Chatham European Equities Fund

Transcription

1 The Netherlands ANNUAL REPORT for the year ended 31 March 2014

2 Contents General information 1 Independent Auditor s report 2 Statement of 3 Statement of comprehensive income 4 Statement of cash flows 5 Statement of changes in equity Schedule of investments as at 31 March Schedule of investments as at 31 March

3 General information Fund Manager Finles N.V. Euclideslaan BS Utrecht The Netherlands Administrator TMF Custom House Global Fund Services Westblaak 89 P.O. Box HC Rotterdam The Netherlands Independent Auditor Deloitte Accountants B.V. Orteliuslaan 982 P.O. Box BD Utrecht The Netherlands Legal Advisor Clifford Chance LLP Droogbak la 1013 GE Amsterdam The Netherlands Depository Stichting Bewaarder Chatham European Equities Fund Herikerbergweg CM Amsterdam Zuidoost The Netherlands Broker/Swap Counterparty/Sponsor/ Liquidity Provider Nomura International plc 1 Angel Lane London EC4R 3AB United Kingdom Bank Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. P.O. Box HG Utrecht The Netherlands Page 1

4 Independent Auditor s report To: The Manager and the Participant of Chatham European Equities Fund We have audited the accompanying financial statements for year ended 31 March 2014, of Chatham European Equities Fund, Utrecht, which comprise the statement of as per 31 March 2014, the statements of comprehensive income, changes in equity and cash flows for the book year ended 31 March 2014, and notes, comprising a summary of the significant accounting policies and other explanatory information. Managers responsibility The Manager is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards. Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Auditor's responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Dutch law, including the Dutch Standards on Auditing. This requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the of Chatham European Equities Fund as per 31 March 2014 and of its result and its cash flows for the book year ended 31 March 2014, in accordance with International Financial Reporting Standards. Emphasis of matter regarding the discontinuity of operations We draw attention to note 1 to the financial statements, which describes the fact that Chatham European Equities Fund will not be continuing its operations. Our opinion is not qualified in respect of this matter. Utrecht, 6 October 2015 Deloitte Accountants B.V. Signed on the original: M.C.P. van der Veeken Page 2

5 Statement of (As at 31 March) Assets Note EUR EUR Note 2(e) Cash and cash equivalents 6 115, ,618 Due from Broker 7 966, ,155 Financial assets at fair value through profit or loss 10 6,056,313 6,320,339 Withholding taxes receivable 12 5,251,485 5,230,543 Other receivables and prepaid expenses ,772 29,464 Total assets 12,819,169 12,514,119 Equity 18, 24 6,131,517 6,071,230 6,131,517 6,071,230 Liabilities Due to Broker 7 127,685 58,626 Financial liabilities at fair value through profit or loss 10 1,132, ,122 Amounts payable to Depository 8 112, ,500 Withholding taxes payable to participant 12 5,251,485 5,230,543 Accrued expenses and other payables 17 63,966 83,098 Total liabilities 6,687,652 6,442,889 Total equity and liabilities 12,819,169 12,514,119 The accompanying notes are an integral part of these financial statements. Page 3

6 Statement of comprehensive income (For the year ended 31 March 2014 / for the period from 1 February 2012 (date of commencement) to 31 March 2013) Note EUR EUR Note 2(e) Realised and change in unrealised gains/(losses) on financial assets and liabilities at fair value through profit or loss ,857 (59,023,133) Dividend income ,612 76,310,570 Dividend expenses on securities sold short - (20,712,839) Interest income 21 2, ,637 Interest expense 21 (527) (190,138) 397,689 (3,416,903) Foreign currency translation 22 6,693 4,050,584 6,693 4,050,584 Total income 404, ,681 Management fee 15, 16 (202,500) (265,000) Sponsor and Liquidity Provider fees 16 (26,647) (90,175) Administration fee 15 (36,672) (42,784) Audit fee 15 (34,687) (39,352) Depository fee (21,587) (35,006) Other general expenses (2,196) (8,391) Legal fee (4,734) (2,035) Incorporation costs - (61,900) Total operating expenses (329,023) (544,643) Profit for the year/period before tax 75,359 89,038 Income taxes 23 (15,072) (17,808) Profit for the year/period after tax 60,287 71,230 The accompanying notes are an integral part of these financial statements. Page 4

