Corporate Governance

The Directors are committed to ensuring high standards of Corporate Governance are maintained and have made it company policy to comply with best practice on Corporate Governance, insofar as the directors believe it is relevant and appropriate to the Company, and notwithstanding the fact that the company is not obliged to comply with the “Combined Code” (i.e. the Code of Best Practice published by the Committee on the Financial Aspects of Corporate Governance) as it is a Guernsey registered company.

However the company complies with the Corporate Governance guidelines issued by the Guernsey Financial Services Commission on 10 December 2004, whose underlying principles are the same as those of the Combined Code. In addition, the directors, in accordance with best practice, comply with the Combined Code provisions as far as possible.

Board Responsibilities

The Board comprises five non-executive directors all of whom, with the exception of Mr Kazel, are independent of the investment manager. Click here to view the directors’ biographies. As it has no employees of its own the company does not have a Chief Executive.

The company holds at least four Board meetings per year, at which the directors review the Company’s investments and all other important issues to ensure control is maintained over the company’s affairs. The Board also receives full management accounts.

The Board has formalised arrangements under which directors, in the furtherance of their duties, may take independent advice at the company’s expense. The directors have access to the advice and services of the Company Secretary through its appointed representatives who are responsible to the Board for ensuring that Board procedures are followed and that applicable rules and regulations are complied with.

To enable the Board to function effectively and allow directors to discharge their responsibilities, full and timely access is given to all relevant information.

The company’s Articles require that all directors seek re-election every three years. At the first Annual General Meeting all directors will offer themselves for re-election.

Relations with Shareholders

The directors are always willing to consider representations from shareholders concerning the management of any aspect of the company’s affairs and such representations may be raised either through the offices of the Company Secretary or at the Annual General Meeting.

The investment manager has an active programme of communication with major investors and analysts both to provide information and to understand concerns. The Board requires the investment manager to keep it advised of issues raised.

In accordance with the terms of the investment management agreement, FIDAC shall remain investment manager to the company until 6 April 2006. The agreement may be terminated by either party at anytime thereafter by providing not less than 12 months’ notice in writing so as to expire at the end of any calendar month. The continued appointment of FIDAC as investment manager to the company on the existing terms will be reviewed at this point in time. As part of this review the Board will consider the results achieved, the investment strategy and process and the quality and continuity of the personnel assigned to handle the company’s affairs. The performance of the Company is impacted by market conditions, however, in reaching its judgements, the Board will place greater importance on the manager’s ability to deliver long-term performance, in line with the company’s objective.

Board Committees

The Board has established the following committees:

Audit Committee – Chaired by Mr C Fish and with Mr J Hallam, Mr C Sherwell and Mr T Morgan as members.

The Audit Committee met once in 2005 and shall meet at least twice a year in the future, with the duties being, inter alia:

• To review and make recommendations to the Board on the appointment and remuneration of the company’s auditors, the scope of the audit, any questions of resignation or dismissal of the auditors and to approve the auditor’s remuneration and terms of engagement;
• To discuss with the auditors the nature and scope of the audit and to keep under review such scope and its cost effectiveness;
• To review and monitor the integrity of the company’s half-year and annual accounts and any other financial information published by the company;
• To oversee the independence of the auditor particularly as it relates to the provision of both audit and non-audit services.

The Audit Committee is required to report any findings to the Board.

Management Engagement Committee – Chaired by Mr C Sherwell and with Mr C Fish, Mr J Hallam and Mr T Morgan as members.

The Management Engagement Committee shall meet at least once per year, with the duties being, inter alia:

• To review the terms of the Management Agreement;
• To review the performance of the investment manager relative to any agreed benchmark;
• To review any breaches by the investment manager;
• To review the standards of any administrative or company secretarial services provided.

Nomination Committee - Chaired by Mr J Hallam and with Mr C Fish, Mr C Sherwell, Mr T Morgan and Mr R Kazel as members.

The function of the Nomination Committee is to lead the process for Board appointments and make recommendations to the Board.

Internal Control and Financial Reporting

The directors acknowledge that they are responsible for establishing and maintaining the company’s system of internal control and reviewing its effectiveness. Internal control systems are designed to manage rather than eliminate the failure to achieve business objectives and can only provide reasonable but not absolute assurance against material misstatements or loss.

The directors review not just internal controls but all controls including operations, compliance and risk management. The key procedures which have been established to provide internal control are:

Investment management is provided by FIDAC. The Board is responsible for setting the overall investment policy and monitors the action of the manager at regular Board meetings. Administration and company secretarial services are provided by RBSI Fund Services (Guernsey) Limited (RBSIFS). Custody of assets is undertaken by The Bank of New York (BONY). The Board reviews the BONY internal controls report, SAS 70 report, and also receives regular compliance reports from the administrator.

The duties of investment management, accounting and the custody of assets are segregated and the procedures of the individual parties are designed to complement each other.

The non executive directors of the company clearly define the duties and responsibilities of their agents and advisers whose appointment is made by the Board after due consideration. The Board monitors the ongoing performance of such agents and advisers.

FIDAC, BONY and RBSIFS maintain their own systems of internal control, on which they report to the Board. The company, in common with other investment companies, does not have an internal audit function. The Board has considered the need for an internal audit function, but because of the internal control systems in place by FIDAC and BONY, has decided to place reliance on their systems and internal control procedures.

The systems are designed to ensure effectiveness and efficient operation, internal control and compliance with laws and regulations. In establishing the systems of internal control, regard is paid to the materiality of relevant risks, the likelihood of costs being incurred and costs of control. It follows therefore that the systems of internal control can only provide reasonable but not absolute assurance against the risk of material misstatement or loss.

Going Concern

The directors believe it is appropriate to adopt the going concern basis in preparing the financial statements as, after due consideration, the directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future.

Directors’ Responsibilities

The directors are responsible for preparing the Annual Report and Financial Statements for each financial period which give a true and fair view of the state of affairs of the company as at the end of the financial period and of the net income or loss for that period in accordance with International Financial Reporting Standards and are in accordance with applicable laws.