Finles Lowestoft Equities Fund. Finles Lowestoft Equities Fund. Financial Statements for the period January 1, 2015 until June 30, 2015

Transcription

1 Finles Lowestoft Equities Fund Financial Statements for the period January 1, 2015 until June 30, 2015

2 Table of contents Page General information 1 Financial statements Statement of financial position 3 Statement of comprehensive income 4 Statement of changes in net assets attributable to holders of redeemable shares 5 Statement of cash flows 6 Notes to the financial statements 7 General 7 Accounting policies 8 Risk management 14 Fair value of financial assets and liabilities 19 Derivative financial instruments 20 Other explanatory notes 20

3 General information Registered office Finles Lowestoft Equities Fund Euclideslaan BS Utrecht The Netherlands Fund Manager Finles N.V. Euclideslaan BS Utrecht The Netherlands Banking Relationships ING Bank Slaski S.A. Pulawska Warszawa Poland Depositary Darwin Depositary Services B.V. Barbara Strozzilaan HN Amsterdam The Netherlands Prime Broker & Custodian ABN AMRO Bank N.V. 10 Gustav Mahlerlaan 1082 PP Amsterdam The Netherlands Administrator Circle Investment Support Services B.V. Utrechtseweg 31D 3811 NA Amersfoort The Netherlands Nomura International Plc 1 Angel Lane, London EC4R 3AB United Kingdom Legal Owner Stichting Bewaarder Lowestoft Equities Fund Utrechtseweg 31D 3811 NA Amersfoort The Netherlands Independent auditor Crowe Horwath Foederer Accountants B.V. Paasheuvelweg BH Amsterdam The Netherlands Tax Advisor Crowe Horwath Foederer B.V. Paasheuvelweg BH Amsterdam The Netherlands Compliance Advisor Compliance Advies Rotondeweg BG Blaricum The Netherlands 1

4 Financial statements 2

5 Statement of financial position as at June 30, 2015 Note Assets Cash and cash equivalents 6 111, ,561 Receivables 7-24,557 Total assets 111, ,118 Liabilities Bank overdraft Other payables and accrued expenses 11 34, ,462 Total liabilities (excluding net assets attributable to holders of redeemable shares) 34, ,118 Net assets attributable to holders of redeemable shares 9 77,077 - Total liabilities (including net assets attributable to holders of redeemable shares) 111, ,118 Number of redeemable shares outstanding Net asset value per redeemable share 240,866 - The accompanying notes are an integral part of these financial statements. 3

6 Statement of comprehensive income for the period January 1, 2015 until June 30, 2015 Note / / Income Net gains/(losses) on financial assets and financial liabilities at fair value through profit or loss 12-1,740,206 Net currency gains/(losses) 13 7,679 (410,827) Dividend income ,951 Stock loan fees - 437,211 Total income 7,679 2,587,541 Expense Management and performance fees ,817 Interest expenses ,877 Custodian and administration fee 16 3,372 12,954 Audit and legal fees 17 1,546 41,818 Other general expenses 908 7,122 Bank commissions ,577 Tax Advisor fees 11 20,000 - Corporate Tax (96,028) 77,079 Total operating expense (69,398) 1,390,244 Operating profit/(loss) 77,077 1,197,297 Withholding tax - (924,762) Increase/(decrease) in net assets attributable to holders of redeemable shares from operations 77, ,535 4

7 Statement of changes in net assets attributable to holders of redeemable shares for the period January 1, 2015 until June 30, 2015 Note Net assets attributable to holders of redeemable shares Number of redeemable shares Net asset value per share Balance as at January 1, ,893, , Proceeds from redeemable shares issued 32, Redemption of redeemable shares (5,236,281) (50.12) Increase/(decrease) in net assets attributable to holders of redeemable shares from operations 310,757 - Balance as at December 31, Balance as at January 1, Proceeds from redeemable shares issued Redemption of redeemable shares Increase/(decrease) in net assets attributable to holders of redeemable shares from operations 77,077 Balance as at June 30, , ,

8 Statement of cash flows for the period January 1, 2015 until June 30, 2015 Net cash flow from operating activities Note / / Purchase of investments - (59,790,914) Proceeds from sales of investments - 60,263,666 Net non?dividend receipts/(payments) on securities sold short - - Net payments from derivative activities - (2,581,525) Operating expenses paid (23,665) (766,887) Interest received - 176,100 Dividend paid - (103,811) Net cash provided by/(used in) operating activities (23,665) (2,803,371) Cash flows from financing activities Net increase/(decrease) in subsciptions received in advance 20,958 - Net cash provided by/(used in) financing activities 20,958 - Net increase/(decrease) in cash and cash equivalents (2,707) (2,803,371) Cash and cash equivalents at beginning of the period 107,561 3,318,193 Bank overdrafts at beginning of the period (656) (466) Effect of exchange rate fluctuations on cash and cash equivalents 13 7,679 2,989,126 Cash and cahs equivalents at the end of the period 111,877 3,503,482 6

