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ABSOLUTE RETURN STRATEGY SICAV (Société d'Investissement à Capital Variable) Annual Report and Audited Financial Statements For the year ended December 31, 2010 R.C.S. Luxembourg : B- 900 86 No subscription can be received on the basis of financial reports. Subscriptions are only valid if made on the basis of the current prospectus accompanied by the latest annual report and the most recent semi-annual report, if published thereafter. ABSOLUTE RETURN STRATEGY SICAV Table of Contents Management, Administration and Independent Auditor Page 3 General Information Market Synopsis 4 6 Review of the Sub-Funds 8 Independent Auditor’s Report Statement of Net Assets 10 12 Statement of Operations and Changes in Net Assets Changes in the Number of Shares 13 14 Statistics 14 Market Neutral Schedule of Investments 15 Directional Managers Schedule of Investments 17 Notes to the Financial Statements 19 2 ABSOLUTE RETURN STRATEGY SICAV Management, Administration and Independent Auditor CHAIRMAN Mr Peter George SIERADZKI Director Bank Insinger de Beaufort N.V. Amsterdam DIRECTORS Mr Jacobus Johannes HUMAN Director Insinger de Beaufort Asset Management N.V. Amsterdam Mr Steve GEORGALA Partner Maitland & Co. Paris Mr Marcel ERNZER Independent Director 54, rue de Cessange L- 1320 Luxembourg REGISTERED OFFICE 69, route d'Esch L- 1470 Luxembourg R.C.S.Luxembourg B- 90086 INVESTMENT MANAGER Insinger de Beaufort Asset Management N.V. Herengracht 537 NL-1017 BV Amsterdam DISTRIBUTOR Bank Insinger de Beaufort N.V. Herengracht 537 NL- 1017 BV Amsterdam DEPOSITARY AND CENTRAL ADMINISTRATION RBC Dexia Investor Services Bank S.A. 14, Porte de France L- 4360 Esch-sur-Alzette REGISTRAR AND TRANSFER AGENT RBC Dexia Investor Services Bank S.A. 14, Porte de France L- 4360 Esch-sur-Alzette INDEPENDENT AUDITOR Ernst & Young S.A. 7. rue Gabriel Lippmann Parc d'Activité Syrdall 2 L- 5365 Munsbach 3 ABSOLUTE RETURN STRATEGY SICAV General Information The annual general meeting of Shareholders of ABSOLUTE RETURN STRATEGY SICAV (the “Company”) is held at the registered office of the Company or at such other place in Luxembourg as indicated in the convening notice on the last Wednesday of April of each year at 2 p.m. Luxembourg time. If any such day is not a bank business day in Luxembourg, it will be held on the next following bank business day in Luxembourg. Notices of all general meetings will be published in the “Mémorial, Recueil des Sociétés et Associations” of Luxembourg (the “Mémorial”) and in at least one Luxembourg newspaper (to the extent required by Luxembourg law) and will be sent by mail to the holders of registered Shares at least 8 days prior to the meeting at their addresses according to the register of Shareholders. Such notices will include the agenda and specify the time and place of the meeting, the conditions of admission, and will refer to the requirements of Luxembourg law with regard to the necessary quorum and majorities required for the meeting. The requirements as to attendance, quorum and majorities at all general meetings will be those laid down in Articles 67 and 67-1 of the law of August 10, 1915 (as amended) of the Grand Duchy of Luxembourg and in the Company's Articles of Incorporation. Each entire Share is entitled to one vote. Fractions of Shares however participate in the distribution of dividends (if any) or in the distribution of the liquidation proceeds. The Annual Report and Audited Financial Statements will be published within 4 months after the end of the financial year and the unaudited semi-annual reports will be published within 2 months at the end of the relevant period. The reports include separate information on each of the Sub-Funds as well as combined information on all Sub-Funds. The reports are available at the registered office of the Company during normal business hours. The financial year end of the Company is December 31 of each year. A detailed schedule of portfolio movements of the Sub-Funds is available free of charge upon request at the registered office of the Company. The Net Asset Values, Subscription and Redemption Prices of the Sub-Funds and Classes are available at the registered office of the Company. Shares of all the Sub-Funds, as and when issued, shall be listed on the Luxembourg Stock Exchange. Under current legislation and practice, Shareholders are not subject to any capital gains, income, withholding, inheritance or other taxes in Luxembourg (except for Shareholders domiciled, resident or having a permanent establishment in Luxembourg and for certain former residents of Luxembourg owning more than 10% of the share capital of the Company). Potential investors should consult their professional advisers on the possible tax or other consequences of buying, holding, converting, transferring or selling any of the Shares under the laws of their countries of citizenship, residence or domicile. The EU Savings Directive does not apply to Absolute Return Strategy SICAV. This fund is out of scope. The annual and semi-annual accounts can be obtained, free of charge, at the offices of the Investment Manager or can be downloaded, free of charge, from the website of the Investment Manager under the link: http://www.insinger.com/nl/Beleggen.aspx 4 ABSOLUTE RETURN STRATEGY SICAV General Information (continued) Expense ratio The expense ratio of each Sub-Fund is calculated by dividing the total expenses by the average Net Asset Value of each SubFund. The average Net Asset Value for the year ended December 31, 2010 is calculated by averaging the Net Asset Value of each Valuation of each Sub-Fund during 2010. The calculation of the expense ratio of the underlying funds is based on available information of the funds. Absolute Return Strategy sicav - Market Neutral The average Net Asset Value for the year ended December 31, 2010 is USD 46,104,421. The expense ratios as at December 31, 2010 are as follows (percentages are expressed per annum) : - excluding performance fees and the expense ratios of the underlying funds: 1.89% - including the expense ratios of the underlying funds: 4.71% All above expense ratios exclude the performance fees in the underlying funds as these are not yet known and difficult to estimate. There were no performance fees for Absolute Return Strategy SICAV. Absolute Return Strategy sicav - Directional Managers The average Net Asset Value for the year ended December 31, 2010 is USD 63,264,971. The expense ratios as at December 31, 2010 are as follows (percentages are expressed per annum) : - excluding performance fees and the expense ratios of the underlying funds: 1.82% - including the expense ratios of the underlying funds: 4.23% All above expense ratios exclude the performance fees in the underlying funds as these are not yet known and difficult to estimate. There were no performance fees for Absolute Return Strategy SICAV. 