Man AHL Diversified Futures Ltd. Report and Financial Statements

Transcription

1 Report and Financial Statements

2 Table of Contents Page Corporate information 3 Report of the custodian 5 Statement of financial position 6 Statement of changes in equity 7 Statement of comprehensive income 8 Statement of cash flows 9 Notes to the financial statements 10 Independent auditors report 29 2

3 Corporate information Directors Investment Manager Michael B Collins Man Investments Limited Argonaut Limited Riverbank House Argonaut House 2 Swan Lane 5 Park Road London EC4R 3AD Hamilton HM 09 United Kingdom Bermuda Introducing Broker and Marketing Adviser Shirelle Jones is an alternate director to Man Investments AG Mr Collins Huobstrasse Pfäffikon SZ Dawn C Griffiths Switzerland Conyers Dill & Pearman Limited Clarendon House Services Manager 2 Church Street Man Investments AG Hamilton HM 11 Huobstrasse 3 Bermuda 8808 Pfäffikon SZ Switzerland John Collis (resigned 31 March 2013) was an alternate director to Ms Griffiths Valuation Service Provider Citibank Europe plc David Smith 1 North Wall Quay Equus Asset Management Partners Dublin 27 Queen Street Ireland Hamilton HM11 Bermuda Legal advisor as to matters of Bermudian law Conyers Dill & Pearman Limited Company Secretary and Registered Office Clarendon House of the Company 2 Church Street Christine Perinchief Hamilton HM 11 To 31 December 2012 Bermuda Citi Hedge Fund Services, Ltd. Hemisphere House Custodian 9 Church Street HSBC Institutional Trust Services (Asia) Limited Hamilton HM 11 HSBC Main Building Bermuda 1 Queen s Road Central Hong Kong From 1 January 2013 Citi Fund Services (Bermuda), Ltd. Principal Paying Agent 5 Reid Street To 31 December 2012 Hamilton HM 11 Citi Hedge Fund Services, Ltd. Bermuda Hemisphere House 9 Church Street Hong Kong Representative Hamilton HM 11 Man Investments (Hong Kong) Limited Suite 1301 Chater House From 1 January Connaught Road Central Citi Fund Services (Bermuda), Ltd. Hong Kong 5 Reid Street Hamilton HM 11 Bermuda Effective as of 1 January 2013 the Company s registered office provider, Registrar and Principal Paying Agent formally changed its name from Citi Hedge Fund Services, Ltd. to Citi Fund Services (Bermuda), Ltd ( Citi Bermuda ). As of the same date Citi Fund Services (Bermuda), Ltd changed its registered office address, and thus the registered office address for all companies for which it provides registered office, to 5 Reid Street, Hamilton HM 11, Bermuda. 3

4 Corporate information (continued) Auditors Registrar Ernst & Young Ltd. To 31 December Bermudiana Road Citi Hedge Fund Services, Ltd. Hamilton HM 11 Hemisphere House Bermuda 9 Church Street Hamilton HM 11 Shareholder Services Provider Bermuda Citibank Europe plc 1 North Wall Quay From 1 January 2013 Dublin 1 Citi Fund Services (Bermuda), Ltd. Ireland 5 Reid Street Hamilton HM 11 Bermuda 4

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6 Statement of financial position As at 30 September 2013 Notes Current assets Cash at bank 3 366,128, ,000,077 Cash with brokers 3 105,780,701 97,458,097 Due from brokers 4,282,697 - Financial assets at fair value through profit or loss (Cost: $19,108,697; 2012: Nil) 4 90,941,617 33,630,387 Subscription receivable 197, ,683 Prepayments and other assets 47, ,054 Total current assets 567,379, ,987,298 Current liabilities Financial liabilities at fair value through profit or loss (Cost: $(11,017,025); 2012: Nil) 4 (101,036,213) (27,560,439) Redemption payable (3,021,396) (2,833,408) Due to brokers (2,206,559) (5,625,656) Accounts payable and accrued expenses 7,8 (2,111,972) (3,546,500) Total current liabilities (108,376,140) (39,566,003) Net Assets Attributable to Holders of Redeemable Participating Shares 459,002, ,421,295 Which are represented by: Equity 15,260,148 (2012: 20,994,600) Redeemable Participating Shares with a Net Asset Value per Redeemable Participating Share of (2012: 34.50) 9 459,002, ,421,295 Management Shares Issued, uncalled ordinary Management Share capital (12,000 Management Shares of 1.00 each) Approved and authorised for issue on behalf of the Board on 23 January Dawn Griffiths Director Michael Collins Director The accompanying notes form an integral part of the financial statements. 6