7 Statement of cash flows (For the year ended 31 March 2014 / for the period from 1 February 2012 (date of commencement) to 31 March 2013) Note EUR EUR Note 2(e) Cash flows from operating activities Profit for the year/period after tax 60,287 71,230 Changes in operating assets and liabilities: Increase in balances due from Broker (165,838) (801,155) Decrease/(increase) in financial assets at fair value through profit or loss 264,026 (6,320,339) Increase in other receivables and prepaid expenses (399,308) (29,464) Increase in balances due to Broker 69,059 58,626 Increase in financial liabilities at fair value through profit or loss 173, ,122 Increase in amounts payable to Depository - 112,500 (Decrease)/increase in accrued expenses and other payables (19,132) 83,098 Net cash used in operating activities (17,012) (5,867,382) Cash flows from financing activities Proceeds from issuance of voting redeemable participations - 6,000,000 Net cash provided by financing activities - 6,000,000 Net (decrease)/increase in cash and cash equivalents for the year/period (17,012) 132,618 Cash and cash equivalents at the beginning of the year/period 132,618 - Cash and cash equivalents at the end of the year/period 6 115, ,618 Cash flows from operating activities include: Interest received 2, ,341 Interest paid (499) (190,109) Dividend received 139,612 76,310,570 Dividend paid - (20,712,839) The accompanying notes are an integral part of these financial statements. Page 5

8 Statement of changes in equity (For the year ended 31 March 2014 / for the period from 1 February 2012 (date of commencement) to 31 March 2013) Note EUR EUR Note 2(e) Balance at 1 April/1 February 6,071,230 - Transactions with participants Issue of participations - 6,000,000-6,000,000 Profit for the year/period after tax 60,287 71,230 Balance at 31 March 18, 24 6,131,517 6,071,230 The accompanying notes are an integral part of these financial statements. Page 6

9 1. GENERAL INFORMATION Chatham European Equities Fund (the Fund ) is structured as a contractual fund with an open-ended structure. The Fund is a fund for joint accounts established and existing under the laws of the Netherlands. The Fund s principal office is located at Euclideslaan 151, 3584 BS Utrecht, the Netherlands. Under the termination agreement dated 26 April 2013, it was decided to dissolve the Fund after receipt and settlement (payment to the participant) of the withholding tax receivables of the Fund. Finles N.V. (the Fund Manager ) expects this to occur within 9 months from the date of the financial statements. The Fund will not continue in operation and therefore, the accounting principles applied by the Fund are on a liquidation basis. This has had no effect on the comprehensive income and equity for the year ended 31 March The investment objective of the Fund was to achieve absolute positive return with a below average risk. To achieve this, the Fund employed a market neutral long/short equities strategy, primarily focused on listed European equities. Two transaction strategies, in line with the broader investment objective of the Funds, were developed and operated during the period. The Fund Manager developed such transaction strategies in conjunction with Nomura International plc ( Nomura ) whereby the Fund may have traded in total return swaps and options, provided that the investment strategy was maintained. Nomura acted as liquidity and leverage provider in such transactions. The Fund s investment activities are managed by Finles N.V. with the administration delegated to TMF Custom House Global Fund Services (the Administrator ). Stichting Bewaarder Chatham European Equities (the Depositary ) will act as depositary of the assets and liabilities of the Fund. The Fund Manager and the Depositary are subject to supervision by the AFM (Stichting Autoriteit Financiële Markten) and DNB (De Nederlandsche Bank N.V.). The Fund is registered under the so-called registratieregime. The Fund commenced operations in February The Fund had no employees during the years ended 31 March 2014 and period ended 31 March The financial statements have been authorised for issue on 6 October BASIS OF PREPARATION a) Statement of compliance These financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ), which comprise standards and interpretations approved by the International Accounting Standards Board ( IASB ). b) Basis of measurement The financial statements are prepared on a fair value basis for financial assets and financial liabilities at fair value through profit or loss which is deemed to equal the liquidation amount. Other financial assets and financial liabilities are also stated at liquidation amount. A valuation on liquidation basis for financial assets and financial liabilities does not lead to significant differences compared to the valuation on a going concern basis. c) Functional and presentation currency The financial statements are presented in EUR, which is the Fund s functional currency. The Fund Manager considers this reflects the primary economic environment in which the Fund operates. d) Use of estimates and judgements The preparation of the financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results could differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are disclosed in notes 3 and 4. Page 7

