29660 Fortress AR_GV 2010_GOLDER2.indd - Fortress Fund ...

fortressfund.com

29660 Fortress AR_GV 2010_GOLDER2.indd - Fortress Fund ...

Fortress Fund Managers is a Barbados-based investment manager. We have been providing top-ranked returns,open communication and accessible service to our clients since 1996.We offer a range of funds and investments products to meet the needs of individuals and institutions. In eachcase, our main goal is to achieve consistent long-term returns for our clients. We do this by applying sound,disciplined processes to our investments in equities, fixed income and real estate. We offer products with globalreach, and those that focus primarily on the Caribbean region.Please feel free to contact us to learn more about this Fund, or any of our products.Fortress Fund Managers LimitedFirst Floor, Carlisle HouseHincks StreetBridgetownBarbadosBB11144Tel (246) 431 2198Fax (246) 431 0514Toll free (US & Canada) 1-800-450-6461invest@fortressfund.comwww.fortressfund.com


FORTRESSGlobal Value Fund2010


Investment Objectives & Fund DetailsThe Fund’s primary objective is capital growth over the long term. The Fund uses a value approachto invest primarily in global equities to allocate to specialist managers.All income, including interest, dividends and capital gains earned by the Fund, is automatically reinvestedand this income is reflected in the quoted net asset value (NAV) of the shares. The Funddoes not pay dividends.All dollar amount are quoted in United States dollars.FUND NAME:Fortress Global Value Fund LimitedLAUNCH DATE: November 15, 2006LAUNCH PRICE:$1.00 per shareMINIMUM INVESTMENT: $5,000.00$1,000.00 for subsequent investmentsNET ASSET VALUE PER SHARE: $0.9389NET ASSETS: $15,125,453MANAGEMENT EXPENSES:ManagementInvestment AdvisorAdministrator, Registrar and Transfer AgentCustodian:EARLY REDEMPTION CHARGE:MANAGER & INVESTMENT ADVISOR:ADMINISTRATOR, REGISTRAR &TRANSFER AGENT:CUSTODIAN:FUND VALUATION & DEALING DATE:NAV QUOTATIONS:0.15% per annum on the net assets0.75% per annum on the net assetsThe greater of 0.23% of net assets or $20,000 per annumMinimum of $2,500 or 0.03% of net assets per annum5% of the redemption price if held less than 6 months.Paid to Fund.Fortress Fund Managers LimitedATU Fund Administrators (BVI) LimitedFirstCaribbean International Bank (Barbados) LimitedWealth Management Division15th of each monthInternet: www.fortressfund.comBloomberg2


Directors & AdministratorsDIRECTORSSenator Geoffrey Cave, C.B.E., B.C.H., L.L.D.(Hon) - ChairmanC David BynoeKenneth EmerySir Fred Gollop K.A., Q.C.Desmond KinchRoger Cave - Investment DirectorCORPORATE SECRETARYAppleby Corporate Services (BVI) LtdPalm Grove House, 2nd FloorP.O. Box 3190Road TownTortolaBritish Virgin IslandsREGISTERED OFFICEc/o Appleby Corporate Services (BVI) LtdPalm Grove House, 2nd FloorP.O. Box 3190Road TownTortolaBritish Virgin IslandsLEGAL ADVISORSIn the British Virgin Islands(on matters of British Virgin Islands law)Appleby Hunter BailhachePalm Grove House, 2nd FloorP.O. Box 3190Road TownTortolaBritish Virgin IslandsAUDITORSPricewaterhouseCoopersThe Financial Services CentreBishop’s Court HillSt MichaelBarbadosCUSTODIANFirstCaribbean International BankWealth Management DivisionRendezvousChrist ChurchBarbadosPAYING BANKVP Bank (BVI) LimitedP.O. Box 3463Road Town, TortolaBritish Virgin IslandsINVESTMENT ADVISORFortress Fund Advisors Limitedc/o Corporate Services St. Lucia(1996) LimitedPricewaterhouseCoopersPointe SeraphineCastries, St. LuciaADMINISTRATOR & REGISTRAR& TRANSFER AGENTATU Fund Administrators (BVI)Limited3076 Sir Francis Drake’sHighwayP.O. Box 3463Road Town, TortolaBritish Virgin IslandsMANAGERFortress Fund Managers LimitedFirst Floor Carlisle HouseHincks StreetBridgetownBarbadosTel: (246) 431 2198Fax: (246) 431 0514Internet: www.fortressfund.comEmail: invest@fortressfund.comFortress Global Value Fund Limited (“the Fund”) is a United States dollar based public mutual fund companyincorporated with limited liability under the Business Companies Act 2004, as amended, of the laws of the BritishVirgin Islands on August 2, 2006. The Fund maintains its registered office at c/o Appleby Corporate Services (BVI) Ltd,Palm Grove House, 2nd Floor, P.O. Box 3190, Road Town, Tortola, British Virgin Islands. The principal activity of theFund is investing in global markets in quoted equity securities, open and closed-ended funds and similar collectiveinvestment schemes, with the primary objective of long term capital appreciation through the application of a valuebasedinvestment approach.Important information about this Fund is contained in its prospectus, which we encourage you to read before makingan investment. The indicated returns in this document are net of all fees and expenses. Returns are historical and arenot necessarily indicative of future performance. Investors should be aware that there are risks involved where thevalue of the Fund’s shares may go down as well as up. A copy of the prospectus may be obtained from the offices ofFortress Fund Managers, or downloaded at www.fortressfund.com3


