group during the period being 16.6%. It should also be noted that the Company’s NAV per share performance was impacted to the extent of approximately 2.7% by the dilutive effect of the new shares issued in October 2016 under the subscription rights programme.

Over the 5 years to 30th April 2017 the Company’s NAV per share performance matched the TOPIX benchmark. Since inception to 30th April 2017 the Company’s NAV per share outperformed TOPIX by 129%.

Towards the end of the Company’s financial year, risk appetite started to recover in the Japanese market and the Company’s fundamental stock selection focus came back into favour. This trend has continued following the year-end and on a calendar year to date basis to 28th July 2017, the Company’s NAV per share is up by 22.2% compared to 7.0% for the TOPIX in GBP.

In my Chairman’s statement last year, I expressed the view that we were commencing the new financial year in a much better position to take the Company forward on a sound footing. Now, a year on, I believe that this forecast has indeed been largely borne out. At an Extraordinary General Meeting held in April last year I was pleased that shareholders rejected a proposal from a former investor for the early restructuring and / or liquidation of the Company. This endorsement has given your portfolio adviser, Taeko Setaishi, a clear mandate to continue to implement our strategy for improving the Company’s performance. With greater stability at the corporate level, the investment team are now free to focus all of their efforts on managing the Company’s portfolio and producing excellent returns for shareholders. 

As you will be aware, increasing the Company’s assets under management (“AUM”) has for some time been one of the Board’s objectives. It was therefore pleasing that the Company’s subscription rights ended ‘in the money’ as at the 3rd October 2016 Subscription Date and as a consequence 7,614,446 new Ordinary Shares were issued raising gross proceeds of approximately £11m. As at 30th April 2017 the Company had AUM of £77.1m compared to £59.5m at 30th April 2016.

The Board is confident that our strategy for improving performance, narrowing the share price discount and growing the Company is on track. As previously announced, Shareholders will also now be given the opportunity to hold a continuation vote at the AGM in 2019.

Performance

Over the year the Company’s NAV per share rose by 17.9%. This compares to the benchmark TOPIX’s 26.9% increase on a total return basis measured in GBP.

SINCE COMPANY INCEPTION

† Since Inception return figures were converted to GBP based on the official USD NAV at inception using Bloomberg FX rate

Source: Tiburon Partners and Bloomberg. As of 30th April 2017.

# Total Net Assets after redemptions during year, see “Redemption Facility” below.

* The Company was subject to a 10:1 stock split in December 2010. These figures have been restated showing the split for comparative purposes.

Share price discount

The discount or premium for the Company represents the share price relative to its Net Asset Value. According to data sourced from Morningstar, the discount for the Company averaged 9.0% during the period under review compared with an average of 11% for the Japanese smaller companies sub-sector (excluding the Company) - the Company’s peer group. The Company’s discount was 7.6% on 30th April 2017 and 9.9% on 28th July 2017.

Discount control mechanism

The Directors operate a hard discount control mechanism whereby the Company is obliged to hold a continuation vote should the shares have traded, on average, at a discount of more than 10% to the Net Asset Value per share during any rolling 90 day period, in normal market conditions. If the obligation to hold a continuation vote is triggered, the vote will be held no later than the next practicable Annual General Meeting of the Company.

Share buy-backs

In order to assist in managing the discount at which the Company’s shares trade and to enhance the NAV per share of remaining shareholders, the Company has authority to buy back shares. During the financial year ended 30th April 2017, the Company exercised its authority to buy back shares on eight separate occasions in respect of a total of 1,172,500 Ordinary shares at a weighted average discount of 10.2% based on diluted NAVs. Since the financial year end, the Company has not exercised its authority to buy back any further shares. The shares bought back during the financial year, representing 2.7% of current issued shares, are held in treasury.

SUBSCRIPTION RIGHTS AND REDEMPTION FACILITY

The Company currently operates an annual subscription right mechanism and a semi-annual redemption facility. The annual subscription right mechanism enables shareholders to subscribe for one new ordinary share for every five ordinary shares held on 1st October in each year at a price equal to the undiluted NAV per share on 2nd October one year prior (or, if that is not a business day, the next business day).

The semi-annual redemption facility, which is operated at the discretion of the Board, enables shareholders to redeem all or part of their holding of Ordinary Shares at 31st March and 30th September each year, subject to total redemptions at each redemption point being limited to 5% of the Company's issued share capital at that time.

The 2016 subscription rights ended ‘in the money’ as at the 2016 subscription date (3rd October 2016) and 7,614,446 new Ordinary Shares were issued at an exercise price of £1.4376 for an aggregate consideration of approximately £11m. The exercise price at the 2017 Subscription Date is £ 1.7279, on the 28th July 2017, the latest diluted NAV per share and share price were £1.9730 and £1.7775 respectively and, accordingly, the 2017 subscription rights are currently 'in the money'. Shareholders will receive a separate circular that will explain the procedure for exercising the 2017 subscription rights. At the redemption points on 30th September 2016 and 31st March 2017, 1,910,488 and 1,034,925 Ordinary Shares, representing 4.8% and 2.3% respectively of the issued shares, were validly lodged for redemption. As part of the operation of the redemption facility on 31st March 2017, a matched trade mechanism was utilised to match redemptions received, at the relevant investment prices (basic and excess), with 459,617 shares matched out of the 1,034,925 lodged.

The subscription rights mechanism was introduced with the principal objectives of facilitating the issue of new Ordinary Shares to increase the Company's market capitalisation and, as a result, reducing the Company's ongoing charges ratio, whilst the redemption facility was introduced as a means by which the liquidity in the Ordinary Shares could be improved by enabling shareholders to dispose of some or all of their Ordinary Shares without being dependent on the market liquidity of the Ordinary Shares. Whilst the Board is aware of the importance of continuing to increase the size of the Company and to improve the liquidity in the Ordinary Shares, we frequently receive feedback from investors that the subscription right mechanism and redemption facility complicate the Company's capital structure and, accordingly, make the Company less attractive for investment. The Board is also mindful of the discount at which the Ordinary Shares have been trading and believes that strong investment performance will be the key driver to narrowing that discount. However, the dilutive effect of the subscription rights masks the strength of the underlying portfolio performance that has been achieved since the change of lead fund adviser in May 2016 (the diluted NAV total return for the period from 1st May 2016 to 28th July 2017 was 33.2%, which compares with an undiluted NAV total return for the same period of 40.7% in sterling terms). Accordingly, the Board is reviewing the appropriateness of continuing with the subscription right mechanism following the 2017 subscription date and/or the redemption facility following the 30th September 2017 redemption point and expects to conclude that review in September 2017. Neither the Company's discount control mechanism referred to above nor the continuation resolution to be proposed at the Company's Annual General Meeting in 2019 will be affected by the outcome of that review.

BOARD CHANGES

Andrew Martin Smith retired as a Director with effect from 31st July 2016. Both in his capacity as a Director and as Chairman of the Audit Committee, Andrew has made a terrific contribution to the Company since 2002. He has been fiercely independent and a champion of shareholder rights.

Following an extensive selection process, Richard Pavry joined the Board with effect from 1st August 2016. Richard has more than 19 years’ financial services experience, with 17 years at Jupiter Asset Management Limited where he is currently head of investment trusts. He is a practising solicitor and a graduate of Cambridge University. The Company is already benefitting from his extensive experience and knowledge of the investment trust sector.

Eric Boyle retired as a Director with effect from 14th October 2016. Eric had been a member of the Board since October 2000 and his market knowledge and expertise in the closed-end fund sector were a great asset to the Company during his tenure. He also made a very significant and important contribution in connection with the effective oversight and management of the Company’s discount control mechanism.

Takeshi Murakami, having served as a Director since November 2007, retired from the Board with effect from 28th April 2017. During his ten years as a Director, ‘Tak’ has made a great contribution with his detailed knowledge and understanding of the Japanese market and has also played an important role in liaising with the investment team in Tokyo.

ONGOING CHARGES

The Board continues to look very closely at the level of ongoing charges incurred by the Company and I am pleased that for the year ended 30th April 2017 it proved possible to reduce the ongoing charges to 1.5% compared to 1.9% in the prior year. The Board will remain vigilant in seeking opportunities for further reductions.

OUTLOOK

Recently released economic data from Japan indicate the economic expansion, that began five quarters ago, continues with exports, household consumption and private sector capital expenditure making positive contributions to growth. Economists are projecting this balanced growth may be sustained over the medium term thus providing an encouraging backdrop for further corporate earnings growth as well. Taeko Setaishi, the Company’s investment adviser, has previously noted that she and her team are able to find many robust companies which they believe will be capable of sustaining their earnings momentum for a number of years. Furthermore, the Japanese equity market is selling on lower Price-to-Earnings and Price-to-Book Ratios than other equity markets in developed economies. 

As I commented in my Chairman’s statement last year, the Japanese Corporate Governance Code, implemented in June 2015, has begun to have a meaningful impact on Japanese corporate behavior. I am pleased to note that over the past year Japanese companies, either through share buybacks and / or higher dividends, have increased the amount of cash being returned to shareholders by about 12%. It is also encouraging to see that financial targets, such as Return on Equity, are now being set by Japanese company management teams and strategies are being devised to map the Company’s progress toward those goals. 

Lastly I believe global investors fail to appreciate, and adequately discount, Japan’s political stability. In a world awash with populism, Japan’s political calm is noteworthy. 

Noel Lamb28th July 2017

Investment Adviser’s ReportFor the financial year ended 30th April 2017

PERFORMANCE

The Company’s NAV per share ended the financial year at 174.3p, up 17.9% during the course of the year versus a gain of 26.9% for the TOPIX total return index calculated in GBP. The Company’s share price at year end was 161.0p, a 16.7% year-on-year increase and representing a 7.6% discount to NAV. 

At the end of the period under review, the Company’s borrowings stood at ¥1 billion with cash of ¥183 million. The Company’s net gearing was 6.9% at 30th April 2017 compared to no net gearing a year earlier. JPY appreciated against GBP over the course of the year by 8.7% from ¥156.53 to ¥143.98.

The Company’s portfolio at 30th April 2017 contained 68 companies compared to 64 a year previously. Three stocks which made a particularly positive contribution to the portfolio’s performance during the period under review were coil winding equipment assembler Nittoku Engineering, condo redeveloper Star Mica, and systems developer and manager Information Development.

The Company has no foreign exchange hedges and no exposure to bonds, convertible bonds, warrants or derivatives of any kind. Excluding cash, the Company continues to be invested entirely in listed Japanese securities.