9 Notes to the financial statements 1 General Finles Lowestoft Equities Fund (the Fund ) is an open ended investment fund ( Fonds voor gemene rekening ) domiciled in The Netherlands and the address of its registered office is Euclideslaan 151, 3584 BS Utrecht. The Fund was incorporated on March 18, 2013 but it started operation on July 1, The Fund s redeemable shares are not traded in public markets. The Fund is a contractual vehicle, governed by its terms and conditions. The terms and conditions form part of the contractual relationship existing between Fund Management, Darwin Depositary Services B.V. and each participant (separately). Privium Management B.V. was the Fund Manager until September The new Fund Manager is Finles N.V. In accordance with the latest available draft offering documents of the Fund dated September 30, 2014, the Fund's investment objective is to achieve an absolute positive return with a below average market risk, therefore preserving investor capital. To achieve this, the Fund will employ a market neutral long/ short equities strategy, mainly focussed on listed European equities. The regulatory environment for investment funds is currently evolving as new legislation aimed at increasing transparency of the space of alternative investment funds is being introduced. In the light hereof, during the existence of the Fund, additional and/or amended legislation and regulations affecting the Fund, the Fund Manager, the Depositary and the Administrator may come into force. The AIFM Directive is an example of such new legislation. The Fund, the Fund Manager and the Depositary shall fully comply with any licence and other requirements following from the implementation of the AIFM Directive in the Netherlands. The Depositary and the Fund Manager may amend the Fund Documents if the Depositary and the Fund Manager reasonably determine that a regulatory change has a material adverse effect on the Fund and/or the Depositary and/or the Fund Manager, such that (i) the material adverse effect of the applicable change is removed or mitigated, and (ii) the Fund shall bear its reasonable allocable portion of the costs in relation to the implementation of and compliance with the change (it being understood such allocation is in principle determined on the basis of the percentage of assets managed through the Fund in proportion to the total assets under management of all funds managed by the Fund Manager). The Fund s investment activities are managed by the Fund Manager, with the administration delegated to Circle Investment Support Services B.V. The Fund manager authorized these financial statements for issue on August 28, 2015 (refer to note 22). 7

10 2 Accounting policies Accounting policies 2.1 Basis of presentation The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). The financial statements have been prepared on a historical cost basis except for financial assets and liabilities held for trading (including derivative financial instruments), designated upon initial recognition, at fair value through profit and loss Changes in accounting policy and disclosure Standards and amendments to existing standards effective January 1, 2014 The Fund has adopted Investment Entities (amendments if IFRS 10, IFRS 12 and IAS 27) (2012) with a date of initial application of 1 January The Fund meets the definition of an investment entity. The Fund has no subsidiaries; therefore, the amendments did not have an impact on the Fund s financial statements. New standards, amendments and interpretations effective after January 1, 2014 and have not been early adopted A number of new standards and 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. The only new standard relevant to the Fund is IFRS 9 Financial Instruments, which is discussed below. The Fund does not plan to adopt IFRS 9 early. (a) IFRS 9 Financial Instruments IFRS 9, published in July 2014, will replace the existing guidance In IAS 39. It includes revised guidance on the classification and measurement of financial instrument, including a new expected credit loss model for calculating impairment on financial assets, and the new general hedge accounting requirements. It also carries forward the guidance on recognition and derecognition of financial instruments from IAS 39. (b) Amendment to IAS 24 Annual Improvements to IFRSs Cycle Amendment to IAS 24, issued in December 2013, extends the definition of a related party to include a management entity that provides key management personnel services to the reporting entity. The amendment specifies that if key management personnel services are provided by a management entity, then the reporting entity is required to separately disclose the amounts incurred for the provision of key management personnel services that are provided by that management entity. However, the reporting entity is not required to look through the management entity and disclose compensation paid by the management entity to its employees and directors. An entity applies the amendment for annual periods beginning on or after 1 July Earlier application is permitted. As the Fund is already disclosing this information, the amendment will not have an impact on the Fund. There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Fund. 2.2 Functional and presentation currency These financial statements are presented in, which is the Fund s functional and presentation currency. All financial information presented in has been rounded to the nearest, or otherwise stated. In 2015 the Fund changed its base currency from USD to. Management considers the as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions. Amongst others the primary objective of the Fund is to generate returns in, its capital-raising currency. The liquidity of the Fund is managed on a day-to-day basis in in order to handle the issue, acquisition and resale of the Fund s redeemable shares and the Fund s performance is evaluated in. 8