Investment PerformanceThe Fund posted a solid return of 10.8% for the year ended September 30, 2010, net ofall fees and expenses. A good part of that return came later in the year as equity marketsaround the world recovered in anticipation of a second round of quantitative easing fromthe US Federal Reserve.Early 2010 had seen significant volatility as fiscal stimulus ran out and Europe struggled with sovereign debt crises inGreece and elsewhere. During this time, the Fund’s relatively diversified portfolio of value-based strategies allowed itto maintain its value well. An allocation to the Sprott Offshore Fund also helped as its holdings in gold and gold sharesrallied during the equity market weakness.Investment Performance as of 9/30/103 mo. 1 year 3 year InceptionFortress GVF 5.4% 10.8% -6.5% -1.6%MSCI World Index 6.5% 7.3% -7.7% -2.4%periods longer than 1 year are annual compound returnsSince inception in 2006, the Fund has outperformed its benchmark, but is still showing a negative return overall. Thetiming of the Fund’s launch turned out in hindsight to have been less than optimal, with the 2008/2009 financial crisisoccurring so shortly after. Since mid-2009, the Fund has moved approximately half of its portfolio “in house” to bemanaged within Fortress. This gives the Manager greater control over portfolio risk levels and lowers the overall levelof management fees payable by the Fund.The Fund’s focus is on generating an attractive return over time, and limiting the volatility experienced by investors.Global Value Fund Net Asset Value Since Inception4


Portfolio PositioningThe Fund’s portfolio is a unique blend of strategies managed directly by Fortress, andaugmented by specialist managers selected for their expertise in particular areas.In all cases, the strategies are value-based. This means that the total portfolio is consistently positioned in securitiesthat are “undervalued” relative to their intrinsic value, in various markets. It also tends to mean that their valuationsare below average, increasing their day to day earnings, reducing risk of loss from adverse changes in market price,and increasing the chance that they will increase in value over time.Geographic Distribution of PortfolioThe Manager adjusts strategy allocations as large changes in relative value occur among them. During the year,the Fund’s allocation to the OAM Asia Recovery Fund was reduced as Asia had rallied so strongly and this fund hadbenefited substantially. At the same time, in May, the European markets and currency were suffering from theGreek sovereign debt crisis. Consequently, the Fund’s allocation to the OAM European Value Fund was increased.During the year, exposure to emerging markets was trimmed somewhat due to large advances in valuation in thatarea. The allocation to the Fortress Equity Income strategy was increased as valuations in equity markets increasedand their risk/reward prospects eroded somewhat. The Equity Income strategy uses a disciplined process to investin a portfolio of high quality, good value stocks. It then employs put and call options around the portfolio to reduceits risk and increase its likelihood of achieving an 8-10% return per year. It is an especially appropriate strategy forgenerating returns in markets that are not advancing quickly.The Fund continues to maintain a position in the Sprott Offshore Fund to gain exposure to gold and gold shares.This allocation has acted as “ballast” during some of the recent market turmoil as gold has continued to increase invalue due to growing concerns of inflation and financial instability.5