10 2. BASIS OF PREPARATION (CONTINUED) e) Comparatives The comparative figures reflect the period from date of commencement on 1 February 2012 to 31 March 2013 and are therefore not entirely comparable with the current reporting period included in the financial statements. f) Participants equity All references to NAV throughout the financial statements are equivalent to participants equity. As at 31 March 2014, Nomura was the sole shareholder of the Fund. Nomura also acts as the Sponsor, Liquidity Provider/Swap Counterparty and Broker to the Fund. g) Changes in accounting policies Except as described below in note 3(h), the accounting policies applied in these financial statements are the same as those applied in the Fund s financial statements as at and for the period ended 31 March The changes in accounting policies outlined in note 3(h) have been reflected in the Fund s financial statements for the year ended 31 March SIGNIFICANT ACCOUNTING POLICIES (a) Financial instruments (i) Classification In accordance with International Accounting Standards ( IAS ) 39, Financial Instruments: Recognition and Measurement ( IAS 39 ), the Fund has classified all its investments in the financial assets and liabilities at fair value through profit or loss category. The categories of financial assets and financial liabilities at fair value through profit or loss comprises: Financial instruments held for trading. Financial assets and liabilities held for trading are securities which are either acquired for generating a profit from short-term fluctuations in price or dealer margins, or are included in a portfolio where a pattern of short-term trading exists. Under IAS 39, derivatives and liabilities from short sales are always classified as held for trading. As at 31 March 2014 and 31 March 2013, the Fund held total return swaps, which are classified as financial instruments held for trading. Financial assets and liabilities designated at fair value through profit or loss at inception. The designation of a financial asset or liability at fair value through profit or loss is made upon initial recognition at the Fund s discretion provided that certain conditions are met. They are managed and their performance is evaluated on a fair value basis in accordance with the Fund s documented investment strategy. Furthermore, the information about these financial assets and liabilities on a fair value basis is used for the NAV calculation of the Fund and for periodic information to the investors of the Fund. As at 31 March 2014 and 31 March 2013, the Fund held listed equities which are classified as financial assets designated at fair value through profit or loss at inception. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. Financial assets including cash and cash equivalents, amounts due from Broker and other receivables and prepaid expenses are classified as loans and receivables. Other financial liabilities include all financial liabilities, other than financial liabilities at fair value through profit or loss. The Fund includes in this category amounts relating to amounts due to Broker, amounts payable to Depository and accrued expenses and other payables. (ii) Recognition The Fund recognises financial assets and financial liabilities on the date it becomes a party to the contractual provisions of the instrument. A regular way purchase and sale of investments is recognised using trade date accounting. From this date any gains or losses arising from changes in fair value of the financial assets or liabilities are recognised in the statement of comprehensive income. Page 8

11 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Financial instruments (continued) (iii) Measurement and fair value measurement principles Initial measurement Financial assets and financial liabilities are measured initially at fair value (transaction price) plus, in the case of financial assets or financial liabilities not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of these financial assets or financial liabilities. Transaction costs on financial assets or financial liabilities at fair value through profit or loss are expensed immediately in the statement of comprehensive income, while on other financial assets and financial liabilities they are amortised. Subsequent measurement Subsequent to initial recognition, financial assets and financial liabilities at fair value through profit or loss are measured at fair value, with changes in their fair value recognised as gains or losses in the statement of comprehensive income in the period in which they arise. Loans and receivables are measured at amortised cost using the effective interest rate method, less impairment losses, if any. Financial liabilities arising from the redeemable participations issued by the Fund are carried out at the redemption amount representing the investor s right to a residual interest in the Fund s assets. Financial liabilities that are not at fair value through profit or loss are measured at amortised cost using the effective interest rate method. Fair value measurement principles Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When available the Fund measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and those prices represent actual and regularly occurring market transactions on an arm s length basis. Prior to 1 January 2013, the financial statements of the Fund were prepared in accordance with IAS 39. Fair value measurements were based on quoted bid prices for long securities and quoted offer prices for short securities and if unavailable, by reference to the last reported sales price. The Fund has adopted IFRS 13, Fair value measurement ( IFRS 13 ). From 1 January 2013, the fair value of financial assets and liabilities traded in active markets (such as publicly traded derivatives, trading securities and exchange-traded funds) are based on the last reported market price at the close of trading on the reporting date, if the last reported market price falls within the bid-ask spread. However, if the last reported market price falls outside the bid-ask spread, management will determine the point within the bid-ask spread that is most representative of fair value. The fair value of financial assets and liabilities that are not traded in an active market is determined by using valuation techniques. The Fund uses a variety of methods and makes assumptions that are based on market conditions existing at each reporting date. These valuation techniques involve a degree of estimation, the extent of which depends on the instruments complexity and the availability of market based data. The methods and assumptions applied in determining the fair values of each class of financial assets or financial liabilities are disclosed in note 10. (iv) Derecognition The Fund derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire or it transfers the financial asset and the transfer qualifies for derecognition in accordance with IAS 39. A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or expired. Page 9

