Pelargos Asia Alpha Fund

Transcription

1 AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014

2 AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2014 TABLE OF CONTENTS PAGE FUND INFORMATION 3 FUND PROFILE 4 SUMMARY FINANCIAL INFORMATION 5 INVESTMENT MANAGER S REPORT 6-9 ANNUAL ACCOUNTS Statement of Financial Position 10 Statement of Comprehensive Income 11 Statement of Cash Flows 12 Statement of Changes In Net Assets Attributable To Holders of Redeemable Units of Participation 13 Notes to the Financial Statements OTHER INFORMATION Other Notes 43 Independent Auditor s Report 44 2

3 FUND INFORMATION REGISTERED OFFICE INVESTMENT MANAGER DEPOSITARY WTC Tower E 7th Floor Prinses Margrietplantsoen AM The Hague The Netherlands Pelargos Capital B.V. WTC, Tower E 7th Floor Prinses Margrietplantsoen AM The Hague The Netherlands Citibank International Ltd Netherlands branch Schiphol Boulevard BH Schiphol The Netherlands LEGAL ADVISOR COMPLIANCE INDEPENDENT AUDITOR De Brauw Blackstone Westbroek N.V. Claude Debussylaan MD Amsterdam The Netherlands CLCS B.V. Keizersgracht DJ Amsterdam The Netherlands PricewaterhouseCoopers Accountants N.V. Fascinatio Boulevard WB Rotterdam PO Box 8800 The Netherlands TITLE HOLDER Stichting c/o: SGG Custody B.V. Claude Debussylaan MD Amsterdam The Netherlands FUND ADMINISTRATOR Citibank Europe plc 1 North Wall Quay Dublin 1 Ireland PRIME BROKERS UBS AG 1 Finsbury Avenue London EC2M 2PP United Kingdom Goldman Sachs International Peterborough Court 133 Fleet Street London EC4A 2BB United Kingdom 3

4 FUND PROFILE (the Fund ) is an open-ended investment fund. Issue and redemption of units of participation is possible as per instruction of the Participant as described in the Prospectus. Date of commencement of NAV calculation was 20 June Key Features Document ( Essentiële Beleggersinformatie ) and Prospectus The Fund s Key Features Document contains information related to its costs and risks. The Key Features Document and Prospectus are available on Investment objective The Fund s objective is to achieve absolute returns in the long term which have a modest volatility and a low correlation with share indices in the region. Assets can be invested in a wide range of financial instruments. The Fund makes use of combinations of long and short positions in equities, as well as derivative positions. The Fund may also use leverage to achieve the return targets or for liquidity reasons in case units of participation are redeemed. Assets will predominantly be invested in Asian securities. Pelargos Capital B.V. has defined a Socially Responsible Investing policy with reference to the investments held by the Fund, implying that some specific companies can be excluded from the investment universe. Dividend In principle the Fund does not pay dividends. The Investment Manager is, however, authorised to pay part of the profit available for distribution to the Participants. Pelargos Capital B.V. was incorporated on 4 March, 2008 and has its registered office in The Hague. The directors of Pelargos Capital B.V. are Orange Dragon Company B.V. (represented by R.A. Dingemans) and Emphi B.V. (represented by P.P.J. van de Laar). Limare B.V. (represented by P.C. Rigter) was until 22 July 2014 director of Pelargos Capital B.V., due to the retirement of P.C. Rigter as of 1 August After the approval of AFM as of 2 September 2014, M. Kretschmer has joint the management team of Pelargos Capital B.V. Depositary Under the Alternative Investment Fund Manager Directive (AIFMD), effective as of 22 July 2014, the Fund appointed Citibank International Ltd Netherlands branch as Depositary of the Fund. Effective 22 July 2014 the Stichting Bewaarder has been renamed into Stichting, reflecting its changing role into being a legal owner of the assets of the Fund. The manager of the Stichting is SGG Custody B.V. Administrator and Prime Broker The Fund is administered by Citibank Europe plc. The Prime Brokers of the Fund are UBS AG, London, United Kingdom and Goldman Sachs International, London, United Kingdom. Investment Manager Pelargos Capital B.V. is the Investment Manager of the Fund and as such is responsible for implementing the investment policy. Pelargos Capital B.V. is registered at The Netherlands Authority of the Financial Markets (AFM). The does not employ any personnel, as all services are provided by the Investment Manager. 4