Directors’ Report


Directors’ Report“The Fund generated a returnof 10.8%, compared to the MSCIWorld Index of 7.3%...”For the year ended September 30th, 2010 the Fund generated a return of 10.8%,compared to the MSCI World Index of 7.3%. It was a productive year in spite of generallyuncertain, and sometimes panicky, economic and market conditions. The Fund’s returnwas accomplished with substantially less volatility than global markets generally.Economic news was mixed during the year. The US employment and housing figures both failed to showsubstantial improvement. This moribund situation prompted the Federal Reserve to launch a second roundof quantitative easing, buying government securities in the open market in hopes of driving interest ratesstill lower and pushing up asset prices. Fear of the impact this would have on the value of the US dollarcaused it to sell off to such a degree that we now have rates on the Japanese yen at close to ¥80 = US$1, apoint not seen in fifteen years. It also caused US bond yields to reach historic lows. The US Treasury 10-yearyield fell to 2.5% from 3.3% a year earlier. This is the lowest level in generations.The weakening dollar also manifested itself in a surge in the price of gold. Gold has not only gone up dueto the weaker dollar but also on expectations of eventual inflation in the overall global economy. This isquite different than in the recent past. When the Fortress Global Value Fund was launched in late 2006, forexample, gold was trading in the region of $600 an ounce. By the end of September this year, the price hadincreased to over $1,300.In case of just such a move, since inception the Fund has held a position in the Sprott Canadian Equity Fundwhich invests heavily in gold stocks, bullion, silver and other precious metals and oil. The position in Sprottcontinued to perform well in 2010, generating a return of 29%. With the gold “trade” becoming ever morepopular, though, we are concerned that future returns here may be diminished. As a result, we will likelylook to reduce the Fund’s position in Sprott in coming months.Even as markets were volatile, some measures of economic activity normalized. Consumer spending hasimproved somewhat year-over-year, and corporate profits improved as evidenced by the end of September8


Directors’ Report Cont.The Fund carried cash balances during the year that ranged from 10-15%. This reflected our view thatmarkets were potentially vulnerable to correction, and that it would be wise to have cash on hand to investif lower prices became available. We are still of that view. Cash in the Fund stands at 16%.The strategy allocations are also tending to the conservative side, with 19% invested in the Fortress EquityIncome strategy. This strategy uses a disciplined process to invest in a portfolio of high quality stocksat attractive valuations. It then employs put and call options around the portfolio to reduce its risk andincrease its likelihood of achieving an 8-10% return per year. It is an especially appropriate strategy forgenerating returns in sideways, choppy markets, but it is unlikely to return more than 15% in a given year,regardless of what markets do.We see good prospects for the stocks and funds that make up the Fund’s portfolios, even as overall marketslook less attractive at current valuations. The Fund is positioned to generate good returns in a number ofpotential market environments, and from a number of different sources. It is also positioned to protectcapital as much as possible if a market downturn comes.Our objective continues to be earning a good return over time, while limiting the volatility along the way.We thank all our shareholders for investing with us, and look forward to reporting to you on a successfulyear ahead.Roger Cave CA,CFAInvestment Director10


Financial Statements11


Fortress Global Value Fund LimitedStatement of Changes in Net Assets Attributable to Holders of Redeemable Mutual Fund SharesFor the year ended September 30, 2010(expressed in United States dollars)Numberof shares$Net assetsattributableto holders ofredeemablemutual fundshares$Balance as at September 30, 2008 15,307,761 14,456,376Issue of shares 501,724 398,470Redemption of shares (17,632) (12,718)Total comprehensive loss for the year – (1,474,588)Balance as at September 30, 2009 15,791,853 13,367,540Issue of shares 424,176 376,974Redemption of shares (106,613) (95,343)Total comprehensive income for the year – 1,476,282Balance as at September 30, 2010 16,109,416 15,125,453


Fortress Global Value Fund LimitedStatement of Comprehensive IncomeFor the year ended September 30, 2010(expressed in United States dollars)2010$2009$Investment incomeNet fair value gain/(loss) on investments (note 5) 1,644,104 (1,378,588)Dividend income 18,535 78,364Interest income 445 2,629Total investment income 1,663,084 (1,297,595)ExpenditureInvestment advisory fees (note 7) 106,835 88,410Administrator and custodian fees 32,391 27,299Management fees (note 7) 21,367 17,682Office and administration fees 14,209 31,602Directors fees (note 7) 12,000 12,000Operating expenses 186,802 176,993Total comprehensive income/(loss) for the year 1,476,282 (1,474,588)