5 ABSOLUTE RETURN STRATEGY SICAV Market Synopsis Macro review Last year was dominated by various crises in the Eurozone. In early May, the euro countries attempted to ward off the crisis by creating the European Financial Stability Facility, or EFSF, a EUR750 billion fund for hard-up euro countries only able to finance their national debt at extremely high interest rates. Greece ultimately borrowed EUR110 billion, followed in the autumn by Ireland with a bail-out of EUR67.5 billion. It is generally feared that Portugal will be the next candidate, but the real fear concerns the position of Spain: the EFSF is probably not large enough to bail it out. At the end of October, Chancellor Merkel warned that the EFSF was a temporary emergency fund which could not guarantee the national debt of euro countries indefinitely. From 2013, government bonds would again have to be issued which oblige investors to pay up in the event of the issuing country defaulting and having to restructure its debt. President Trichet of the ECB tried to persuade Merkel otherwise, unsuccessfully, but it has to be said that her position is understandable. Merkel’s stance gets straight to the heart of the matter with the Eurozone: it may be a monetary union, but there is no single financial-economic policy. The latter still lies with the individual member states and if they pursue a highly irresponsible policy (or even commit fraud, as in the case of Greece), then the stronger member states, such as Germany and the Netherlands, cannot be expected to foot the bill. The exit of the strong or even the weak countries from the union is a potential structural solution, because this involves not just the high budget deficits and national debt of the various countries, but also their balance of payments. Countries such as the Netherlands and Germany have high surpluses on the current account of their balance of payments. Countries such as Greece and Portugal have structural deficits and can no longer get the situation under control by devaluing their currencies. This lack of balance requires the continuous transfer of capital from the stronger countries to the weaker countries, using whatever method (e.g. the EFSF). In order to be able to compete with countries such as Germany, wages in the PIIGS countries (Portugal, Ireland, Italy, Greece and Spain) will have to be cut, which will cause huge social problems and potentially push these countries into a downward deflationary spiral. One alternative is of course to raise wages in the strong countries. Those sceptics who never believed in the viability of the euro (chiefly found in London, where they retained the British pound) may ultimately be proved right, but in the short term the most obvious policy is one of perseverance. European leaders have already demonstrated this by creating the EFSF and the increasingly strict conditions linked to its use. It seems likely that they will continue along this route. Further economic recovery is required to combat the euro crisis. There is high economic growth in Europe, but mainly in Germany, where the economy is now growing at about 4% a year. Germany is making the most of the weak euro: after a very strong rally following the 2008/2009 crisis, export growth is managing to stay at over 20% on an annual basis! The weak euro may lead to an overheated Germany economy in 2011/2012, but that is a worry that the authorities are happy to live with. Further turbulence can be expected in the Eurozone in 2011, but it is impossible to predict its scale. Things may turn out better than expected, however, and the market’s attention could shift to the situation in the US or Japan, where national debt expressed as a percentage of the GDP is still higher than in the Eurozone. In Japan’s case, much higher: over 200%! Whatever the case, there is one encouraging sign: the markets responded better to the problems in October/November than they did during the Greek crisis in May. The panic about events in the Eurozone therefore appears to be abating. It is possible that the euro crisis has already passed its low, but for the sake of caution we are adhering to our policy of not investing in European banks or in bonds and equities of PIIGS countries. In 2010, it was possible to earn a higher return in the US. Not only did the equity markets there perform better, euro investors also made a moderate profit on the US dollar. In November and December, the US economy showed so many signs of recovery that most of the markets around the world closed the year on a high. In spite of the signs of recovery, in December the US president decided to extend his predecessor’s tax breaks and as a result the budget deficit for 2011 is likely to remain high. The Fed is also clearly still concerned as it decided to introduce a second round of quantitative easing (QE II) in early November: over the next few months, the Fed is going to buy up government bonds worth about USD100 billion each month in order to keep down the long-term yield. In the short term, the Fed’s intervention appears to be working as risk appetite is clearly rising, with low credit spreads on corporate credits and higher equity prices. In the third quarter, the most notable development in the bond market was the fall in the yield on German government bonds to just above 2%. We cast doubt in our previous publication on whether such a bond still held any investment value in view of the very low interest being paid. Since then, the rate has climbed back to about 3%. Even at its current level of about 3%, however, we still cannot call it particularly attractive. After all, in the long term there are significant risks to what is seen as the ultimate safe bond: the situation in the Eurozone could get so out of hand that investors even start to doubt the creditworthiness of Germany. Corporate credits remain more attractive than government bonds, although yields have fallen sharply compared to their high during the credit crisis in the autumn of 2008. With a view to part of our bond portfolio yielding a greater return, we also invested via a fund in short-term emerging market debt, which pays a higher rate of interest while the debtor quality compares favourably to Western debtors. MSCI World index earned a profit of 17.2% in euros in 2010, while the Eurostoxx 50 index in fact noted a loss of 5.8%. Equity markets in the PIIGS countries plummeted but the German market, for instance, did not and even succeeded in growing by 16% in 2010. The Dutch AEX index was about average for Europe with a profit of 5.7%. Although over the past few years we have increasingly invested outside Europe, in the expectation that the bear market in the US dollar was over, our managed portfolios traditionally place a certain emphasis on investment in high-quality European companies. This meant that the investment return on equities in 2010 lagged behind that of the global index. We were in fact too quick to structure the portfolios more defensively. 6 ABSOLUTE RETURN STRATEGY SICAV Market Synopsis (continued) The renewed cyclical rally of the last few months of 2010 fits in with the standard market recovery in the wake of a severe crisis. In order to respond to this, over the past few months we have again expanded our holdings in more cyclical investments in our managed portfolios. More importantly, we have increased the equity weighting in our mixed portfolios in order to profit to a greater extent from the rally which is expected to persist in the first half of 2011. We anticipate that the Northern European markets will continue to outperform the PIIGS countries in 2011. At the same time, we believe it is too soon to invest in European banks in view of the problems in the Eurozone and the rising capital requirements which the sector will have to meet over the next few years. As we expect emerging markets to perform relatively well, we have recently also expanded our investment in emerging markets. These markets are still not overvalued, and the majority of countries are not burdened by extremely high debt as is the case in most Western countries. The lack of movement during the larger part of the year meant that most hedge funds performed only moderately well. Multimanager funds, which aim to spread risk widely, were again unable to compensate for their losses of 2008 in 2010. Gold was again one of our most