MARKET COMMENT & ECONOMIC OUTLOOK

The period under review, whilst a rewarding one for Japanese equity investors generally, presented various challenges given foreign exchange rate volatility, geo-political uncertainties, sluggish economic growth and pronounced sector rotation. For most of the first half of the year, investors were attracted to cyclicals and interest rate sensitive stocks. This rotation into lower quality stocks handicapped the Company’s performance which was further negatively affected by an extensive programme of purchasing Exchange Traded Funds undertaken by the Bank of Japan and the Japanese Government Investment Pension Fund. The effect of this purchasing programme was to inflate the prices of the Nikkei 225 and large capitalized TOPIX stocks. However, as evidence accumulated during the year that corporate profits had bottomed, investors gradually assumed greater risk and stock selection became more fundamentally oriented thus favouring the Company’s style of investing. Consequently, in the second half of the Company’s financial year, the Fund started to outperform the TOPIX total return index. This trend has continued following the year-end and on a calendar year to date basis to 28th July 2017, the Company’s NAV per share is up by 22.2% compared to 7.0% for the TOPIX total return index in GBP.

The Investment Adviser believes that the outlook for Japanese equities is now encouraging with a strong tailwind for equity prices provided by sustained economic expansion feeding into rising corporate profits. In addition, the Bank of Japan is not expected to deviate from its loose monetary policy. Finally, Japanese equities presently carry exceptionally low valuations particularly when compared to other developed economies.

Recent data releases indicate that Japan’s economy continues to expand. In the calendar quarter January to March 2017 Japan’s GDP rose at a 1.0% annualized rate for its fifth consecutive quarterly increase. The major catalysts contributing to Japan’s growth are export demand and private consumption. The export recovery has come despite a relatively firm currency and is occurring in both value and volume terms. External demand is being driven in particular by demand for capital goods, IT equipment and automobiles / parts from China, the rest of Asia and North American. Japan’s merchandise trade surplus continues to be supplemented by a brisk ‘in-bound’ tourist flow resulting in a sizable current account surplus.

In addition green shoots are emerging which support the Investment Adviser’s expectation of a sustained, balanced, economic recovery. The labour market continues to tighten and this has translated into greater availability of high paying full time jobs rather than lower rewarded part time employment. This should feed into wage gains, improving consumer confidence and eventually more robust household consumption. In response to tight employment conditions and the economy’s capital stock operating at near capacity, Japanese corporations are revising upward their medium term capital expenditure plans. 

Despite an exceptionally loose monetary policy which features yield targeting and an aggressive Japanese Government Bond purchase programme, deflationary expectations remain deeply rooted. Key price measurements still hover sluggishly around zero and the BoJ’s +2% CPI target is unlikely to be attained in the medium term. That said, a degree of inflation could be injected into the economy through rising labour and commodity costs.

In summary the Investment Adviser expects the Japanese economy over the next 2-3 years to expand at an annualized rate of approximately 1.0% to 1.5% supported by brisk external demand and private sector capital spending with a

modest contribution from household spending. Risks to this scenario would be a steep appreciation of the Yen, intensified geopolitical hostility in the troubled northeast corner of Asia, and a sharp Chinese economic deceleration.

INVESTMENT ADVISER’S STRATEGY

The Investment Adviser employs a bottom-up stock-picking investment style. Investment decisions are based on propriety primary research and rooted in the conviction that earnings growth drives stock prices over the longer term. Consequently the Investment Adviser invests in companies characterized by strong competitive advantages, positive cash flow, and medium to long term growth potential. This approach can result in the Company having a portfolio tilted towards medium to smaller capitalized companies. Sector exposure is function of individual stock positions in a particular TOPIX sector; there are no top down pre-determined sector weightings as such. Growth and the quest for long term capital appreciation are the overarching considerations common to all the portfolio’s holdings.

The investment advisory team at AIRC consists of four analysts / advisers who are engaged daily in contacting companies or preparing for management visits. The team meets formally on a weekly basis to review the previous week’s visits but also exchanges information daily. AIRC has a collegiate approach towards research but believes a sole individual should be responsible for portfolio advisory decisions. Taeko Setaishi, the lead investment adviser to the Company, determines the final stock recommendations but relies on input from the other team members.

In its search for growth, the Investment Adviser has been encouraged to find attractive investment opportunities created by the structural changes occurring within the economy. The investment themes which the Investment Adviser considers to be particularly attractive include:

a) Out-sourcing: Corporations are responding to tight labour conditions by out-sourcing non-core business activities. The Company has exposure to the rising demand for out-sourced corporate services through a position in Benefit One which administers employee benefit and welfare programs for private and public corporations.

b) Factory automation: Japan is a global leader in supplying robots and material handling systems to manufacturers and logistics companies. The Company’s investments in this area include Daifuku (material handling) and Keyence (sensors).

c) Healthcare: Japan’s demographics will require a steady supply of healthcare products and services. Equipment suppliers such as Asahi Intecc and Cyberdyne and drug discovery ventures (Peptidream) are on the leading edge of healthcare services.

d) Semiconductor production equipment: The tech sector’s demand for further chip miniaturization will require semiconductor makers to make significant investments in chip production lines. Tokyo Electron and Lasertec command high market shares in equipment occupying critical locations in semiconductor and flat panel production lines.

In conclusion, the Investment Adviser continues to encounter many attractive growth investment opportunities in Japan that should expand earnings over the medium term and thus contribute to the Company’s long term capital appreciation.

Atlantis Investment Research CorporationJuly 2017

Alternative Investment Fund Manager’s ReportFor the financial year ended 30th April 2017

Tiburon Partners LLP, which is registered in England as a limited liability partnership, was authorised on 22nd July 2014 by the Financial Conduct Authority of the UK as the Company’s Alternative Investment Fund Manager (the “AIFM”) for the purposes of the Alternative Investment Funds Managers Directive (“AIFMD” or the “Directive”).

As the Company’s AIFM, Tiburon Partners LLP is required to make available an annual report for each financial year of the Company containing the following:

i. A balance-sheet or a statement of assets and liabilities (see Statement of Financial Position).

ii. An income and expenditure account for the financial year (see Statement of Comprehensive Income).

iii. A report on the activities of the financial year (see Chairman’s Statement above, Investment Adviser’s Report above, Details of Ten Largest Investments below, Schedule of Investments below and Directors’ Report and Statement of Directors’ Responsibilities below.

iv. Details of material changes to the information set out under Article 23 of the Directive. To satisfy this requirement, the AIFM publishes an Investor Disclosure Document available at tiburon.co.uk.

v. Certain disclosures in relation to the remuneration of the AIFM. To meet these requirements, details of the Tiburon Partners LLP remuneration policy and remuneration disclosures in respect of the AIFM’s reporting period for the year ended 31st March 2017 are available at http://www.tiburon.co.uk/downloads/regulatory-disclosures

vi. Details of the leverage employed by the Company. Using the methodologies prescribed under the Directive, the leverage of the Company is disclosed in the following table:

Tiburon Partners LLPJuly 2017

Details of Ten Largest Investments

The ten largest investments comprise a fair value of $27,229,581 (2016: $25,068,297) representing 27.3% of Net Asset Value (2016: 28.8%) with details as below:

Nittoku Engineering (180,000 shares)

Nittoku Engineering is one of the major global assemblers and distributors of automatic coil winding machines. Demand for coils and automatic coil winding machines, continues to climb as coil application intensifies not only in electrical devices but also automobiles. The company has diversified into IC tags and cards. Production is largely off-shore and external sales are 70% of total.

Fair value of $4,067,754 representing 4.1% of the Net Asset Value (2016: 1.0%)

Nidec (37,000 shares)

Nidec, the world’s leader in HDD motors, produces a wide range of precision electric motors and is strengthening its mid to large sized motor product line. The company has shifted most production off-shore. Nidec has a highly active and successful M&A track record. The company has a proven management team focused on creating shareholder value.

Fair value of $3,397,792 representing 3.4% of the Net Asset Value (2016: 2.7%)

Panasonic Corp (235,756 shares)

Panasonic, long a household name in consumer appliances, has embarked upon a strategic restructuring which will place the company within the global automobile electrical component supply chain. Group operations in the housing segment are being consolidated.

Fair value of $2,818,524 representing 2.8% of the Net Asset Value (2016: 2.6%)

Nihon M&A Center Inc (80,800 shares)

Nihon provides advisory and consultant services to SMEs. Its consultants match growth oriented companies with other SMEs seeking a purchaser. Deal size tends to be small and thus a market avoided by major investment banks. The company recruits about 50 consultants annually and this has been a factor in driving growth.

Fair value of $2,766,181 representing 2.8% of the Net Asset Value (2016: 2.4%)

Trusco Nakayama (112,000 shares)

Trusco is a specialised trading house which distributes machine parts, cutting tools and other industrial consumables. Recently it has diversified into handling construction supplies. The company stocks an extensive inventory and can make rapid deliveries upon receipt of an order. Through expansion of its customer base and product offerings growth should continue over the medium term. 

Fair value of $2,561,238 representing 2.6% of the Net Asset Value (2016: 2.6%)

Star Mica (121,700 shares)

Star Mica’s main business is to purchase pre-owned individual condominium units that are being rented, renovate these apartments after the tenant departs, and then put them up for sale. Star’s success can be attributed to its access to capital which translates into rapid decisions during the condo acquisition process. The company’s growth strategy focuses on expansion of its core business line plus diversification into related businesses including brokerage and advisory services.

Fair value of $2,460,465 representing 2.5% of the Net Asset Value (2016: 2.0%)

Mitsubishi Chemical (305,900 shares)

Mitsubishi Chemical was created through the merger of Mitsubishi Chemical and Mitsubishi Pharma in 2005; it has subsequently absorbed other chemical operations of the Mitsubishi group. Through this reorganisation of the chemical operations the company has significantly reduced exposure to low margined chemicals to focus on high value added strategic products.

Fair value of $2,397,670 representing 2.4% of the Net Asset Value (2016: 1.9%)

Daifuku (90,000 shares)

With a 60% market share in Japan and 20% globally, Daifuku is one of the major distribution and material handling systems suppliers. Daifuku’s material handling systems are employed in warehouses, airports (baggage handling), automated factory assembly lines, and semiconductor fabrication lines. Organic expansion has been complimented by an active overseas M&A strategy.

Fair value of $2,278,104 representing 2.3% of the Net Asset Value (2016: 0.0%)

Asahi Intecc (51,000 shares)

Asahi Intecc manufactures ultra-fine stainless steel wire and has evolved into a major assembler of angiographic catheters and PTCA guidewires. All manufacturing operations are conducted off-shore in Thailand and Vietnam. Asahi Intecc has moved to diversify its operations by taking over Toyoflex.

Fair value of $2,268,400 representing 2.3% of the Net Asset Value (2016: 2.5%)

Tokyo Electron (19,000 shares)

Tokyo Electron is the fourth largest global assembler of semiconductor production equipment. Its particular strength is equipment used in the front-end of the production process, e.g., coater developers, etching systems, probers, and film deposition devices. Tokyo Electron is also the leading supplier of flat panel display production equipment.