Fortress Global Value Fund LimitedStatement of Cash FlowsFor the year ended September 30, 2010(expressed in United States dollars)Cash flows from operating activitiesTotal comprehensive income/(loss) 1,476,282 (1,474,588)Adjustments for:Interest income (445) (2,629)Net fair value (gain)/loss on investments (1,644,104) 1,378,588Operating loss before working capital changes (168,267) (98,629)Decrease in accounts receivable – 32,703Increase/(decrease) in accounts payable 17,810 (40,691)Purchase of investments (3,991,942) (14,495,461)Proceeds on sale of investments 5,059,879 11,672,856Cash generated from/(used in) operations 917,480 (2,929,222)Interest received 445 2,629Net cash generated from/(used in) operating activities 917,925 (2,926,593)Cash flows from financing activitiesIssue of redeemable mutual fund shares 376,974 398,470Redemption of redeemable mutual fund shares (95,343) (12,718)Net cash generated from financing activities 281,631 385,752Net increase/(decrease) in cash and cash equivalents 1,199,556 (2,540,841)Cash and cash equivalents - beginning of year 1,189,944 3,730,785Cash and cash equivalents - end of year 2,389,500 1,189,9442010$2009$


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)1 Incorporation and principal activityFortress Global Value Fund Limited (the "Fund") was incorporated in the British Virgin Islands on August 2,2006 as a public mutual fund company with limited liability under the Business Companies Act 2004, asamended. The Fund maintains its registered office at c/o Appleby Corporate Services (BVI) Ltd, Palm GroveHouse, 2nd Floor, P.O. Box 3190, Road Town, Tortola, British Virgin Islands. The principal activity is the sale ofmutual funds.2 Summary of significant accounting policiesThe principal accounting policies adopted in the preparation of these financial statements are set out below. Thesepolicies have been consistently applied to all years presented, unless otherwise stated.a) Basis of preparationThe financial statements have been prepared in accordance with International Financial Reporting Standards(“IFRS”). The financial statements have been prepared in accordance with the historical cost convention, asmodified by the revaluation of financial assets and financial liabilities held at fair value through profit or loss.The preparation of financial statements in conformity with IFRS requires the use of certain criticalaccounting estimates. It also requires management to exercise its judgement in the process of applying theFund’s accounting policies. Although these estimates are based on management’s best knowledge of currentevents and conditions, actual results could differ from these estimates.Estimates and judgements are continually evaluated and are based on historical experience and other factors,including expectations of future events that are believed to be reasonable under the circumstances.Standard and amendments to existing standards effective for the 2010 reporting yearIAS 1 (revised), ‘Presentation of financial statements’. The revised standard prohibits the presentation ofitems of income and expenses (that is, ‘non-owner changes in equity’) in the statement of changes inequity. It requires non-owner changes in equity to be presented separately from owner changes inequity. All non-owner changes in equity are required to be shown in a performance statement, butentities can choose whether to present one performance statement (the statement of comprehensiveincome) or two statements (the income statement and statement of comprehensive income). Whereentities restate or reclassify comparative information, they are required to present a restated statement offinancial position as at the beginning comparative period, in addition to the current requirement topresent statements of financial position at the end of the current period and comparative period. TheFund has applied IAS 1 (revised) from October 1, 2009, and has elected to present solely a statement ofcomprehensive income. The adoption of this revised standard has not resulted in a significant change tothe presentation of the Fund’s performance statement, as the Fund has no elements of othercomprehensive income.(1)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)2 Summary of significant accounting policies…continueda) Basis of preparation…continuedStandards and amendments to existing standards effective for the 2010 reporting year…continuedIFRS 7 ‘Financial instruments - Disclosures’ (amendment) - effective January 1, 2009. The amendmentrequires enhanced disclosures about fair value measurement and liquidity risk. In particular, theamendment requires disclosure of fair value measurements by level of a fair value measurementhierarchy. The adoption of the amendment results in additional disclosures but does not have an impactin the Fund’s financial position or performance.IAS 39 (Amendment), ‘Financial instruments: Recognition and measurement’.The amendment was partof the IASB/s annual improvements project published in May 2008. The definition of financial asset orfinancial liability at fair value through profit or loss as it relates to items that are held or trading wasamended. This clarifies that a financial asset or liability that is part of a portfolio of financialinstruments managed together with evidence of an actual recent pattern of short-term profit taking isincluded in such a portfolio on initial recognition. Adoption did not have a significant impact on theFund’s financial statements.IAS 32 (amendment), ‘Financial instruments: presentation’, and IAS1 (amendment), ‘Presentation offinancial statements – Puttable financial instruments and obligations arising on liquidation’. Theamended standards require entities to classify puttable financial instruments, or components ofinstruments that impose on the entity an obligation to deliver to another party a pro rata share of the netassets of the entity only on liquidation as equity, provided the financial instruments have particularfeatures and meet specific conditions, including that all financial instruments in the class of instrumentsthat is subordinates to all other instruments have identical features. As the Fund’s common shares andClass ‘A’ redeemable Mutual Fund shares carry different voting and distribution rights, their featuresare not considered identical. The adoption of these amendments has not therefore resulted in anychange in the classification of the Fund’s redeemable shares.Standards, amendments and interpretations that are issued but not yet effective which may be relevant forthe Fund’s operationsIFRS 9 Financial Instruments – effective January 1, 2013. This standard deals with the classificationand measurement of financial instruments, and replaces sections of IAS 39 – ‘Financial Instruments;Recognition and measurement’.