5 SUMMARY FINANCIAL INFORMATION Class A ( 000) (3) (15) 13 Class B ( 000) 7,557 12,083 (1,692) (8,486) 2,378 Income 7,568 12,100 (1,695) (8,501) 2,391 Class A ( 000) (7) (8) (7) (14) (27) Class B ( 000) (5,121) (5,625) (3,986) (4,115) (4,895) Expenses and withholding taxes (5,128) (5,633) (3,993) (4,129) (4,922) Class A ( 000) 4 9 (10) (29) (14) Class B ( 000) 2,436 6,458 (5,678) (12,601) (2,517) Increase/(decrease) 2,440 6,467 (5,688) (12,630) (2,531) Net assets ( 000) 172, , , , ,496 Number of units of participation Class A Class B 177, , , , , Net asset value per unit of participation Class A (in ) , Class B (in ) , Performance (in %) Class A (in %) (4.37) (8.97) (2.16) Class B (in %) (3.88) (8.52) (1.67) Ongoing Charges Figure (in %)* Class A (in %) Ongoing Charges Figure (in %)* Class B (in %) *Figures for 2010 are based on Total Expense Ratios 5

6 INVESTMENT MANAGER S REPORT For the year ended 31 December 2014 Performance 2014 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec YTD Class A Class B Source: Citibank Europe plc. Over 2014 the realized a 0.9% return for Class A shares and a 1.4% return for the Class B shares. The difference in the returns results from a different fee structure. Since inception in January 2009 (Class A) and June 2008 (Class B) the respective returns amounted to -1.3% for Class A shares and -3.3% for Class B. At year end 2014 the Funds assets under management stood at million, a small gain from prior year. Market review Stock markets in Asia had a difficult start in However, towards the end of the second quarter, losses had been fully reversed as investor s sentiment improved significantly. Over 2014, the MSCI Asia Pacific ex- Japan index (MAPxJ index) recorded a minor fall of 0.2% in US dollars, therefore slightly underperforming the MSCI World index. In local currency however, the MAPxJ index achieved a modest gain of 3.8%. Chinese equities came under pressure due to disappointing macroeconomic data, which was partially caused by the government s anti-corruption campaign and structural reform program. In the second quarter, some small and targeted monetary easing measures sparked hopes among investors for more broad-based policy measures. Additionally, rumors appeared on an imminent launch of the Shanghai- Hong Kong stock connect, a mutual market access scheme. However, it took until the fourth quarter before these hopes became reality: the stock market in Shanghai was opened to investors from Hong Kong (and vice versa). Furthermore, China s central bank, the PBoC, announced an unexpected interest rate cut. This boosted the share prices of Chinese stocks on the local markets. The Chinese CSI300 index appreciated 51.7%, whilst the more large cap oriented MSCI China saw much more modest gains of 4.7%. After initial worries about the impact of the Fed s tapering disappeared, investors started focusing again on economic growth prospects. Southeast Asian countries have the best demographic and consumption growth profiles. On top of that, positive election results in Indonesia and India boosted sentiment in those markets. The sharp drop in oil prices during 2014 have had a big positive impact on those economies. Those economies are large oil importers, therefor lower oil prices led to lower trade deficits and it enabled governments to cut back on fuel subsidies, helping budget deficits. As a result, Southeast Asian markets such as Indonesia, the Philippines and India, were the strongest performers in the region and posted strong gains of roughly 25%. The sector performance dispersion was large. Defensive sectors such as pharmaceuticals, telecommunications and utilities posted gains in the 8% to 17% range. The technology sector posted a decent 8% gain, due to strong demand for smartphones and televisions. Biggest laggards were cyclical sectors such as basic materials, industrials and energy, which all lost over 15%. Investment policy Over the year our investment policy remained largely bottom up and value focused. The Asia-Pacific equity markets saw another year of broad consolidation and as they remained very sensitive to Chinese as well as US policies, we kept our gross exposure at relative low levels. During most of the year the gross exposure was around 90%. Over the summer, portfolio management transitioned from Kees Rigter who retired after more than 30 years in the industry to Angus Chiang, who has gained extensive Asia Pacific equities experience with ACPI, Morgan Stanley and INOX. The net exposure of the fund moved in a tight range of +18% and +4% during the year. From a valuation perspective, Asia-Pacific equities were trading near historic averages. Given the markets high sensitivity to weak macroeconomic growth numbers, a subdued risk profile with low net exposure was warranted. Over the summer, more evidence surfaced that the China slowdown was further exacerbated by European sanctions against Russia. Therefore we trimmed our gross and net exposure to the year low at 78% and 4% respectively. As we became more convinced that global growth was stabilizing and central banks were stepping up their efforts to kick-start global growth again, we gradually increased the risk profile of the fund. The 2014 Fund performance of 0.9% for Class A shares and 1.4% for Class B shares is a bit better than the 0.2% down move for the MSCI 6

