TABLE OF CONTENTS
DEFINITIONS 3
Key Information 4
Directors, Investment Manager and Advisers 5
Introduction 6
Political and Economic Background 6
Countries in the Caribbean 8
The Caribbean Stock Markets 9
Investment Policy 11
Past Investment Performance 11
Risk Factors 11
Directors, Management and Administration 12
Fees and Expenses 13
Dividend Policy 13
Taxation and Exchange Control 14
Dealing in the Fund’s Shares 15
Ways to Invest 17
General Information 17
Potential investors should note that investing in equity and debt securities may involve a high degree of risk and investment in the shares offered herein is therefore only suitable for investors who understand the risks inherent in participating in financial markets involved. Your particular attention is drawn to the section headed ”Risk Factors” in Section (1).
PROSPECTUS & INFORMATION CIRCULAR
Fortress Caribbean Growth Fund Prospectus and information circular for the issue of an unlimited number of class ‘A’ redeemable mutual fund shares at a price equal to the net asset value per share. The holders from time to time of such shares shall collectively and exclusively constitute the fund shareholders.
A copy of this document has been registered with the Registrar of Companies in Barbados in accordance with the provisions of the Companies Act Cap 308 of the laws of Barbados and has also been filed with the Securities Exchange of Barbados and it is an authorized mutual fund licensed under the Mutual Funds Act, 1998-45. The Registrar of Companies and The Securities Exchange of Barbados take no responsibility as to the validity or the veracity of the contents of this prospectus and have neither approved nor disapproved the issue of any of the securities herein mentioned.
It is not the intention of the offeror to file a copy of this document or to register any of the securities herein mentioned with any regulatory authority or agency in any territory outside of Barbados.
No person receiving a copy of this document in any territory may treat this document as constituting an invitation to him or her to purchase or subscribe for any shares nor should he in any event purchase or subscribe for any shares unless in the relevant territory such an invitation could lawfully be made to him or her without the offeror compliance with any registration or other legal requirements. Any person wishing to subscribe for shares should satisfy himself that, in doing so, he or she complies with the laws of any relevant territory, and that he or she obtains any requisite governmental or other consents and observes any other applicable formalities.
DEFINITIONS
In this document, where the context permits, the expressions set out below bear the following meanings:
“THE COMPANY Fortress Mutual Fund Limited
“THE FUND” Fortress Caribbean Growth Fund./ The net subscription proceeds of the subscriptions made by Fund Shareholders.
“FUND SHARES” “Class ‘A’ redeemable mutual Fund shares” of the company
“FUND SHAREHOLDERS” Holders of the “Class ‘A’ redeemable mutual fund shares” of the company
“THE DIRECTORS” The Directors of the Company
“THE MANAGER” Fortress Fund Managers Limited
“PERPETUAL” Perpetual Unit Trust Management Limited
“SEB” The Securities Exchange of Barbados
“TSE” Trinidad & Tobago Stock Exchange
“JSE” Jamaica Stock Exchange
“BDS$” The currency of Barbados
“TT$” The currency of the Republic of Trinidad & Tobago
“JAM$” The currency of Jamaica
“US$” The currency of the United States of America
“GDP” Gross Domestic Product
“NASDAQ” National Association of Securities Dealers Inc.-Stock Market
“IFC” International Finance Corporation - Lessons of Experience
Report - Series 2.
“SHARES” Class ‘A’ redeemable mutual fund shares of the company
KEY INFORMATION
The following information summarises various matters which are described more fully in the rest of this document.
FORTRESS MUTUAL FUND LIMITED
Fortress Mutual Fund Limited is a Barbados based mutual fund company which provides an avenue for portfolio investment in domestic, regional and international markets. The objective of the Fund is to achieve long-term capital appreciation. The fund is authorised to invest in equity and debt securities of both quoted and unquoted securities.
MANAGER
The Manager of the Fund is Fortress Fund Managers Limited, a Barbados based investment management company.
DEALINGS & SETTLEMENT
The shares of the Fund are not listed on any stock exchange. Settlements will take place through Fortress Fund Managers Limited. Settlement is made in Barbados currency.
CALCULATION AND PUBLICATION OF NET ASSET VALUE
The net asset value per share of the Fund is calculated weekly at the close of business on Fridays and is published in both Barbados newspapers, and on the internet @fortressfund.com and the Lipper Overseas Fund Table.
MINIMUM INVESTMENT AMOUNT
The minimum initial investment is Bds$100. The minimum monthly investment is Bds$50.00
CHARGES
There is an initial charge of 2% of any amount being invested into the fund. Annual Management fee charges are 1.75% per annum of the net assets of the fund. Custodian and administrative charges do not exceed 0.175% per annum of the net asset value of the fund.
DIRECTORS, INVESTMENT MANAGER & ADVISERS
17
BANKER
Barclays Bank Plc.
