New Star Absolute Return Fund Income Shares Announcements

RNS Number : 4888A New Star Absolute Return Fund PCC 04 August 2008  
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New Star Absolute Return Fund PCC Limited (the "Company")
4 August 2008

Recommended Proposals for the Reconstruction and Winding-Up of the Company

Introduction
A Circular has been despatched to Shareholders today detailing a proposed reconstruction and winding-up of the Company. Under these Proposals and subject to meeting certain requirements, Shareholders will have the choice of either rolling over their investment in the Company into an investment in New Star Multi Strategy Hedge Fund Limited ("Multi Strategy"); electing to receive cash in respect of their investment in the Company at a value close to the net asset value of that investment; or electing for a combination of the two options.

The Proposals are conditional on certain approvals, including the approval of shareholders at general
and at separate Cell meetings.

Background to the Proposals
Since the Company's launch on 1 August 2006, the Company has sought to achieve its investment policy of producing absolute returns through a range of hedge fund strategies by investing substantially all of its assets in New Star Multi Strategy Master Hedge Fund Limited, a Cayman domiciled open-ended hedge fund (the "Master Fund"). The Master Fund invests in New Star's hedge fund strategies and, since 1 May 2008, has been managed by Mark Harris and Craig Heron of New Star Asset Management.
In the period since the Company's launch to 18 July 2008 (being the latest practicable date prior to publication of the Circular), the net asset value total return on the Income Shares and the Growth Shares has been 9.64 per cent. and 9.08 per cent. respectively.  In the period from 1 January 2008 to 18 July 2008, the net asset value total return on the Income Shares and the Growth Shares was 1.08 per cent. and 0.35 per cent. respectively.
Shares in the capital of the Company, which is a closed-ended fund, have been admitted to trading on AIM and the to the Channel Islands Stock Exchange ("CISX") and are listed on the Official List of the CISX. As such, chargeable gains made by UK taxpaying Shareholders are subject to UK capital gains tax. The admission to trading on AIM and the CISX and the listing on the Official List of the CISX results in considerable fixed costs. The total expense ratio of the Company (prior to taking into account any performance fee payable by the Company to the Manager) for the twelve months ended 30 June 2008 was 3.23 per cent..
Multi Strategy is a Cayman domiciled open-ended hedge fund with monthly liquidity whose shares are listed or expected to be listed on the Irish Stock Exchange. US$ Shares in Multi Strategy are admitted to the Official List of the Irish Stock Exchange and to trading on the Main Market of the Irish Stock Exchange. Application will be made to the Irish Stock Exchange for the Multi Strategy Sterling Shares and the Multi Strategy Sterling Income Shares (each as defined below) to be admitted to the Official List of the Irish Stock Exchange and to trading on the Main Market of the Irish Stock Exchange on or before the date at which the Proposals are implemented. As at 18 July 2008, its assets were approximately US$106 million. Multi Strategy also invests substantially all of its assets in the Master Fund and, therefore, provides substantially the same investment exposure as the Company.

Multi Strategy is an offshore fund for UK tax purposes, has applied for "distributor fund" status in respect of the Multi Strategy Sterling Shares for the period since launch to 30 June 2008, has sought to conduct its affairs thereafter in accordance with the requirements of such status, and intends to apply for such status for the Multi Strategy Shares thereafter; thereby providing UK taxpayers with an investment return which should be subject to UK capital gains tax.  The total expense ratio of Multi Strategy (prior to taking into account any performance fee payable by Multi Strategy to the Manager) for the twelve months ended 30 June 2008 was 1.80 per cent. (this compares to 3.23 per cent. for the Company in respect of the same period).
Following recent announcements by HM Revenue & Customs regarding changes in the tax treatment of offshore funds, the Directors understand that the UK capital gains tax regime for funds, such as Multi Strategy, should be more certain than was previously the case. Accordingly, the same capital gains tax treatment as is currently available in respect of the Company should be available for Shareholders resident in the UK for tax purposes who validly elect to roll over their interest in the Company into Multi Strategy.

