DISCLOSURES AND DISCLAIMERS FOR RECOMMENDATIONS (EQUITY AND FIXED INCOME)

 

Issued by Fearnley Fonds ASA on 5 September 2011

 

1. Introduction

This document provides additional disclosures and disclaimers relevant to research reports and other investment recommendations (“Recommendations”) issued by Fearnley Fonds ASA (“Fearnley”), cf. the Securities Trading Act Section 2-10 with further regulations.

 

Fearnley complies with the standards for recommendations issued by the Association of Norwegian Stock broking Companies and the Norwegian Society of Financial Analysts. Fearnley is licensed by and under the supervision of the Financial Supervisory Authority of Norway.

 

Matters relating to Recommendations shall be governed by the laws of Norway and be subject to the exclusive jurisdiction of Norwegian courts.

 

This document is - by reference in the Recommendation – deemed to be acknowledged and accepted by any person receiving the Recommendation.

 

2.  Equity Recommendations

 

Basis and methods for assessment
Recommendation for shares and share related instruments (“Equities”) are based on price targets fixed with different valuation methods that may include analysis of earnings multiples (absolute and relative), valuation of a company using DCF calculations (discounted cash flow) and by carrying out net asset value (NAV) assessments. Price targets are changed when earnings and cash flow forecasts are changed. They may also be changed when the underlying value of the issuer’s assets changes or when factors impacting the required rate of return change.

Definitions of key terms:

Buy:	When price target is more than 15 % above market price.
Accumulate:	When target price is within 5-15 % above market price.
Reduce:	When target price is +5 % to -15 % below market price.
Sell:	When target price is 15 % or more below market price.

Risks
There is an element of risk attached to all investments in financial instruments. There may be uncertainties with respect to the accurateness and reliability of any information, interpretation and assessment. There are uncertainties and risks attached to the correctness of any Recommendation by Fearnley and with respect to forward looking statements and expectations.

Fearnley assess the risk in the recommendation in relation to Oslo Børs Benchmark index (OSEBX). Fearnley apply the beta as main risk assessment criterion to our recommendations. The risk assessment is in addition based on a consideration of the individual companies business and financial risk profile.

High risk:	beta above	1.2
Medium risk:	beta range	1.0 – 1.2
Low risk:	beta at or less than	1.0

Note that Fearnley’s equity coverage encompasses solely companies within the following sectors: Shipping and Oil services. These two sectors are cyclical by nature and will over time presumably have a higher volatility than the overall market. The reason for choosing Oslo stock exchange as a benchmark in our risk assessment is that Oslo stock exchange has a high content of these two sectors.

3.  Fixed Income Recommendations

Basis and methods for assessment
Our recommendations for bonds and other fixed income instruments are based on assessment of credit risk (the creditworthiness of a particular issuer or instrument as of a given date) relative to risk premium (risk premium inherent in yield relative to investment amount).

 

Fearnley credit analysts provide credit ratings which is a framework for comparing the credit quality of rated debt securities. The ratings are based on the same rating scale as international rating agencies. The scale is divided in two parts, where companies within the investment grade category are assigned ratings from AAA to BBB-, while companies within the high yield category are assigned ratings from BB+ to D. The ratings represent the opinion of Fearnley as to the relative creditworthiness of securities.  A credit rating on a stand-alone basis should not be used as a basis for investment operations. Market price movements in bonds are influenced not only by the credit quality of individual issues but also by changes in money rates and general economic trends, as well as by the length of maturity, etc. Fearnley may also provide credit research with more specific price targets. These price targets are based on different valuation methods. These methods may include analysis of key credit ratios and other factors describing the securities creditworthiness, peer group analysis of securities with similar creditworthiness and different DCF-valuations.

 

Fearnley mainly analyses fixed income instrument in the high yield segment where the credit risk is regarded as high. This includes rated instruments with ratings below BBB (S&P) or Baa3 (Moody’s) (below “investment grade”) where Fearnley will quote the ratings to the extent these are known to Fearnley. Fearnley may, with respect to certain non-rated instruments, indicate its relative credit risk assessments as “Moderately High”, “High” and “Very High”. Please be advised that Fearnley are not offering any rating service in this respect and disclaims any and all liability with respect to these assessments. All credit risk assessments reflect the creditworthiness as of a given date and may be subject to change.

 

Definitions of key terms:

Buy: The risk premium is considered as favourable relative to credit risk

Accumulate: The risk premium is considered as acceptable relative to credit risk

Reduce: The risk premium is considered as not acceptable relative to risk

 

4.  General disclosures (Equity and Fixed Income Recommendations)

No agreement with issuers concerning Recommendations
Fearnley has no agreements with issuers with respect to dissemination of Recommendations. Generally Fearnley will however present the Recommendation for the issuer prior to dissemination to assure a correct factual basis.

Organization and duty of confidentiality
All employees of Fearnley are subject to duty of confidentiality towards clients and with respect to handling inside information. Fearnley has established “Chinese walls” and other organizational procedures for the purpose of minimizing conflicts of interest within Fearnley and in the Fearnley group and between clients.

Compensation schemes for analysts
No part of analysts’ salaries or compensations relates directly to investment banking services or other services provided by Fearnley or consolidated companies to issuers. All analysts in Fearnley are however part of the general bonus scheme related to the total earnings of Fearnley.