11 2.3 Foreign currency Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions or valuation where items are re-measured. Foreign currency assets and liabilities are translated into the functional currency using the exchange rate prevailing at the statement of financial position date. Foreign currency gains and losses arising from translation, foreign exchange gains and losses relating to cash and cash equivalents and foreign exchange gains and losses relating to the financial assets and liabilities carried at fair value through profit or loss are included in the statement of comprehensive income within Net currency gains or losses. 2.4 Significant accounting judgments and estimates The preparation of the Fund s financial statements requires management to make judgments, estimates and assumptions that affect the amounts recognized in the financial statements. However, uncertainty about these assumptions and estimates could result in outcomes that could require a material adjustment to the carrying amount of the asset or liability affected in the future. Actual results may differ from these estimates. Estimates underlying assumptions are reviewed on an ongoing basis. Revisions to estimates are recognized prospectively Measurement of fair values The Fund's accounting policies and disclosures require the measurement of fair values, for financial assets and liabilities held for trading. The Fund has an established control framework with respect to the measurement of fair values. This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values. The valuation team regularly reviews significant unobservable inputs and valuation adjustments. If third party information, such as broker quotes or pricing services, is used to measure fair values, then the valuation team assesses the evidence obtained from the third parties to support the conclusion that such valuations meet the requirements of IFRS, including the level in the fair value hierarchy in which such valuations should be classified. When measuring the fair value of an asset or a liability, the Fund uses market observable data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows. Level 1: quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs). If the inputs used to measure the fair value of an asset or a liability might be categorized in different levels of the fair value hierarchy, then the fair value measurement is categorized in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. The Fund recognizes transfers between levels of the fair value hierarchy at the end of the reporting period during which the change has occurred. 9

12 2.5 Going concern The investment manager has made an assessment of the Fund s ability to continue as a going concern and is satisfied that the Fund has the resources to continue in business for the foreseeable future. The investment manager is not aware of any material uncertainties that may lead to significant doubt about the Fund s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. 2.6 Summary of significant accounting policies The significant accounting policies adopted by the Fund and consistently applied to all periods presented in these financial statements are as follows: Financial assets and financial liabilities (i) Classification The Fund classifies its financial assets and financial liabilities into the following categories in accordance with IAS 39. Financial assets at fair value through profit or loss The category of financial assets and liabilities at fair value through the profit or loss is sub-divided into: Financial assets and liabilities held for trading Financial assets held for trading include equity securities, investments in managed funds and debt instruments. These assets are acquired principally for the purpose of generating a profit from short-term fluctuation in price. All derivatives and liabilities from short sales of financial instruments are classified as held for trading. Derivative financial assets and liabilities entered into by the Fund do not meet the hedge accounting criteria as defined by IAS 39. Consequently, hedge accounting is not applied by the Fund. Financial assets at amortized cost Financial assets at amortized costs are loans and receivables and are financial assets with fixed or determinable payments that are not quoted in an active market. The Fund includes in this category amounts relating to reverse repurchase agreements, cash collateral on securities borrowed and other short-term receivables. Financial liabilities at fair value through profit or loss The financial liabilities at fair value through profit or loss reflects held for trading securities and includes securities sold short and derivative financial instruments. Financial liabilities at amortized cost This category includes all financial liabilities, other than those classified at fair value through profit or loss. 10