successful investments in 2010. The gold price seems to be chiefly driven by a total lack of confidence in the policies of central banks, such as the Fed, which reduced interest rates to almost zero and are also turning to quantitative easing by buying up government bonds. As we anticipate no change in the short term to those policies of the major central banks so devastating to savers, we will retain our investment in gold for the time being. Absolute Return Strategy SICAV 2010 was a challenging and disappointing year for hedge funds given that most other asset classes, including investment grade bonds, high yield bonds, equities and commodities, all delivered better returns than hedge funds. Hedge funds still provided positive returns, yet they were relatively muted. Multi-manager funds, which aim to spread risk widely, were still unable to regain the losses experienced in 2008. On the Long/Short side, it was not a year that favoured fundamental stock picking, the mainstay of the industry. Rather, there was a clear high beta trend that favoured emerging markets, commodities and cyclical sectors. Stock pickers were not rewarded in this environment, but in fact often suffered as lower quality companies rallied in line with this clear theme. Toward the end of the year, fundamentals began to assert themselves again as emerging market relative performance peaked, suggesting that 2011 may also be a better year for Long/Short strategies. For Macro/CTA, the high degree of uncertainty and sharp trend reversals during the year created a difficult environment that saw many funds, especially CTAs, provide muted returns. Many managers lowered their overall levels of risk exposure as the year progressed, uncomfortable with the lack of visibility. 2011 is likely to remain challenging for CTA’s as long as trends remain volatile. Within Event Driven, the best results were generated by Distressed Managers, who continued to benefit from the tightening of risk spreads across the corporate spectrum, and were able to buy at discounted prices from banks who needed to shrink their balance sheets, Distressed Debt is unlikely to have a good a year again in 2011, and we expect that M&A strategies might fare better at this stage in the cycle. Relative value strategies performed better than most others in 2011, benefiting in many cases from the high volatility experienced in interest rate, forex and commodity markets that were detrimental for many CTA’s. They should continue to do well in 2011 as long as these volatilities remain elevated. January 2011 7 ABSOLUTE RETURN STRATEGY SICAV Review of the Sub-funds Absolute Return Strategy SICAV – Market Neutral During the past year the managers continued to reduce the concentration risk within Absolute Return Strategy SICAV - Market Neutral (the “Fund”) by reducing large positions and diversifying the portfolio further with several new, high quality names. Over the course of 2010, nine new funds were purchased in the Fund: Global Trading Strategies, Rohatyn Asia, Horizon, Highbridge, Altis Global Futures, Graham K4D15, Taconic Offshore, Arrowgrass Intl. and Black River Global Trading. The following six funds were also fully redeemed out of the Fund: Alphagen Capella, Castlerigg Intl, Trafalgar Catalyst, Trafalgar Recovery and Advent Global Opportunity. At the end of 2010 ARS Market Neutral held 20 underlying hedge funds. The top performer of 2010 within the Fund was the Advent Global Opportunity Strategy Fund (11.71%). Advent took advantage of opportunities across the broad credit market as well as within the capital structure. We took full profits on the Advent fund, redeeming at year end. The bottom performer in 2010 was Ionic Capital International (-7.22%). Ionic was unable to successfully lock in returns in May when volatility was at an historical high level, and the diversification benefit of the several sub-strategies did not prove to work. We fully redeemed from Ionic towards the end of the year. For the year as a whole, the fund returned 5.23%. This performance reflected the Funds more conservative risk profile resulting from the large liquidity positions and conservative manager selection, generating a slightly higher return than the 4.63% set by the HFRX Global Hedge EUR Index. The NAV of ARS Market Neutral – Class B (EUR) increased from EUR 95.00 to EUR 99.97 resulting in a performance of 5.23% for the year 2010. The Class D (GBP) was paid in full to the investors with the last NAV calculated for this share class on 30 June 2010 (NAV of GBP 103.92) and Class A (USD) was also paid in full to the investors with the last NAV calculated on 31 August 2010 (NAV of USD 106.50). The reason for this decision by the Board of Directors is as these classes became too small to properly manage it. Outlook The Fund entered 2011 well diversified both by strategy and manager. We therefore expect the Fund to reflect the overall performance of conservative-diversified fund of hedge fund benchmarks in 2011, with some of the managers adding additional alpha. As discussed above, we expect 2011 to be driven more by fundamentals that was in the case in 2010. This impacts both equity and fixed income strategies. Equity fundamentals are likely to be an increasingly important driver for the performance of long/short equity, whether directional or market neutral, and the portfolio is well positioned for this through its addition of fundamental, market neutral long/short managers in 2010. Additionally, the combination of systematic and discretionary global macro and CTA funds should provide diverse exposure to the trends and volatility that may continue throughout 2011, and we increased our exposure to these managers over the course of 2010. We also added to event driven managers over the year, which will allow the fund to take advantage of an expected increase in M&A activity in 2011. Luxembourg, April 21, 2011 The Board of Directors 8 ABSOLUTE RETURN STRATEGY SICAV Review of the Sub-funds (continued) Absolute Return Strategy SICAV – Directional Managers During the past year the managers continued to reduce the concentration risk within Absolute Return Strategy SICAV – Directional Managers (the “Fund”) by reducing large positions and diversifying the portfolio further with several new, high quality names. Over the course of 2010, three new funds were purchased in the Fund: Global Trading Strategies, Rohatyn Asia and Horizon. The following six funds were also fully redeemed out of the Funds: Abchurch, Alphagen Capella, Bristol Intl. Fund, Castlerigg Intl, Cambrian and Rodinia. At the end of 2010 the Fund held 14 underlying hedge funds The top performer of 2010 within the Fund was the Winton Futures Fund (14.43%). Winton’s top performing sector in 2010 was bonds, with positive contributions from currencies, interest rates, precious metals and crops. We took profit on Winton during the year, reducing the position slightly. The bottom performers in 2010 were Ionic Capital International (-7.22%) and the Tell Fund (-5.68%). Ionic was unable to successfully lock in returns in May when volatility was at an historical high level, and the diversification benefit of the several sub-strategies did not prove to work. We fully redeemed from Ionic towards the end of the year. The Tell Fund lost 9.37% in November which was mainly caused by investments in the Irish theme leading to a negative year performance only for the second time since inception of the Tell Fund in 1996. We also reduced Tell during the year, prior to the poor performance in the second half of the year. For the year as a whole, the fund returned 1.63%. This performance reflected