7 Asia Pacific ex Japan index in US-dollars. After a flattish performance until mid-april, we lost ground in the ensuing market correction. Thanks to a positive return in the last quarter we ended the year on a positive note. The positive performance largely resulted from stock selection in the long book, where we mention strong contribution from Taiwanese IT companies Hermes Microvsion (back end semiconductor testing equipment) and TSMC (largest foundry), Chinese railway stocks China CNR Corp. (rolling stock manufacturer) and China Rail Construction (railway construction). In the China Consumer sector we benefitted from a long position in VIP-shop (online retailing) and short positions in China Resource Enterprises (retail and beverage conglomerate) and Tingyi (food and beverage producer). In contrast with previous years, weakest performance contributors were evenly split between longs and shorts. The biggest drag to the performance was short Daewoo Shipbuilding (pair trade with long Samsung Heavy Industries). Other positions that subtracted from performance were long Hyundai Motors (Korean automobiles), long Xingyi Glass (auto and construction glass), short Singapore Airlines (airline company benefitting from lower oil price), long Petrochina (integrated oil company), short LG Display (television producer benefitting from strong demand) and long GS Retail (Korean convenience stores facing increased competition). Table 1 shows the main statistics on our exposure management. It shows average risk levels in the portfolio have been low during 2014 with an average gross exposure of 90%, an average net of 11% and average exante portfolio Beta of The exposure levels have remained stable over the past year. The absolute levels are still relatively subdued as the current rotational market environment does not reward our investment style. The year end numbers were a 90% gross, a 14% net exposure and a 0.32 ex-ante Beta. Table 1 and 2 showed that the Fund is well within the limits described in the Prospectus. Table 1. Net- and gross exposure and ex-ante beta of the Fund in 2014 The ex-ante Beta of the Fund remained in a range of 0.14 to 0.38, averaging 0.25 for the year. The Fund maintained its embedded value bias and the Fund s liquidity remains very high: 84% of the Fund can be liquidated in 2 days and 100% within 6 days using 33% of average daily volumes. Graph1. exposure on a daily basis in 2014 Table 2 and Graph 2 show the correlation of the Fund s monthly return to the MSCI Asia Pacific ex Japan index. The realized correlation of the Fund with the MSCI Asia Pacific ex Japan for 2014 was 0.48 and 0.21 since inception, both based on daily return data. Table 2. Realized volatility, Beta and correlation of Fund and MSCI Asia Pacific ex Japan (daily return data) Year Volatility Fund Volatility Benchmark Ex-post Beta Fund Correlation Fund, Benchmark ITD 5.7% 23.9% % 10.0% High Low Average Net exposure 18% 4% 11% Gross Exposure 106% 78% 91% Ex-Ante Beta* Graph 2. Correlation of the Fund and MSCI Asia Pacific ex Japan since inception. *Source: Nomura TradeSpex 7

8 Outlook The current growth profile of the global economy is expected to continue for the time being. This means moderate growth in both developed markets and in most of the large developing countries such as China, Brazil, Turkey and Russia. Positive exceptions will be countries with a favourable demographic profile and thus greater sensitivity to domestic demand. Especially ASEAN countries such as Indonesia, Philippines, Vietnam and India meet this profile. Investors are willing to pay a valuation premium for the additional growth in these markets. As long as global growth remains scarce, it is expected that this premium will persist. The Chinese leadership has indicated that they will continue with the implementation of the much needed structural reforms and anticorruption measures. This comes at the price of lower economic growth in the near term, which they are willing to accept. In the long term this should lead to more stable and balanced economic growth, making China s economy less dependent on fixed asset investments. Inflation is low worldwide, despite efforts by central banks to stimulate growth and inflation. In addition, the oil price halved since the summer of 2014, which is beneficial for Asia because the region is a major importer of oil. Lower import costs directly result in higher disposable income for the population and lower local government deficits as fuel subsidies have been cut. Furthermore, interest rates can remain low, which is favourable for investment and economic growth in the region. The main risks to the Asian equity markets are China s growth slowing too much, which could send the entire region into recession as well as increased geopolitical tensions in Russia, Ukraine, the Middle East, but also in the Asian region itself. Risk management Pelargos Capital B.V. has formulated the Pelargos Capital Fund Governance Code, which complies to the Dufas Fund Governance Principles. This code can be downloaded at: We have devised a prudent risk management framework that is appropriate to the size and scope of the firm and operations. In Compliance, Directors and Portfolio Management meetings, risks are reviewed identified and previously identified risks are monitored. Risk management is considered an integral part of the investment and the operational process. Risk management supports decision making in order to minimize unexpected losses and achieve the absolute return objective. Financial risk management encompasses all elements of our investment process from idea generation, implementation of trades, performance measurement, reporting and attribution analysis. A number of risk management systems allow us to notice any deviations to intended positioning and targets. Operational risk management recognizes the four areas of potential losses; processes, systems, people and external events. With these sources of risk in mind processes and controls are developed, documented and monitored. Exposures to markets, currencies or countries are described in Note 11 of the financial statements. The most important risks are described below; a more extensive list of risks is described in the Prospectus. Risks Volatility of securities held Many factors can affect the market value of the securities invested by the Fund. Not only factors inherent to the pertinent issuing company or the sector in which it operates may influence that value; also geopolitical, national developments and macro-economic factors may have that effect. The performance of the Fund largely depends on the decisions that the fund manager takes as part of the investment process, leading from identification to the implementation of investment opportunities. Investments may be geared towards an expected upswing or downswing in the value of a security; if the security moves adversely the value of the Fund may be negatively affected. Market risk is mitigated by the allocation of appropriate capital resources, which are determined on the basis of stress testing, sensitivity testing and modelling. Concentration risk is mitigated by diversification and holding an adequate number of holdings in the portfolio. The liquidity policy is to maintain assets in such proportion that it will at all times enable the manager to meet its liabilities as they arise. Short selling The Fund may sell equities with the purpose of buying them back later. As the Fund does not hold those equities, they are borrowed. The cost of borrowing varies and influences the return realized on the pertinent position. Conceivably, borrowed equities may need to be returned to the lender at an earlier date than expected. The value of the borrow amount is limited to a maximum of 250% of the Net Asset Value of all (Sub) Classes of Participations. The risk manager is monitoring this limit independently from the portfolio managers and periodically. The prime broker calculates the maximum amount to be lent on the basis of all long and short securities held at the prime broker; this is called the total margin requirement. The Fund does not provide individual securities as collateral for each individual short security transaction. The total short position is taken into account in the calculation of margin requirement. Loans Loans provided by the prime brokers enable the Fund to increase its gross exposure. This increases the Fund s risk profile in terms of price volatility and interest rate volatility. Theoretically holdings purchased with borrowed funds could drop to a value that is less than the amount borrowed. The value of the loan amount is limited to a maximum of 250% of the Net Asset Value of all (Sub)Classes of Participations. Counterparty risk The Fund is susceptible to the risk that counterparties of the Fund will default on their obligations as a result of inter alia a moratorium of payment or involuntarily liquidation. Such counterparties include the Prime Brokers. A Prime Broker is entitled to pledge assets of the Fund to third parties to secure financing to the Fund (rehypothecation). In case of 8