13 (ii) Recognition, derecognition and measurement Regular way purchases and sales of investments are recognized on the trade date the date on which the Fund commits to purchase or sell the investment. Financial assets and financial liabilities at fair value through profit or loss are recognized at fair value. Transaction costs are expensed as incurred in the statement of comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or the Fund has transferred substantially all risks and rewards of ownership. Subsequent to initial recognition, all financial assets and financial liabilities at fair value through profit or loss are measured at fair value. Gains and losses arising from changes in the fair value of financial assets or financial liabilities at fair value through profit or loss are presented in the statement of comprehensive income within Net gains/(losses) on financial assets and financial liabilities at fair value through profit or loss in the period in which they arise. Subsequent measurement for loans and receivables is at amortized cost. Dividend income from financial assets at fair value through profit or loss is recognized in the statement of comprehensive income within 'Dividend income' when the Fund s right to receive payments is established. Dividend expense on short sales of equity securities is included within Dividend expenses. Interest on debt securities at fair value through profit or loss is recognized in the statement of comprehensive income within 'Interest income' based on the effective interest rate. (iii) Determination of fair value 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. The fair value for financial assets and liabilities traded in active markets at reporting date (level 1) is based on last traded prices and settlement prices, without any deduction for transaction costs. 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 asking price to the net open position as appropriate. The Fund does not have any offsetting positions as at December 31, For all other financial assets and liabilities not traded in an active market (levels 2 & 3), the fair value is determined by using appropriate valuation techniques. Valuation techniques include: using recent arm s length market transactions; reference to the current market value of another instrument that is substantially the same; discounted cash flow analysis and option pricing models making as much use of available and supportable market data as possible. (iv) 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 offset the recognized amounts and there is an intention to settle on a net basis, or realize the asset and settle the liability simultaneously. Cash and cash equivalents Cash and cash equivalents comprise cash on hand, short term deposits in banks and brokers and cash collateral provided in respect of derivatives, securities sold short and securities borrowing transactions that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, with original maturities of three months or less. For the purpose of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above, net of outstanding bank overdrafts. 11

14 Bank overdraft Bank overdraft in the statement of financial position comprises negative amounts on current account. Cash balances and bank overdraft are subject to interest income and interest expense respectively and are recognized in statement of comprehensive income. Due to brokers Amounts due to brokers are payables for securities purchased (in a regular way transaction) that have been contracted for but not yet paid on the reporting date. It comprises the amounts due on broker accounts. Redeemable participating shares Redeemable participating shares are redeemable at the shareholders option and are classified as financial liabilities. These shares are recognized and measured at fair value. The fair value is measured by the difference between total assets and liabilities excluding the redeemable participating shares. The liabilities arising from the redeemable shares are carried at the redemption amount being the net asset value calculated in accordance with IFRS. For the purpose of calculating the net assets attributable to redeemable shareholders in accordance with the Fund s redemption requirements, the Fund s assets and liabilities are valued on the basis of last trade prices. This valuation of net asset value is different from the IFRS valuation requirements. The Fund issues shares at the net asset value of the existing shares. The holder of participating shares can redeem for cash, at least thirty (30) calendar days prior to the envisaged Redemption Date to the Fund for an amount equal to a proportionate share of the Fund s net asset value (calculated in accordance with redemption requirements). The Fund s net asset value per share is calculated by dividing the net assets attributable to redeemable shareholders (calculated in accordance with redemption requirements) by the number of shares in issue. Distributions payable to holders of redeemable shares Proposed distributions to holders of redeemable shares are recognized in the statement of comprehensive income when they are appropriately authorized and no longer at the discretion of the Fund. This typically occurs when the proposed distribution is ratified at the annual general meeting. The distribution on the redeemable shares is recognized as a finance cost in the statement of comprehensive income. Net gains/(losses) on financial assets and financial liabilities at fair value through profit or loss Net gains/(losses) from financial assets and liabilities at fair value through profit or loss includes all realized and unrealized fair value changes, but excludes interest income, dividend income and dividend expenses. Interest expenses Interest expenses are recognized in the statement of comprehensive income when rights and obligations occur. Dividend expenses Dividend expenses relating to equity securities sold short is recognized when the shareholders right to receive the payment is established. 12

15 Taxation The Fund is a non-transparent or opaque fund for Dutch tax purposes and is not an exempt investment institution or fiscal investment fund nor will it qualify for such status. As such, the Fund is treated as a Dutch tax resident entity subject to the standard Dutch corporate income tax rate. The standard Dutch corporate income tax rate for 2015 is twenty-five per cent (25%). A lower tax rate (20%) applies to the first income bracket, for taxable income up to 200,000. Dividend distributions by the Fund to its investors are in principle subject to fifteen per cent (15%) Dutch dividend withholding tax, which may be reduced or eliminated under relevant tax treaties and/or the EU Parent-Subsidiary Directive, in particular circumstances. In addition, a Dutch corporate taxpayer may apply the participation exemption for an interest held in an open FGR, provided that the relevant conditions are met. Fees, commissions and other expenses All expenses are recognized in the statement of comprehensive income when rights and obligations occur. Statement of cash flows The statement of cash flows is prepared according to the direct method. The statement of cash flows shows the Fund s cash flows for the period divided into cash flows from operations and financing activities. For the purposes of the statement of cash flows, because of the nature of the Fund, cash flows related to the financial instruments are included under operating activities and sell short transactions are included under the purchase of investments. Cash flows from financing activities include proceeds from subscriptions and payments for redemptions of shares of the Fund. Other receivables and prepayments Other receivable and prepayments are amounts that the Fund still has to receive due to transaction that are executed in June 2015 but will be settled in July These amounts are recognised initially at fair value and subsequently stated at amortised cost using the effective interest method. Other payables and accrued expense Other payables and accrued expense consists of various accruals which have been expensed in the first half year of 2015 to the Fund on a monthly basis and for which the Fund will receive invoices in the second half year of These amounts are recognised initially at fair value and subsequently stated at amortised cost using the effective interest method. 13