Broad Street
Bridgetown
Barbados
DIRECTORS
Mr. Geoffrey Cave - Chairman
Mr. David Bynoe
Sen. Sir Fred Gollop
Mr. Roger Cave - Investment Manager
Mr. Ken Emery
SECRETARY
Corporate Services Limited
The Financial Services Centre
Bishop’s Court Hill
St.Michael
Barbados
REGISTERED OFFICE
1st Floor Carlisle House
Hincks Street
Bridgetown
Barbados
INDEPENDENT AUDITORS
PricewaterhouseCoopers
Chartered Accountants
The Financial Services Centre
Bishop’s Court Hill
St. Michael
Barbados
ATTORNEY-AT-LAW
Sir Henry Forde, QC
Juris Chambers
Attorneys-at-law
Fidelity House
Wildey Business Park
St. Michael
Barbados
CUSTODIAN & ADMINISTRATOR
Barclays Bank Trustee Branch
Broad Street
Bridgetown
Barbados
FUND MANAGERS
Fortress Fund Managers Limited
1st Floor Carlisle House
Hincks Street
Bridgetown, Barbados
Tel no: 246-431-2198
Fax no: 246-431-0514
Internet: fortressfund.com
E-mail:
17
INTRODUCTION
Fortress Mutual Fund Ltd. is a mutual fund investment company incorporated in Barbados and licensed under the Mutual Funds Act. The Company has established one fund; The Fortress Caribbean Growth Fund which provides a practical route for individuals to invest in domestic, regional and international portfolio investment in the Caribbean.
The objective of the Fund is to achieve long term capital appreciation through investment in a diversified portfolio of shares listed on the main Caribbean Stock Exchanges, new issues and unlisted securities of Caribbean companies.
The Manager of the Fund is Fortress Fund Managers Limited, a Barbados-based investment management company of which the shareholders are Cave Shepherd & Co Limited, Perpetual Plc, Barbados Shipping & Trading Co Ltd (BS&T), The Nation Corporation, and Roger Cave.
POLITICAL & ECONOMIC
BACKGROUND
Barbados is an independent sovereign state, having gained independence from Great Britain in 1966. Barbados remains a member of the Commonwealth and has the second oldest surviving parliament in the British Commonwealth.
The constitution of Barbados is based on the Westminster parliamentary model, which is a UK style representative system. Queen Elizabeth II is head of State and is represented by a Governor-General. The Governor-General appoints the person who commands the support of the majority of elected members of parliament to be Prime Minister.
The 21-member Senate is appointed by the Governor-General (12 members on the advice of the Prime Minister, two on the advice of the leader of the opposition and seven by the governor-general in his own discretion.) The House of Assembly consists of 28 members who are directly elected to represent single-member constituencies for terms of five years. Judicial appointments are made by the Governor General on the recommendation of the Prime Minister after consultation with the leader of the opposition. Final appeals rest with the Judicial Committee of the Privy Council in the United Kingdom.
Barbados is a member of a number of regional and international organisations. These include Caricom, the United Nations and its agencies, the International Monetary Fund (IMF) and the World Bank.
With the exception of Haiti and Cuba, almost all of the other Caribbean countries can be considered relatively stable democracies with varying forms of parliamentary governments that hold free and fair elections.
The Caribbean consists of a number of small island economies which are in the early stages of development in terms of their capital markets and portfolio foreign investments but are well advanced in terms of business, banking, legal and political structures. Most of the Caribbean economies over the years have been characterised by closed, government dominated, commodity based economies, which have relied in part on financial aid and support for export prices from the major developed countries.
Over the last decade Caribbean countries have begun to transform their economies through diversification away from the basic commodities of sugar and bananas to tourism, light manufacturing, offshore financial services and informatics.
Over the last two to three years, Caribbean governments have committed themselves to a process of change towards more open and market driven economies. The most significant changes have taken place in Jamaica, Guyana, Trinidad and more recently in the OECS where exchange controls have been relaxed, currencies floated, and trade liberalisation policies enacted with reduced duties, quotas and the downsizing of governments through major privatisation of government controlled organisations. The result is that the refocused economies, and emphasis on the private sector has put the Caribbean countries in a position to take advantage of renewed world-wide growth.
The Caribbean islands have a wide range of real economic growth rates, which can vary significantly from island to island in any given year and typically will lag the cycles of the US and other economies.
Many of the islands have recorded renewed growth rates during the last 3 years due to increasing tourist arrivals, freer trade and world-wide economic growth. Inflation rates also vary significantly across the region from being relatively stable, 2% to 7% in the Eastern Caribbean to double digit figures in the Dominican Republic and Cuba.
The Caribbean can be considered as a classical ’Emerging Capital Market’ with five stock exchanges. With the exception of Jamaica, the activity on the exchanges has been very limited, and is typical of immature stock markets in developing countries. Both the supply and demand have been inhibited by factors such as fear of loss of family control, lack of tradition and understanding of equity investment and over-reliance on bank overdraft financing.
This low level of market activity results in relatively inefficient markets, which are characterised by comparatively low P/ E ratios and buy and hold strategies by most investors who trade on a yield basis. It is these characteristics, which provide the investment opportunity now as these markets begin to develop and become more efficient. The ability to invest across the region offers attractive opportunities for equity risk management through portfolio diversification of investments in the various countries.