9 involuntary liquidation of the Prime Broker, the Fund ranks as a general creditor in respect to the value of the rehypothecated assets, with the risk that this value may not be reclaimed. The amount of rehypothecation of long assets is limited to 140% of the net indebtedness of the fund. Derivatives The Fund may utilise investment instruments such as exchange-traded futures, OTC options and other derivative contracts. Depending on the type of instrument, a relatively small movement in the price of a contract may result in a profit or loss that is high in proportion to the amounts of the funds actually placed as initial margin or premium paid. Because OTC transactions are not executed via an exchange, pricing may be less transparent. Additionally, OTC transactions may involve counterparty risk with respect to the unrealised profit value within the contract. ISDA rules apply for pledging and potentially receiving collateral for OTC contracts such as options and futures. Other information Statement related to administrative organisation and internal control The Investment Manager has a statement of operational management, which meets the requirements of the Dutch Financial Supervision Act (Wet op het financieel toezicht, or Wft ) and the Dutch Market Conduct Supervision of Financial Enterprises Decree (Besluit gedragstoezicht financiële ondernemingen, or Bgfo ). We have assessed several aspects of operational management throughout the past financial year. We have noticed nothing in our assessments that would lead us to conclude that the description of the structural aspects of operational management within the meaning of article 121 of the Bgfo failed to meet the requirements as specified in the Wft and related regulations. Based on these findings we, as Investment Manager of the Fund, declare that we possess a statement of operational management as defined by article 121 of the Bgfo, which meets the requirements of the Bgfo. We have noticed nothing that would lead us to conclude that operational management does not function as described in this statement. We therefore declare with reasonable assurance that operational management has been effective and has functioned as described throughout the reporting year. AIFMD The primary stated aim of the Alternative Investment Fund Managers Directive (AIFMD) is to increase investor protection. The Fund appointed Citibank International Ltd Netherlands branch as Depository. Pelargos Capital B.V. has been granted the license to manage investment funds (as meant in Article 2:65, first paragraph, sub a, Wet op het Financieel Toezicht (WFT)). The license has automatically been converted into an AIFMD license as of 22 July Pelargos Capital B.V. reviewed the existing documentations and has formalised the independent risk function. Pelargos Capital B.V. complies with AIFMD, including the solvability and liquidity requirements. Personnel The Fund does not employ any personnel and will not employ any personnel for the foreseeable future. Pelargos Capital B.V. has defined a remuneration policy, which among other things includes provisions on the deferral of at least 40% of the variable pay to key risk takers. The directors of Pelargos Capital B.V. discuss the proposed budgeted amount for variable pay with the shareholders of Pelargos Capital B.V.; the directors decide on the assessment of performances of members of personnel and the amount of variable pay allocated to each member of personnel. The amount of variable pay for each director, key risk taker or other employee is dependent on the performance of the relevant fund, the contribution to the(improvement) of the investment process, the contribution to (the improvement of) other company processes among which risk management, the contribution to marketing and sales, as well as the quality of activities in the execution of existing company processes. As of 2015, Pelargos Capital B.V. will apply the AIFMD remuneration rules in relation to the publication of variable remuneration. This is in line with the ESMA Guidelines for AIFMD compliant remuneration policy (ESMA/2013/232) and the related Questions & Answers (ESMA/2014/163). According to the ESMA guidance, the AIFMD rules on variable remuneration should be applied to the first full performance period after the AIFM becomes authorized. Pelargos Capital B.V. is authorized as an AIFM as of 22 July Therefore the AIFMD rules on variable remuneration will be applied for the 2015 accounting period. Other AIFMD rules apply as of 22 July Investment The Fund aims to achieve capital appreciation through investing in long and short positions in equities related to enterprises located in the Asia- Pacific region. The Fund seeks to limit the downward risk while keeping correlation with the returns of relevant market indices low. (Please note that the value of the investments may fluctuate. Past performance is not necessarily a guide to future performance. The value of the product is (among others) subordinated to the developments on financial markets and, if applicable, other markets.) The Hague, 24 April 2015 R.A. Dingemans, P.P.J. van de Laar, on behalf of Orange Dragon Company B.V. on behalf of Emphi B.V. Director Pelargos Capital B.V. Director Pelargos Capital B.V. 9