the Funds more conservative risk profile resulting from their large liquidity positions and conservative manager selection, and led to a lower return than the 4.63% set by the HFRX Global Hedge EUR Index. The NAV of ARS Directional Managers – Class B (EUR) increased from EUR 104.05 to EUR 105.75 resulting in a performance of 1.63% for the year 2010. The Class D (GBP) was paid in full to the investors with the last NAV calculated for this share class on 30 June 2010 (NAV of GBP 102.48) and Class A (USD) was also paid in full to the investors with the last NAV calculated on 31 August 2010 (NAV of USD 116.30). The reason for this decision by the Board of Directors is as these classes became too small to properly manage it. Outlook The Fund entered 2011 well diversified both by strategy and manager. We therefore expect the Fund to reflect the overall performance of diversified fund of hedge fund benchmarks in 2011, with some of the managers adding additional alpha. As discussed above, we expect 2011 to be driven more by fundamentals that was in the case in 2010. This impacts both equity and fixed income strategies. Equity fundamentals are likely to be an increasingly important driver for the performance of long/ short equity, whether directional or market neutral, and the portfolio is well positioned for this. Additionally, the combination of systematic and discretionary global macro and CTA funds should provide diverse exposure to the trends and volatility that may continue throughout 2011, and we increased our exposure to these managers over the course of 2010. Luxembourg, April 21, 2011 The Board of Directors 9 Independent Auditor’s Report To the Shareholders of Absolute Return Strategy SICAV 69, route d'Esch L-1470 Luxembourg Following our appointment by the Annual General Meeting of the Shareholders by the Board of Directors of the SICAV of April 29, 2010, we have audited the accompanying financial statements of Absolute Return Strategy SICAV (the "SICAV") and each of its Sub-Funds, which comprise the statement of net assets and the schedule of investments as at December 31, 2010 and the statement of operations and changes in net assets for the year then ended and a summary of significant accounting policies and other explanatory notes to the financial statements. Board of Directors of the SICAV's responsibility for the financial statements The Board of Directors of the SICAV is responsible for the preparation and fair presentation of these financial statements in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements and for such internal control as the Board of Directors of the SICAV determines is necessary to enable the preparation and presentation of financial statements that are free from material misstatement, whether due to fraud or error. Responsibility of the “réviseur d'entreprises agréé” Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier”. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the judgement of the réviseur d'entreprises agréé, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the réviseur d'entreprises agréé considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the Board of Directors of the SICAV as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of Absolute Return Strategy SICAV and of each of its Sub-Funds as at December 31, 2010 and of the results of their operations and changes in their net assets for the year then ended in accordance with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the financial statements. Without qualifying our opinion, we draw attention to Notes 2 and 9 of the financial statements. As explained therein, the financial statements include investments in underlying investment funds which are valued at USD 31,916,182 (representing 59.71% of net assets) in Absolute Return Strategy SICAV – Market Neutral and USD 40,795,322 (representing 73.94% of net assets) in Absolute Return Strategy SICAV – Directional Managers, whose fair values have been derived from unaudited net asset values provided by such funds or their agents in accordance with the prospectus. An investment representing 10.53% of the net assets of Absolute Return Strategy SICAV – Directional Managers has valued 51% of its underlying investments based on valuation techniques incorporating assumptions not based on observable market data. The value attributed to the underlying investment funds may differ from the value that would have been used had the underlying audited financial statements of such investments been available and had valuation assumptions been based on observable market data, such differences could be material. In addition, investee funds representing 3.12% of the NAV in Absolute Return Strategy SICAV - Market Neutral and 12.49% of the NAV in Absolute Return Strategy SICAV - Directional Managers at December 31, 2010 have raised gates potentially impacting the liquidity of the respective Sub-Funds. 10 Independent Auditor’s Report (continued) Other Matter Supplementary information included in the annual report has been reviewed in the context of our mandate but has not been subject to specific audit procedures carried out in accordance with the standards described above. Consequently, we express no opinion on such information. However, we have no observation to make concerning such information in the context of the financial statements taken as a whole. ERNST & YOUNG Société Anonyme Cabinet de révision agréé Kerry NICHOL Luxembourg, April 21, 2011 11 ABSOLUTE RETURN STRATEGY SICAV Statement of Net Assets as at December 31, 2010 Market Neutral USD Directional Managers USD Total USD (2) 33,400,921 10,935,743 9,043,420 15,729 - 49,079,725 1,387,379 2,775,211 2,002,188 82,480,646 12,323,122 11,818,631 15,729 2,002,188 (6) 139,441 228,029 53,763,283 134,819 55,379,322 274,260 228,029 109,142,605 (3) (5) 131,556 46,813 136,659 315,028 53,448,255 139,994 66,926 206,920 55,172,402 271,550 113,739 136,659 521,948 108,620,657 99.97 105.75 400,126.117 390,448.760 Note ASSETS Investments in securities at market value Cash at bank Amounts receivable on sale of investments Amounts receivable on subscriptions Investments paid in advance Unrealised profit on forward foreign exchange contracts Other assets TOTAL ASSETS LIABILITIES Management commission payable Taxes and expenses payable Other liabilities TOTAL LIABILITIES TOTAL NET ASSETS Net asset value per share "B" Shares (EUR) Number of shares outstanding "B" Shares (EUR) The accompanying notes form an integral part of these financial statements. 12 ABSOLUTE RETURN STRATEGY SICAV Statement of Operations and Changes in Net Assets for the year ended December 31, 2010 Market Neutral USD Directional Managers USD Total USD 51,094,855 82,866,113 133,960,968 (2) 43 234,818 234,861 2 15,859 15,861 45 250,677 250,722 (3) (8) (699,594) (30,319) (934,264) (48,977) (1,633,858) (79,296) (8) (82,738) (18,984) (20,815) (3,066) (2,548) (168,263) (1,026,327) (791,466) 7,757,260 (83,187) (33,583) (26,943) (2,938) (12,568) (27,950) (1,170,410) (1,154,549) 5,631,740 (165,925) (52,567) (47,758) (6,004) (15,116) (196,213) (2,196,737) (1,946,015) 13,389,000 (4,107,969) (383,425) 2,474,400 (4,386,554) (400,658) (310,021) (8,494,523) (784,083) 2,164,379 (4,822,846) 1,467,880 (5,407,058) 1,536,600 (10,229,904) 3,004,480 (880,566) (4,180,479) (5,061,045) 12,009,045 (8,775,079) 53,448,255 12,469,329 (35,982,561) 55,172,402 24,478,374 (44,757,640) 108,620,657 Note NET ASSETS AT THE BEGINNING OF THE YEAR INCOME Bank interest Other income TOTAL INCOME EXPENSES Management and performance fee Depositary bank fees Domiciliation, administration and transfer agent fees Audit fees, printing and publishing expenses Taxe d'abonnement Bank charges Bank interest Other charges TOTAL EXPENSES NET INCOME / (LOSS) FROM INVESTMENTS Net realised profit / (loss) on sale of investments Net realised profit / (loss) on forward foreign exchange contracts Net realised profit / (loss) on foreign exchange NET REALISED PROFIT / (LOSS) Change in net unrealised appreciation / (depreciation) on: - investments - forward foreign exchange contracts NET INCREASE / (DECREASE) IN NET ASSETS AS A RESULT OF OPERATIONS EVOLUTION OF THE CAPITAL Issue of shares Redemption of shares NET ASSETS AT THE END OF THE YEAR (4) (2) (2) (2) The accompanying notes form an integral part of these financial statements. 