16 3 Risk management Risk management The Fund s activities are exposed to a variety of financial risks, such as: Market risk (including interest rate risk, currency risk, and other price risk), Credit risk, Liquidity risk. The Fund is also exposed to operational risks such as custody risk. The nature of the Fund s investments involves certain risks and the Fund may utilize investment techniques (such as leverage, short selling and the use of derivatives) which may carry additional risks. An investment in the Fund, therefore carries substantial risk and is suitable only for persons who can affort the risk of losing their entire investment. The Fund's investment objective is to invest in corporate opportunities with sustainability as a driver of investment returns. The Fund targets an absolute return from a multi-strategy approach to sustainability and aspires to a moderate risk profile. It invests in corporate debts, equity securities and their derivatives, listed or traded in established over-the-counter markets, as well as a variety of securities for hedging purposes that serve to mitigate market risk on the portfolio. The Fund Manager of the Fund provides services to the investment business, co-ordinates access to domestic and international financial markets, monitors and manages the financial risks relating to the operations of the Fund through internal risk reports which analyze exposures by degree and magnitude of risks. Market risk Market risk is defined as the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices, and includes 'interest rate risk', 'currency risk' and other price risk'. The Fund Manager monitors the maximum risk on a day-to-day basis. There has been no change to the Fund's exposure to market risks or the manner in which it manages and measures the risk. Interest rate risk Interest rate risk refers to fluctuations in the value of, amongst others, fixed-income security resulting from changes in the general level of interest rates. When the general level of interest rates goes up, the prices of fixed-income securities will generally go down and vice versa. Financial assets and liabilities with longer durations tend to be more sensitive to changes in interest rates, usually making them more volatile than securities with shorter durations. The Fund s income and operating cash flows are dependent on changes in market interest rates. The Fund has no interest bearing financial assets or financial liabilities except for the amounts 'Cash and cash equivalents' and 'Due to brokers' which are subject to normal market related short term interest rates. Therefore the fund's exposure to interest rate risk is limited. Currency risk The Fund may invest in assets denominated in currencies other than its functional currency, the. Consequently, the Fund is exposed to risks that the exchange rate of the relative to other currencies may change in a manner which has an adverse effect on the reported value of that portion of the Fund s assets which are denominated in currencies other than the. 14

17 The following table summarizes the Fund s exposure to currency risk as at the end of the reporting period: Currency FX rate June 30, 2015 Net fair value % NAV () Polish Zloty Pound Sterling US Dollars , Total 21,144 Currency FX rate 2014 Net fair value % NAV () Polish Zloty (656) 0 Pound Sterling US Dollars ,851 0 Total 93,215 At June 30, 2015 had the strengthened/weakened by 5% in relation to all currencies, ceteris paribus, net assets attributable to holders of redeemable share and the change in net assets attributable to holders of redeemable shares from operations would have increased/decreased by 1,057 (2014: 4,661). Other price risk and other risk factors General Price risk is the risk that value of the instrument will fluctuate as a result of changes in market prices (other than those arising from interest rate risk or currency risk), whether caused by factors specific to an individual investment, its issuer or all factors affecting all instruments traded in the market. As the Fund s financial assets and liabilities are carried at fair value with fair value changes recognized in the statement of comprehensive income, all changes in market conditions will directly affect investment income. The Fund Manager monitors the maximum risk on a day-to day basis. There has been no change to the Fund's exposure to market price risks or the manner in which it manages and measures the risk. Price risk is mitigated by the Fund Manager by constructing a diversified portfolio of instruments traded on various markets. There is zero amount (2014: 0) invested in financial instruments at fair value through profit of loss. Dependence on fund manager The Fund Manager has responsibility for placing the Fund s trading activities with the Fund s broker(s). The success of the Fund Manager's trading is to a large degree dependent on the principals thereof, which will make all trading decisions with respect to the Fund s investments. The quality of services provided by the Fund Manager is highly dependent upon the personal skills and abilities of the principals thereof. 15