Fair value of $2,213,453 representing 2.2% of the Net Asset Value (2016: 0.0%)

Schedule of InvestmentsAs at 30th April 2017

Board of Directors

NOEL LAMB (Chairman, appointed to the Board on 1st February 2011 and appointed as Chairman on 1st May 2014), British, graduated from Exeter College, Oxford University and is a barrister-at-law. He joined Lazard Brothers & Co Limited in 1987 and from 1992 to 1997 he was the managing director of Lazard Japan Asset Management where he was the fund manager for their Japanese equities. In 1997, he moved to the Russell Investment Group where he established the investment management capability of Russell in London. In 2002, he was promoted to Chief Investment Officer in North America where he managed assets of $150bn until his departure in 2008.

ANDREW MARTIN SMITH MCSI (appointed to the Board on 26th September 2002 and retired from the Board on 31st July 2016), British, graduated from Exeter College, Oxford University with an MA in Politics and Economics. He began his career with Allied Hambro Unit Trust Company and worked in the corporate finance and capital markets divisions of Hambros Bank Limited becoming a director in 1986. He was chief executive of Hambros’ fund management activities from 1993 to 1997. He works as an adviser and consultant at Guinness Asset Management and is a Director of Guinness Asset Management Funds in Dublin. He is a non-executive Director of Church House Investments and M&G High Income and TR European Growth Investment Trusts.

ERIC BOYLE FCSI (appointed to the Board on 17th October 2000 and retired from the Board on 14th October 2016), British, is a partner of Smith & Williamson Investment Management LLP. He has over 30 years’ experience in stockbroking and investment banking with NCL Investments – now part of Smith & Williamson. He became a member of the London Stock Exchange in 1982 and has specialised in Japan and emerging markets since 1989 in particular, by way of country and regional closed or open-ended funds. With the experience gained in studying a variety of companies in this capacity, he has held directorships in a number of companies and funds. During his career, he has raised new money for several groups launching new products investing in both emerging and developed markets.

PHILIP EHRMANN FCSI (appointed to the Board on 25th October 2013), British, graduated from the London School of Economics with a BSc in Economics. He started his investment career in 1981 specialising in the North American market before heading up Emerging Markets for Invesco Asset Management. In 1995 he joined Gartmore Investment Management to undertake a similar role, before becoming Head of Pacific & Emerging Markets. Whilst at Gartmore he managed the Gartmore Asia Pacific Trust Plc, a pan-Asian Investment Trust. In 2006 he moved to Jupiter Asset Management where he was Co-Head of Asia. At the beginning of 2015 he joined Manulife Asset Management as a Senior Managing Director, responsible for overseeing Global Emerging Markets equity portfolios.

TAKESHI MURAKAMI (appointed to the Board on 29th November 2007 and retired from the board on 28th April 2017), Japanese, graduated from Doshisha University in Kyoto with a BA in Economics. He has 38 years’ experience in both stock broking and investment management. He started his career at Sanyo Securities, Osaka in 1966 where he was primarily engaged in international business promotion at its New York office between 1972-1978 and at its London office for two years between 1982-1984. He then joined Schroder Securities in London in 1984, before moving to its Tokyo office in 1986. He served as Schroder's Tokyo Branch Manager for ten years until he moved to Schroder Investment Management Japan in 1996 as Director, where he promoted the Japanese pension fund management business. Having retired from Schroder’s at the age of 60 in 2003, Takeshi resumed his career at Instinet Japan as Chairman in 2004 for a year.

RICHARD PAVRY (appointed to the Board on 1st August 2016) is the head of investment trusts at Jupiter Asset Management Limited. Richard graduated in Natural Sciences from Cambridge University before converting to law. He began his career as a solicitor with Simmons & Simmons, moving to the corporate finance team at UBS in 1999 and then to Jupiter Asset Management in 2000. Richard has previously served as a non-executive director of Jupiter Second Split Trust PLC.

Directors’ Report and Statement of Directors’ Responsibilities

The Directors are pleased to present their twenty first Report and the Audited Financial Statements of the Company for the financial year ended 30th April 2017.

PRINCIPAL ACTIVITY

The Company is a Guernsey registered authorised closed ended investment company with UK investment trust status listed on the London Stock Exchange. The Company has a premium listing on the London Stock Exchange. Trading in the Company’s ordinary shares commenced on 10th May 1996.

STATEMENT OF 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:

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

a) DTR 4.1.8 of the Disclosure 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

b) DTR 4.1.11 of the DTR being an indication of important events that have occurred since the beginning of the financial year, the likely future development of the Company, the Company’s use of financial instruments and where material, the Company’s financial risk management objectives and policies and its exposure to price risk, credit risk, liquidity risk and cash flow risk.

In the opinion of the Board, the Annual Report and Financial Statements taken as a whole, are fair, balanced and understandable and provide the information necessary to shareholders to assess the Company’s performance, business model and strategy.

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, 2008, (the “Companies Law”). 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 Conduct Authority.

The Directors who held office at the date of the approval of the Financial Statements confirm that, so far as they are aware:

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

BUSINESS REVIEW AND TAX STATUS

The Company has been formally accepted into the Investment Trust Company regime, subject to the Company continuing to submit appropriate annual tax filings to HM Revenue and Customs. In the opinion of the Directors, the Company has conducted its affairs so as to enable it to maintain ongoing investment trust status, subject to completion of the relevant audit work.

REDEMPTION FACILITY

The purpose of the facility is to provide a measure of liquidity for those shareholders who may wish to redeem. The Redemption Facility will operate at six-monthly intervals on 31st March and 30th September (or if such date is not a business day, the previous business day).

The Directors shall be entitled at their absolute discretion to determine the procedures for the redemption of the ordinary shares (subject to the facilities and requirements of CREST and the Companies Law). Without prejudice to the Directors discretion, it is intended that the procedure described below shall apply.

Redemptions may take place on any redemption point. Upon redemption all ordinary shares redeemed shall be cancelled. 

The total redemptions at each redemption point are limited to 5% of the issued share capital at the time. At each redemption point, each shareholder is entitled to request the redemption of 5% of their holding of shares held at the immediately preceding redemption point and held continuously at all times since that date, rounded down to the nearest whole number (the “Basic Entitlement’’). Until 31st March 2015 the redemption value was based upon the realisation value of the portfolio, less an exit charge set at 2% on redemptions of up to a shareholder's Basic Entitlement. Following a Board resolution to amend the Redemption Facility, with effect from the same date, the exit charge payable on redemptions of up to a shareholder's Basic Entitlement was increased to 4% of the total redemption costs.

Shareholders are entitled to request the redemption of shares in excess of their Basic Entitlement to the extent that other shareholders redeem less than their Basic Entitlement or do not seek to redeem their shares at the relevant redemption point (an "Excess Request"). Following the amendment to the Redemption Facility, with effect from 31st March 2015, the exit charge on Excess Requests is the rolling 90 day average discount calculated in accordance with the Company's existing discount control mechanism, subject to an exit charge cap of 10%. Any such excess redemption requests will be satisfied pro rata in proportion to the amount in excess of the Basic Entitlement (rounded down to the nearest whole number of shares).

The right of shareholders to request the redemption of their ordinary shares on any redemption point shall be exercised by the shareholder delivering to the receiving agent (or to such other person as the Directors may designate for this purpose) a duly completed redemption request. Redemption request forms are available upon request from the Administrator. Redemption requests shall not be valid (unless the Company otherwise agrees) unless they are received by the receiving agent not earlier than 20 days nor later than 10 days before the relevant redemption point.

SHARE BUY-BACKS

The Company has been granted the authority to make market purchases of up to a maximum of 14.99% of the aggregate number of ordinary shares in issue at a price not exceeding the higher of (i) 5% above the average of the mid-market values of the ordinary shares for the 5 business days before the purchase is made or, (ii) the higher of the price of the last independent trade and the highest current investment bid for the ordinary shares.

In deciding whether to make any such purchases the Directors will have regard to what they believe to be in the best interests of shareholders as a whole, to the applicable legal requirements and any other requirements in its Articles. The making and timing of any buybacks will be at the absolute discretion of the Board and not at the option of the shareholders, and is expressly subject to the Company having sufficient surplus cash resources available (excluding borrowed moneys). The Listing Rules prohibit the Company from conducting any share buybacks during close periods immediately preceding the publication of annual and interim results.

The Board believes that the effective use of Treasury shares can assist the Company in improving liquidity in the Company’s Ordinary shares, managing any imbalance between supply and demand and minimizing the volatility of the discount at which the Ordinary shares trade to their Net Asset Value for the benefit of shareholders. It is believed that this facility gives the Company the ability to sell Ordinary shares held in Treasury quickly and cost effectively, and provides the Company with additional flexibility in the management of the capital base.

The Board shall have regard to current market practice for the reissue of Treasury shares by investment trusts and the recommendations of the Investment Adviser. The Board will make an announcement of any change in its policy for the reissue of Ordinary shares from Treasury via a Regulatory Information Service approved by the Financial Conduct Authority (“FCA”). The Board’s current policy is that any Ordinary shares held in Treasury will not be resold by the Company at a discount to the Investment Adviser’s estimate of the presiding Net Asset Value per Ordinary share as at the date of issue.

INVESTMENT POLICY

The Company’s investment objective and policy are set out above.

RESULTS

The results for the year are set out in the Statement of Comprehensive Income below. 

DIVIDEND

As a UK investment trust the Company is subject to the provisions of the Corporation Tax Act 2010, the provisions of section 1158 (‘s.1158’) which include a retention test which states that the Company should not retain in respect of any accounting period an amount which is greater than 15% of its income. This has been modified for accounting periods beginning on or after 28th June 2013 such that a negative balance on a company's revenue reserve is taken into account when calculating the amount of distributable income. This is not relevant however for the year ended 30th April 2017.

There were no distributions made during the year and the Company met the retention test for the year ended 30th April 2017 (2016: none).

CAPITAL VALUES

At 30th April 2017 the value of net assets available to shareholders was $99,695,364 (2016: $86,957,813) and the Net Asset Value per share was $2.26/£1.75 (2016: $2.16/£1.48).

PREPARATION OF FINANCIAL STATEMENTS

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

SIGNIFICANT SHAREHOLDINGS

In accordance with the Company's Articles of Association the Directors have the ability to request nominee shareholders to disclose the beneficial shareholders they represent. Based on the information received the following shareholders had a holding in the Company in excess of 3% as at 30th April 2017.

SECRETARY

The Secretary is Northern Trust International Fund Administration Services (Guernsey) Limited.

INDEPENDENT AUDITOR

The Company has appointed PricewaterhouseCoopers CI LLP (“PwC CI LLP”) as its independent auditor and tax adviser.