(2)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)2 Significant accounting policies…continuedb) Foreign currency translationFunctional and presentation currencyItems included in the Fund’s financial statements are measured using the currency of the primary economicenvironment in which it operates (“the functional currency”). The financial statements are presented inUnited States dollars which is the Fund’s functional and presentation currency.Transactions and balancesForeign currency transactions are translated into the functional currency using the exchange rate prevailing atthe dates of the transactions. Foreign exchange gains and losses resulting from the settlement of suchtransactions and from the translation at year end exchange rates of monetary assets and liabilitiesdenominated in foreign currencies are recognised in the statement of comprehensive income.Translation differences on non-monetary financial assets such as equities held at fair value through profit orloss are recognised in the statement of comprehensive income as part of the fair value gain and loss.c) Investment incomeInterest income is recognised in the statement of comprehensive income for all interest-bearing instrumentson an accrual basis using the effective yield method. Interest income relates to coupons earned on fixedincome investments and short-term deposits.Dividend income is recognised when the Fund’s right to receive payment has been established.d) InvestmentsManagement determines the appropriate classification of these assets at initial recognition.Financial assets at fair value through profit or lossa) ClassificationThe Fund’s investments have been classified as financial assets at fair value through profit or loss inaccordance with International Accounting Standards 39 (IAS 39), Financial Instruments: Recognitionand Measurement.Financial assets in the category at fair value through profit or loss have been so designated bymanagement at inception since the assets form part of the managed portfolio whose performance isevaluated on a fair value basis in accordance with a documented investment strategy.b) Recognition, derecognition and measurementRegular-way purchases and sales of investments are recognised on the trade date, which is the date theFund commits to purchase or sell the investments. Investments are derecognised when the rights toreceive cash flows from the investments have expired or the Fund has transferred substantially all risksand rewards of ownership.(3)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)2 Significant accounting policies…continuedd) Investments…continuedb) Recognition, derecognition and measurement…continuedFinancial assets at fair value through profit or loss are initially recognised at fair value and aresubsequently carried at fair value based on quoted bid prices. In the absence of quoted bid prices, thelast close price and other information including the quoted offer price is considered by the Manager todetermine the appropriate fair value price to be used. In the event that a security held by the Fund isunquoted, if unusual market conditions exist, or in the event that a particular security’s value hasbecome impaired, the Manager, in consultation with the Custodian, and on advice of an independentbroker, will make a reasonable estimate of the fair value price by using valuation techniques. These caninclude the use of recent arm's length transactions, reference to other instruments that are substantiallythe same or discounted cash flow analysis which make maximum use of market inputs and rely as littleas possible on entity-specific inputs.Investments in other investment funds are initially recognized at fair value and are subsequently valuedon the basis of the net asset value per share as determined by the administrators of those investmentvehicles in accordance with industry practice.Gains or losses arising from changes in the fair value of securities classified as financial assets at fairvalue through profit or loss are recognised in the statement of comprehensive income as they arise.Average cost is used to compute realised and unrealised gains on investments.e) Cash and cash equivalentsCash equivalents are short-term, highly liquid investments, with original maturities of three months or lessthat are readily convertible to known amounts of cash which are subject to insignificant changes in value.f) Transaction costsTransaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss.They include the bid-ask spread, fees and commissions paid to agents, advisers, brokers and dealers.Transaction costs, when incurred, are immediately recognised in the statement of comprehensive income asan expense.g) ExpensesExpenses are accounted for on an accrual basis. Expenses are charged to the statement of comprehensiveincome.In addition to the management fees and administration expenses, the Fund is responsible for the payment ofall direct expenses relating to its operations such as audit, legal and professional fees.(4)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)2 Significant accounting policies …continuedh) Redeemable shares/Net asset valueThe Fund issues redeemable shares which are redeemable at the holder’s option and are classified asfinancial liabilities. Redeemable shares can be put back to the Fund at any time for cash equal to aproportionate share of the Fund’s net asset value. The redeemable shares are carried at the redemptionamount that is payable at the balance sheet date if the holders exercises the right to put the shares back to theFund.Redeemable shares are issued and redeemed at the holder’s option at prices based on the Fund’s net assetvalue per share at the time of issue or redemption. The Fund’s net asset value per redeemable mutual fundshare is calculated by dividing the net assets attributable to those shares by the number of outstandingredeemable shares. In accordance with the provisions of the Fund’s regulations, investment positions arevalued based on the procedures described in note 2d for the purpose of determining the net asset value pershare for subscriptions and redemptions.i) TaxationThe Fund is licensed as an authorised public mutual fund with limited liability under the Business CompaniesAct 2004. The Directors have resolved that all of the net income of the Fund is attributable to the Fund’sredeemable mutual fund shareholders. There is currently no corporation tax charged in the British VirginIslands and therefore the Fund will not be subject to any taxes or duties under British Virgin Islands law.3 Critical accounting estimates and assumptionsEstimates and assumptions that have a significant risk of causing material adjustment to the carrying value ofassets and liabilities within the next financial year, include the valuation of unquoted investments where valuationtechniques need to be utilized. Management policies surrounding these estimates and assumptions are disclosed innote 2d.4 Financial risk managementThe Fund’s activities expose it to a variety of financial risks: market risk (which includes price risk, interest raterisk and foreign currency risk), credit risk and liquidity risk on the financial instruments it holds. The Fund’soverall risk management programme focuses on the unpredictability of financial markets and seeks to minimisepotential adverse effect on the Fund’s financial performance. The risk management policies employed by theFund to manage these risks are discussed below. The objective of the Fund is to achieve long-term capitalappreciation through investment in international markets.