12 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Financial instruments (continued) (v) Impairment Financial assets that are stated at cost or amortised cost are reviewed at each reporting date to determine whether there is objective evidence of impairment. If any such indication exists, an impairment loss is recognised in the statement of comprehensive income as the difference between the assets carrying amount and the present value of estimated future cash flows discounted at the financial assets original effective interest rate. If in a subsequent period the amount of an impairment loss recognised on a financial asset carried at amortised cost decreases and the decrease can be linked objectively to an event occurring after the write-down, the write-down is reversed through the statement of comprehensive income. (b) Foreign currency translation Transactions and balances Transactions in foreign currencies are translated at the rates of exchange prevailing at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the reporting date at the exchange rate at that date. Non-monetary items that are measured at fair value in a foreign currency shall be translated using the exchange rates from the date the fair value was determined. Non-monetary items that are carried at historical cost in a foreign currency shall be translated using the exchange rates as at the dates of the initial transactions. Resulting exchange differences on the financial assets and financial liabilities at fair value through profit or loss in foreign currencies are recorded in the statement of comprehensive income as part of the realised and change in unrealised gains/(losses) on financial assets and liabilities at fair value through profit or loss. Realised and unrealised exchange differences on other assets and liabilities are also recorded in the statement of comprehensive income and disclosed within foreign currency translation. (c) Cash and cash equivalents Cash and cash equivalents comprise cash on hand, on demand deposits with banks and other financial institutions, short-term highly liquid investments that are readily convertible into known amounts of cash and which are subject to an insignificant risk of changes in value and which have an original contractual maturity date of three months or less. (d) Income and expense recognition Income is recognised to the extent that it is probable that the economic benefits will flow to the Fund and the income can be reliably measured. Interest income and expense are recognised in the statement of comprehensive income for all interest-bearing instruments on a time-proportionate basis using the effective interest method. Dividend income related to exchange-traded equity investments is recognised in the statement of comprehensive income on the ex-dividend date. Dividend distributions from private equity investments and other investment funds are recognised in the statement of comprehensive income as dividends when declared. Dividend expenses related to short positions are recognised when the investor s right to receive the payment is established. Interest and dividend income received by the Fund may be subject to withholding tax imposed in the country of origin. Interest and dividend income is recorded gross of such taxes. All income and expenses are recognised in the statement of comprehensive income on an accrual basis. Page 10

13 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Taxation Under the current system of taxation in The Netherlands, the Fund is a non-transparent or opaque fund for Dutch tax and is not an exempt investment institution or fiscal investment fund nor will it qualify for such status. As such, the Fund is subject to the standard Dutch corporate income tax regime and is treated as a Dutch tax resident entity. Interest and dividend income received by the Fund may be subject to withholding tax imposed in the country of origin. (f) Total return swaps Total return swap agreements are over the counter ( OTC ) agreements where one party makes payments based on a set rate, either fixed or variable while the other party makes payments based on the return of an underlying asset, which includes both the income it generates and any capital gains. The underlying asset, referred to as the reference asset, it is usually an index, loan or bond. This is owned by the party receiving the set rate payment. They allow the party receiving the total return to gain exposure and benefit from a reference asset without actually having to own it. The fair value of total return swaps is the estimated amount that the Fund would receive or pay to terminate the swap at the statement of date. Realised and unrealised gains and losses on total return swaps are recognised in the statement of comprehensive income. Please refer to Note 5 for further information. (g) Voting redeemable participations All voting redeemable participations issued by the Fund provide investors with the right to require redemption for cash at the value proportionate to the investors share in the Fund s net assets at the redemption date. In accordance with IAS 32, Financial Instruments: Presentation, ( IAS 32 ), such instruments meet the definition of puttable instruments. In accordance with IAS 32 the voting redeemable participations are classified as equity if certain conditions are met. The Fund s voting redeemable participations meet these conditions and are classified as equity. (h) Adoption of new and amended accounting standards and interpretations During the year, the Fund adopted the following new and revised accounting standards in the preparation of these financial statements: IFRS 13, Fair value measurement ( IFRS 13 ) This standard is effective for annual periods beginning on or after 1 January 2013 and accordingly has been adopted for the first time in the current period. This standard improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRS. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. If an asset or a liability measured at fair value has a bid price and an ask price, the standard requires valuation to be based on a price within the bid-ask spread that is most representative of fair value and allows the use of midmarket pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurement within a bid-ask spread. At 31 March 2013, the financial statements of the Fund utilised bid and ask prices for its listed financial assets and liabilities in accordance with IAS 39. On adoption of IFRS 13, the Fund changed its accounting policy for listed financial assets and liabilities to last reported market price, if the last reported market price falls within the bid-ask spread. However, if the last reported market price falls outside the bid-ask spread, the Fund will value a long position at the bid price and a short position at the offer/ask price. Page 11