PwC CI LLP 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.

PRINCIPAL RISKS AND UNCERTANTIES

As an investment trust, the Company invests in securities for the long term. The financial investments held as assets by the Company comprise equity shares (see the Schedule of Investments 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 conducts robust reviews of these risks and agrees policies for their management. These policies have remained substantially unchanged since 30th April 2006.

Performance

Inappropriate investment policies and processes may result in under performance against the prescribed benchmark index and the Company’s peer group. The Board manages these risks by ensuring a diversification of investments and regularly reviewing the portfolio asset allocation and investment process. The Board also regularly monitors the Company’s investment performance against a number of indices and the AIC Japanese smaller companies sub-sector peer group. In addition, certain investment restrictions have been set and these are monitored as appropriate.

Discount

A disproportionate widening of the discount relative to the Company’s peers could result in loss of value for shareholders. The Board reviews the discount level regularly. The introduction of the Redemption Facility has improved the liquidity in the Company’s shares and helps to narrow the discount to the NAV at which the shares trade.

The Company operates a shareholder approved discount control mechanism whereby the Company will hold a continuation vote if the shares have traded, on average, at a discount of more than 10% to the Net Asset Value per share during any rolling 90 day period, in normal market conditions. If the obligation to hold a continuation vote is triggered, the vote will be held no later than the next practicable Annual General Meeting of the Company. As of the date of this report, the continuation vote has not been triggered.

Regulatory

The Company operates in a complex regulatory environment and faces a number of regulatory risks. Breaches of regulations, such as Section 1158 of the Corporation Tax Act 2010, The Companies (Guernsey) Law, 2008 and the UKLA Listing Rules, could lead to a number of detrimental outcomes and reputational damage. The Company conforms with Alternative Investment Fund Managers Directive (“AIFMD”). Section 1158 qualification criteria are continually monitored. The Board relies on the services of the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited and its professional advisers to ensure compliance with The Companies (Guernsey) Law, 2008, the UKLA Listing Rules, Prospectus Rules, Disclosure Transparency Rules and the rules of the London Stock Exchange.

Operational

Like most other investment trust companies, the Company has no employees. The Company therefore relies upon the services provided by third parties and is dependent on the control systems of the Investment Manager, Investment Adviser and the Company’s Administrator. The security, for example, of the Company’s assets, dealing procedures, accounting records and maintenance of regulatory and legal requirements depends on the effective operation of these systems. These are regularly tested and monitored.

Financial

The financial risks faced by the Company, including the impact of changes in Japanese equity market prices on the value of the Company’s investments, are disclosed in Note 15 to the Financial Statements. The financial risks disclosed in Note 15 are detailed for compliance with IFRS.

CORPORATE GOVERNANCE AND SHAREHOLDER RELATIONS

Details of the Company’s compliance with corporate governance best practice, including information on relations with shareholders, are set out in the Corporate Governance Statement and this statement forms part of the Directors’ Report.

VIABILITY STATEMENT

In accordance with provision C.2.2 of the UK Corporate Governance Code as issued by the Financial Reporting Council (‘FRC’) in April 2016, the Board has assessed the prospects of the Company over the period from the date of this document to the Annual General Meeting in 2019. The Company’s investment objective is to achieve long-term capital growth and the Board regards the Company as a long-term investment.

The Board has considered the Company’s business model including its investment objective and investment policy as well as the principal risks and uncertainties that may affect the Company as detailed below. The Board, in its assessment of the viability of the Company has considered each of the Company’s principal risks as referred to above, in particular the impact of a significant fall in the Japanese equity market on the value of the Company’s investment portfolio. The Board has noted that the Company holds a highly liquid portfolio invested predominantly in listed equities and no significant increase to ongoing charges or operational expenses is anticipated.

The Board has therefore concluded based on the Company’s processes for monitoring operating costs, share price discount, the Investment Manager’s compliance with the investment objective, asset allocation, the portfolio risk profile, gearing, counterparty exposure, liquidity risk and financial controls that there is a reasonable expectation that the Company will be able to continue in operation and meet its liabilities as they fall due over the next three years. As part of its assessment, the Board has noted that shareholders will be required to vote on the continuation of the Company at the 2019 Annual General Meeting.

GOING CONCERN

As outlined in the Viability Statement above, the Directors believe that the Company has adequate resources to continue in operational existence for the next 12 months. Whilst the Company may be obliged to hold a continuation vote in accordance with its discount control mechanism, the Directors do not believe this should automatically trigger the adoption of a non-going concern basis in line with the Association of Investment Companies (“AIC”) Statement of Recommended Practice (“SORP”) which states that it is more appropriate to prepare financial statements on a going concern basis unless a continuation vote has already been triggered and shareholders have voted against continuation. Therefore, the Directors believe the use of the going concern basis is appropriate as there are no material uncertainties relating to events or conditions that may cast significant doubt about the ability of the Company to continue to meet its ongoing obligations.

ALTERNATIVE INVESTMENT FUND MANAGERS DIRECTIVE

The Company has entered into the arrangements necessary to ensure compliance with the AIFM Directive. Following a review of the Company's management arrangements, the Board approved the appointment of Tiburon Partners LLP ("Tiburon") as the Company's Alternative Investment Fund Manager on the terms of and subject to the conditions of the Investment Management Agreement between the Company and Tiburon.

The Board has also appointed Northern Trust (Guernsey) Limited (the "Depositary") to act as the Company's depositary (as required by the AIFM Directive), on the terms and subject to the conditions of a Depositary Agreement between the Company, Tiburon and the Depositary.

FOREIGN ACCOUNT TAX COMPLIANCE ACT

For purposes of the US Foreign Account Tax Compliance Act, the Company registered with the US Internal Revenue Service (“IRS”) as a Guernsey reporting Foreign Financial Institution (“FFI”), received a Global Intermediary Identification Number, and can be found on the IRS FFI list under the link http://apps.irs.gov/app/fatcaFfiList/flu.jsf.

The Company is subject to Guernsey regulations and guidance based on reciprocal information sharing inter-governmental agreements which Guernsey has entered into with the United Kingdom and the United States of America. The Board will take the necessary actions to ensure that the Company is compliant with Guernsey regulations and guidance in this regard. 

Noel Lamb Philip Ehrmann Chairman Director 

28th July 2017

Directors’ Remuneration Report

The Board has approved this report, in accordance with the rules covering good communication to shareholders. An ordinary resolution for the approval of this report will be put to the members at the forthcoming Annual General Meeting.

REMUNERATION COMMITTEE

The Board as a whole fulfils the function of a Remuneration Committee. The Company’s financial adviser, corporate broker and company secretary, will be asked to provide advice when the Directors consider the level of Directors’ fees.

POLICY ON DIRECTORS’ FEES

The Board’s policy is that the remuneration of non-executive Directors should reflect the experience of the Board as a whole and be fair and comparable to that of other investment trusts that are similar in size, have a similar capital structure and have a similar investment objective.

The fees for the non-executive Directors are determined within the limits of £200,000 set out in the Company’s Articles of Incorporation. The Directors are not eligible for bonuses, pension benefits, share options, long-term incentive schemes or other benefits.

DIRECTORS’ SERVICE CONTRACTS

It is the Board’s policy that none of the Directors have a service contract. Directors are appointed initially until the following Annual General Meeting when, under the Company’s Articles of Incorporation 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. Notwithstanding the foregoing provisions of the Company's Articles of Incorporation, the Board is recommending that all Directors be subject to re-election at the forthcoming AGM.

DIRECTORS’ EMOLUMENTS FOR THE YEAR

Directors’ emoluments are paid in sterling. The Directors who served in the year are entitled to the following emoluments in the form of fees:

DIRECTORS’ INTERESTS

The Directors listed above served throughout the year under review.

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 2017 and 30th April 2016 are as follows:

As at the date of this report, the above interests of the Directors were unchanged.

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.

DISCLOSURE OF DIRECTORSHIPS IN PUBLIC COMPANIES LISTED ON RECOGNISED STOCK EXCHANGES

The following summarises the Directors’ directorships in other public companies:

A. Martin Smith

*Mr Smith resigned as director in March 2017

None of the other Directors held directorships in other public companies during the year under review.

APPROVAL

A resolution for the approval of the Directors’ Remuneration Report for the year ended 30th April 2017 will be proposed at the Annual General Meeting.By order of the BoardNoel Lamb Philip Ehrmann Chairman Director 28th July 2017 

Corporate Governance

INTRODUCTION

The following Corporate Governance statement forms part of the Directors’ Report (DTR 7.2.1). The Board of the Company has considered the principles and recommendations of the February 2015 edition of the AIC Code of Corporate Governance (the “AIC Code”) by reference to the AIC Corporate Governance Guide for Investment Companies (the “AIC Guide”). The AIC Code, as explained by the AIC Guide, addresses all the principles set out in the UK Corporate Governance Code 2014 (the “UK Code”), as well as setting out additional principles and recommendations on issues that are of specific relevance to the Company.

On 18th February 2015, the Financial Reporting Council provided the AIC with an updated endorsement letter to cover the February 2015 edition of the AIC Code. The endorsement confirms that by following the AIC Code investment company boards should fully meet their obligations in relation to the UK Code and paragraph LR 9.8.6 of the Listing Rules.

The Company follows the Guernsey Financial Services Commission ("GFSC") Code of Corporate Governance (the "GFSC Code"). The GFSC Code provides a framework that applies to all entities licensed by the GFSC or which are registered or authorised as a collective investment scheme. Companies reporting against the UK Code or the AIC Code are deemed to comply with the GFSC Code.

The Company has complied with the recommendations of the AIC Code and the relevant provisions of the UK Code throughout the accounting year, except as set out below.

For the reasons set out in the AIC Guide, and as explained in the UK Code, the Board considers these provisions are not relevant to the position of the Company, being an externally managed investment company. The Company has therefore not reported further in respect of these provisions. The Directors are non-executive and the Company does not have employees, hence no whistle-blowing policy is required. However, the Directors note that the Company’s service providers have whistle blowing policies in place.

THE BOARD

Disclosures under Principle 5 of the AIC Code

The Board comprises three independent non-executive Directors including the Chairman, Noel Lamb. Due to the size of the Company, the nature of its activities and the fact that all of the Directors are independent, the Board does not consider it necessary to appoint a senior independent director.

The Board has not appointed a remuneration committee but comprising 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 the discount, redemptions, gearing, asset allocation, marketing and investor relations, peer group information and industry issues. There were 5 Board meetings (2015-2016: 7) and 3 Audit Committee meetings (2015-2016: 3) held during the year 1st May 2016 to 30th April 2017. The table below shows the number of formal meetings attended by each Director during the year.

