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*Past
performance is no guarantee of future returns and as with any
investment, there is potential for loss. If you feel you do not possess
sufficient experience to carry out diligent assessment of your financial situation,
then please seek professional advice regarding the areas (type of
investment, taxation, risk, suitability, etc.) of which you are unsure.
Prices may be based on estimates believed to be correct at the time of
publication, and are therefore subject to change.
Prices are adjusted for dividends. Please note that when a dividend
is declared, the Share Price drops by the amount of the dividend and the
difference is paid to investors.
Dear Investor
As we previously reported to you in February this year, the world’s
financial markets have been
affected by a significant liquidity crisis. The initial trigger to this
liquidity crisis was a downgrading of
the sub-prime mortgage market in the US. In Australia, the sub-prime
loan market is referred to as
“non-conforming loans” and generally indicates credit given to those who
do not meet the typical
standards of the lender, that is, they may have a poor credit history.
To compensate for this non-
conformity, lenders usually charge a higher rate of interest.
The sub-prime crisis commenced when some large and prominent US Hedge
Funds collapsed as
their assets were devalued. From that point the markets, as they often
do, panicked, which has led
to losses in other investment sectors including the stock market and
even full investment grade
securities.
Currently it appears there will be significant
losses as the liquidity crisis continues to effect
other
investments of the funds. Investment deals that were designed to help
the fund during this time were
unable to be ratified. Other underlying investments already effected by
the crisis have also been
forced to continually liquidate their assets into illiquid markets. As
you can appreciate, market
conditions are changing constantly and we are trying to pass on any
relevant information as it is
received. This liquidity crisis is one of the worst economic events
that has occurred in recent times
and has/will have a flow on effect for world economies for some time to
come.
Despite the fact that the funds were well diversified amongst many
different types of Hedge Funds,
many of which continue to make returns, the sheer panic of the markets
has meant some funds (even
those not related to sub-prime) have incurred significant losses, and
the actual extent of some of
these losses continues to remain indeterminable.
Additionally, due to the indeterminable nature of these assets, and the
almost unprecedented
volatility in the Australian Dollar the fund has been unable to maintain
its Foreign Exchange hedging
position.
The widespread effect of this market volatility has meant that we
continue to be unable to ascertain
the true impact of these events on Arcana and Promethean’s NAVs.
The calculation of the NAVs
has
been suspended pending the receipt of
definitive information in respect to the valuation of these
investments from the underlying managers.
Subscriptions and redemptions have also been
suspended until the
NAV calculation resumes.
In an attempt to progress this situation the
directors and the Fund Manager have met to ratify a
conservative (written down)
valuation for these assets in the absence of further
information.
Although a policy has been agreed, it must be noted that the number of
investments yet to report final
figures to the fund means that the NAV will continue to be an estimate
for an indefinite period of time
and we do not believe this situation will be resolved within the next
year.
This report will firstly provide an estimated NAV as at 31 March 2008,
however, it must be noted that
this is an estimate only and that the final price determined by the
Administrator or the final price
received through a redemption of the fund, may vary over time.
Following this estimate, conservative valuations will be struck by the
Administrator in the coming
months for 31 July 2007, 31 August 2007, 31 December, 2007 and 31 March,
2008 and will be
provided in the next report. This means that any subsequent adjustments
up or down will be brought
to bear in the month they are ascertained as opposed to the month in
which they may have occurred.
Provided there is enough liquidity, all redemptions and subscriptions
posted from 1 September,
2007 to 31 December, 2007 shall be processed at the final 31 December,
2007 NAV and all
redemptions and subscriptions posted from 1 January, 2008 to 31 March,
2008 shall be processed
at the final 31 March, 2008 NAV.
All redemptions posted from 1 April, 2008 will be gated, which means we
will only be able to process
a limited number of these redemptions each month provided there is
sufficient liquidity.
Therefore, redemptions sent in before the end of any given month, may
not be processed at the next
Valuation Day NAV. Instead, redemptions will be processed at the
Valuation Day NAV of the month
where sufficient funds are available and will be processed on a
first-come-first-served basis. This
final redemption price may not necessarily be at the same Valuation Day
NAV applicable when the
redemption request was sent in.
Further information can be found in the individual fund reports:
Arcana Provident Limited –
click here to
download
Promethean Futures Limited –
click here to
download
If you have any questions, please
don’t hesitate to contact me by phone on 02 8307 3538, or by
emailing me at
philip.york@empyrealinvestments.com.
All general queries may be emailed to
arcana@qbl.com.au or
promethean@qbl.com.au
respectively.
Sincerely yours,
Philip M
York
Managing Director
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qbl funds
management