7 Statement of changes in equity Net Assets Attributable to Holders of Redeemable Participating Shares at beginning of year 724,421,295 1,060,996,444 Net loss for the year attributable to Redeemable Participating Shareholders (72,226,756) (107,261,676) Issue of 1,268,529 (2012: 12,028,466 ) Redeemable Participating Shares 42,500, ,771,911 Redemption of 7,002,981 (2012: 18,437,341) Redeemable Participating Shares (235,691,570) (650,085,384) Net Assets Attributable to Holders of Redeemable Participating Shares at end of year 459,002, ,421,295 The accompanying notes form an integral part of the financial statements. 7

8 Statement of comprehensive income Notes Income Interest income 2 1,856,398 4,826,316 Net loss on financial assets and liabilities at fair value through profit or loss 6 (47,894,195) (75,371,504) Net gain on foreign exchange 6 442, ,497 (45,594,981) (69,601,692) Expenses Management and incentive fees 7,8 (17,923,348) (25,967,028) Introducing broker fees 7,8 (5,974,449) (8,652,448) Director fees 7,8 (14,157) (10,139) Custody fees 7 (117,380) (40,569) Auditor fees (27,000) (13,636) Legal and Other Professional fees 8 (149,747) (140,396) Bank charges (129,953) (129,811) Other connected person expenses 7,8 (1,734,435) (2,040,711) Other expenses 7 (504,777) (478,135) Interest expense 2 (56,529) (187,111) (26,631,775) (37,659,984) Net loss for the year attributable to Redeemable Participating Shareholders (72,226,756) (107,261,676) The accompanying notes form an integral part of the financial statements. 8

9 Statement of cash flows Cash flows from operating activities Net loss for the year attributable to Redeemable Participating Shareholders (72,226,756) (107,261,676) Adjustments to reconcile net loss for the year to net cash used in operating activities: Financial assets and liabilities at fair value through profit or loss 16,164,544 15,405,984 Due from brokers (4,282,697) - Due to brokers (3,419,097) (14,488,435) Prepayment and other assets 649,085 (697,054) Accounts payable and accrued expenses (1,434,528) (14,049,848) Net cash used in operating activities (64,549,449) (121,091,029) Cash flows from financing activities Proceeds on issue of Redeemable Participating Shares 42,503, ,570,228 Payments on redemption of Redeemable Participating Shares (235,503,582) (647,251,976) Net cash used in financing activities (192,999,779) (226,681,748) Net change in cash and cash equivalents (257,549,228) (347,772,777) Cash and cash equivalents at beginning of year 729,458,174 1,077,230,951 Cash and cash equivalents at end of year 471,908, ,458,174 Cash and cash equivalents consist of: Cash at bank 366,128, ,000,077 Cash with brokers 105,780,701 97,458, ,908, ,458,174 Supplemental disclosure of cash flow information: Interest paid (80,624) (187,111) Interest received 12,451,699 4,129,262 The accompanying notes form an integral part of the financial statements. 9