13 ABSOLUTE RETURN STRATEGY SICAV Changes in the Number of Shares for the year ended December 31, 2010 Market Neutral Directional Managers USD “A" Shares Number of Number of Number of Number of shares shares shares shares outstanding at the beginning of the year issued redeemed outstanding at the end of the year 16,223.535 (16,223.535) - 23,752.382 111.361 (23,863.743) - EUR “B" Shares Number Number Number Number of of of of shares shares shares shares outstanding at the beginning of the year issued redeemed outstanding at the end of the year 348,031.742 94,624.567 (42,530.192) 400,126.117 519,777.664 91,075.309 (220,404.213) 390,448.760 GBP “D" Shares Number of Number of Number of Number of shares shares shares shares outstanding at the beginning of the year issued redeemed outstanding at the end of the year 9,953.788 (9,953.788) - 12,881.345 (12,881.345) - Statistics Market Neutral USD Directional Managers USD 53,448,255 51,094,855 62,577,416 55,172,402 82,866,113 109,173,151 December 31, 2010 “A" Shares (USD) “B" Shares (EUR) “D" Shares (GBP) 99.97 - 105.75 - December 31, 2009 “A" Shares (USD) “B" Shares (EUR) “D" Shares (GBP) 107.32 95.00 105.44 115.52 104.05 103.90 December 31, 2008 “A" Shares (USD) “B" Shares (EUR) “D" Shares (GBP) 101.02 89.75 90.02 110.09 99.36 97.50 Total Net Asset Value December 31, 2010 December 31, 2009 December 31, 2008 Net asset value per share at the end of the year The accompanying notes form an integral part of these financial statements. 14 ABSOLUTE RETURN STRATEGY SICAV Market Neutral Schedule of Investments as at December 31, 2010 (expressed in USD) Description Quantity Currency Average Cost Fair Value (note 2) % net assets Transferable securities admitted to an official stock exchange listing Investment funds Multi-Strategy Relative Value Westlb Horizon Mm Target-A-Cap 147,237 EUR 2,559,690 2,559,690 2,383,573 2,383,573 4.46 4.46 Others Innocap Graham K4D15 JPMIF High St Mkt N Shs B E C 210,801 10,728 USD EUR 2,000,000 1,783,356 3,783,356 2,051,905 1,540,473 3,592,378 3.84 2.88 6.72 Total - Investment funds 6,343,046 5,975,951 11.18 Total - Transferable securities admitted to an official stock exchange listing 6,343,046 5,975,951 11.18 Other transferable securities Investment funds Convertible Advent Advent Advent Advent Arbitrage Convertible Arbitrage - Class B Series 1 Convertible Arbitrage - Class B Series 2 Convertible Arbitrage - Class B1 Series 1 Enhanced Phoenix Offshore - Series 1 9,378 71 9,836 6,855 USD USD USD USD 1,059,915 1,000,000 6,385,372 8,445,287 1,640,355 9,855 1,480,691 3,130,901 3.07 0.02 2.77 5.86 735 728 EUR EUR 1,027,154 1,025,922 2,053,076 989,159 987,505 1,976,664 1.85 1.85 3.70 57 92 917 USD USD USD 550,874 550,874 407,096 1,468 20,201 428,765 0.76 0.04 0.80 8,950 1,173 1,500 EUR EUR USD 2,018,030 1,502,674 1,500,000 5,020,704 1,900,656 1,524,806 1,484,739 4,910,201 3.56 2.86 2.78 9.20 16,000 2,400 EUR USD 2,094,240 2,400,000 4,494,240 2,164,932 2,432,118 4,597,050 4.05 4.55 8.60 1,293 6,149 2,258 1,500 USD USD USD USD 129,274 593,079 225,781 1,500,000 151,114 700,639 242,100 1,622,220 0.28 1.31 0.45 3.03 CTA Altis Global Futures Portfolio Sub Class B1 - EUR Lead Series Altis Global Futures Portfolio EUR B1 - 15.11.10 Distressed Orn European Distressed Debt Fund Ltd Series 1 Trf Liquidating Spv USD D/1 Trf Liquidating Spv USD E/1 Macro Comac Glob Macro Fund EUR/Cap Global Trading Strategies -DRohatyn Group Asia Opp -A5- Hi Multi-Strategy Diversified Arrowgrass Int -B- EUR NI S0810 Black River GL Trading -L-S.235 Multi-Strategy Event Castlerigg Intl -L- S.01 0109 Castlerigg Intl -Sc- S.1 0109 Castlerigg Intl-Sr-S1-0109-USD Oz Europe Ovs II G Prime 32 The accompanying notes form an integral part of these financial statements. 15 ABSOLUTE RETURN STRATEGY SICAV Market Neutral Schedule of Investments (continued) as at December 31, 2010 (expressed in USD) Description Quantity Currency Average Cost Fair Value (note 2) % net assets 2,400 USD 2,400,000 4,848,134 2,410,612 5,126,685 4.51 9.58 166 USD 144,193 144,193 166,750 166,750 0.32 0.32 22,500 1,054 20,000 USD USD EUR 2,250,000 2,000,000 2,443,500 6,693,500 2,294,496 2,083,380 2,710,078 7,087,954 4.29 3.89 5.07 13.25 Total - Investment funds 32,250,008 27,424,970 51.31 Total - Other transferable securities 32,250,008 27,424,970 51.31 Total Investment Portfolio 38,593,054 33,400,921 62.49 Taconic Off Fd 1.5 -A- NR S.71 Multi-Strategy Relative Value Amaranth International Ltd - Class D1 Series 9264 Others Davidson Kempner/-C- TR3 10/10 Highbridge L/S Equity Ptg Shs Horizon Port I -EUR Vot Shs- The accompanying notes form an integral part of these financial statements. 16 ABSOLUTE RETURN STRATEGY SICAV Directional Managers Schedule of Investments as at December 31, 2010 (expressed in USD) Description Quantity Currency Average Cost Fair Value (note 2) % net assets 5,854 USD 2,589,334 2,589,334 4,686,181 4,686,181 8.49 8.49 8,509 EUR 1,460,425 1,460,425 3,942,730 3,942,730 7.15 7.15 15,362 EUR 2,553,740 2,553,740 2,205,935 2,205,935 4.00 4.00 Total - Investment funds 6,603,499 10,834,846 19.64 Total - Transferable securities admitted to an official stock exchange listing 6,603,499 10,834,846 19.64 Transferable securities admitted to an official stock exchange listing Investment funds CTA Winton Futures Fund Ltd Macro The Tell Fund Others JPMIF High St Mkt N Shs B E C Other transferable securities Investment funds Distressed Davidson Kdoi -A- Tr 2 01Jan10 Europe Equity Long Short Egerton European Equity Class B Global Equity Long Short Altima Gl Sp S B Eur 17a-2 S20 Altima Global Special Situation Fund - Class B Series 02-17 Altima Global Special Situation Fund - Class B Series 12-17 Altima Global Special Situation Fund - Class B Series 12-20 Altima Global Special Situation Fund - Class B Series 14-17 Altima Global Special Situation Fund - Class B Series 14-20 Altima Global Special Situation Fund - Class B Series 15-17 Altima Global Special Situation Fund - Class B Series 15-20 Altima Global Special Situation Fund - Class B Series 16-17 Altima Global Special Situation Fund - Class B Series 16-20 Altima Global Special Situation Fund - Class B Series 2-20 Altima Global Special Situation Fund - Class B Series 3-17 4,844 USD 5,000,000 5,000,000 9,434,754 9,434,754 17.10 17.10 60,172 EUR 2,333,557 2,333,557 4,341,851 4,341,851 7.87 7.87 38 EUR 37,182 49,344 0.09 688 EUR 718,557 846,055 1.53 144 EUR 136,227 156,579 0.28 209 EUR 186,806 229,413 0.42 32 EUR 24,554 2,156 - 32 EUR 24,574 2,171 - 166 EUR 122,639 217,900 0.40 166 EUR 122,741 219,426 0.40 552 EUR 819,146 710,587 1.29 550 EUR 816,668 715,562 1.30 686 EUR 731,470 851,978 1.54 179 EUR 167,892 222,223 0.40 The accompanying notes form an integral part of these financial statements. 