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Seafarer Overseas Growth and Income Fund

Message to Shareholders – India Pharmaceutical Holding

Dear Shareholders,

Immediately following the publication of the Seafarer Overseas Growth and Income Fund’s Fourth Quarter 2014 Portfolio Review, the Fund experienced an unusual event: one of its holdings appreciated slightly over 69% in U.S. dollar terms between January 16th and January 23rd, 2015. The position in question is Sun Pharma Advanced Research Company; it is known colloquially by the acronym “SPARC.” Prior to this appreciation, the position constituted approximately 2.8% of the Fund’s net assets. As a result of the appreciation alone, the position is now the largest within the Fund, with a 4.7% weighting as of the date of this report.

SPARC is an India-based pharmaceutical company engaged solely in research and development activities. It has three main areas of focus: it researches new drug delivery systems (e.g., making an existing, powder-form drug soluble so that it can be injected, or tweaking a drug so that it digests slowly in the gut, thereby enhancing its efficacy); it is engaged in the discovery of “new chemical entities,” (i.e. new drugs); and it develops medical devices (e.g., improvements for inhalers to treat asthma). We consider SPARC to be a mid-sized company in terms of its capitalization, which is approximately $1.25 billion as of the date of this report; however, shareholders should be advised that SPARC is nonetheless a smaller company, as it only barely qualifies as a mid-sized firm (our mid-sized range runs from $1 billion to $10 billion). For further information about SPARC, the company’s website is

All of us at Seafarer are pleased by the performance of this position and its recent impact on the Fund’s total returns. However, we wish to draw shareholders’ attention to the extremely speculative nature of this position: the company has scant revenues; it has only recently begun to sporadically produce profits, and those sporadic profits are still intermingled with frequent losses; and the company has no consistent ability to produce cash flow, much less pay a dividend to its shareholders. There is no certainty regarding the company’s future or even its continued existence. Past performance neither indicates nor guarantees future results.

Please also note that this position represents a substantial departure from the Fund’s “core” strategy of seeking steady growth along with steady and growing dividends. It is a special exception to the regular construction of the Fund, and in my personal opinion, it is unique in its nature. When any position – especially a speculative one such as SPARC – appreciates so abruptly, I am prone to sell the underlying stock, thereby reducing the position’s size. I do this in part because of the potential for overvaluation, but mainly because I wish to mitigate the possibility that the position’s new size might induce unwanted, negative volatility in the Fund’s net asset value per share (NAV). I operate under the presumption that any stock that rises so quickly can fall even farther, just as quickly. However, in this particular instance, based on the facts currently at my disposal, I have elected not to substantially reduce SPARC’s position size at this time. I have decided not to do so because, based on my assessment of the company’s unique business model, its governance and management, and the scale of the economic opportunity that it is pursuing, it reasonably has the potential to become substantially more valuable over the next decade. Please note: my decision regarding this position may change at any time, without any notice, particularly in light of additional information, or in reaction to further movements in the position’s stock price.

Accordingly, and on behalf of Seafarer, I wish to advise all shareholders of the potential for heightened volatility in the Fund’s NAV. Any investment in the Fund should be undertaken only over a long-term time horizon; and given the concentration of the Fund in the aforementioned position, the importance of a long-term horizon is heightened further. None of the preceding statements are to be construed as a recommendation for the Fund or for any investment in SPARC.

Thank you for your time, and for entrusting us with your capital.


Andrew Foster,
The views and information discussed in this commentary are as of the date of publication, are subject to change, and may not reflect the writer's current views. The views expressed represent an assessment of market conditions at a specific point in time, are opinions only and should not be relied upon as investment advice regarding a particular investment or markets in general. Such information does not constitute a recommendation to buy or sell specific securities or investment vehicles. It should not be assumed that any investment will be profitable or will equal the performance of the portfolios or any securities or any sectors mentioned herein. The subject matter contained herein has been derived from several sources believed to be reliable and accurate at the time of compilation. Seafarer does not accept any liability for losses either direct or consequential caused by the use of this information.
As of December 31, 2014, Sun Pharma Advanced Research comprised 2.7% of the Seafarer Overseas Growth and Income Fund. View the Fund’s Top 10 Holdings. Holdings are subject to change.