10 Notes to the financial statements 1. General Man AHL Diversified Futures Ltd (the Company ) was incorporated under the laws of Bermuda on 11 September 1997 and carries on business as an open-ended investment company, trading a diversified portfolio of international interbank currency and financial futures. The Company commenced trading on 12 May Summary of Significant Accounting Policies a) Accounting convention The financial statements are prepared in accordance with International Financial Reporting Standards ( IFRS ) issued by the International Accounting Standards Board ( IASB ) and where relevant, in accordance with the provisions of the Hong Kong Securities & Futures Commission Code on Unit Trusts and Mutual Funds pursuant to the Securities and Futures Ordinance (Cap 571) April 2003 (as amended effective 25 June 2010). The financial statements have been prepared on historical cost basis except for financial assets and liabilities held at fair value through profit or loss that have been accounted for based on fair value. b) Changes in Accounting Policy and Disclosure The following new standards and amendments to standards are relevant but not yet effective for the Company s operations: IAS 27 Separate Financial Statements (as revised in 2011) As a consequence of the new IFRS 10 and IFRS 12, what remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. As the Company has no subsidiaries, this amendment has no impact on the Company s financial position or performance and becomes effective for annual periods beginning on or after 1 January IFRS 9 Financial Instruments: Classification and Measurement IFRS 9 as issued reflects the first phase of the IASB s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 is not expected to have an effect on the classification and measurement of the Company s financial assets and liabilities. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture. IFRS 10 Consolidated Financial Statements IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also replaces SIC-12 Consolidation - Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including special purpose entities. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January This amendment is not expected to have an impact on the Company s financial position or performance. IFRS 13 Fair Value measurement IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This standard becomes effective for annual periods beginning on or after 1 January At the date of authorisation of the financial statements there were a number of Standards and Interpretations which were in issue but not yet effective. The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Company. The accounting policies have been consistently applied by the Company in the current and prior year. 10

11 2. Summary of Significant Accounting Policies (continued) c) Use of Accounting Judgements and Estimates The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the amounts reported and disclosures made in these financial statements and accompanying notes, including certain valuation assumptions. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in the future. d) Going Concern The Company s management has made an assessment of the Company s ability to continue as a going concern and is satisfied that the Company has resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company s ability to continue as a going concern, therefore, the financial statements continue to be prepared on a going concern basis. e) Revenue Recognition Interest on financial assets held at fair value through profit or loss for the year are credited to net gain loss on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income on an accrual basis. f) Financial Assets and Liabilities at Fair Value through Profit or Loss Valuation of investments This category has two sub-categories: (i) financial assets and liabilities held for trading; and (ii) those designated by management at fair value through profit or loss at initial recognition. Financial assets or liabilities held for trading are acquired or incurred principally for the purpose of selling or repurchasing in the short term. Derivatives are also categorised as held for trading by definition. After initial measurement, the Company measures financial instruments, which are classified as at fair value through profit or loss, at their fair values. IAS 39 indicates that for listed assets and liabilities the best evidence of fair value is usually the last bid price for securities held and offer price for securities sold short. Financial instruments are designated at fair value through profit and loss because they are managed on a fair value basis. Regular-way purchases and sales of investments are recognised on the trade date, which is the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership. The fair value of financial instruments traded in active markets (such as publicly traded derivatives and trading securities) is based on quoted market prices at the statement of financial position date. The quoted market price used for financial assets held by the Company is the current bid price, whilst the ask price is used for financial liabilities. When the Company holds derivatives with offsetting market risks, it uses midmarket 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 Company may from time to time invest in financial instruments that are not traded in an active market (for example over-the-counter derivatives and private placements of both equities and fixed income securities). The fair value of these financial instruments is determined based on observable inputs such as current interest and currency rates. g) Securities Sold Short The Company may engage in securities sold short. A short sale is a transaction in which the Company sells a security it does not own. The proceeds received for short sales are recorded as liabilities and the Company records an unrealised gain or loss to the extent of the difference between the proceeds received and the value of the open short position. The Company records a realised gain or loss when the short position is closed. By entering into short sales, the Company bears the market risk of an unfavourable change in the price of the security sold short in excess of the proceeds received. Short sales expose the Company to potentially unlimited liability. 11