14 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Adoption of new and amended accounting standards and interpretations (continued) IFRS 13, Fair value measurement ( IFRS 13 ) (continued) In accordance with the transitional provisions of IFRS 13, the Fund has applied the new fair value measurement guidance prospectively. IFRS 7, (Amendment) Financial Instruments: Disclosures ( IFRS 7 ) In December 2011, the IASB issued amendments to IFRS 7, Disclosures Offsetting financial assets and liabilities to include information that will enable users of an entity s financial statements to evaluate the effect or potential effect of netting arrangements, including rights of set-off associated with the entity s recognised financial assets and recognised financial liabilities, on the entity s. The amendments were effective for annual periods beginning on or after 1 January The Fund has provided disclosures in note 9. There are no other new standards, interpretations or amendments to existing standards that are effective for the year beginning on or after 1 April 2013, which are expected to have a material impact on the Fund. (i) Standards, interpretations and amendments to published standards that are not yet effective A number of new standards, amendments to standards and interpretations that may be relevant to investment funds have been issued to date and are not yet effective for these financial statements of the Fund for the year ended 31 March 2014, and have not been applied nor early adopted in preparing these financial statements. The standards, amendments and interpretations issued but not yet effective at the date of authorisation of the Fund s financial statements are listed below: Standard: Narrative: Effective date Annual periods beginning on or after Investment Entities Amendments to IFRS 10, IFRS 12 and IAS 27 1 January 2014 IAS 32 (amendment) Financial Instruments: Presentation clarifies the 1 January 2014 requirements for offsetting financial instruments IFRS 9 Financial Instruments: classification and measurement 1 January 2018 Other than as set out below and overleaf, the Fund Manager anticipates that the adoption of IFRS, that were in issue at the date of authorisation of these financial statements but not yet effective, will have no material impact on the financial statements of the Fund in the year of initial application. IFRS 9, Financial Instruments ( IFRS 9 ) IFRS 9, issued on 24 July 2014 is the IASB s replacement of IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The IASB completed its project to replace IAS 39 in phases, adding to the standard in each phase. The complete standard issued on 24 July 2014 includes requirements previously issued and additional amendments to incorporate a new expected loss impairment model and to introduce limited amendments to the classification and measurement requirements for financial assets. This version of IFRS 9 supersedes all previous versions and is mandatorily effective for periods beginning on or after 1 January 2018 with early adoption permitted (subject to local endorsement requirements). For a limited period, previous versions of IFRS 9 may be adopted early if not already done so provided the relevant date of initial application is before 1 February IFRS 9 uses business models and contractual cash flow characteristics to determine whether a financial asset is measured at amortised cost, fair value through profit or loss or fair value through other comprehensive income, replacing the four category classification in IAS 39. The approach is also based on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets. Most of the requirements for financial liabilities were carried forward unchanged from IAS 39. However, some changes were made to the fair value option for financial liabilities to address the issue of own credit risk. Page 12