Accordingly, the Directors and the Manager have concluded that the interests of Shareholders would be best served by a voluntary liquidation of the Company, with Shareholders being offered the opportunity of (i) receiving cash at close to the net asset value of their investment; (ii) rolling over their investment into Multi Strategy; or (iii) a combination of both.

Outline of Proposals
The proposed scheme of reconstruction provides Shareholders with the opportunity:
subject to satisfying the Multi Strategy Investment Requirements, to roll over their interests in Income Shares into such number of newly created income shares in Multi Strategy at an issue price of £100.00 each ("Multi Strategy Sterling Income Shares") as is equal to the aggregate Income Share Terminal Asset Value of their Income Shares;
subject to satisfying the Multi Strategy Investment Requirements, to roll over their interests in Growth Shares into such number of existing sterling shares in Multi Strategy ("Multi Strategy Sterling Shares") at their prevailing net asset value as is equal to the aggregate Growth Share Terminal Asset Value of their Growth Shares;
to receive an amount in cash equal to the aggregate Income Share Terminal Asset Value of their Income Shares and the aggregate Growth Share Terminal Asset Value of their Growth Shares (the "Cash Option"); or
subject to satisfying the Multi Strategy Investment Requirements, to elect for a combination of Multi Strategy Sterling Income Shares (in respect of Income Shares held) and/or Multi Strategy Sterling Shares (in respect of Growth Shares held) and cash.

The value of a Shareholder's entitlement under the Scheme will depend on their share in the value of the net assets attributable to the Cell in which their Shares were issued at the time the Scheme was implemented, referred to as the Terminal Asset Value in respect of each such Cell. The Terminal Asset Value in respect of each Cell will be calculated by taking the assets attributable to the relevant Cell at the Calculation Date (expected to be 5.00 p.m. on 22 August 2008) and deducting all of the relevant liabilities attributable to that Cell (including the estimated contingent liabilities of the Cell and a proportion of the costs and expenses incurred or to be incurred by the Company and the Liquidator in connection with the Proposals) and the Liquidator's retention for unknown liabilities of that Cell (expected to be £50,000 in respect of the Income Cell and the Growth Cell in aggregate).

The costs and expenses in connection with the Proposals will be attributed to each Cell proportionate to the aggregate Net Asset Value of the total number of Income Shares (in respect of the Income Cell) and the aggregate Net Asset Value of the total number of Growth Shares (in respect of the Growth Cell) in issue at the Calculation Date, in each case expressed as a percentage of the aggregate Net Asset Value of the total number of Shares then in issue (excluding the Management Shares).

Investment Requirements
Pursuant to the Proposals, Shareholders are only entitled to elect to roll over some or all of their interests in Income Shares into Multi Strategy Sterling Income Shares and Growth Shares into Multi Strategy Sterling Shares (the "Multi Strategy Option") to the extent that they have satisfied certain investment requirements as set out in the Circular (the "Multi Strategy Investment Requirements"). Shareholders who fail to satisfy the Multi Strategy Investment Requirements will be irrevocably deemed to have elected for cash in respect of their holding of Shares in respect of which they have failed to satisfy the Multi Strategy Investment Requirements.
Shareholders who do not submit a Form of Election (in respect of certificated Income Shares and Growth Shares, as applicable) or a TTE Instruction (in respect of uncertificated Income Shares and Growth Shares, as applicable) will be deemed irrevocably to have elected for the Cash Option in respect of their entire holding of Income Shares or Growth Shares (as applicable).

Overseas Shareholders are not being provided with a Form of Election nor will they be entitled to submit a TTE Instruction and will be irrevocably deemed to have elected for the Cash Option in respect of their entire holding of Shares.