17 ABSOLUTE RETURN STRATEGY SICAV Directional Managers Schedule of Investments (continued) as at December 31, 2010 (expressed in USD) Description Quantity Currency Average Cost Fair Value (note 2) % net assets 178 EUR 186,781 223,779 0.41 41 EUR 38,102 - - 50 EUR 41,402 - - 247 EUR 251,898 314,313 0.57 386 EUR 362,959 496,823 0.90 156 EUR 179,785 118,241 0.21 174 EUR 195,697 133,250 0.24 34 EUR 37,651 - - 34 EUR 37,591 - - 53 EUR 73,074 81,343 0.15 142 EUR 143,660 5,457,056 218,695 5,809,838 0.40 10.53 13,426 1,951 2,500 EUR EUR USD 3,027,045 2,500,024 2,500,000 8,027,069 2,850,984 2,556,732 2,474,565 7,882,281 5.17 4.63 4.49 14.29 3,163 3,000 USD USD 302,473 3,000,000 3,302,473 360,418 3,244,440 3,604,858 0.65 5.88 6.53 147,237 EUR 2,559,690 2,559,690 2,383,573 2,383,573 4.32 4.32 Others Horizon Port I -EUR Vot Shs- 30,000 EUR 3,665,250 3,665,250 4,065,117 4,065,117 7.37 7.37 US Equity Long Short The Raptor Private Holdings 1,381 USD 1,080,796 1,080,796 722,607 722,607 1.31 1.31 Total - Investment funds 31,425,891 38,244,879 69.32 Total - Other transferable securities 31,425,891 38,244,879 69.32 Total Investment Portfolio 38,029,390 49,079,725 88.96 Altima Global Special Situation Fund - Class B Series 3-20 Altima Global Special Situation Fund - Class B Series 4-17 Altima Global Special Situation Fund - Class B Series 4-20 Altima Global Special Situation Fund - Class B Series 5-17 Altima Global Special Situation Fund - Class B Series 5-20 Altima Global Special Situation Fund - Class B Series 7-17 Altima Global Special Situation Fund - Class B Series 7-20 Altima Global Special Situation Fund - Class B Series 8-17 Altima Global Special Situation Fund - Class B Series 8-20 Altima Global Special Situation Fund - Class B Series 9-17 Altima Global Special Situation Fund - Class B Series 9-20 Macro Comac Glob Macro Fund EUR/Cap Global Trading Strategies -DRohatyn Group Asia Opp -A5- Hi Multi-Strategy Event Castlerigg Intl -Sc- S.2 0109 Oz Europe Ovs II G Prime 33 Multi-Strategy Relative Value Westlb Horizon Mm Target-A-Cap The accompanying notes form an integral part of these financial statements. 18 ABSOLUTE RETURN STRATEGY SICAV Notes to the Financial Statements for the year ended December 31, 2010 Note 1 – Organisation ABSOLUTE RETURN STRATEGY SICAV (the "Company") is an open-ended investment company with variable capital, incorporated in the Grand Duchy of Luxembourg as a "société anonyme" on the basis of the law of August 10, 1915 on Commercial Companies (the "law of 1915") as amended and qualifies as a "Société d'Investissement à Capital Variable" ("SICAV") on the basis of part II of the law of December 20, 2002 on Collective Investment Undertakings (the "law of 2002"). Accordingly, the Company does not comply with the European Community Council Directive on Undertakings for Collective Investment in Transferable Securities. The Company was incorporated in Luxembourg on November 29, 2002 for an unlimited period. The Articles of Incorporation of the Company were published in the "Mémorial, Recueil des Sociétés et Associations" of Luxembourg on December 28, 2002. The Company is registered with the "Registre de Commerce et des Sociétés", Luxembourg, under number B-90086. The Company is structured as an "umbrella fund" containing a variety of different portfolios (“Sub-Funds”) of specific assets in various reference currencies. Each such Sub-Fund is designated by the name of the Company, followed by a generic name. Further, the shares of each Sub-Fund (the “Shares”) may, as the Board of Directors shall so determine from time to time, be issued in one or more classes of Shares (each such class being referred to herein as a "Class"), whose assets will be commonly invested pursuant to a specific investment policy of the respective Sub-Fund, but where a specific sales and redemption charge structure, fee structure, distribution policy, hedging policy, reference currency or other specificity is applied to each such Class. At present, the following Sub-Funds are offered to investors: Absolute Return Strategy SICAV - Market Neutral (Reference Currency : USD) The Investment Manager allocates the assets of this Sub-Fund in order to minimise the correlation in investment performance between the Sub-Fund and the MSCI World Index (USD basis). The Investment Manager will try to achieve this objective by investing the assets of the Sub-Fund in Alternative UCIs that seek to minimise the beta of such Alternative UCI with the local market. Such Alternative UCIs will typically fall into the category of risk arbitrage, distressed securities, equity long/short market neutral and convertible arbitrage. The following Classes of Shares are offered in this Sub-Fund: – A- Shares: denominated in USD and fully exposed to fluctuations in the USD exchange rate relative to the major currencies in which the Sub-Fund is invested. A-Shares are available for any type of investor. On July 30, 2010 due to the size of AShares the Directors decided to proceed with the compulsory redemption of this class of shares. The total redemption occured with trade date August 31, 2010 and was effective in the Net Asset Value as at end September 2010. – B and C-Shares: denominated in EUR for Euro-based investors wishing to invest in a USD-based portfolio, whilst having their exchange rate risk actively managed. It should be noted that there can be no guarantee that the B and C-Shares would be fully hedged at times when the US Dollar appreciates against the underlying investment currencies of the Sub-Fund. BShares are available for any type of investor. C-Shares are available to Institutional Investors only. – D-Shares: denominated in GBP for GBP-based investors wishing to invest in a USD-based portfolio, whilst having their exchange rate risk actively managed. It should be noted that there can be no guarantee that the D-Shares would be fully hedged at times when the US Dollar appreciates against the underlying investment currencies of the Sub-Fund. D-Shares are available for any type of investor. On May 27, 2010 due to the size of classe D-Shares the Directors decided to proceed with the compulsory redemption of this class of shares. The total redemption occured with trade date June 30, 2010 and was effective in the Net Asset Value as at end July 2010. As at December 31, 2010 only B Shares are outstanding. Absolute Return Strategy SICAV - Directional Managers (Reference Currency : USD) This Sub-Fund will invest in Investment Funds which aim to achieve very high returns through investments in global security and currency markets. Such Investment Funds will try to achieve these high levels of return by identifying mis-pricings in the market and subsequently taking large positions to benefit from this. The increased level of risk is expected to be more than offset by the higher level of returns achieved. 