Updating of Recommendations
Fearnley has no fixed schedule for updating unless stated or implied in the Recommendation.

Disclosure of positions in financial instruments
Please see the following address for an overview of positions in financial instruments held by Fearnley and related companies and persons. Click here to view disclosure of positions

Disclosure of assignments and mandates etc.
Please see the following address for an overview of (a) all financial instruments in which Fearnley or related companies are market makers or liquidity providers, (b) all financial instruments where Fearnley or related companies have been lead managers or co-lead managers over the previous 12 months and (c) all issuers of financial instruments to whom Fearnley or related companies have rendered investment banking services over the previous 12 months. Please be aware that agreements and services that are still subject to confidentiality are excluded. Click here to view disclosure of assignments and mandates etc.

Previous recommendations
Please contact us at fondsweb@fearnleys.no to receive an overview of Fearnley’s Recommendations in the financial instruments of the issuing company the last 12 months, including data on changes in Recommendations. Please be aware that certain informal Recommendations may be excluded. In order to view our previous recommendations, please log on to our website on the right hand side. Kindly click register if you do not have a log on access already. 

Statistics
Please see the following page were you will find quarterly statistics on the overall ratio of “Buy”, “Accumulate”, “Hold”, “Reduce” and “Sell” in Fearnley’s Recommendations in financial instruments, including a split with respect to issuers where Fearnley provides investment banking services the previous 12 months. Click here to view our statistics

 

General Disclaimer of liability

All Recommendations are distributed by Fearnley as a free informational service to its clients, and is not meant to constitute any form of investment advice as defined in the Norwegian Securities Trading Act Section 2-4 (1).

 

Recommendations should not be construed as an offer or solicitation to buy or sell investment products or services.

 

Opinions expressed in the Recommendations may be subject to change without notice and should be independently confirmed prior to making any investment decision.

 

Fearnley and the analyst accept no responsibility and expressively disclaim any and all liabilities for any and all losses related to investments caused by or motivated by Recommendations from Fearnley. Any person receiving a Recommendation from Fearnley is deemed to have accepted this disclaimer. The disclaimer shall apply even if a Recommendation is shown to be erroneous or incomplete or based upon incorrect or incomplete facts, interpretations or assessments or assumptions by Fearnley, and irrespective of whether Fearnley or any person related to Fearnley can be blamed for the incident.

 

The information in the Recommendations  has unless otherwise stated been obtained from public sources believed to be reliable but Fearnley do not represent that such information is accurate or complete and it should not be relied upon as such. Fearnley, its employees, directors or officers may not be held liable for any errors or inaccuracies or incompleteness in the analysis or for the fitness of the information for any purposes and hereby expressly disclaim all liability for any loss, direct or indirect or any other kind of damage resulting from any reliance upon or use of Recommendations and the information contained therein.

 

Confidentiality

Recommendations are confidential, and may not be reproduced, in whole or in part, without the prior written consent of Fearnley. Recommendations are intended for professional investors only and may not be passed on to any legal or physical person and/or institutions without the prior written consent of Fearnley.

 

5. Special disclaimer for U.S. persons (Equities and Fixed Income)

 

Recommendations distributed by Fearnley are exclusively prepared by Fearnley unless otherwise stated therein.

 

Neither Fearnley nor the persons who prepare Recommendations are associated with any U.S.-registered broker-dealer, and all employees who contribute do so from locations outside the U.S.

 

Recommendations are intended for distribution in the United States to Major U. S. Institutional Investors only, as such term is defined in Rule 15a-6 of the Securities Exchange Act of 1934 and related guidance.  Major U.S. Institutional Investors are U.S.-based investors with sufficient knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of any investment in the securities discussed herein.

 

Transactions in the securities discussed in Recommendation as may be executed through Beech Hill Inc., a broker-dealer registered with the U.S. Securities and Exchange Commission who is a member firm of the U.S. Financial Industry Regulatory Authority. Beech Hill is located at 880 Third Avenue, 16^th Floor, New York, NY 1022 and may be contacted at +1(212)350-7232.

 

The products discussed in Recommendations are not FDIC insured, may lose value and are not guaranteed by Beech Hill or Fearnley. Investing in non-U.S. securities may entail certain risks. This document does not constitute or form part of any offer for sale or subscription, nor shall it or any part of it form the basis of or be relied on in connection with any contract or commitment whatsoever. The securities of non-U.S. issuers may not be registered with or subject to SEC reporting and other requirements. The information available about non-U.S. companies may be limited, and non-U.S. companies are generally not subject to the same uniform auditing and reporting standards as U.S. companies. Fluctuations in the values of national currencies, as well as the potential for governmental restrictions on currency movements, can significantly erode principal and investment returns. Market rules, conventions and practices may differ from U.S. markets, adding to transaction costs or causing delays in the purchase or sale of securities. Securities of some non-U.S. companies may not be as liquid as securities of comparable U.S. companies.

 

Updated information on the companies in which Fearnley and/or its affiliates own 1% or more of a class of securities is disclosed on the web sites of Fearnley (see further reference above) together with information on public offerings of the securities which Fearnley and/or its affiliates have managed or co-managed the latest 12 months, and securities where Fearnley is acting as a market maker.