12 2. Summary of significant accounting policies (continued) h) Derivatives The Company may trade derivative financial instruments, including futures and forwards whose values are based upon an underlying asset, index, currency or interest rate. The unrealised gains or losses, rather than contract or notional amounts, represent the approximate future cash flows from trading. Derivative financial instruments are recognised at fair value on the date on which a derivative contract is entered into and are subsequently remeasured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. Models are calibrated by back testing to actual transactions to ensure outputs are reliable. Models use observable data to the extent practicable. However, areas such as credit risk (both own and counterparty); volatilities and correlations require the Board of Directors to make estimates. Changes in assumptions about these factors could affect the reported fair value of derivative financial instruments at the valuation date. All derivative financial instruments are carried in assets when amounts are receivable by the Company and in liabilities when amounts are payable by the Company. Changes in the fair values of derivatives are included in the statement of comprehensive income. During the year, when the contract is open, changes in the value of the contracts are recognised as unrealised appreciation or depreciation to reflect the fair value of the contract at the last day of the valuation period. When the contract is closed, the Company records a realised gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Company s basis in the contract. The Company may engage in futures contracts, forward contracts and swap contracts. Futures contracts Futures contracts are recorded on the trade date and are valued at the applicable closing bid or offer prices on the last business day of the period. The difference between the original contract amount and the fair value of the open futures position is reflected as unrealised appreciation or depreciation in the statement of financial position and as a net change in unrealised appreciation or depreciation in the statement of comprehensive income. Realised gains or losses are recognised on the closing or trade date of the contract and are included in revenue under net realised gain/(loss) on futures contracts in the statement of comprehensive income. Forward contracts Forward contracts are recorded on the trade date and are valued at the applicable foreign exchange rates on the last business day of the period. The difference between the fair value of the original contract amount and the fair value of the open forward contract position is reflected as unrealised appreciation or depreciation on open forward contracts in the statement of financial position and as a net change in unrealised appreciation or depreciation on open forward contracts in the statement of comprehensive income. Realised gains or losses are recognised on the maturity or trade date of the contract and are included in net realised gain/(loss) on forward contracts in the statement of comprehensive income. Swap contracts Swaps are contractual agreements between two parties to exchange streams of payments over time based on specified notional amounts. The Company s main swap contracts consist of interest rate swaps and credit default swaps as detailed below. Interest Rate Swaps Interest rate swaps relate to contracts taken out by the Company with major brokers in which the Company either receives or pays a floating rate of interest in return for paying or receiving, respectively, a fixed rate of interest. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Changes in the value of the interest rate swap agreements and amounts received or paid in connection with these contracts, are recognised as net gains/(losses) on investments at fair value through profit or loss in the statement of comprehensive income. Credit Default Swaps The Company may enter into credit default swaps for speculative purposes or to manage its exposure to certain sectors of the market or to reduce credit risk. The Company may enter into credit default swap agreements to provide a measure of protection against the default of an issuer (as buyer of protection) and/or gain credit exposure to an issuer to which it is not otherwise exposed (as seller of protection). Credit default swaps are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make a specific payment should a negative credit event take place (e.g. default, bankruptcy or debt restructuring). The Company may either buy or sell (write) credit default swaps. If a credit event occurs, as a buyer, the Company will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising of an index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising of an index. As a seller (writer), the Company will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising of an index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising of an index. 12