15 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Standards, interpretations and amendments to published standards that are not yet effective (continued) IFRS 9, Financial Instruments ( IFRS 9 ) (continued) IFRS 9 introduces a substantially-reformed model for hedge accounting with enhanced disclosures about risk management activity. As part of IFRS 9 the IASB has introduced a new, expected loss impairment model that will require more timely recognition of expected credit losses. Specifically, the new standard requires entities to account for expected credit losses from when financial instruments are first recognised and it lowers the threshold for recognition of full lifetime expected losses. The Fund Manager is currently assessing the impact of IFRS 9 on the financial statements of the Fund. IAS 32, (Amendment) Financial Instruments: Presentation ( IAS 32 ) The amendment, issued in December 2011, clarified the requirements for offsetting financial instruments. The amendment addresses inconsistencies in current practices when applying the offsetting criteria of IAS 32, Financial Instruments, Presentation. The amendment will be applicable for annual periods beginning on or after 1 January 2014 and are required to be applied retrospectively. The Fund Manager is currently assessing the impact of the amendment on the financial statements of the Fund. 4. SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES Application of the accounting policies in the preparation of the financial statements requires Fund Manager to apply judgement involving assumptions and estimates concerning future cash flows and other developments, including the likelihood, timing or amount of future transactions or events. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgement by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. The Fund has made no significant judgements in applying its accounting policies nor are there any sources of estimation uncertainty that may have a significant risk or result in a material adjustment to the carrying amount of assets and liabilities. 5. FINANCIAL RISK MANAGEMENT The investment objective of the Fund was to achieve absolute positive return with a below average risk. To achieve this, the Fund employed a market neutral long/short equities strategy, primarily focused on listed European equities. Two transaction strategies, in line with the broader investment objective of the Funds, were developed and operated during the period. The Fund Manager developed such transaction strategies in conjunction with Nomura, whereby the Fund may have traded in total return swaps and options, provided that the investment strategy was maintained. Nomura acted as liquidity and leverage provider in such transactions. The Fund during the period followed a strategy, broadly in line with the investment objective which was developed by the Fund Manager and Nomura. This involved the purchase of a number of European listed equities by the Fund from Nomura. The Fund entered total return swap agreements on these equities whereby Nomura will receive the positive performance and dividends from the Fund, and Nomura will pay financing. The strategy followed is based on maximisation of dividend payments from equities while eliminating market price risk. As at 31 March 2014 and 31 March 2013, the Fund held 2 European equities and total return swaps on these equities. Page 13

16 5. FINANCIAL RISK MANAGEMENT(CONTINUED) RISK MANAGEMENT The Fund Manager was responsible for identifying and controlling risks and was ultimately responsible for the overall risk management approach within the Fund. The Fund s activities potentially exposed it to a variety of financial risks: market risk (including market price risk, currency risk and interest rate risk), credit risk and liquidity risk. (a) Market risk Market risk is the risk that the fair value of future cash flows of a financial instrument fluctuates as a result of changes in market prices whether those changes are caused by factors specific to the individual security or its issuer or factors affecting all securities traded in the market. Market risk comprises market price risk, interest rate risk and currency risk. Market price risk As at 31 March 2014 and 31 March 2013, the Fund held two total return swaps and two listed equities. As at the reporting date the Fund s investment in equities are not subject to market price risk as the risk is hedged by the total return swaps. Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Fund has no interest bearing financial instruments except for cash at bank and the amounts due to/from Broker which are subject to normal market related short-term interest rates. Therefore the Fund is not exposed to significant interest rate risks. Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. Currency risk exposure arises from the Fund investing in financial instruments and entering into transactions which are denominated in currencies other than its functional currency. As at 31 March 2014 and 31 March 2013, all of the financial assets and liabilities at fair value through profit or loss are traded in EUR. As the Fund s assets and liabilities are predominately denominated in the functional currency the Fund is not exposed to material currency risk. (b) Credit risk Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation or commitment that it has entered into with the Fund. It arises from derivative financial assets, cash and cash equivalents, amounts due from Broker and other receivables. The carrying values of financial assets (excluding any investments in equity instruments) best represent the maximum credit risk exposure at 31 March 2014 of EUR 1,582,584 (2013: EUR 1,343,608). The Fund s cash and cash equivalents are held with Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. which as at 31 March 2014 has a credit rating of AA-1 (2013: AA-) as determined by Standard & Poor s. All transactions of the Fund are cleared by Nomura representing a concentration risk. Under the terms of the operational agreement the Fund will only enter into transactions with Nomura and Nomura will act as leverage and liquidity provider to the transactions. As at 31 March 2014 and 31 March 2013, the Fund held two open total return swaps with Nomura. These transactions expose the Fund to the risk that the counterparty might default on their obligations. The Fund s position is hedged as it owns the shares which are the subject of the total return swap. The Fund also holds unrestricted cash with Nomura. Bankruptcy or insolvency of Nomura may cause the Fund s rights with respect to the cash and/or its investments to be delayed or limited. Page 14