Cancellation of admission to trading on AIM and the CISX and to listing on the Official List
of the CISX

If the Proposals are approved by Shareholders, the Company will be liquidated and its admission to trading on AIM and the CISX and the listing of the Shares on the Official List of the CISX will be cancelled.

Expected Timetable
 

 
2008
Date from which it is advised that dealings in Shares should only be made on the basis of cash settlement and immediate delivery of document of title
15 August
Latest time for receipt of Forms of Election
1.00 p.m. on 20 August
Latest time for receipt of TTE Instructions from Shareholders holding Shares in uncertificated form
1.00 p.m. on 20 August
Record Date for the purposes of Elections and Company’s Register closes
5.00 p.m. on 20 August
Latest time for receipt of Forms of Proxy for the Income Share Cell Meeting
3.00 p.m. on 20 August
Latest time for receipt of Forms of Proxy for the Growth Share Cell Meeting
3.10 p.m. on 20 August
Latest time for receipt of Forms of Proxy for the First General Meeting
3.20 p.m. on 20 August
Latest time for receipt of Forms of Proxy for the Second General Meeting
3.30 p.m. on 20 August
Shares admission to trading on AIM suspended
7.00 a.m. on 21 August
Shares admission to trading on the CISX and listing on the Official List of the CISX suspended
7.00 a.m. on 21 August
Income Share Cell Meeting*
3.00 p.m. on 22 August
Growth Share Cell Meeting*
3.10 p.m. on 22 August
First General Meeting*
3.20 p.m. on 22 August
Second General Meeting*
3.30 p.m. on 22 August
Shares reclassified as Reclassified Shares**
22 August
Effective Date for implementation of Proposals
22 August
Cancellation of admission to trading of Shares on the CISX and cancellation of listing of Shares on the Official List of the CISX
7.00 a.m. on 26 August
Entitlement of Income Shareholders (other than those who have elected, or are deemed to have elected, for the Cash Option) to Multi Strategy Sterling Income Shares determined
29 August
Entitlement of Growth Shareholders (other than those who have elected, or are deemed to have elected, for the Cash Option) to Multi Strategy Sterling Shares determined
29 August
Contract notes in respect of Multi Strategy Sterling Income Shares and Multi Strategy Sterling Shares despatched
on or as soon as practicable after 1 September
Cheques despatched to Shareholders who have elected (or are deemed to have elected) for the Cash Option and CREST payments made
within 14 days of 1 September
Cancellation of admission to trading of Shares on AIM
7.00 a.m. on 2 September
* If the Income Share Cell Meeting and/or the Growth Share Cell Meeting is/are adjourned for any reason it/they shall be reconvened on 5 September 2008 at the same time as such meetings are currently convened for. In such circumstances, the First General Meeting and the Second General Meeting will be automatically adjourned until 5 September 2008 at the same time as such meetings are currently convened for and the timetable for the events occurring thereafter will be delayed accordingly.

** The reclassification of the Shares will occur immediately following the passing of the Resolution proposed at the Second General Meeting, this being expected to be at approximately 3.30 p.m. on 22 August 2008, provided that the Resolutions proposed at both of the Cell Meetings and the First General Meeting are passed. The reclassification is a technical requirement of the Scheme. Shares will be reclassified according to the Elections made (or deemed to have been made) by Shareholders.

Capitalised terms used in this announcement shall have the same meaning as set out in the Circular dated 4 August 2008, unless otherwise defined.

Enquiries: 

Ravi Anand/Alex Duncan, New Star Asset Management Limited, 020 7225 9292/9290
Susan Walker, KPMG Corporate Finance - nominated adviser, 020 7311 1000
KPMG Corporate Finance, a division of KPMG LLP which is authorised and regulated by the Financial Services Authority for investment business activities, is acting for the Company as nominated adviser in relation to the matters set out in this announcement and is not acting for any other person in relation to these matters. KPMG Corporate Finance will not be responsible to anyone other than Company for providing the protections afforded to its clients or for providing advice in relation to the contents of this announcement. 

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