13 2. Summary of significant accounting policies (continued) h) Derivatives (continued) The periodic payments received or made by the Company are included in net realised gain/(loss) on investments at fair value through profit or loss in the statement of comprehensive income. Swaps are marked-to-market daily and changes in value are recorded as unrealised appreciation/(depreciation). When the swap is terminated, the Company will record a realised gain/(loss) equal to the difference between the proceeds from (or cost of) the closing transaction and the Company s basis in the contract, if any. Swap transactions involve, to varying degrees, elements of credit and market risk in excess of the amounts recognised in the statement of financial position. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavourable changes in interest rates and/or market values associated with these transactions. i) Realised and Unrealised Gains and Losses All realised and unrealised gains and losses on securities and derivatives are recognised as net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. The cost of securities sold is accounted for on a First In First Out ( FIFO ) basis. The unrealised gain or loss on open derivative contracts is calculated as the difference between the contracted rate and the rate to close out the contract. Realised gains or losses include net gains on contracts which have been settled or offset by other contracts. j) Functional and Presentational Currency The primary objective of the Company is to generate returns in United States dollars, its capital-raising currency. The liquidity of the Company is managed on a day-to-day basis in United States dollars in order to handle the issue and redemption of the Company s Redeemable Participating Shares. The Company performance is also evaluated in United States dollars. Therefore, as United States dollars is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions, the Company s functional currency is United States dollars. The Directors have also chosen United States dollars as the presentational currency. k) Foreign Currency Transactions during the year denominated in foreign currencies have been translated at the rates of exchange ruling at the dates of transactions. For foreign currency transactions and foreign currency investments held at the year end, the resulting gains or losses are included in the net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. Assets and liabilities denominated in foreign currencies are translated at the rates of exchange in effect at the date of the statement of financial position. l) Interest Income and Expense Interest income and expense are recognised in the statement of comprehensive income on an accruals basis, in line with the contractual terms. m) Other Expenses All expenses are recognised in the statement of comprehensive income on an accruals basis. n) Reclassification of Prior Year Comparative Figures Certain prior year comparatives have been reclassified to conform to the current year s presentation. o) Redeemable Participating Shares Redeemable Participating Shares are redeemable at the Redeemable Participating Shareholder s option. The Redeemable Participating Shares are carried at the redemption amount that is payable at the statement of financial position date if the Redeemable Participating Shareholders exercise their right to redeem their participating shares. p) Distributions It is not the intention of the Directors to make any distribution of net income by way of dividends. Net income will, therefore, effectively be represented in the value of the Redeemable Participating Shares. 13

14 3. Cash and Cash Equivalents and Due from/(to) Brokers At year end amounts disclosed as Cash at bank and Cash with broker were held at Citibank N.A., ABN Amro, Barclays Bank, Mizuho Bank, Royal Bank of Scotland, National Bank of Abu Dhabi, Commerzbank AG and BNP Paribas (the Banks ), and Deutsche Bank, J.P. Morgan, Royal Bank of Scotland, Credit Suisse, and Merrill Lynch (the Brokers ). Cash at bank in the statement of financial position comprises cash on hand, term deposits, demand deposits, short-term deposits in banks 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, with original maturities of three months or less. Cash with broker include amounts transferred as collateral against open futures and forward contracts and other derivatives. Amounts receivable from short sales and collateral may be restricted in whole or in part until the related securities are purchased. To the extent that securities are purchased on margin, the margin debt may be secured on the related securities. The maturities of the term deposits held by the Company are listed below: Counterparty Maturity date Commerzbank AG 01 October 2013 National Bank of Abu Dhabi 01 October 2013 Barclays Bank 04 October 2013 National Bank of Abu Dhabi 23 October 2013 Mizuho Bank 23 October Financial Assets and Liabilities at Fair Value through Profit or Loss The following tables summarise financial assets and liabilities at fair value through profit or loss as at 30 September. The table also discloses the % of Net Assets for each derivative position and the notional amount at year end, with the exception of forward currency contracts, which are disclosed by the payable and receivable legs entered into by the Company. Notional 2013 Fair Value % of Net Assets Notional 2012 Fair Value % of Net Assets Financial assets at fair value through profit or loss Derivatives Commodity futures 156,837,385 6,295, ,132,615 5,109, Foreign exchange futures - 205, ,675, , Forward currency contracts 2,760,258,974 16,713, ,564,041,470 8,803, Interest rate futures 2,453,949,712 6,146, ,057,722,917 12,061, Index futures 536,367,420 2,047, ,311, , Commodity forwards 29,531, , ,652,626 6,681, Credit default swap 281,127,000 19,097, Interest rate swap 3,925,679,071 40,028, Total derivatives 10,143,751,165 90,941, ,522,536,395 33,630, Total financial assets at fair value through profit or loss 10,143,751,165 90,941, ,522,536,395 33,630,