18 Counterparty risk The Fund has accounts at ING Bank Slaski S.A. and ABN AMRO Bank N.V.. This mitigates the concentration (counterparty) risk. The Moody's ratings credit ratings for these banks are respectively A2 and A2 (2014: A2 and A2). Concentration of investments The Fund may hold relatively few, large investments in relation to the size of the Fund. The Fund could be subject to significant losses if it holds a large position in a particular investment that declines in value or is otherwise adversely affected. Lack of liquidity may aggravate such losses significantly. In addition, the Fund may own a significant percentage of all of the shares or other securities issued by a company. It may not always be possible to dispose of such securities without incurring significant losses. Potential profits may not always be immediately realisable and may therefore be lost prior to realisation. Non-diversified Status of Fund Assets The Fund may not be able to achieve adequate diversification in respect of geography, instrument and investment type, sector, capitalisation, liquidity, volatility and/or currency. Consequently the Fund Assets may be subject to and experience greater risk and market fluctuation than a fund that has investments representing a broader range of investment alternatives. Short Selling The Fund may make use of short selling, including synthetic short selling constructions (buy open puts and sell open calls) within the limits set out in the Investment Restrictions. As there is no limited down side to such transactions, the Fund may incur heavy losses before short positions can be closed out. The Fund's vulnerability to potential losses incurred in short selling may be enlarged due to the illiquidity of the securities involved. Losses on short selling may exceed the Net Asset Value of the Fund causing Participant to lose out on their entire investment in the Fund. Securities Borrowing The Fund may borrow securities within the limits set out in the Investment Restrictions. Securities borrowing transactions may involve that borrowed securities will need to be returned to the lender on a date earlier than expected in which case such securities may need to be purchased in the market against prices which are higher than anticipated. Any re-call of securities by the lender may involve that the Fund will not be able to purchase securities in the market for redelivery in which case the Fund may incur fines or penalties, or, alternatively, it may have to pay significantly higher prices to buy back the securities. Availability of Investment Opportunities The success of the Fund depends upon the ability of the Fund Manager to identify, recommend and consummate Fund Assets that it believes offer the potential for superior returns and subsequently to realize them. The activities of identifying, completing and realizing an attractive investment opportunity is competitive and involves a high risk of uncertainty. There can be no assurance that the Fund Manager will be able to identify and consummate a sufficient number of opportunities to permit the Fund to invest all of its funds available for investment to the extent described herein. General Political Factors Investment results may be adversely affected by developments in countries in which the Fund Assets or counterparties are located. This may result in a partial or complete loss by the Fund as a result of the breakdown of the country's financial system. Such developments include, without limitation: war; civil unrest, ranging from protests to civil war; changes in the political situation and/or government of a country; acts of terrorism; expropriation and creeping expropriation; and inability to transfer moneys cross-border or convert moneys to hard currency. Securities Lending The Fund may lend securities within the limits set out in the Investment Restrictions. Securities lending transactions may involve that securities will or cannot be returned to the Fund or will or cannot be returned to the Fund on the date agreed between the Fund and the lender. As a result the Fund may incur damages and the value of the Participations may decrease. Though the Fund will generally require from the lender security, this security may under circumstances appear not to be adequate or effective. 16

19 Redemption Risk The Fund is an open-ended fund and Participations may be redeemed at the request of a Participant in accordance with the Memorandum and the applicable terms of the Terms and Conditions. Redemptions may cause the Fund to dispose of assets in order to meet its redemption obligations earlier than anticipated or under less favourable market conditions than the Fund would otherwise have disposed of such assets. This may result in a lower Net Asset Value of the Fund generating lower or negative returns for the non-redeeming Participants. Significant redemptions may lead to significant losses to Participants, which remain invested in the Fund. Risks Inherent to the Use of Derivatives The Fund may make use of derivatives within the limits set out in the Investment Restrictions. (a) Margin and Leverage The derivatives used may be highly volatile and may expose the Fund to a high risk of loss. The initial margin deposits required to establish a position in such instruments permit a high degree of leverage. As a result, depending on the type of instrument, a relatively small movement in the price of a contract may result in a profit or a loss, which is high in proportion to the amount of funds actually placed as initial margin and may result in losses exceeding the margin deposited. (b) Liquidity Risk Transactions in over-the-counter derivatives may also involve additional liquidity risk, as there is no exchange or market on which to close out an open position. It may be impossible to liquidate an existing position, to assess the value of a position or to assess the exposure to risk. In adverse market conditions, there may be virtually no liquidity with very significant price movements as a result, which could lower the Net Asset Value of the Fund significantly within a short period of time. (c) Hedges Appropriate hedges may not at all times be available to the Fund to cover the risks posed by derivative transactions which it enters into. Therefore, the Fund may not be able to limit losses incurred in those transactions or may only be able to close out a position at significant costs to the Fund. Credit risk Credit risk is defined as the risk that one party to a financial instrument will cause a financial loss for the other party by failing to discharge an obligation. The Fund will be subject to the risk of the inability of any counterparty (including the prime broker) to perform with respect to transactions, whether due to insolvency, bankruptcy or other causes. All transactions in listed securities are settled/paid for upon delivery by using approved brokers. The risk of default is considered minimal, as delivery of securities is made once the broker has received payment. The trade will fail if either party fails to meet its obligation. The Fund s maximum exposure to credit risk in the event that counterparties fail to perform their obligations as of June 30, 2015 in relation to each class of recognized financial assets is the carrying amount of 111,877 (2014: 132,118) as indicated in the statement of financial position. 17