In addition to the above meetings there were also 4 other committee meetings held during the year in relation to the operation of the redemption facility and other operational matters.

Directors are appointed initially until the following Annual General Meeting when, under the Company’s Articles of Incorporation 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.

When considering succession planning, the Board bears in mind the balance of skills, knowledge, and experience and diversity existing on the Board. The Board has noted amendments to the UK Code to strengthen the principle on boardroom diversity following the Davies Report. The Board considers diversity as part of the annual performance evaluation and it is felt that there is a range of backgrounds and each Director brings different qualities to the Board and its discussions. It is not felt appropriate for the Company to have set targets in relation to diversity; candidates will be assessed in relation to the relevant needs of the Company at the time of appointment. A good knowledge of investment management generally, Japan investment management specifically and investment trust industry matters and sophisticated investor concerns relevant to this company will nevertheless remain the key criteria by which new Board candidates will be sought. The Board will recommend when the recruitment of additional non-executive directors is required. Once a decision is made to recruit additional directors to the Board each Director is invited to submit nominations and these are considered in accordance with the Board’s agreed procedures. The Board may also use independent external agencies as and when the requirement to recruit an additional Board member becomes necessary. Although the Company is not a member of the FTSE 350, in accordance with best practice and the recommendations of the AIC Code, the Board is recommending that all Directors be subject to re-election at the forthcoming AGM.

Mr Martin Smith retired as a Director with effect from 31st July 2016, Mr Eric Boyle retired on 14th October 2016 and Mr Takeshi Murakami retired on 28th April 2017. The Board embraces the principles of the UK Code but, with regard to its provisions concerning director tenure, is of the opinion that an individual’s independence cannot be arbitrarily determined on the basis of a set period of time. The Company’s investment objective is to achieve long term capital growth and it benefits from having long serving Directors with a detailed knowledge of the Company’s operations to effectively oversee its management on behalf of shareholders. The Company therefore does not impose fixed term limits on Directors’ tenure as this would result in a loss of experience and knowledge without any assurance of increased independence. The Board, collectively and individually, firmly believes in the continued independence of its members. The Board confirms that the performance of all Directors has been subject to formal evaluation and that they continue to be effective in their role. The Board firmly recommends to shareholders that all Directors, with the exception of the Directors who retired during the year, should be re-elected.

There is an agreed procedure for Directors to take independent professional advice if necessary, and at the Company’s expense. This is in addition to the access which every Director has to the advice of the Company Secretary. The Company has taken out insurance with Chubb Insurance Company of Europe in respect of the Directors liability. For the year 1st May 2016 to 30th April 2017 the charge was $6,498.

INTERNAL CONTROLS

The Board has delegated the responsibility for the management of the Company’s investment portfolio, the provision of depositary 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. The Annual Report and Financial Statements are also independently audited. Whilst the Board delegates responsibility, it retains responsibility for the functions it delegates out and is responsible for the risk management and systems of internal control. Formal contractual agreements have been put in place between the Company and providers of these services.

The Board 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 Administrator, Northern Trust International

Fund Administration Services (Guernsey) Limited and the Audit Committee reviews the Service Organisation Controls (SOC 1) report on this service provider.

The extent and quality of the systems of internal control and compliance adopted by the Investment Manager and the 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 and investment relations, peer group information and industry issues. The Board also closely monitors the level of discount and has the ability to buy back shares in the market.

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.

COMMITTEES

The Board has established an Audit Committee which is described below.

The Board has not appointed a Management Engagement Committee or Nomination Committee but has chosen to assess and review the performance of the Board and contractual arrangements with the Investment Manager and Investment Adviser on an annual basis by the entire Board who are independent non-executive Directors. Details of the Investment Management Agreement are shown in Note 6 to the Financial Statements.

Audit Committee

The Audit Committee operates within defined terms of reference. The Audit Committee’s responsibilities include, but are not limited to:

The Audit Committee is appointed by the Board and comprises Mr Ehrmann as Chairman, Mr Pavry, and Mr Lamb.

In accordance with the AIC Code, the Board has determined that Mr Ehrmann has recent and relevant financial experience. All other members of the Audit Committee are deemed to have the necessary ability and experience to understand the Financial Statements.

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 meets with the Company’s external auditor annually to review the Audited financial statements.

The Audit Committee meets at least twice a year and may meet more frequently if the Audit Committee deems necessary or if required by the Company’s Auditor.

The Company’s Auditor is advised of the timing of the Audit Committee Meetings. The Audit Committee has access to the Compliance officers of the Investment Manager, the Administrator and the Depositary.

The Company Secretary is the Secretary of the Audit Committee and attends all Meetings of the Audit Committee.

The Audit Committee is satisfied that auditor objectivity and independence is not impaired by the performance by PwC CI LLP of non-audit services, which cover UK tax compliance services. The Audit Committee considers that the appointment of a third party unfamiliar with the Company to carry out non-audit services of UK tax compliance would not benefit shareholders since they would incur unnecessary additional expense.

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 stockbroker to ascertain the views of shareholders. 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 Adviser. Following the Annual General Meeting each year the Investment Adviser 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. In addition, estimated Net Asset Values are published on a daily basis and monthly factsheets are published on the Investment Manager's website at http://www.tiburon.co.uk/funds/atlantis-japan-growth-fund-limited.

EVALUATION OF PERFORMANCE OF INVESTMENT MANAGER

The investment performance is reviewed at each regular Board meeting at which representatives of the Investment Manager are required to provide answers to any questions raised by the Board. The Board has instigated an annual formal review of the Investment Manager which includes consideration of:

In the opinion of the Directors the continuing appointment of the Investment Manager on the terms agreed is in the interests of the Company’s shareholders as a whole. 

By order of the Board 

Noel Lamb Philip Ehrmann Chairman Director 

28th July 2017

Audit Committee Report

We present the Audit Committee's Report, setting out the responsibilities of the Audit Committee and its key activities for the financial year ended 30th April 2017.

The Audit Committee has continued its detailed scrutiny of the appropriateness of the Company’s system of risk management and internal controls, the robustness and integrity of the Company’s financial reporting, along with the external audit process. The Committee has devoted time to ensuring that controls and processes have been properly established, documented and implemented.

During the course of the year, the information that the Audit Committee has received has been timely and clear and has enabled the Audit Committee to discharge its duties effectively.

The Audit Committee supports the aims of the UK Code and the best practice recommendations of other corporate governance organisations such as the Association of Investment Companies (“AIC”), and believes that reporting against the revised AIC Code allows the Audit Committee to further strengthen its role as a key independent oversight Committee.

Role and Responsibilities

The primary function of the Audit Committee is to assist the Board in fulfilling its oversight responsibilities. This includes reviewing the financial reports and other financial information before publication.

In addition, the Audit Committee reviews the systems of internal controls on a continuing basis that the Investment Manager and the Board have established with respect to finance, accounting, risk management, compliance, fraud and audit. The Committee also reviews the accounting and financial reporting processes, along with reviewing the roles, independence and effectiveness of the external auditor.

The ultimate responsibility for reviewing and approving the Annual Report and other Financial Statements remains with the Board.

The Audit Committee's full terms of reference can be obtained by contacting the Company's Administrator.

Risk Management and Internal Control

The Board, as a whole, including the Audit Committee members, considers the nature and extent of the Company’s risk management framework and the risk profile that is acceptable in order to achieve the Company’s strategic objectives. As a result, it is considered that the Board has fulfilled its obligations under the UK Code.

The Audit Committee continues to be responsible for reviewing the adequacy and effectiveness of the Company’s on-going risk management systems and processes. Its system of internal controls, along with its design and operating effectiveness, is subject to review by the Audit Committee through reports received from the Investment Manager, Investment Adviser and Depositary, along with those from the Administrator and external auditor.

The Audit Committee has reviewed the need for an internal audit function and has decided that the systems and procedures employed by the Investment Manager, Investment Adviser, Administrator and Depositary provide sufficient assurance that a sound system of risk management and internal control, which safeguards shareholders’ investments and the Company’s assets, is maintained. An internal audit function is therefore considered unnecessary. 

Fraud, Bribery and Corruption

The Audit Committee has relied on the overarching requirement placed on all service providers under the relevant agreements to comply with applicable law. The Audit Committee reviews the service provider policies and receives a confirmation from all service providers that there have been no instances of fraud or bribery.

Financial Reporting and Significant Financial Issues

The Audit Committee assesses whether suitable accounting policies have been adopted. The Audit Committee reviews accounting papers prepared by the Investment Manager and Administrator which provide details on the main financial reporting judgements.

The Audit Committee also reviews reports by the external auditors which highlight any issues with respect to the work undertaken on the audit.

The significant issues considered during the year by the Audit Committee in relation to the Financial Statements and how they were addressed are detailed below:

(i) Valuation of Investments:

The Company’s investments had a fair value of $106,571,282 as at 30th April 2017 and represent a substantial portion of the assets of the Company. As such this is the largest factor in relation to the consideration of the Financial Statements. These investments are valued in accordance with the Accounting Policies set out in Note 2 (f) to the Financial Statements. The Audit Committee considered the valuation of the investments held by the Company as at 30th April 2017 to be correct from information provided by the Investment Manager, Investment Adviser, Depositary and Administrator on their processes for the valuation of these investments.

 (ii) Income Recognition:

The Audit Committee considered the income from investments recorded in the Financial Statements for the year ended 30th April 2017. Income from investments is recognised in accordance with the Significant Accounting Policies set out in Note 2 (d). The Audit Committee reviewed information obtained from the Investment Manager and was satisfied that income, having arisen solely from dividends declared by listed equities, was correctly stated in the Financial Statements.

 (iii) Review of the Financial Statements

At the request of the Audit Committee, the Administrator confirmed that it was not aware of any material misstatements, including matters relating to Financial Statement presentation. At the Audit Committee meeting to review the Annual Report and Audited Financial Statements, the Audit Committee received and reviewed a report on the audit from the external auditors. On the basis of its review of this report, the Audit Committee is satisfied that the external auditor has fulfilled its responsibilities with diligence and professional scepticism. The Audit Committee advised the Board that this Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary to shareholders to assess the Company’s performance, business model, and strategy. 

The Audit Committee is satisfied that appropriate disclosures have been included in the Financial Statements.

External Auditor

The Audit Committee has responsibility for making a recommendation on the appointment, reappointment and removal of the external auditor. PwC CI LLP has been external auditor to the Company since their appointment on 13th January 2015.