The countries in which Fortress Caribbean Growth Fund invests are listed on the table that follows. The main focus is on Barbados, Jamaica and Trinidad where established stock markets currently exist. The Fund is also actively seeking investment opportunities across the region and will continue to increase the diversification of the portfolio as other Caribbean capital markets develop.
THE COUNTRIES OF THE CARIBBEAN
COUNTRY Size(sq km) Population(000’s) Currency ExRateUS$(Dec 31st 2000)
Barbados 432 264 Barbados $ BDS$2
Jamaica 11,424 2,486 Jamaican $ J$45.30
Trinidad & Tobago 5,128 1,257 Trinidad $ TT$6.24
OECS COUNTRIES
Antigua & Barbuda 442 64 East Caribb $ EC$2.70
Dominica 750 73 East Caribb $ EC$2.70
Grenada 345 97 East Caribb $ EC$2.70
Montserrat 102 10 East Caribb $ EC$2.70
St Kitts & Nevis 269 42 East Caribb $ EC$2.70
St Lucia 616 151 East Caribb $ EC$2.70
St.Vincent and the Grenadines 388 107 East Caribb $ EC$2.70
OTHER COMMONWEALTH
Anguilla 96 10 East Caribb $ EC$2.70
The Bahamas 13,942 270 Bahamian $ B$1
Belize 22,960 205 Belize $ Bz$1.98
British Virgin Islands 150 17 United States $ US$1
Cayman Islands 259 31 Cayman Isl $ CI$1.207
Guyana 214,790 760 Guyana $ G$1.81
Turks & Caicos 417 14 United States $ US$1
DUTCH WEST INDIES
Aruba 200 70 Aruba Florin G1.77
Curacao 102 11 Netherland Guilder G1.77
St. Maarten 86 55 French Franc FF7.38
FRENCH WEST INDIES
Guadeloupe 345 410 French Franc FF7.38
Martinique 1,100 360 French Franc FF7.38
U.S. TERRITORIES
Puerto Rico 9,104 3,685 United States $ US$1
US Virgin Islands 352 103 United States $ US$1
OTHER COUNTRIES
Cuba 110,860 10,896 Cuban Peso 1CPeso
Dominican Republic 48,422 7,769 Dom Rep Peso RD$16.10
Haiti 27,560 6,539 Gourdes G23.50
Suriname 163,265 404 Suriname Guilder G987.6
TOTAL 633,906 36,160
THE CARIBBEAN STOCK MARKETS
1999 1998 1997 1996 1995
NO. OF QUOTED COMPANIES
Jamaica 44 44 49 50 51
Trinidad 28 28 28 27 27
Barbados 22 20 18 18 16
94 92 95 95 96
ANNUAL TURNOVER (US$M)
Jamaica 54 56 129 125 290
Trinidad 117 198 135 103 137
Barbados 12 34 23 6 3
182 288 287 234 430
MARKET CAPITALISATION(US$M)
Jamaica 2,511 2,128 1,920 1,888 1,275
Trinidad 4,367 3,966 3,116 1,401 1,135
Barbados 2,007 2,412 1,141 770 494
8,885 8,506 6,177 4,059 2,904
MARKET INDEX (LOCAL CURRENCY)
Jamaica 21,893 20,593 19,847 16,616 14,267
% Change 6% 4% 19% 16% -14%
Trinidad 417 436 352 167 150
% Change -4% 24% 110% 12% 69%
Barbados 2,561 2,794 1,893 1,258 1,298
% Change -8% 48% 51% -3% -7%
AVERAGE TRADING VALUES - DEC 31ST
Jamaica
Average P/E Ratio 7.23 10.58 6.91 5.32 7.68
Average Yield 4.64 4.16 2.01 2.39 1.85
Average Price/Book 1.16 0.18 0.63 1.04 1.14
Trinidad
Average P/E Ratio 12.64 14.67 17.37 9.52 10.40
Average Yield 4.47 3.27 3.46 5.02 5.15
Average Price/Book 1.92 2.29 2.35 1.40 1.76
Barbados
Average P/E Ratio 13.09 15.76 10.90 13.63 9.42
Average Yield 3.50 1.76 4.52 5.54 5.26
Average Price/Book 0.98 1.83 1.27 0.77 0.78
EXCHANGE RATE TO 1 US$
Jamaica (JA$/US$) 41.42 37.15 35.58 37.02 35.14
% Change -11% -4% 4% -5% -67%
Trinidad (TT$/US$) 6.30 6.30 6.30 6.28 5.95
% Change -0% 0% 0% -6% -1%
Barbados (BDS$/US$) 2.00 2.00 2.00 2.00 2.00
% Change 0% 0% 0% 0% 0%
(Source - Caribbean Stock Exchanges- Data at December 31st)
The Caribbean capital markets consist of five small country exchanges in Jamaica, Trinidad, Barbados, the Dominican Republic, the Bahamas and a call exchange in Guyana. The stock exchange in the Dominican Republic has very few listed equities and the trading is primarily in debt securities. Private sector debt markets and commercial paper have begun to develop in Jamaica and Trinidad and the remainder is characterised by the issuance of government paper and bonds by island governments primarily to state pension schemes and institutional investors with little secondary market activity.