15 4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) Notional 2013 Fair Value % of Net Assets Notional 2012 Fair Value % of Net Assets Financial liabilities at fair value through profit or loss Derivatives Commodity futures (220,680,732) (4,180,047) (0.91) (185,078,309) (7,302,453) (1.00) Foreign exchange futures (16,466,215) (7,880) - (25,569,358) (219,502) (0.03) Forward currency contracts (2,768,003,199) (24,458,178) (5.32) (1,561,254,754) (6,016,610) (0.83) Interest rate futures (550,105,165) (3,110,889) (0.68) (752,891,678) (4,616,128) (0.64) Index futures (17,199,993) (4,593,242) (1.00) (7,961,950) (5,911,118) (0.82) Commodity forwards (29,656,346) (530,952) (0.12) (150,465,918) (3,494,628) (0.48) Credit default swap (851,646,999) (11,914,479) (2.60) Interest rate swap (4,013,733,028) (52,240,546) (11.38) Total derivatives (8,467,491,677) (101,036,213) (22.01) (2,683,221,967) (27,560,439) (3.80) Total financial liabilities at fair value through profit or loss (8,467,491,677) (101,036,213) (22.01) (2,683,221,967) (27,560,439) (3.80) The Company invests in a range of derivative securities, as detailed above. The derivatives are cleared through the following brokers, who are situated in the following countries,; Deutsche Bank, England, J.P. Morgan Chase Bank, Scotland, The Royal Bank of Scotland plc, Scotland, Credit Suisse, Australia and Merrill Lynch, London. The Company s Swap notional amounts should be reviewed on a net basis. The Company s Foreign exchange futures held at 30 September consisted only of short positions which have been split by Market Value gain or loss in the above table. The following table details the movements in notional values of the portfolio since the end of the preceding accounting period. Financial assets at fair value through profit or loss Opening Net Additions/Realisations Closing Commodity futures 269,132,615 (112,295,230) 156,837,385 Foreign exchange futures 28,675,630 (28,675,630) - Forward currency contracts 1,564,041,470 1,196,217,504 2,760,258,974 Interest rate futures 7,057,722,917 (4,603,773,205) 2,453,949,712 Index futures 449,311,137 87,056, ,367,420 Commodity forwards 153,652,626 (124,121,023) 29,531,603 Credit default swap - 281,127, ,127,000 Interest rate swap - 3,925,679,071 3,925,679,071 Total 9,522,536, ,214,770 10,143,751,165 Financial liabilities at fair value through profit or loss Opening Net Additions/Realisations Closing Commodity futures (185,078,309) (35,602,423) (220,680,732) Foreign exchange futures (25,569,358) 9,103,143 (16,466,215) Forward currency contracts (1,561,254,754) (1,206,748,445) (2,768,003,199) Interest rate futures (752,891,678) 202,786,513 (550,105,165) Index futures (7,961,950) (9,238,043) (17,199,993) Commodity forwards (150,465,918) 120,809,572 (29,656,346) Credit default swap - (851,646,999) (851,646,999) Interest rate swap - (4,013,733,028) (4,013,733,028) Total (2,683,221,967) (5,784,269,710) (8,467,491,677) 15

16 4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) Derivative financial instruments The Company trades derivative financial instruments, including futures, swaps and currencies whose values are based upon an underlying asset, index, currency or interest rate. The net unrealised gains or losses, rather than contract or notional amounts, represent the Company s approximate future cash flows from trading activities. Forward contracts As part of its portfolio management techniques, the Company may use forward contracts to economically hedge its non-functional currency liability to Redeemable Participating Shareholders (although formal hedge accounting is not used). The Company may also use forward contracts for speculative trading purposes. Forward contracts entered into by the Company represent a firm commitment to buy or sell an underlying asset, or currency at a specified value and point in time based upon an agreed or contracted quantity. The realised/unrealised gain or loss is equal to the difference between the value of the contract at the commencement and the value of the contract at settlement date/year end date and are included in the statement of comprehensive income. Futures contracts The Company may use exchange-traded futures for speculative trading purposes or to maintain the appropriate exposure to stock markets in accordance with the Investment Manager s recommended overall asset allocation. Futures are contracts for delayed delivery of commodities, securities or money market instruments in which the seller agrees to make delivery at a specified future date of a specified commodity or instrument, at a specified price or yield. Gains and losses on futures are recorded by the Company based upon market fluctuations and are recorded as net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. Swap contracts At 30 September 2013, the Company was exposed, via its investments in swap contracts, to the underlying positions representing financial instruments for which notional amounts are summarised on pages 14 and 15. Fair value of financial instruments The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in determining the measurements in line with IFRS 7. The fair value hierarchy has the following levels: Level 1 - Quoted market price in an active market for an identical instrument. Level 2 - Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for 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. Level 3 - Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact 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. At the reporting date any listed equities, debt securities and publicly traded derivatives are included within Level 1 of the hierarchy where their fair values are based on quoted market prices or binding dealer price quotations, without any deduction for transaction costs. For all other financial instruments, fair value is determined using valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. The Company uses widely recognised valuation models for determining fair values of over-the-counter derivatives. For these financial instruments, inputs into models are market observable and are, therefore, included within Level 2. The Company has no level 3 financial instruments. 16