During the year the Audit Committee received and reviewed audit plans and reports from the external auditor. To assess the effectiveness of the external audit process, the auditors were asked to articulate the steps that they have taken to ensure objectivity and independence, including where the auditor provides non-audit services. The Audit Committee also reviewed the work done during the year by the external auditors both as part of the audit process and on non-audit matters and from time to time compares their effectiveness as well as their costs with the benefit of the experience they have had in other investment management houses and relevant contexts. These steps enable the Audit Committee to monitor the auditor’s performance, behaviour and effectiveness during the exercise of their duties, which informs the decision to recommend reappointment on an annual basis. The Audit Committee under its terms of reference reviews the appointment and re-appointment of the external auditor typically at its December meeting in advance of the reviewing the audit approach for the Annual Report and Financial Statements.

As a general rule, the Company does not utilise external auditors for internal audit purposes, secondments or valuation advice. Services which do not compromise auditor independence, such as tax compliance, tax structuring, private letter rulings, accounting advice, quarterly reviews and disclosure advice are normally permitted but will be pre-approved by the Audit Committee.

The following table summarises the remuneration paid for audit and non-audit services during the financial year ended 30th April 2017 and the financial year ended 30th April 2016.

*Other services relate to functional currency services.

For any questions on the activities of the Audit Committee not addressed in the foregoing, a member of the Audit Committee will attend each Annual General Meeting to respond to such questions.

The Audit Committee Report was approved on 28th July 2017 and signed on behalf of the Audit Committee by: 

Philip EhrmannChairman, Audit Committee

Depositary StatementFor the financial year ended 30th April 2017

Report of the Depositary to the Shareholders

Northern Trust (Guernsey) Limited has been appointed as Depositary to Atlantis Japan Growth Fund Limited (the “Company”) in accordance with the requirements of Article 36 and Articles 21(7), (8) and (9) of the Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No 1060/2009 and (EU) No 1095/2010 (the “AIFM Directive”).

We have enquired into the conduct of Tiburon Partners LLP (the “AIFM”) for the year ended 30th April 2017, in our capacity as Depositary to the Company.

This report including the review provided below has been prepared for and solely for the shareholders in the Company. We do not, in giving this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown.

Our obligations as Depositary are stipulated in the relevant provisions of the AIFM Directive and the relevant sections of Commission Delegated Regulation (EU) No 231/2013 (collectively the “AIFMD legislation”).

Amongst these obligations is the requirement to enquire into the conduct of the AIFM and the Company and their delegates in each annual accounting period.

Our report shall state whether, in our view, the Company has been managed in that period in accordance with the AIFMD legislation. It is the overall responsibility of the AIFM to comply with these provisions. If the AIFM or their delegates have not so complied, we, as the Depositary, will state why this is the case and outline the steps which we have taken to rectify the situation.

Basis of Depositary Review

The Depositary conducts such reviews as it, in its reasonable discretion, considers necessary in order to comply with its obligations and to ensure that, in all material respects, the Company has been managed (i) in accordance with the limitations imposed on its investment and borrowing powers by the provisions of its constitutional documentation and the appropriate regulations and (ii) otherwise in accordance with the constitutional documentation and the appropriate regulations. Such reviews vary based on the type of Company, the assets in which a Company invests and the processes used, or experts required, in order to value such assets.

Review

In our view, the Company has been managed during the year, in all material respects:

(i) in accordance with the limitations imposed on the investment and borrowing powers of the Company by the constitutional document; and by the AIFMD legislation; and

(ii) otherwise in accordance with the provisions of the constitutional document and the AIFMD legislation. 

For and on behalf ofNorthern Trust (Guernsey) Limited28th July 2017

Independent Auditors’ Report to the Members ofAtlantis Japan Growth Fund LimitedFor the financial year ended 30th April 2017

Report on the audit of the financial statements

________________________________________________________________________

Our opinion

In our opinion, the financial statements give a true and fair view of the financial position of Atlantis Japan Growth Fund Limited (the “Company”) as at 30 April 2017, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”) and have been properly prepared in accordance with the requirements of The Companies (Guernsey) Law, 2008.

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What we have audited

The Company’s financial statements comprise:

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Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (“ISAs”). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

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Independence

We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (“IESBA Code”). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code.

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Our audit approach

Context

The Company’s return is driven primarily by the performance of the underlying investment portfolio, consisting of listed Japanese equities, and so the underlying performance and prevailing trading conditions of these investments are of particular relevance to our audit.

Overview

Audit scope

As part of designing our audit, we determined materiality and assessed the risks of material misstatement in the financial statements. In particular, we considered where the directors made subjective judgements; for example, in respect of significant accounting estimates that involved making assumptions and considering future events that are inherently uncertain. As in all of our audits, we also addressed the risk of management override of internal controls, including among other matters, consideration of whether there was evidence of bias that represented a risk of material misstatement due to fraud.

We have audited the financial statements of the Company using the accounting records of the Company, prepared by the Administrator to whom the Board of the Company has delegated the provision of certain administrative functions. We tailored the scope of our audit in order to perform sufficient work to enable us to provide an opinion on the financial statements as a whole, taking into account the structure of the Company, the accounting processes and controls, and the industry in which the Company operates, taking a combination of controls and substantive approach.

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Materiality

The scope of our audit was influenced by our application of materiality. An audit is designed to obtain reasonable assurance whether the financial statements are free from material misstatement. Misstatements may arise due to fraud or error. They are considered material if individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of the financial statements.

Based on our professional judgement, we determined certain quantitative thresholds for materiality, including the overall Company materiality for the financial statements as a whole as set out in the table below. These, together with qualitative considerations, helped us to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements, both individually and in aggregate on the financial statements as a whole.

We agreed with the Audit Committee that we would report to them misstatements identified during our audit above $87k (being 5% of overall materiality), as well as misstatements below that amount that, in our view, warranted reporting for qualitative reasons.

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Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the financial statements of the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters.

Other information

The directors are responsible for the other information. The other information comprises the introduction page, the investment policy, the chairman’s statement, the investment adviser’s report, the alternative investment fund manager’s report, the details of ten largest investments, the schedule of investments, the board of directors, the directors’ report and statement of directors’ responsibilities, the directors’ remuneration report, the corporate governance, the audit committee report, the depositary statement, the administration page, the notice of the annual general meeting and the annual general meeting rider (but does not include the financial statements and our auditor’s report thereon).

Other than as specified in our report, our opinion on the financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

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Responsibilities of the directors for the financial statements

The directors are responsible for the preparation of financial statements that give a true and fair view in accordance International Financial Reporting Standards as adopted by the European Union, the requirements of Guernsey law and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters relating to going concern and using the going concern basis of accounting unless the directors either intend to liquidate the Company or to cease operations, or have no realistic alternative but to do so.

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Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional scepticism throughout the audit. We also:

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements of the current period and are therefore the key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits of such communication.

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Report on other legal and regulatory requirements

Under The Companies (Guernsey) Law, 2008 we are required to report to you if, in our opinion:

We have no exceptions to report arising from this responsibility.

We have nothing to report in respect of the following matters which we have reviewed:

This report, including the opinion, has been prepared for and only for the members as a body in accordance with Section 262 of The Companies (Guernsey) Law, 2008 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. 

Evelyn BradyFor and on behalf of PricewaterhouseCoopers CI LLPChartered Accountants and Recognised AuditorGuernsey, Channel Islands31st July 2017

Statement of Comprehensive IncomeFor the financial year ended 30th April 2017

In arriving at the result for the financial year, all amounts above relate to continuing activities.

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

The notes form an integral part of these financial statements.

Statement of Changes in EquityFor the financial year ended 30th April 2017

The notes form an integral part of these financial statements.

Statement of Changes in EquityFor the financial year ended 30th April 2016

The notes form an integral part of these financial statements.

Statement of Financial PositionAs at 30th April 2017

*Based on the Net Asset Value at the year-end divided by the number of shares in issue: 44,139,050 (30th April 2016: 40,182,900) (See Note 15).

Approved by the Board of Directors on 28th July 2017 and signed on its behalf by: 

Noel Lamb Philip Ehrmann Chairman Director 

The notes form an integral part of these financial statements.

Statement of Cash FlowsFor the financial year ended 30th April 2017

The notes form an integral part of these financial statements.

Notes to the Financial StatementsFor the financial year ended 30th April 2017

1. GENERAL INFORMATION

Atlantis Japan Growth Fund Limited (the “Company”) was incorporated in Guernsey on13th March 1996. The Company commenced activities on 10th May 1996. The Company is an authorised closed-ended investment scheme registered and domiciled in Northern Trust International Fund Administration Services (Guernsey) Limited, P.O. Box 71, Trafalgar Court, Les Banques, St Peter Port, Guernsey, GY1 3Q, Channel Islands. The Company’s equity shares are listed on the London Stock Exchange.

As an investment trust, the Company is not regulated as a collective investment scheme by the Financial Conduct Authority. However, it is subject to the UKLA Listing Rules, Prospectus Rules, Disclosure Transparency Rules and the rules of the London Stock Exchange.

The Company’s investment objective is to achieve long term capital growth through investing wholly or mainly in listed Japanese equities.

The Company’s investment activities are managed by Tiburon Partners LLP (“the Investment Manager”) with the administration delegated to Northern Trust International Fund Administration Services (Guernsey) Limited.

2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.

a) Basis of preparation

The Financial Statements of the Company have been prepared in accordance with International Financial Reporting Standards as adopted by the European Union (“IFRS”). The Financial Statements have been prepared under the historical cost convention, as modified by the revaluation of investments held at fair value through profit or loss (“investments”), and in accordance with the Association of Investment Companies (“AIC”) Statement of Recommended Practice (“SORP”) for Investment Trust Companies and Venture Capital Trusts to the extent it is not in conflict with IFRS and the Principal Documents.

The preparation of the Financial Statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and the reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from those estimates. As at the year ended 30th April 2017, the Company, being solely invested in listed equities, did not hold any investment requiring the use of estimates to determine their value. 

The significant accounting policies adopted are consistent with those of the previous financial year and are set out below:

Standards and amendments to existing standards effective 1st May 2016

There are no standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1st May 2016 which have had a material impact on the Company.

New standards, amendments and interpretations effective after 30th April 2017 not yet adopted

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 30th April 2017, and have not been applied in preparing these Financial Statements. Those that the Directors consider relevant to the Company are detailed overleaf.

IFRS 9 Financial Instruments issued in November 2009 and October 2010, is being issued in phases and introduces new requirements dealing with recognition, classification, and measurement and derecognition of financial assets and liabilities. These chapters are tentatively effective for annual

periods beginning 1st January 2018, subject to EU endorsement. Further chapters dealing with impairment methodology and hedge accounting are still being developed. The Directors do not expect to implement IFRS 9 until all of its chapters have been published and they can comprehensively assess the impact of all changes on the Company’s Financial Statements.

b) Going concern

The Financial Statements have been prepared on a going concern basis in line with the Directors’ belief that it is appropriate to assume that the Company will continue in business.

c) Presentation of the Statement of Comprehensive Income

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

d) Income recognition

Dividend income arising on the Company’s investments is accounted for gross of withholding tax on an ex-dividend basis or when the right to receive payment is established.

e) Expenses

All expenses are recognised in the Statement of Comprehensive Income on an accruals basis.

f) Investments held at fair value through profit or loss

The Company’s business is investing in securities with a view to profiting from their total return in the form of income and capital growth. This portfolio of investments 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.