(5)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)4 Financial risk management…continuedMarket risk…continuedi) Price riskThe Fund is exposed to market price risk arising primarily from the changes in equity prices. To manage this riskthe Fund holds a diversified portfolio of investments in accordance with its investment policy. As at September30, 2010, 39% (2009 - 51%) of financial assets at fair value through profit or loss, comprise of investments inother funds that have been fair valued in accordance with the policies set out in note 2d. Since the shares of theother funds are not publicly traded, redemption can only be made by the Fund on the redemption dates and subjectto the required notice periods specified in the offering documents of each of the other funds. The rights of theFund to request redemption of its investments in other funds may vary in frequency from weekly to monthlyredemptions. As a result, the carrying values of the other funds may not be indicative of the prevailing valuesultimately realised on redemption. In addition, the Fund may be materially affected by the actions of otherinvestors who have invested in other funds in which the Fund has invested.SensitivityThe effects of a change in equity prices of the Fund’s financial assets at fair value through profit or loss are set outbelow. These changes represent what is considered to be a reasonable movement within the specific regions bymanagement.Financial assets at fair value through profit or loss:2010Carryingvalue$Effect of 10%change$Listed equity investments 7,763,983 776,398Mutual funds 5,058,192 505,819200912,822,175 1,282,217Listed equity investments 6,039,486 603,949Mutual funds 6,206,522 620,65212,246,008 1,224,601The carrying value of all financial assets and liabilities are considered reasonable estimates of their fair value. Adepreciation in the fair value at the levels above will have an equal and opposite effect to that disclosed above.(6)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)4 Financial risk management…continuedMarket risk…continuedii) Interest rate riskThe majority of the Fund’s financial assets and liabilities are non-interest bearing. As a result the Fund is notsubject to significant amounts of risk due to fluctuation in the prevailing levels of market interest rates. Anyexcess cash and cash equivalents are invested at short-term market interest rates. The effective yield on cash andcash equivalents is disclosed in note 6.iii) Foreign currency riskThe Fund holds financial assets denominated in currencies other than Unites States dollars, the functionalcurrency of the Fund. Consequently, except where assets and liabilities are denominated in currencies fixed to theUnited States dollar, the Fund is exposed to currency risk. The Fund’s policy is not to enter into any hedgingtransactions.Foreign currency risk arises as the value of future transactions, recognised monetary assets and monetaryliabilities denominated in other currencies fluctuate due to changes in foreign exchange rates. IFRS 7 considersthe foreign exchange exposure relating to non-monetary assets and liabilities to be a component of market pricerisk not foreign currency risk. However, management monitors the exposure on all foreign currency denominatedassets and liabilities. The table below summarises the Fund’s exposure to currency risk:At September 30, 2010EUR$Financial assetsInvestments 246,156Total financial assets 246,156Total financial liabilities –Net position 246,156At September 30, 2009CHF$NOK$Financial assetsInvestments 139,939 217,266Total financial assets 139,939 217,266Total financial liabilities – –Net position 139,939 217,266(7)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)4 Financial risk management…continuedMarket risk…continuediii) Foreign currency risk...continuedSensitivityThe Fund is most exposed to currency risk in its operating currencies whose values have noticeably fluctuatedagainst the United States dollar. These currencies include the Euro (EUR), the Swiss Franc (CHF) and theNorwegian Krone (NOK). The theoretical decrease in net assets if these currencies had depreciated by 5% againstthe United States dollar with all other variables held constant is considered below:2010$Balances denominated in EUR 12,3082009Balances denominated in CHF 6,997Balances denominated in NOK 10,863A 5% appreciation in the currencies will have an equal and opposite effect to that disclosed above.While the Fund has direct exposure to foreign exchange rate changes on the price of non-United Statesdenominatedsecurities, it may also be indirectly affected by the impact of foreign exchange rate changes on theearnings of certain companies in which the Fund invests, even if those companies’ securities are denominated inUnited States dollars. For that reason, the above sensitivity analysis may not necessarily indicate the total effecton the Fund’s net assets attributable to holders of redeemable shares of future movements in foreign exchangerates.Credit riskCredit risk is the risk that an issuer or counterparty to a financial instrument will be unable or unwilling to meet acommitment thereby causing a financial loss to the Fund.The maximum exposure of the Fund to the credit risk is set out in the following table:2010$2009$Due from parent company 1,000 1,000Cash and cash equivalents 2,389,500 1,189,944Total financial assets 2,390,500 1,190,944(8)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)4 Financial risk management…continuedCredit risk…continuedAll transactions in listed securities are settled/paid for upon delivery using approved brokers. The risk of defaultis considered minimal since delivery of securities sold is only made once the broker has delivered payment. On apurchase, payment is made once the securities have