19 ABSOLUTE RETURN STRATEGY SICAV Notes to the Financial Statements (continued) for the year ended December 31, 2010 Note 1 – Organisation (continued) The following Classes of Shares are offered in this Sub-Fund: – A-Shares: denominated in USD and fully exposed to fluctuations in the USD exchange rate relative to the major currencies in which the Sub-Fund is invested. A-Shares are available for any type of investor. On July 30, 2010 due to the size of AShares the Directors decided to proceed with the compulsory redemption of this class of shares. The total redemption occured with trade date August 31, 2010 and was effective in the Net Asset Value as at end September 2010. – B and C-Shares: denominated in EUR for Euro-based investors wishing to invest in a USD-based portfolio, whilst having their exchange rate risk actively managed. It should be noted that there can be no guarantee that the B and C-Shares would be fully hedged at times when the US Dollar appreciates against the underlying investment currencies of the Sub-Fund. BShares are available for any type of investor. C-Shares are available to Institutional Investors only. – D-Shares: denominated in GBP for GBP-based investors wishing to invest in a USD-based portfolio, whilst having their exchange rate risk actively managed. It should be noted that there can be no guarantee that the D-Shares would be fully hedged at times when the US Dollar appreciates against the underlying investment currencies of the Sub-Fund. D-Shares are available for any type of investor. On May 27, 2010 due to the size of classe D-Shares the Directors decided to proceed with the compulsory redemption of this class of shares. The total redemption occured with trade date June 30, 2010 and was effective in the Net Asset Value as at end July 2010. As at December 31, 2010 only B Shares are outstanding. The Directors may at any time create additional Sub-Funds and/or Classes. The Company operates as a fund-of-funds, the investment objective of each Sub-Fund being the investment of at least 50% of its net assets in other open-ended undertakings for collective investment ("UCIs") using alternative management strategies, generally also known as "hedge funds" or as "alternative UCIs" (hereinafter defined as the "Alternative UCIs"). On an ancillary basis, each Sub-Fund may also invest in closed-ended Alternative UCIs. Note 2 – Significant accounting policies The financial statements have been prepared in conformity with legal and regulatory requirements in Luxembourg, applicable to investment funds, including the following significant accounting policies. a) Investments Each share or unit in an open-ended UCI is valued at the last available Net Asset Value whether estimated or final, which is computed for such units or shares at or prior to the valuation day on which the Net Asset Value of the Shares of the Sub-Fund is determined and as approved by the Central Administration of the Company. In assessing the valuation of the underlying funds, reliance is placed upon unaudited Net Asset Values supplied by the underlying funds or their administrators, which may be subject to adjustment upon finalisation of the audit of their financial statements. The financial statements include investments in underlying investment funds which are valued at USD 31,916,182 (representing 59.71% of net assets) in Absolute Return Strategy SICAV – Market Neutral and USD 40,795,322 (representing 73.94% of net assets) in Absolute Return Strategy SICAV – Directional Managers, whose fair values have been derived from unaudited net asset values provided by such funds or their agents in accordance with the prospectus. An investment representing 10.53% of the net assets of Absolute Return Strategy SICAV – Directional Managers has valued 51% of its underlying investments based on valuation techniques incorporating assumptions not based on observable market data. In addition, the value attributed to the underlying investment funds may differ from the value that would have been used had the underlying audited financial statements of such investments been available and had valuation assumptions been based on observable market data, such differences could be material. In respect of shares or units held by the Company, for which issues and redemptions are restricted and a secondary market trading is effected between dealers who, as main market makers, offer prices in response to market conditions, the Directors may decide to value such shares or units in line with the prices so established. If events have occurred which may have resulted in a material change in the Net Asset Value of such shares or units in other UCI’s since the day on which the latest Net Asset Value was calculated, the value of such shares or units may be adjusted in order to reflect, in the reasonable opinion of the Board of Directors, such change of value. 20 ABSOLUTE RETURN STRATEGY SICAV Notes to the Financial Statements (continued) for the year ended December 31, 2010 Note 2 – Significant accounting policies (continued) Securities (including shares or units in closed-ended UCIs) which are quoted or dealt in on a stock exchange are valued at their latest available publicised stock exchange closing price or, for securities quoted or dealt on several stock exchanges, at the closing price on the stock exchange which is normally the principal market for such security. Securities traded on another regulated market operating regularly, recognised and open to the public (a "regulated market"), are valued as near as possible to that for quoted securities. In the event that any of the securities held in any portfolio at the valuation day are not quoted or traded on a stock exchange or another regulated market or, for any one of the securities, no price quotation is available, or if the price as determined pursuant to the above mentioned paragraphs is not in the opinion of the Board of Directors representative of the fair market value of the relevant securities, the value of such securities is determined based on the reasonably foreseeable sales price determined prudently and in good faith. If, since the valuation day there has been a material movement in the quotations on the markets on which a substantial portion of the investments of the Company attributable to a particular Sub-Fund is listed or dealt in, the Board of Directors may, in order to safeguard the interests of the Shareholders and the Company, cancel the first valuation and carry out a second valuation. Should circumstances so require, the Board of Directors may also adopt other valuation methods in accordance with generally accepted procedures. The valuations for all investments were made using the latest prices available on December 31, 2010. b) Net realised profit (loss) on sales of investments The net realised profit or loss on sales of investments is determined on the basis of the average cost of investments. c) Transactions in foreign currencies Principal closing exchange rate used as of December 31, 2010 is: 1 EUR = 1.336250 USD The value of the assets and liabilities denominated in a currency other than the reference currency of the relevant Sub-Fund or Class will be translated at the prevailing exchange rates in Luxembourg at the Closing Date. Income and expenses in currencies other than the Sub-Fund’s currency are translated into the Sub-Fund’s currency at the exchange rates prevailing at the transaction date. d) Combined financial statements of the Company The total Net Asset Value of the Company is equal to the sum of the net assets of the various Sub-Funds translated into USD at the prevailing exchange rates in Luxembourg as at the valuation day. e) Cost of investment securities The cost of investment securities expressed in currencies other than the Sub-Fund’s currency is translated into the Sub-Fund’s currency at the exchange rate applicable at the purchase date. f) Forward foreign exchange contracts Outstanding forward foreign exchange contracts are valued on the basis of forward exchange rates prevailing at the relevant valuation date and the resulting unrealised profits or losses are included in the statement of operations and changes in net assets. Realised profits and losses on matured forward foreign exchange contracts are also included in the statement of changes in net assets. g) Advance on investments Payments made prior to the year end to acquire investments in advance of the calculation of the underlying fund’s net asset value per share/unit are recorded as 'Investments paid in advance' in the Statement of Net Assets. 