Investments are initially recognised at the settlement date of purchase. Accordingly, upon initial recognition the investments are designated by the Company as ‘at fair value through profit or loss’. They are included initially at fair value, which is taken to be their cost (excluding expenses incidental to the acquisition which are written off in the Statement of Comprehensive Income, and allocated to the capital column of the Statement of Comprehensive Income at the time of acquisition). Subsequently, the investments are measured at ‘fair value’, which is their last traded price based on published price quotations.

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

Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value of financial assets and liabilities traded in active markets (such as transferable securities and financial derivative instruments traded publicly) are based on quoted market prices at the close of trading on the reporting date.

If a quoted market price is not available on a recognised stock exchange or from a broker/dealer for non-exchange traded financial instruments, the fair value of the instrument is estimated using valuation techniques, including use of recent arm’s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option

pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions.

The fair value of financial derivative instruments, that are not exchange-traded, is estimated at the amount that the fund would receive or pay to terminate the contract at the reporting date, taking into account current market conditions (volatility, appropriate yield curve) and the current creditworthiness of the counterparties. Realised gains and losses on investment disposals are calculated using the weighted average cost method.

g) Due from and due to brokers

Amounts due from and to brokers represent receivables for securities sold and payables for securities purchased that have been contracted for but not yet settled or delivered on the Statement of Financial Position date respectively. These amounts are recognised initially at fair value and subsequently measured at amortised cost using the effective interest rate method.

The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts throughout the expected life of the financial instrument, or when appropriate, a shorter period, to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Fund estimates cash flows considering all contractual terms of the financial instrument but does not consider future credit losses. The calculation includes all fees and points paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

h) Other receivables

Other receivables are amounts due in the ordinary course of business. If collection is expected in one year or less, they are classified as current assets. If not, they are presented as non-current assets. Other receivables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

i) Cash and cash equivalents

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

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

j) Other payables and accrued expenses

Other payables and accrued expenses are obligations to pay for services that have been acquired in the ordinary course of business. Other payables are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Other payables are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

k) 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.

The Company’s loans are denominated in JPY. Gains and losses on foreign exchange on loans are included in the Statement of Comprehensive Income as capital.

l) Foreign currencies

The Company’s investments are predominately denominated in JPY. The Company’s obligation to shareholders is denominated in GBP and when appropriate, the Company may hedge the exchange rate risk from JPY to GBP. Therefore, the Company’s functional currency is GBP. The Company’s presentation currency is USD.

At each Statement of Financial Position date, assets and liabilities, which are denominated in foreign currencies, are translated into the functional currency at the closing rates of exchange. Transactions involving currencies other than the functional currency are recorded at the exchange rates prevailing on the dates of the transactions. Resulting exchange differences are recognised in profit or loss in the Statement of Comprehensive Income.

At each Statement of Financial Position date, assets and liabilities are translated into the presentation currency at the closing rate of exchange. Income and expenses for each Statement of Comprehensive Income are translated into the presentation currency at the exchange rate prevailing on the dates of the transactions. Resulting exchange differences are recognised in other comprehensive income in the Statement of Comprehensive Income.

Foreign exchange gains and losses relating to cash and cash equivalents are presented in the statement of comprehensive income within “net foreign currency gains or losses on cash and cash equivalents”.

Foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are presented in the statement of comprehensive income within “other net changes in fair value on financial assets and financial liabilities at fair value through profit or loss”.

m) Taxation

The tax expense represents the sum of the tax currently payable and deferred tax. In addition, the Company incurs withholding taxes imposed by certain countries on dividend and interest income. Such income is recognised gross of the taxes and the corresponding withholding tax is recognised as a tax expense. 

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

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

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

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

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

n) Capital reserve

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 of gains/(losses) on investments and gains/(losses) relating to foreign exchange.

o) Treasury shares

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

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

Shares held in treasury are not taken into account in determining earnings per share detailed in Statement of Comprehensive Income and NAV per share detailed in Note 16.

p) Offsetting of financial assets and liabilities

Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. The legally enforceable right must not be contingent on future events and must be enforceable in the normal course of business and in the event of default, insolvency or bankruptcy of the Company or the counterparty.

q) Redeemable Participating Shares

Redeemable Participating Shares are redeemable at the Shareholder’s option and are classified as financial liabilities. These shares can be put back to the Company on any Dealing Day for cash equal to a proportionate share of the Company's net asset value.

r) Subscriber Shares

The Company's Subscriber Shares are classified as equity in accordance with the Company's Articles of Association. These shares do not participate in the profits of the Company.

s) Functional Currency

The Board of Directors considers GBP the currency that most faithfully represents the economic effect of the underlying transactions, events and conditions. GBP is the currency in which the Company measures its performance and reports its results, as well as the currency in which it receives subscriptions from its investors. This determination also considers the competitive environment in which the company is compared to other European investment products.

3. OPERATING SEGMENTS

The Board of Directors makes the strategic resource allocations on behalf of the Company and is responsible for the Company’s entire portfolio. The Board is of the opinion that the Company is engaged in a single geographic and economic segment business. The asset allocation decisions are based on a single, integrated investment strategy, and the Company’s performance is evaluated on an overall basis.

The internal reporting provided to the Directors for the Company’s assets, liabilities and performance is prepared on a consistent basis with the measurement and recognition principles of IFRS.

The fair value of the financial instruments held by the Company and the equivalent percentages of the total value of the Company are reported in the Schedule of Investments.

4. NET GAINS ON INVESTMENTS HELD AT FAIR VALUE THROUGH PROFIT OR LOSS

5. RELATED PARTY DISCLOSURES

The Investment Manager, Depositary, Administrator and Directors are considered related parties to the Company under IAS 24 as they have the ability to control, or exercise significant influence over, the Company in making financial or operational decisions. (See Notes 6 to 9 for details of transactions with these related parties during the year ended 30th April 2017).

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 2017 and 30th April 2016 are as follows:

The above interests of the Directors were unchanged as at the date of this report.

As at 30th April 2017, a family member of the President of the Investment Adviser held 946,000 (2016: 946,000) ordinary shares of the Company.

6. INVESTMENT MANAGEMENT FEE

Under the terms of the Investment Management Agreement, the Investment Manager, Tiburon Partners LLP, 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 three months, and be in accordance with the Investment Management Agreement. Fees payable to the Investment Adviser are met by the Investment Manager.

The Company pays to the Investment Manager a fee accrued daily and paid monthly in arrears at the annual rate of 1 per cent of the weekly Net Asset Value of the Company.

Redemption Pool Investment Management Fees

The Investment Manager shall also be entitled to receive a fee from the Company of 1 per cent per annum of the daily Net Asset Value of any redemption pool together with transaction charges.

For the financial year ended 30th April 2017, total investment management fees were $913,225 (2016: $882,293) of which $76,807 (2016: $68,926) is due and payable as at that date.

7. DEPOSITARY FEES

Under the terms of the Depositary Agreement, fees are payable to the Depositary, Northern Trust (Guernsey) Limited, monthly in arrears, on the Gross Asset Value of the Company as at the last business day of the month at an annual rate of:

The Depositary is also entitled to a global custody fee of 0.03% per annum of the Net Asset Value of the Company, subject to a minimum fee of $20,000, and transaction fees as per the Depositary Agreement.

Redemption Pool Depositary Fees

The Depositary shall also be entitled to receive a fee from the Company of the Gross Asset Value of any redemption pool, together with transaction charges, at an annual rate of:

For the year ended 30th April 2017, total depositary fees were $84,690 (2016: $133,604) of which $16,006 (2016: $29,365) is due and payable as at that date.

8. ADMINISTRATION FEES

Under the terms of the Administration Agreement, the Company pays to the Administrator, Northern Trust International Fund Administration Services (Guernsey) Limited, a fee accrued weekly and paid monthly in arrears at the annual rate of:

Redemption Pool Administration Fees

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

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

For the year ended 30th April 2017, total administration fees were $144,947 (2016: $141,331) of which $27,086 (2016: $45,744) is due and payable as at that date.

9. DIRECTORS’ FEES AND EXPENSES

Each of the Directors is entitled to receive a fee from the Company, being £30,000 per annum for the Chairman, £27,500 per annum for the Chairman of the Audit Committee and £25,000 per annum for each of the other Directors. In addition, the Company reimburses all reasonably incurred out-of-pocket expenses of the Directors. 

For the year ended 30th April 2017, total directors’ fees and expenses were $147,817 (2016: $225,466) of which $12,454 (2016: $58,413) is due and payable as at that date.

10. TAXATION

The Company is exempt from taxation in Guernsey under the provisions of The Income Tax (Exempt Bodies) (Guernsey) Ordinance, 1989 and has paid an annual exemption fee of £1,200 (2016: £1,200), however the Company is subject to UK tax being a UK tax resident to comply with the Section 1158 of the Corporation Tax Act 2010. The main rate of corporation tax in the UK was 20% for 2017.

Current taxation

The current taxation charge for the year is different from the standard rate of corporation tax in the UK. The differences are explained in the following table overleaf.

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

Factors that may affect future tax charges

As at 30th April 2017, the Company has excess management expenses of $31,401,529 that are available to offset future taxable revenue. Whilst this represents management’s best estimate based on the carried forward balance in the previous year of $31,055,886, the estimated value could differ from actual amounts. However, the potential impact is not expected to be significant.

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.

11. BASIC AND DILUTED EARNINGS/(DEFICIT) PER ORDINARY SHARE

The basic and diluted earnings/(deficit) per ordinary share figure is based on the profit/(loss) for the year of $15,823,318 (2016: $(829,307)) and on 42,738,212 being the weighted average number of shares in issue during the year ended 30th April 2017 (2016: 40,295,404).

The revenue loss per ordinary share and capital profit/(loss) per ordinary share figure is based on the net revenue loss for the year of $(345,640) (2016: $(741,732)), the net capital profit/(loss) of $16,168,958 (2016: $(87,575)) respectively and on 42,738,212 being the weighted average number of shares in issue during the year ended 30th April 2017 (2016: 40,295,404).

12. LOANS PAYABLE

The credit facility is provided by Royal Bank of Scotland International Limited (“RBSI”). As at 30th April 2017, the Company had drawn down ¥1,000,000,000 ($8,985,540) (2016: ¥600,000,000/$5,600,411) of the ¥1,500,000,000 borrowable under the terms of the facility agreement.