been received by the broker. The trade will fail if either partyfails to meet their obligation.The Fund’s exposure to individual counterparty credit risk on its cash and cash equivalents exceeding 2.5% oftotal the Fund’s net assets is set out below:2010$2009$Cash and cash equivalentsFirstCaribbean International Bank Limited 1,415,413 25VP Bank (BVI) (A- by Standards and Poor’s) 538,567 243,327Morgan Stanley (A- by Standards and Poor’s) 435,020 –Credit Suisse USA (A+ by Standards and Poor’s) – 946,027Liquidity risk2,389,000 1,189,379The Fund is exposed to monthly cash redemptions of Redeemable Mutual Fund Shares (note 2h). It thereforeinvests the majority of its assets in investments that are traded in an active market and can be readily disposed of.The table below analyses the Fund’s financial liabilities into relevant maturity groupings based on the remainingperiod at the balance sheet date to the contractual maturity date. The amounts disclosed in the table below are thecontractual undiscounted cash flows.2010Less than1 month$Accounts payable and accrued expenses 86,222Net assets attributable to holders of redeemable mutual fund shares 15,125,453Total financial liabilities 15,211,6752009Accounts payable and accrued expenses 68,412Net assets attributable to holders of redeemable mutual fund shares 13,367,540Total financial liabilities 13,435,952(9)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)4 Financial risk management …continuedCapital risk managementThe capital of the Fund is represented by the net assets attributable to holders of redeemable shares. The amountof net asset attributable to holders of redeemable shares can change significantly on a monthly basis as the Fund issubject to monthly subscriptions and redemptions at the discretion of shareholders. The Fund’s objective whenmanaging capital is to safeguard the Fund’s ability to continue as a going concern in order to provide returns forshareholders and to maintain a strong capital base to support the development of the investment activities of theFund.Fair value estimationThe Fund adopted the amendment to IFRS 7, effective October 1, 2009. This requires the Fund to classify fairvalue measurements using a fair value hierarchy that reflects the significance of the inputs used in making themeasurements. The fair value hierarchy has the following levels:Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1).Inputs other than quoted prices included within level 1 that are observable for the asset or liability, eitherdirectly (that is, as prices) or indirectly (that is, derived from prices) (level 2).Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs)(level 3).The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety isdetermined on the basis of the lowest level input that is significant to the fair value measurement in its entirety.For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If afair value measurement uses observable inputs that require significant adjustment based on unobservable inputs,that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair valuemeasurement in its entirety requires judgment, considering factors specific to the asset or liability.The determination of what constitutes ‘observable’ requires significant judgment by the Fund. The Fundconsiders observable data to be that market data that is readily available, regularly distributed or updated, reliableand verifiable, not proprietary, and provided by independent sources that are actively involved in the relevantmarket.The following table analyses within the fair value hierarchy the Fund’s financial assets and liabilities (by class)measured at fair value at September 30, 2010:Level 1$Level 2$Level 3$Totalbalances$Financial assets at fair value throughprofit or lossListed equity securities 7,763,983 – – 7,763,983Mutual funds – 1,690,663 3,367,529 5,058,1927,763,983 1,690,663 3,367,529 12,822,175(10)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)4 Financial risk management …continuedFair value estimation …continuedInvestments whose values are based on quoted market prices in active markets, and therefore classified withinlevel 1, include active listed equities. The Fund does not adjust the quoted price for these instruments.Financial instruments that trade in markets that are not considered to be active but are valued based on quotedmarket prices, dealer quotations or alternative pricing sources supported by observable inputs are classified withinlevel 2. These include unlisted mutual funds. As level 2 investments include positions that are not traded in activemarkets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or nontransferability,which are generally based on available market information.Investments classified within level 3 have significant unobservable inputs, as they trade infrequently. Level 3instruments include unlisted mutual funds. As observable prices are not available for these securities, the Fund hasused valuation techniques to derive the fair value.There were no transfers between levels for the year ended September 30, 2010.The following table presents the movement in level 3 instruments for the year ended September 30, 2010 by classof financial instrument:MutualFunds$Totalbalances$Opening balance 5,563,415 5,563,415Purchases – –Sales (2,705,804) (2,705,804)Gain recognised in the statement ofcomprehensive income 509,918 509,918Closing balance 3,367,529 3,367,529(11)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)5 Investments2010$2009$Designated at fair value through profit or loss:- listed equity investments 7,763,983 6,039,486- mutual funds 5,058,192 6,206,522Total financial assets designated at fair value through profit or loss 12,822,175 12,246,008Total gains/(losses) recognized in relation to investments:- realized gains/(losses) 532,714 (4,285,502)- change in unrealized gains 1,111,390 2,906,9141,644,104 (1,378,588)The detailed portfolio of investments by geographic region is as follows. Investments in other investment fundshave been categorised according to the region where these funds have significantly invested.2010 2009Cost$Marketvalue$Cost$Marketvalue$Financial assets at fair valuethrough profit and loss:United States of America 6,799,801 7,837,009 5,619,601 6,299,626Eurozone 1,908,951 1,936,819 1,311,931 1,000,312Canada 1,241,907 1,669,687 1,241,907 1,295,885Asia 988,591 1,378,660 3,051,038 3,479,741Russia – – 250,000 170,444Total financial assets at fairvalue through profit or loss 10,939,250 12,822,175 11,474,477 12,246,0086 Cash and cash equivalentsCash and cash equivalents of $2,389,500 (2009 - $1,189,944) are placed with leading commercial banks. Theeffective yield on cash and cash equivalents is nil (2009 - 0.1%).(12)