10 STATEMENT OF FINANCIAL POSITION As at 31 December 2014 Note Assets Financial assets at fair value through profit or loss 3 80,221,803 72,335,514 Amounts due from brokers 6 1,483,229 - Dividends receivable 56, ,419 Interest receivable 11,935 3,087 Margin account 5 23,864,835 30,625,596 Cash and cash equivalents 4 132,754, ,647,917 Total assets 238,392, ,828,533 Liabilities Financial liabilities at fair value through profit or loss 3 62,735,304 54,326,103 Dividends payable - 208,185 Management fee payable 7 155, ,263 Interest payable 88, ,475 Accrued expenses 8 100,911 34,316 Amounts due to brokers 6 3,055,083 - Total liabilities (excluding net assets attributable to holders of redeemable unit of participation) 66,135,617 54,842,342 Net assets attributable to holders of redeemable units of participation 172,256, ,986,191 Net asset value per unit of participation Class A Number of units of participation (Note 13) Net asset value per unit of participation Class B Number of units of participation (Note 13) 177, , , Net asset value per unit of participation Total Net Asset Value 172,256, ,986, ,067,249 See notes to the financial statements 10

11 STATEMENT OF COMPREHENSIVE INCOME For the year ended 31 December 2014 Note Income Interest income 9 76,703 93,752 Gross dividend income 10 2,161,766 1,907,150 Net gain on financial assets and liabilities at fair value through profit or loss 3 7,213,841 9,849,077 Net foreign exchange (loss)/gain on cash and cash equivalent 3 (1,884,138) 249,788 Total income 7,568,172 12,099,766 Expenses Management fees 7 (1,691,739) (1,675,998) Dividend expense on securities sold short 10 (1,964,360) (2,293,813) Interest expense 9 (1,177,376) (1,456,359) Other expenses 7 (4,236) (3,556) Administration fee 7 (99,694) (100,289) Trustee s fee 7 (35,000) (31,000) Legal fee 7 (45,000) (27,700) Cost of supervision 7 (15,000) - Depositary fee 7 (45,540) - Audit fee 7 (20,999) (18,000) Total operating expenses (5,098,944) (5,606,715) Profit before tax 2,469,228 6,493,051 Withholding taxes (29,453) (26,565) Increase attributable to holders of redeemable units of participation 2,439,775 6,466,486 See notes to the financial statements 11

12 STATEMENT OF CASH FLOWS For the year ended 31 December Note Cash flows from operating activities Increase attributable to holders of redeemable units of participation 2,439,775 6,466,486 Adjustment for net foreign exchange (loss)/gain on cash and cash equivalent 1,884,138 (249,787) Adjustment for interest income (76,703) (93,752) Adjustment for dividend income (2,161,764) (1,907,150) Adjustment for interest expenses 1,177,376 1,456,359 Adjustment for dividend expenses 1,964,360 2,293,813 Adjustments to reconcile increase attributable to holders of redeemable units of participation to net cash provided by operating activities: (Increase)/decrease in financial assets at fair value through profit or loss (7,886,289) 1,190,548 Increase in financial liabilities at fair value though profit or loss 8,409,201 12,300,251 Decrease/(increase) in margin cash 6,760,761 (30,625,596) Increase in amounts due from brokers (1,483,229) - Increase in amounts due to brokers 3,055,083 - Increase in management fee payable 6,726 18,561 Increase/(decrease) in accrued expenses 66,595 (10,213) Cash provided by/(used in) operating activities 14,156,030 (9,160,480) Interest received 67, ,209 Dividend received 2,321,489 1,780,346 Interest paid (1,213,521) (1,402,982) Dividend paid (2,172,545) (2,111,610) Net Cash provided by/(used in) operating activities 13,159,308 (10,791,517) Cash flows from financing activities Proceeds from issue of redeemable units of participation - 9,471,000 Payment from redemption of redeemable units of participation (68,958) - Redemption related to equalisation deficit previous year (100,084) (18,544) Net cash flow (used in)/provided by financing activities (169,042) 9,452,456 Net increase/(decrease) in cash and cash equivalents 12,990,266 (1,339,061) Net foreign exchange (loss)/gain on cash and cash equivalent (1,884,138) 249,787 Cash and cash equivalents at the beginning of the year 121,647, ,737,191 Cash and cash equivalents at the end of the year 4 132,754, ,647,917 See notes to the financial statements 12