21 ABSOLUTE RETURN STRATEGY SICAV Notes to the Financial Statements (continued) for the year ended December 31, 2010 Note 2 – Significant accounting policies (continued) h) Subscriptions in advance Subscriptions received in advance of the year end are credited to the “subscriptions received in advance” account until the net asset value has been calculated. i) Income Dividends are recognized on an ex-dividend basis, net of withholding taxes in the country of origin. Interest is recognized on an accrual basis. Note 3 – Management and performance fees Management fees As remuneration for its services, the Investment Manager receives from the SICAV an annual fee at the maximum annual rate of 1.75% on both sub-funds applicable on the average net assets of these sub-funds. The actual management fees charged during the year ended December 31, 2010 are: (a) 1.50% p.a. of the average net assets attributable to Class A, Class B and Class D. (b) 0.60% p.a. of the average net assets attributable to Class C. Performance fees In addition to the management fee, the Investment Manager receives a performance fee of the absolute performance (high water mark) of the Sub-Funds’ net assets during a month, at the following rate: (a) 10% p.a. of the net assets attributable to Class A, Class B and Class D. (b) no performance fee will be calculated for Class C. The performance fee is calculated and accrued on each valuation day and is payable on each valuation day for each Share Class in the currency of that Share Class. Once the performance fee is paid out to the Investment Manager, the outperformance of the Sub-Fund is reset to zero for the purposes of the calculation of the subsequent performance fee. Should there be no performance fee payable on a given valuation day, there is no reset. Once paid, a performance fee will not be refunded should future losses occur. As of December 31, 2010 there were no performance fees paid. Rebates The Investment Manager has not received rebates from the underlying funds in which the Sub-Funds invest during the year ended December 31, 2010. Note 4 – Taxation Under current law and practice, which may change from time to time, the Company is not liable to any Luxembourg income tax, nor are dividends paid by the Company liable to any Luxembourg withholding tax. Income and capital gains on the Company's investments, however, may be subject to withholding or capital gains taxes in certain countries. However, the Sub-Funds are liable in Luxembourg to an annual tax ("taxe d'abonnement") of at present 0.05% per annum of their net assets, payable quarterly and calculated at the end of the relevant quarter. In respect to Shares of a Sub-Fund or Class being dedicated to Institutional Investors only, the assets attributed to such SubFund or Class are liable in Luxembourg to a “taxe d’abonnement” of 0.01% per annum of their net assets, payable quarterly and calculated at the end of the relevant quarter. 22 ABSOLUTE RETURN STRATEGY SICAV Notes to the Financial Statements (continued) for the year ended December 31, 2010 Note 5 – Taxes and expenses payable Taxe d'abonnement (note 4) Depositary bank commission, domiciliation, administration and transfer agent fees Audit fees, printing and publication expenses Market Neutral USD Directional Managers USD 6,484 6,683 17,162 23,167 17,219 43,024 46,813 66,926 Note 6 – Forward foreign exchange contracts As at December 31, 2010, Market Neutral had entered into the following outstanding forward foreign exchange contract: Purchase EUR 21,076,402 USD Sale Maturity date 28,000,000 01/03/2011 Unrealised gain (in USD) 139,441 139,441 As at December 31, 2010, Directional Managers had entered into the following outstanding forward foreign exchange contract: Purchase EUR 18,301,645 USD Sale Maturity date 24,300,000 01/03/2011 Unrealised gain (in USD) 134,819 134,819 Note 7 – Dividends The Company does not distribute dividends. Note 8 – Depositary, administration and transfer agency fees The Company pays fees to RBC Dexia Investor Services Bank S.A., for its rendering of services as Depositary and Central Administrative Agent and Registrar and Transfer Agent, in accordance with normal banking practices in Luxembourg. The actual Depositary Custody fees rate is set to 0.07% annually, the Central Administration fees is set at EUR 25,000 per SubFund annually and the Transfer Agency Fees amounted for the year 2010 to USD 45,571 for Absolute Return Strategy SICAV Market Neutral and USD 45,600 for Absolute Return Strategy SICAV - Directional Managers. 23 ABSOLUTE RETURN STRATEGY SICAV Notes to the Financial Statements (continued) for the year ended December 31, 2010 Note 9 – Liquidity The following underlying funds as held by Absolute Return Strategy SICAV were gated as at 31 December 2010: Fair Value (in USD) - Market Neutral Amaranth International Ltd - Class D1 Series 9264 Castlerigg Intl -L-S.01 0109 Castlerigg Intl -Sc-S.1 0109 Castlerigg Intl -Sr-S.1 0109 USD Orn European Distressed Debt Fund Ltd Series 1 - Directional Managers Altima Gl Sp S B Eur 17a-2 S20 Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Castlerigg Intl -Sc-S.2 0109 The Raptor Private Holdings Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class B B B B B B B B B B B B B B B B B B Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series Series 02-17 12-17 12-20 14-17 14-20 15-17 16-17 16-20 2-20 3-17 3-20 5-17 5-20 7-17 7-20 9-17 9-20 15-20 % net assets 166,750 151,114 700,639 242,100 407,096 1,667,699 0.32 0.28 1.31 0.45 0.76 3.12 49,344 846,055 156,579 229,413 2,156 2,171 217,900 710,587 715,562 851,978 222,223 223,779 314,313 496,823 118,241 133,250 81,343 218,695 219,426 360,418 722,607 6,892,863 0.09 1.53 0.28 0.42 0.40 1.29 1.30 1.54 0.40 0.41 0.57 0.90 0.21 0.24 0.15 0.40 0.40 0.65 1.31 12.49 24 ABSOLUTE RETURN STRATEGY SICAV Notes to the Financial Statements (continued) for the year ended December 31, 2010 Note 9 - Liquidity (continued) As at March 31, 2011, the following redemption gates are applicable: Fair Value at December 31, 2010 (in USD) % net assets 166,750 151,114 700,639 242,100 407,096 1,468 21,201 1,690,368 0.31 0.28 1.31 0.45 0.76 0.04 3.15 49,344 846,055 156,579 229,413 2,156 0.09 1.53 0.28 0.42 - 2,171 217,900 710,587 715,562 851,978 222,223 223,779 314,313 496,823 118,241 133,250 81,343 218,695 219,426 360,418 722,607 6,892,863 0.40 1.29 1.30 1.54 0.40 0.41 0.57 0.90 0.21 0.24 0.15 0.40 0.40 0.54 1.31 12.38 - Market Neutral Amaranth International Ltd - Class D1 Series 9264 Castlerigg Intl -L-S.01 0109 * Castlerigg Intl -Sc-S.1 0109 * Castlerigg Intl -Sr-S.1 0109 USD * Orn European Distressed Debt Fund Ltd Series 1 Trf Liquidating Spv USD D/1 Trf Liquidating Spv USD E/1 - Directional Managers Altima Gl Sp S B Eur 17a-2 S20 Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation -Class B Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Altima Global Special Situation Castlerigg Intl -Sc-S.2 0109 * The Raptor Private Holdings * Fund Fund Fund Fund Fund -Class -Class -Class -Class -Class B B B B B Series Series Series Series Series 02-17 12-17 12-20 14-17 14-20 Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund Fund -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class -Class B B B B B B B B B B B B B Series Series Series Series Series Series Series Series Series Series Series Series Series 15-17 16-17 16-20 2-20 3-17 3-20 5-17 5-20 7-17 7-20 9-17 9-20 15-20 * These underlying funds have issued side pockets which can also not be redeemed. Note 10 – Subsequent event The base currency of the two sub-funds Absolute Return Strategy Sicav - Market Neutral and Absolute Return Strategy Sicav Directional Managers will be changed from USD to EUR on January 3, 2011. 25