17 5. FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities that are settled by delivering cash or another financial asset. Exposure to liquidity risk arises because of the possibility that the Fund could be required to pay its liabilities or redeem its participations earlier than expected. The Fund s listed securities are considered to be readily realisable as they are listed on recognised exchanges. As at 31 March 2014 and 31 March 2013, the Fund invests in total return swaps that are not traded in an active market. However, the swap counterparty of the total return swaps is the promoter of the investment strategy and the sole investor in the Fund. Therefore, the Fund is not exposed to the liquidity risk of meeting investor redemptions. Further, the leverage to achieve the objective of the investment strategy relating to the maximisation of the dividend cash flows is provided by Nomura. The Fund s other liabilities are short-term in nature. 6. CASH AND CASH EQUIVALENTS At 31 March 2014, cash and cash equivalents comprise balances held with Coöperatieve Centrale Raiffeisen- Boerenleenbank B.A. of EUR 115,606 (2013: EUR 132,618). As at 31 March 2014 and 31 March 2013, an amount of EUR 112,500 is restricted. Please refer to Note 8 for further details. 7. AMOUNTS DUE FROM/TO BROKER As at 31 March 2014, the balance due from Nomura amounts to EUR 966,993 (31 March 2013: EUR 801,155). As at 31 March 2014, the balance due to Nomura amounts to EUR 127,685 (31 March 2013: EUR 58,626). This amount includes short-term debt balances that may be collateralised by certain of the Fund s securities held with the Broker and Depositary. Interest is paid at the daily broker call rate. 8. AMOUNTS PAYABLE TO DEPOSITORY Stichting Bewaarder Chatham European Equities Fund was appointed as Depository of the Fund to segregate the legal ownership of the Fund s assets from the Fund Manager in the interest of the investor. A depository has a regulatory capital base of EUR 112,500. Nomura provided the Fund with EUR 112,500 which as at the reporting date, the Fund holds as part of cash and cash equivalents with Coöperatieve Centrale Raiffeisen- Boerenleenbank B.A. This amount is at the disposition of the Depository for as long as the Directors of the Depositary deem necessary. Page 15

18 9. OFFSETTING ASSETS AND LIABILITIES The Fund presents gross on the statement of, certain financial assets and financial liabilities. As at 31 March 2014 and 31 March 2013, the Fund has entered into a standard ISDA master agreement with Nomura which provides for the netting across all of the Fund s accounts with Nomura, being cash, equities and total return swaps. Financial assets and financial liabilities are presented gross on the statement of financial position. The following tables present the Fund s financial assets and liabilities, by financial instruments subject to the ISDA master agreement. 31 March 2014 Gross amounts offset in the Gross amounts of recognised assets statement of EUR EUR EUR Net amounts of assets presented in the statement of Equities 5,985,100-5,985,100 Due from Broker 966, ,993 Total return swaps 71,213-71,213 Total 7,023,306-7,023, March 2014 Net amounts of assets presented in the statement of financial position Gross amounts not offset in the statement of Financial Cash collateral instruments received Net amount EUR EUR EUR EUR Nomura 7,023,306 (1,259,701) - 5,763,605 Total 7,023,306 (1,259,701) - 5,763, March 2014 Gross amounts of recognised liabilities Gross amounts offset in the statement of Net amounts of liabilities presented in the statement of EUR EUR EUR Due to Broker (127,685) - (127,685) Total return swaps (1,132,016) - (1,132,016) Total (1,259,701) - (1,259,701) Page 16

19 9. OFFSETTING ASSETS AND LIABILITIES (CONTINUED) 31 March 2014 Net amounts of liabilities presented in the statement of Gross amounts not offset in the statement of Financial Cash collateral instruments pledged Net amount EUR EUR EUR EUR Nomura (1,259,701) 1,259, Total (1,259,701) 1,259, March 2013 Gross amounts of recognised assets Gross amounts offset in the statement of Net amounts of assets presented in the statement of EUR EUR EUR Equities 5,910,800-5,910,800 Due from Broker 801, ,155 Total return swaps 409, ,539 Total 7,121,494-7,121, March 2013 Net amounts of assets presented in the statement of Gross amounts not offset in the statement of Financial Cash collateral instruments received Net amount EUR EUR EUR EUR Nomura 7,121,494 (1,016,748) - 6,104,746 Total 7,121,494 (1,016,748) - 6,104, March 2013 Gross amounts of recognised liabilities Gross amounts offset in the statement of Net amounts of liabilities presented in the statement of EUR EUR EUR Due to Broker (58,626) - (58,626) Total return swaps (958,122) - (958,122) Total (1,016,748) - (1,016,748) Page 17