13 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE UNITS OF PARTICIPATION For the year ended 31 December 2014 Note Number of shares 2014 Balance at the beginning of the year 178, ,986,191 Increase attributable to holders of redeemable units of participation resulting from operations for the year - 2,439,775 Payments for redeemable units of participation during the period 13 (73) (68,958) Redemption related to equalisation deficit previous year 13 (105) (100,084) Net assets attributable to holders of redeemable units of participation at the end of the year 178, ,256,924 Note Number of shares 2013 Balance at the beginning of the year 168, ,067,249 Increase attributable to holders of redeemable units of participation resulting from operations for the year - 6,466,486 Issue of redeemable units of participation during the year 13 10,092 9,471,000 Redemption related to equalisation deficit previous year 13 (20) (18,544) Net assets attributable to holders of redeemable units of participation at the end of the year 178, ,986,191 See notes to the financial statements 13

14 NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December FUND INFORMATION (the Fund ) is an open-ended investment fund incorporated on 17 June The first trade date for Class B units of participation was on 23 June Initial subscriptions for Class A units of participation were received on dealing date 27 January The Fund is not listed on any stock exchange. The units of participation are registered per investor. The Fund will, under certain conditions, be able to issue and purchase units of participation. Issue and redemption of units of participation is possible on a dealing date, which is the first business day of each month. The Investment Manager holds the right to suspend redemptions in case of extreme market circumstances, when effectuating the lock up on Class B units of participation or in case of a significant size of the redeemed amount. The right to suspend redemptions is explained in more detail in the Prospectus of the Fund. The Fund is a Fund for Joint Account, which means that there is a contractual obligation among the Investment Manager, the Title Holder and the Participant. The Investment Manager was granted the license to manage investment funds under the Financial Supervision Act (Wft) as of 9 December As of 29 July 2011, the Fund has been registered under this license at The Netherlands Authority for the Financial Markets (AFM). Granted license (non-ucits) to managers, was automatically transferred into an AIFM license as of 22 July Under AIFMD the Fund appointed Citibank International Ltd Netherlands branch as Depositary to be an independent custodian responsible for safekeeping of the Fund s assets. Due to the appointment of the Depositary, the role of Stichting Bewaarder has been limited into only being a legal owner of the assets of the Fund. As of 22 July 2014 the name of Stichting Bewaarder has been changed into Stichting. The Fund s objective is to achieve absolute returns in the long term which have a modest volatility and a low correlation with share indices in the region. Assets can be invested in a wide range of financial instruments. The Fund makes use of combinations of long and short positions in equities, as well as derivative positions. The Fund may use leverage to achieve the return targets or for liquidity reasons in case units of participation are redeemed. Assets will predominantly be invested in Asian securities. Since its incorporation and until year end 31 December 2014, the Fund appointed Citibank Europe plc as Administrator. The Administrator provides fund administration and transfer agency services to the Fund. Citibank Europe plc is based in Ireland and adheres to Irish AML rules and regulations. 2. PRINCIPAL ACCOUNTING POLICIES (a) Statement of compliance The financial statements of the Fund have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU), the Dutch Financial Supervision Act and Title 9 book 2 Dutch Civil Code. (b) Basis of preparation The financial statements have been prepared on a historical cost basis, except for financial instruments classified at fair value through profit or loss which have been measured at fair value. The financial statements are presented in Euro. The preparation of financial statements in accordance with IFRS, as adopted by the EU, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Management believes that the estimates utilised in preparing its financial statements are reasonable and prudent. Actual results could differ from these estimates. The Fund s functional and presentation currency is the euro. As most holders of Units of Participation, the Investment Manager and the Title Holder are based and operate in Euro markets, the Fund s performance is evaluated and its liquidity is managed in euros. New standards, amendments and interpretations to existing standards which are relevant to the Fund and not yet effective IFRS 9 Financial Instruments: Classification and Measurement The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortised cost, fair value through OCI and fair value through P&L. The basis of classification depends on the entity s business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income, for liabilities designated at fair value, through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for 14