20 Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in meeting obligations associated with financial liabilities. The Fund can be exposed periodically to cash redemptions of redeemable shares in accordance with the offering documents. Redeemable shares are redeemed on demand at the holder s option based on the Fund s net asset value per share at the time of the redemption. The Fund believes that it has sufficient resources to meet the present and foreseeable needs of its business operations. The Fund s guiding policies are to maintain conservative levels, as adequate reserves, banking facilities and reserve borrowing facilities, of liquidity to ensure that the Fund has the ability to meet its obligations. All the liabilities have contractual maturity dates of less than thirty days. Risks Relating to the Fund Manager (a) Dependence on the Fund Manager The Fund will be relying on the ability of the Fund Manager to actively manage the assets of the Fund. The Fund Manager will make the actual trading decisions upon which the success of the Fund significantly will depend. If for any reason the Fund Manager were to lose the services of its principals, the Fund may be adversely affected. (b) Insolvency, Negligence or Fraudulent Actions Due to the insolvency, negligence or fraudulent actions of the Fund Manager, its officers or employees or third parties used for the custody of assets of the Fund, the value of Participations may decline. Capital management The Fund has no equity. The redeemable shares issued by the Fund provide an investor with the right to require redemption for cash at a value proportionate to the investor s share in the Fund s net assets at each monthly redemption date and are classified as liabilities. For a description of the terms of the redeemable shares issued by the Fund, we refer to note 9 (redeemable shares). The Fund s objectives in managing the redeemable shares are to ensure a stable base to maximize returns to all investors, and to manage liquidity risk arising from redemptions. The Fund s management of the liquidity risk arising from redeemable shares is discussed in this note. The Fund is not subject to any externally imposed capital requirements. 18

21 Fair value of financial assets and liabilities 4 Fair value of financial assets and liabilities The Fund s accounting policy on fair value measurements is discussed in note 2.4 and 2.6. The Fund measures fair values using the fair value hierarchy that reflects the significance of the inputs used in making the measurements as set out below. The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques. For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Level 1: Quoted market price (unadjusted) in an active market for an identical instrument. These investments can include active listed equities; exchange traded derivatives, government treasury bills and government obligations. Level 2: Other significant observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category may include instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. This may include investment-grade corporate bonds and certain government obligations and over-the-counter derivatives. As level 2 investments include positions that are not traded in active markets and/or are subject to transfer restrictions, valuations may be adjusted to reflect illiquidity and/or non-transferability, which are generally based on available market information. Level 3: Valuation techniques using significant unobservable inputs. This category can include all instruments where the valuation technique includes inputs which are not based on observable data and the unobservable inputs have a significant effect on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Its equity consists of a single private equity position. The main inputs into the Fund s valuation model for these investments could include earnings multiples (based on the historical earnings of the issuer over the past decade) and discounted cash flows. Discounted cash flows are calculated using the average rate of inflation during the financial year. The Fund also considers original transaction price, recent transactions in the same or similar instruments and completed third-party transactions in comparable instruments. It adjusts the model as deemed necessary. Its debt consists of a single position. The Fund s valuation model technique for this corporate debt instrument is the net present value of estimated future cash flows. The Fund also considers other liquidity, credit and market risk factors. It adjusts the model as deemed necessary. Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. Black Scholes Model has been used to valuate option positions of the Fund. As per June 30, 2015 the Fund held no financial instruments measured at fair value. As per December 31, 2014 the Fund held no financial instruments measured at fair value. 19