Fortress Global Value Fund LimitedNotes to Financial StatementsSeptember 30, 2010(expressed in United States dollars)7 Related partiesParties are considered to be related if one party has the ability to control the other party or exercise significantinfluence over the other party in making financial or operational decisions.Fortress Fund Managers Limited serves as manager of the Fund. As a result of providing management services,Fortress Fund Managers Limited receives a monthly management fee based on the actual net asset value of theFund, calculated monthly and payable in arrears. The management fee amounted to $ 21,367 (2009 - $17,682) forthe year.Fortress Fund Advisors Limited serves as investment advisor of the Fund. As a result of providing investmentadvisory services, Fortress Fund Advisors Limited receives a monthly advisory fee based on the actual net assetvalue of the Fund, calculated monthly and payable in arrears. The advisory fee amounted to $106,835(2009 - $88,410) for the year.Directors’ fees of $12,000 (2009 - $12,000) were paid during the year.8 Redeemable mutual fund sharesClass “A” Redeemable Mutual Fund Shares (Fund shares)The Fund is authorised to issue an unlimited number of class “A” redeemable mutual fund shares. Each Fundshare is entitled to an equal share in the distribution of net income and net capital gains of the Fund andparticipates equally in all other respects. Fund shareholders shall not be entitled to vote at meetings ofshareholders of the Fund.9 Share capitalNumber ofShares2010$Number ofshares2009$Common sharesAuthorisedAn unlimited number of commonshares of no par valueIssued 1,000 1,000 1,000 1,000The 1,000 common shares, held by the Fund Manager, carry full voting rights, but do not share in the profits ofthe Fund. On winding up of the Fund, the shares would be repaid at issued value.(13)


FORTRESS FUND MANAGERS LTD.FIRST FLOOR, CARLISLE HOUSE, HINCKS STREET, BRIDGETOWN, BB11144, BARBADOS

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