15 the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. IFRS 9 is applicable for periods beginning on or after 1 January 2018 with earlier application permitted. The Fund will assess the impact on the financial statements by then. A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2014, and have not been applied in preparing these financial statements. None of these are expected to have a material effect on the financial statements of the Fund. New standards, amendments and interpretations to existing standards effective after 1 January 2014 Amendment to IAS 36, Impairment of assets on recoverable amount disclosures This amendment addresses the disclosure of information about the recoverable amount of impaired assets if that amount is based on fair value less costs of disposal. This amendment has no material impact on the Fund. Amendment to IAS 39, Financial instruments: recognition and measurement on novation of derivatives This amendment provides relief from discontinuing hedge accounting when novation of a hedging instrument to a central counterparty meets specified criteria. This amendment will not have a material impact on the Fund. IFRIC 21, Levies This is an interpretation of IAS 37, Provisions, contingent liabilities and contingent assets. IAS 37 sets out criteria for the recognition of a liability, one of which is the requirement for the entity to have a present obligation as a result of a past event (known as an obligating event). The interpretation addresses what the obligating event is that gives rise to the payment of a levy and when a liability should be recognised. This amendment will not have a material impact on the Fund. (c) Financial instruments Financial assets and liabilities at fair value through profit or loss The category of financial assets and liabilities at fair value through profit or loss are categorised as financial assets and liabilities held for trading. These include equities, futures, forward contracts, contracts for difference (CFDs) and liabilities from short sales of financial instruments. These instruments are acquired or incurred principally for the purpose of generating a profit from short-term fluctuation in price. Derivatives are categorised as held for trading, as the Fund does not designate any derivatives as hedges for hedge accounting purposes as described under IAS 39. Initial measurement Purchases and sales of financial instruments are accounted for at trade date. Realised gains and losses on disposals of financial instruments are calculated using the first-in-first-out ( FIFO ) method. Financial instruments categorised at fair value through profit or losses are measured initially at fair value. Transaction costs are costs incurred to acquire financial assets or liabilities at fair value through profit or loss. They include fees and commissions paid to agents, advisers, brokers and dealers. Transaction costs, when incurred, are immediately recognised in net gain or loss on financial assets and liabilities at fair value through profit or loss. Subsequent measurement After initial measurement, the Fund measures financial instruments which are classified as at fair value through profit or loss at fair value. Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm s length transaction. The fair value of financial instruments traded in active markets is based on their quoted market prices or sourced from a data vendor, at the Statement of Financial Position date without any deduction for estimated future selling costs. Financial assets are priced at their current bid prices, while financial liabilities are priced at their current offer price. For all other financial instruments not traded in an active market and if a quoted market price is not available from a data vendor, the fair value of the financial instruments may be estimated by the Investment Manager using valuation techniques, including use of recent arm s length market transactions, reference to the current fair value of another instrument that is substantially the same, discounted cash flow techniques, option pricing models or any other valuation technique that provides a reliable estimate of prices obtained in actual market transactions. Subsequent changes in the fair value of financial instruments at fair value through profit or loss are recognised in the Statement of Comprehensive Income. Where the Fund has assets and liabilities with offsetting market risks it uses mid-market prices as a basis for establishing fair values for the offsetting risk positions and applies the bid or offer price to the net position as appropriate. 15

16 (d) Recognition The Fund recognises a financial asset or a financial liability when, and only when, it becomes a party to the contractual provisions of the instrument. Purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the marketplace are recognised on the trade date, i.e., the date that the Fund commits to purchase or sell the asset. (e) 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. The Fund derecognises a financial liability when the obligation specified in the contract is discharged, cancelled or expires. (f) Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the Statement of Financial Position when there is a legally enforceable right to set off the recognised amounts and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously. (g) Forward Foreign Currency Contracts The fair value of open forward foreign currency exchange contracts is calculated as the difference between the contracted rate and the current forward rate that would close out the contract on the Statement of Financial Position date. Gains or losses on open forward foreign currency exchange contracts are included in the net gain/(loss) on financial assets and liabilities in the Statement of Comprehensive Income. (h) Futures Contracts For open futures contracts, changes in the value of the contract are recognised as unrealised gains or losses by marking to market the value of the contract at the Statement of Financial Position date. When the contract is closed, the difference between the proceeds from (or cost of) the closing transactions and the original transaction is recorded in the net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the Statement of Comprehensive Income. (i) Contract for Difference A contract for difference (CFD) is an agreement between two parties to exchange the difference between the opening and closing value of a position in a specific financial instrument, such as quoted securities, index and foreign exchange. The daily changes in contract value are recorded as unrealised gains or losses and the Fund recognises a realised gain or loss when the contract is closed. Unrealised gains and losses on CFDs are recognised through net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the Statement of Comprehensive Income. (j) Redeemable units of participation The Fund has issued two classes of redeemable units of participation, Class A units and Class B units, which are redeemable at the participant s option. Class A units differ from Class B units with respect to management fees and performance fees. Redeemable units of participation can be put back to the Fund at any Dealing day for cash equal to a proportionate share of the Fund s net asset value attributable to the share class. Units of participation are redeemable monthly. The participants of Class B units of participation are not entitled to request the Fund to redeem all or part of their redeemable units of participation during the lock-up period of one year from the acceptance of subscriptions. The redeemable units of participation are carried at the redemption amount that is payable at the Statement of Financial Position date if the holder exercised the right to put the unit of participation back to the Fund. (k) Subscription and redemption fees A fee could be charged upon each issue, transfer or redemption of a unit of Participation of up to 1.0%. The actual fee charged is set by the Investment Manager, is credited to the Fund and is charged to cover transaction related costs. (l) Interest income/expense and borrowing fee Interest income and interest expense are recognised on an accruals basis in line with the contractual terms. The majority of the interest expense in the Statement of Comprehensive Income includes CFD interest, cash interest and borrowing fee. Borrowing fee is a paid fee related to stock loan activities. (m) Expenses Expenses are recognised in the Statement of Comprehensive Income on an accrual basis accounted in the year that the costs are incurred. (n) Dividend income and expense Dividends are credited to the Statement of Comprehensive Income on the dates on which the relevant securities are listed as ex-dividend. Income is shown gross of any non-recoverable withholding taxes, which is disclosed separately in the Statement of Comprehensive Income, and net of any tax credits. Dividend expense relating to equity securities sold short is recognised when the shareholders right to receive the payment is established. 16