Under the terms of the facility agreement, the Company is required to comply with the following financial covenants:

The Company complied with all of the above the financial covenants during the years ended 30th April 2017 and 30th April 2016.

Losses on foreign exchange on the Company’s loan amounted to $(337,250) during the year ended 30th April 2017 (2016: $(1,776,187)).

13. FORWARD CURRENCY CONTRACTS

There were no forward currency contracts held during the year ended 30th April 2017 (2016: None).

14. SHARE CAPITAL AND SHARE PREMIUM

Authorised

The Company is authorised to issue an unlimited number of ordinary shares of no par value.

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

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

Voting rights

On a show of hands, every Member who is present shall have one vote; and 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. Treasury shares do not confer an entitlement to any dividends declared.

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.

Issued Ordinary Shares

During the year ended 30th April 2017, a total of $2,202,538 was paid to purchase shares into Treasury (2016: $Nil).

Shareholders are entitled to receive any dividends or other distributions out of profits lawfully available for distribution and on winding up they are entitled to the surplus assets remaining after payment of all the creditors of the Company. The shares redeemed in the current year were cancelled immediately.

15. FINANCIAL RISK MANAGEMENT OBJECTIVES AND POLICIES

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

The financial instruments held by the Company principally comprise equities listed on the stock markets in Japan including, without limitation, the Tokyo Stock Exchange categorised as First Section, Second Section, JASDAQ, Mothers and Tokyo PRO, or the regional stock exchanges of Fukuoka, Nagoya, Sapporo and Osaka Securities Exchange.

The specific risks arising from the Company's exposure to these instruments, and the Investment Manager/Investment Adviser's policies for managing these risks, which have been applied throughout the year, are summarised below.

Capital management

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 20% of its net assets for investment purposes, to settle facilities for specific investments such as bridge financing. In connection with the facility agreement, the Company has entered into an English law multicurrency revolving credit facility with RBSI over its depositary accounts held with Northern Trust (Guernsey) Limited (See Note 12).

The Company does not have any externally imposed capital requirements apart from the fact that it should not retain more than 15% of income, in order to comply with section 1158 of Corporation Tax Act 2010. The Company has complied with this requirement.

The Company is a closed-ended investment company. The Company’s capital is represented by ordinary shares of no par and each share carries one vote. They are entitled to dividends when declared. 

1,172,500 shares were repurchased in to treasury during the year ended 30th April 2017 (2016: none). (See Notes 17 and 18 respectively for details of shares issued via the Subscription Right and the Redemption Facility.)

Market price risk

The Company's investment portfolio - particularly its equity investments - is exposed to market price fluctuations which are monitored by the Investment Manager/Investment Adviser in pursuance of the investment objective and policies.

At 30th April 2017, the Company’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 Company’s exposures to equity securities, related derivatives and other instruments. Changes in market prices primarily affect the fair value of the Company’s exposures to equity securities, related derivatives and other instruments.

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

Market price sensitivity analysis

If the price of each of the equity securities to which the Company had exposure at 30th April 2017 had increased or decreased by 5% with all other variables held constant, this would have increased or decreased profit and net assets attributable to equity shareholders of the Company by: 

Foreign currency risk

The Company principally invests in securities denominated in currencies other than GBP, the functional currency of the Company. Therefore, the Statement of Financial Position will be affected by movements in the exchange rates of such currencies against the GBP. The Investment Manager/Investment Adviser 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 GBP is set out in Note 2(l) to the Financial Statements.

As at 30th April 2017, the Company has a USD cash exposure in USD terms of $10,527 (2016: $15,018).

The Company's net JPY exposure in USD terms is set out in the following table:

Foreign currency sensitivity analysis

If the exchange rate at 30th April 2017, between the functional currency and all other currencies had increased or decreased by a 5% currency movement this should be a reasonably possible change for a period of one year, or less if the next financial period will be less than one year with all other variables held constant, this would have increased or reduced profit and net assets attributable to equity shareholders of the Company by: 

No benchmark is used in the calculation of the above information. The only foreign currency the Company has a significant exposure to is JPY, hence the above foreign currency sensitivity analysis has not been disclosed on a currency by currency basis.

Interest rate risk

Substantially all the Company’s assets and liabilities are non-interest bearing except for the one outstanding loan payable detailed in Note 12, and any excess cash and cash equivalents are invested at short-term market interest rates.

As at 30th April 2017, the Company has a small 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 RBSI 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 on the last day of each interest period. As at 30th April 2017, the interest accrued on the loan was $14,870 (2016: $4,600).

The following assets and liabilities disclosures exclude prepayments and taxation receivables and payables:

The cash flow interest rate risk comprises those 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 assets and liabilities with a fixed interest rate, for example loans payable and loan interest payable.

Fair Value

All assets and liabilities are carried at fair value with the exception of cash and cash equivalents, which are carried at amortised cost, and loans payable, which are carried at amortised cost using the effective interest rate method.

Short term receivables and payables

Receivables and payables do not carry interest and are short term in nature. They are stated at amortised cost, 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 30th April 2017, the Company had drawn down a loan facility of ¥1,000,000,000/$8,985,540 (2016: ¥600,000,000/$5,600,411). In connection with the facility agreement, the Company has entered into a English law multicurrency revolving credit facility with RBSI over its depositary accounts held with Northern Trust (Guernsey) Limited.

The loan may be used for the following purposes:

The loan must be repaid on the last day of its interest period.

The Company invests primarily in listed securities which are liquid in nature.

The Company’s liquidity risk is managed by the Investment Manager who monitors the cash positions on a regular basis.

The maturity analysis of the Company’s financial liabilities (excluding tax balances) is set out in the following table:

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 Depositary. The Investment Manager regularly reviews concentrations of credit risk.

All of the cash assets are held with the Northern Trust Company (“NTC”). Cash deposited with NTC is deposited as banker and is held on its Statement of Financial Position. Accordingly, in accordance with usual banking practice, NTC’s liability to the Company in respect of such cash deposits shall be that of debtor and the Company will rank as a general creditor of NTC. The financial assets are held with the Depositary, Northern Trust (Guernsey) Limited. These assets are held distinct and separately from the proprietary assets of the Depositary. Securities are clearly recorded to ensure they are held on behalf of the Company. Bankruptcy or insolvency of the Depositary and or one of its agents or affiliates may cause the Company’s rights with respect to the securities held by the Depositary to be delayed or limited.

NTC is a wholly owned subsidiary of Northern Trust Corporation. As at 30th April 2017 Northern Trust Corporation had a long term rating from Standard & Poor’s of A+. Risk is managed by monitoring the credit quality and financial positions of the Depositary the Company uses. Northern Trust acts as its own sub-depositary in the US, the UK, Ireland and Canada. In all other markets Northern Trust appoints a local sub-depositary. Northern Trust continually reviews its sub-depositary network to ensure clients have access to the most efficient, creditworthy and cost-effective provider in each market.

The securities held by the Company are legally held with the Depositary, which holds the securities in segregated accounts, and subject to any security given by the Company to secure its overdraft facilities, the Company’s securities should be returned to the Company in the event of the insolvency of the Depositary or its appointed agents, although it may take time for the Company to prove its entitlement to the securities and for them to be released by the liquidator of the insolvent institution. The Company will however only rank as an unsecured creditor in relation to any cash deposited or derivative positions with the Depositary, their related companies and their appointed agents, and is therefore subject to the credit risk of the relevant institution in this respect.

The assets exposed to credit risk at year end amounted to $1,588,786 (2016: $5,412,924).

Fair value hierarchy

The fair value of investments traded in active markets (such as publicly traded derivatives and trading securities) are based on quoted market prices at the close of trading on the Statement of Financial Position date. The quoted market price used for investments held by the Company is the last traded price; the appropriate quoted market price for financial liabilities is the current asking price.

A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service, or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm’s length basis.

The fair value of investments that are not traded in an active market is determined by using valuation techniques.

For instruments for which there is no active market, the Company may use internally developed models, which are usually based on valuation methods and techniques generally recognised as standard within the industry. Valuation models may be used primarily to value unlisted equity, debt securities and other debt instruments for which markets were or have been inactive during the financial year. Some of the inputs to these models may not be market observable and are therefore estimated based on assumptions.

The following table sets out fair value measurements using the IFRS 13 fair value hierarchies:

Categorisation within the hierarchy has been determined on the basis of the lowest level input that is significant to the fair value measurement of the relevant asset as follows:

Level 1 - valued using quoted prices in active markets for identical assets or liabilities.

Level 2 - valued by reference to valuation techniques using observable inputs other than quoted prices included within level 1.

Level 3 - valued by reference to valuation techniques using inputs that are not based on observable market data.

16. NET ASSET VALUE HISTORY

17. SUBSCRIPTION RIGHT

Shareholders have the opportunity to subscribe for one new ordinary share for every five ordinary shares held on 1st October in each year. The following subscriptions were made during the year:

During the year ended 30th April 2017, a total of $13,386,514 was paid by subscribing shareholders (2016: $574,416).

18. REDEMPTION FACILITY

Ordinarily, shareholders have the opportunity to make redemptions of part or all of their shareholding on a six-monthly basis with the Board’s discretion in declining any redemption requests. As set out in more detail in the Chairman’s Statement, the offer of the redemption facility at the redemption point on 31st March 2016 was suspended. The following redemptions were made during the year:

During the year ended 30th April 2017, a total of $5,038,258 was paid to redeeming shareholders (2016: $1,163,129).

19. DIVIDENDS

All amounts held in the Company’s revenue reserve are distributable to shareholders by way of dividends.

There were no dividends declared by the Board of Directors during the year ended 30th April 2017 (2016: $Nil).

20. ONGOING CHARGES

The ongoing charges using the AIC recommended methodology were 1.52% for the year ended 30th April 2017 (2016: 1.91%). Of the $1,692,293 expenses in the Statement of Comprehensive Income, excluded from the calculation of ongoing charges are $296,539 considered by the Directors to be non-recurring and include one off professional fees of $194,372 relating to a specific shareholder requisition.

21. EXCHANGE RATES

The following exchange rates were used to translate assets and liabilities into the reporting currency (USD) at 30th April 2017, 30th April 2016 and 30th April 2015:

The following average exchange rates were used to translate transactions into the reporting currency (USD) during the years ended 30th April 2017 and 30th April 2016:

22. CHANGES IN THE PORTFOLIO

A list, specifying for each investment the total purchases and sales which took place during the financial year ended 30th April 2017 may be obtained, upon request, at the registered office of the Company.

23. EVENTS AFTER THE REPORTING PERIOD

There were no significant events subsequent to the year ended 30th April 2017 which require adjustment to or additional disclosure in the Financial Statements.

24. ULTIMATE CONTROLLING PARTY

There is no one entity with ultimate control over the Company.