2011 Report - Fortress Mutual Fund Ltd

Directors’ ReportThe Fund’s net assets grew from$306.3 million to $324.3 million...”This was a difficult year for the Fortress Caribbean Growth Fund, with a return well below itshistorical average. The net asset value (NAV) of the Fund increased from $4.46 per share at theend of September, 2010 to $4.48 per share at September 30, 2011. This represented a returnof 0.3%. During the year the Fund’s net assets grew from $306.3 million to $324.3 million. Theannual compound rate of return since inception is now 10.7% per year.In the Caribbean, equity markets generally performed well over the last year in spite of weak economic growth andfiscal pressures on regional governments. International markets, on the other hand, showed significant weakness.This had a negative effect on the Fund’s overall return. The European sovereign debt crisis remains a serious concernfor investors as its effects on government spending and the banking system continue to be felt even as the crisis itselfremains unresolved.The past few years have been frustrating for investors in the Fund, as it has not generated a rate of return even approachingits long term average. Naturally, we share this frustration. Unfortunately, high returns do not come frompast high returns – they come from the starting point of an unloved market with significant potential for improvement.Over the past few years, we have all been enduring the move from “above average” to “unloved” in bothregional and international markets. We cannot predict the exact point at which the Fund’s performance will increaseagain. But we can say that low prices and investor pessimism are the fertile soil from which recoveries in asset pricesgrow. In a way, we should be pleased when we see them.Through both rising and falling markets we continue to apply the same time-tested, value approach to selectinginvestments for the Fund. The focus is on consistently investing in good quality companies at attractive valuations,wherever we can find them.REGIONAL OPERATING ENVIRONMENTEconomic conditions in the Caribbean continue to be relatively weak. This naturally impacts the operations andoutlook for many of the companies in which the Fund invests. Business activity has improved noticeably from8