17 (o) Statement of Cash Flows The Statement of Cash Flows is prepared according to the indirect method. For the purposes of the Statement of Cash Flows, financial instruments at fair value through profit or loss are included under operating activities. Cash flows from financing activities include proceeds from subscriptions and payments for redemptions of units of the Fund. (p) Foreign currency translation Functional and presentation currency The Fund s investors are mainly from the Eurozone, with the subscriptions and redemptions denominated in Euro. The performance of the Fund is measured and reported to the investors in Euro. Therefore the financial statements are presented in Euro, which is the Fund s functional and presentation currency. Foreign currency transactions Monetary assets and liabilities denominated in currencies other than Euro are translated into Euro at the closing rates of exchange at each period end. Transactions during the year, including purchases and sales of securities, income and expenses, are translated at the rate of exchange prevailing on the date of the transaction. Foreign currency translation gains and losses are included in net foreign exchange gain/(loss) in the Statement of Comprehensive Income. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined. (q) Cash and cash equivalents Cash consists of cash at bank and cash equivalents consist of shortterm investments available to the Fund with original maturities of three months or less and short-term, highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value. Cash is held with UBS AG. Short-term investments that are not held for the purpose of meeting short-term cash commitments and restricted margin accounts are not considered as cash and cash equivalents. (r) Taxation The Fund is organised as a fund for joint account ( Fonds voor gemene rekening ) as defined in article 2 paragraph 2, of the Dutch Corporate Income Tax Act ( CITA ) ( Wet op de vennootschapsbelasting 1969 ) and qualifies as a tax exempt investment fund ( Vrijgestelde Beleggingsinstelling ) within the meaning of article 6a, CITA. Consequently, the Fund will be fully exempt from corporate income tax in The Netherlands. All payments by the Fund under the participations can be made free of withholding or deduction of any taxes of whatsoever nature imposed, levied, withheld or assessed by the Netherlands or any political subdivision or taxing authority thereof or therein. The issuance or transfer of participation, and payments under a participation, will not be subject to value added tax in the Netherlands. The subscription, issue, placement, allotment, delivery or transfer of a participation, will not be subject to registration tax, stamp duty or any other similar tax or duty payable in the Netherlands. In some jurisdictions, investment income and capital gains are subject to withholding tax deducted at the source of the income. The Fund presents the withholding tax separately from the gross investment income in the Statement of Comprehensive Income. For the purpose of the Cash Flow Statement, cash inflows from investments are presented net of withholding taxes, when applicable. (s) Significant accounting estimates and judgment in applying accounting policies Application of the accounting policies in the preparation of the Fund financial statements may require the Investment Manager to apply judgment involving assumptions and estimates concerning future results and other developments including the likelihood, timing or amount of future transactions or events. The Fund has no significant accounting estimates that require complex estimates or significant judgment in applying its accounting policies. (t) Short Sales The Fund makes short sales in which a borrowed security is sold in anticipation of a decline in the market value of that security. Short sales are classified as financial liabilities at fair value through profit or loss. (u) Amounts due from/(to) brokers Amounts receivable from and payable to brokers include cash balances with the Fund s Prime Broker and amounts receivable or payable for securities transactions that have not settled at the year end. Certain amounts of this cash results from the proceeds of trading securities sold short and may therefore be subject to withdrawal restrictions until such time as the securities are purchased by the Fund. The Fund has also purchased securities on margin and the related margin balances are secured on certain of the Fund s investments in securities. 17