20 9. OFFSETTING ASSETS AND LIABILITIES (CONTINUED) 31 March 2013 Net amounts of liabilities presented in the statement of Gross amounts not offset in the statement of Financial Cash collateral Net instruments pledged amount EUR EUR EUR EUR Nomura 1,016,748 (1,016,748) - - Total 1,016,748 (1,016,748) FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS The tables below and overleaf provide an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into levels 1 to 3 based on the degree to which the fair value is observable: Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities; Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs) Total Level 1 Level 2 Level 3 EUR EUR EUR EUR Financial assets at fair value through profit or loss Financial assets designated at fair value through profit or loss at inception: Investment in equities 5,985,100 5,985, Total 5,985,100 5,985, Financial assets held for trading: Total return swaps 71,213-71,213 - Total 71,213-71,213 - Total financial assets at fair value through profit or loss 6,056,313 5,985,100 71,213 - Financial liabilities at fair value through profit or loss Financial liabilities held for trading: Total return swaps (1,132,016) - (1,132,016) - Total financial liabilities at fair value through profit or loss (1,132,016) - (1,132,016) - Page 18

21 10. FINANCIAL ASSETS AND FINANCIAL LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS (CONTINUED) 2013 Total Level 1 Level 2 Level 3 EUR EUR EUR EUR Financial assets at fair value through profit or loss Financial assets designated at fair value through profit or loss at inception: Investment in equities 5,910,800 5,910, Total 5,910,800 5,910, Financial assets held for trading: Total return swaps 409, ,539 - Total 409, ,539 - Total financial assets at fair value through profit or loss 6,320,339 5,910, ,539 - Financial liabilities at fair value through profit or loss Financial liabilities held for trading: Total return swaps (958,122) - (958,122) - Total financial liabilities at fair value through profit or loss (958,122) - (958,122) - In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, an investment s level within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgement by the Fund. The Fund considers observable data to be that market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. Valuation methods When fair values of listed equities at the reporting date are based on quoted market prices or binding dealer price quotations, without any deduction for transaction costs, the instruments are included in level 1 of the fair value hierarchy. OTC derivative contracts include total return swaps. The fair value of total return swaps is the estimated amount that the Fund would receive or pay to terminate the swap at the statement of date and they are classified within level 2. The Fund s transfers between levels, if any, are assumed to occur on the last day of the reporting period. There were no transfers between level 1 and level 2 during the year/period ended 31 March 2014 and 31 March ASSETS AND LIABILITIES NOT CARRIED AT FAIR VALUE BUT FOR WHICH FAIR VALUE IS DISCLOSED For all of the Fund s financial assets and liabilities not carried at fair value, disclosure of fair value is not required as the carrying amount is a reasonable approximation of fair value. Page 19

22 12. WITHHOLDING TAXES The Fund has withholding taxes receivable from the Luxembourg tax authorities in relation to taxes withheld on dividend income during the year/period as follows: EUR EUR Arcelor Mittal 676, ,185 SES AG 1,909,017 1,909,017 Arcelor Mittal 705, ,108 Arcelor Mittal 999, ,463 Arcelor Mittal 940, ,770 SES AG 14,550 - Arcelor Mittal 6,392-5,251,485 5,230,543 Under the Total Return Swap Agreements entered into between the Fund and its swap counterparty, Nomura International Plc, the Fund paid the proceeds of the withholding taxes receivable to it s participant, whereby any risks or non-collectability of the receivables was not borne by the Fund but by the participant. 13. OTHER RECEIVABLES AND PREPAID EXPENSES At the reporting date, other receivables and prepaid expenses consist of the following: EUR EUR Other receivable* 428,527 - Interest receivable Prepaid administration fee - 9,168 Prepaid management fee - 20,000 Total other receivables and prepaid expenses 428,772 29,464 *With effect from a side letter dated 6 March 2015, the terms of the Total Return Swap Agreement were amended so that the Fund receives the relevant dividends and the positive performance of the shares from Nomura and the Fund will pay the negative performance to Nomura. Accordingly, the positive performance amounts of EUR 241,700 and dividend amounts of EUR 139,000 which were paid to Nomura during the year ended 31 March 2014 were reversed in line with the above side letter and were repaid by Nomura to the Fund. As per the side letter, Nomura paid a total of EUR 428,527 to the Fund during TOTAL EXPENSE RATIO The total expense ratio ( TER ), is the ratio of the total costs to the average net assets of the Fund. The average net assets are based on the Fund s net assets at each calculation of the NAV i.e., monthly. For the year/period ended 31 March, the total expense ratio for the Fund is as follows: Total expense ratio 5.6% 11.8% *Please note the expense ratio is based on the NAV [Please note this Fund is highly leveraged] as calculated in accordance with the Prospectus. Also, please note the TER is not annualised for the period ended 31 March Page 20