22 5 Derivative financial instruments Typically, derivative contracts serve as components of the Fund s investment strategy and are utilized primarily to structure and hedge investments, to enhance performance and reduce risk to the Fund. Derivatives often reflect at their inception only a mutual exchange of promises with little or no transfer of tangible consideration. However, these instruments frequently involve a high degree of leverage and are very volatile. A relatively small movement in the underlying of a derivative contract may have a significant impact on the profit or loss of the Fund. OTC derivatives may expose the Fund to the risks associated with the absence of an exchange market on which to close out an open position. The Fund Manager closely monitors the Fund s exposure under derivative contracts as part of the overall management of the Fund s market risk. At the reporting date, the Fund held no derivative contracts. Other explanatory notes 6 Cash and cash equivalents Cash at bank 111, , , ,561 Bank overdraft - (656) 111, ,905 The Fund has 2 operating bank accounts. Overdrafts on these accounts are permitted. The cash and cash equivalents are available on demand. The cash is interest bearing. 7 Other receivables and prepayments Receivable from Fund Manager - 20,958 Prepaid administration fee - 3,599 Total - 24,557 Receivable from Fund Manager discloses the subscription amount to be received in This amount was received on March 16, Financial assets and financial liabilities at fair value through profit or loss As of June 30, 2015, the Funds held no positions (2014: no positions). 9 Redeemable shares The Fund s capital is represented by the redeemable shares outstanding. The Fund aims at capital growth. It is envisaged that any income or gains derived will be re-invested and not distributed to the holders of redeemable shares. Shares give the holders of redeemable shares a contractual claim against the depositary of the Fund for payment of an amount equal to the value of a pro rata share in the Fund subject to the terms and conditions. Holders of redeemable shares have no proprietary rights with respect to the fund assets, but an economic interest in the fund assets as the depositary holds the legal title to the fund assets and fund 20

23 obligations for the account and risk of the shareholders. Shares will be in an internal registered form. Certificates representing shares will not be issued. Each share issued confers upon the holder of redeemable shares an equal interest in the Fund, and is of equal value. A share does not confer any interest in any particular asset or investment of the Fund. Holders of redeemable shares have various rights under the Fund s constitution, including the right to: Have their shares redeemed at a proportionate share based on the Fund s net asset value per share on the redemption date; Receive income distributions; Attend and vote at meetings of holders of redeemable shares; and Participate in the termination and winding up of the Fund. The rights, obligations and restrictions attached to each share are identical in all respects. For the purpose of calculating the net assets attributable to holders of redeemable shares in accordance with Fund s constitution, the Fund s assets and liabilities are valued on the basis of last traded prices. The minimum total subscription price for each prospective shareholder is 100,000. The Fund Manager may at its sole discretion resolve to accept subscriptions for lower amounts. A redemption fee of 5% of the total redemption price will be deducted in respect of redeemed shares during the first year of participation. Redemption fees so withheld will be for the benefit of the Fund. 10 Management and performance fees Management fees The Fund Manager is entitled to a Management Fee equal to 2% per annum, calculated over the Net Asset Value of the Fund. Asset management fees are exempted from VAT in the Netherlands. The Management Fee is payable on a monthly basis. The management fees for the financial period 1 January 2015 until 30 June 2015 amounted to 0. Performance fees The Fund manager is entitled to an annual performance fee at rate of 20 percent of the increase (if any) of the net asset value before deduction of the performance fee and after deduction of the management fee, adjusted for subscriptions and redemptions and distributions to shareholders. The performance fees for the financial period 1 January 2015 until 30 June 2015 amounted to Other payables and accrued expenses FATCA Fees 908 1,815 Audit fees 10,000 27,830 Reporting fees 3,207 1,250 DNB Reporting fees 685 4,537 Corporate Tax - 96,030 Tax advisor fees 20,000 - Total 34, ,462 Tax advisor fees The fee charge is in relation to the dividend tax reclaim and the fees for filing the CIT reclaim 2014 and the accrual for

24 12 Net gains/(losses) on financial assets and financial liabilities at fair value through profit or loss / / Net realized result on financial assets and liabilities at fair value through profit or loss Realized result on equity and derivatives - 2,366,242 Net unrealized result on financial assets and liabilities at fair value through profit or loss Unrealized result on derivative assets - (626,036) Total result - 1,740, Net currency gains/(losses) Net currency results on equity Net currency results on derivatives Net currency results on foreign currency / / (1,582,710) - 517,029 7, ,854 7,679 (410,827) Note 14 illustrates the foreign currency effects on the equities, call options and foreign currencies at bank as per period 2014 and Interest expenses / / Interest expenses - 184,877 The Fund has interest expenses due to short cash and short positions the Fund held. 15 Dividend income / / Dividend Income - 820, Custodian and administration fee / / Custodian fee Administration fee - 10,335 Reporting fee 3,075 2,311 Total 3,372 12,954 The administration fee is the compensation of the Fund administrator for performing all financial and accounting duties and functions necessary or appropriate in connection with the activities of the Fund. 22