17 4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) Fair value of financial instruments (continued) The following tables analyse the fair value hierarchy of the Company s financial assets and liabilities measured at fair value at 30 September 2013 and 30 September 2012: As at 30 September 2013 Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total Fair Value Derivatives Commodity futures 6,295, ,295,922 Foreign exchange futures 205, ,277 Forward currency contracts - 16,713,953-16,713,953 Interest rate futures 6,146, ,146,005 Index futures 2,047, ,047,733 Commodity forwards - 406, ,209 Credit default swap - 19,097,884-19,097,884 Interest rate swap - 40,028,634-40,028,634 Total derivatives 14,694,937 76,246,680-90,941,617 Total financial assets at fair value through profit or loss 14,694,937 76,246,680-90,941,617 Financial liabilities at fair value through profit or loss Level 1 Level 2 Level 3 Total Fair Value Derivatives Commodity futures (4,180,047) - - (4,180,047) Foreign exchange futures (7,880) - - (7,880) Forward currency contracts - (24,458,178) - (24,458,178) Interest rate futures (3,110,889) - - (3,110,889) Index futures (4,593,242) - - (4,593,242) Commodity forwards - (530,952) - (530,952) Credit default swap - (11,914,479) - (11,914,479) Interest rate swap - (52,240,546) - (52,240,546) Total derivatives (11,892,058) (89,144,155) - (101,036,213) Total financial liabilities at fair value through profit or loss (11,892,058) (89,144,155) - (101,036,213) 17

18 4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) As at 30 September 2012 Financial assets at fair value through profit or loss Level 1 Level 2 Level 3 Total Fair Value Derivatives Commodity futures 5,109, ,109,560 Foreign exchange futures 173, ,014 Forward currency contracts - 8,803,325-8,803,325 Interest rate futures 12,061, ,061,821 Index futures 801, ,332 Commodity forwards - 6,681,335-6,681,335 Total derivatives 18,145,727 15,484,660-33,630,387 Total financial assets at fair value through profit or loss 18,145,727 15,484,660-33,630,387 Financial liabilities at fair value through profit or loss Level 1 Level 2 Level 3 Total Fair Value Derivatives Commodity futures (7,302,453) - - (7,302,453) Foreign exchange futures (219,502) - - (219,502) Forward currency contracts - (6,016,610) - (6,016,610) Interest rate futures (4,616,128) - - (4,616,128) Index futures (5,911,118) - - (5,911,118) Commodity forwards - (3,494,628) - (3,494,628) Total derivatives (18,049,201) (9,511,238) - (27,560,439) Total financial liabilities at fair value through profit or loss (18,049,201) (9,511,238) - (27,560,439) 18

19 5. Financial Risk Management The Company s investment activities expose it to the various types of risk which are associated with the financial instruments and markets in which it invests. The most important types of financial risks to which the Company is exposed are market risk, credit risk and liquidity risk. Market risk includes security price risk interest rate risk and foreign currency risk. The Investment Manager manages these risks on an aggregate basis along with the risks associated with its investing activities as part of its overall risk management policies. The nature and extent of the financial instruments outstanding at the dates of the statement of the financial position and the risk management policies employed by the Company are discussed below. Overall risk management The Company seeks to generate returns through investing in the AHL Programme. The Investment Manager distinguishes between two primary risk levels, which are risks at the Company level, and risks at the underlying investment level. Accordingly, the Investment Manager has implemented procedures to manage risks associated with both the Company and its underlying investments. At the Company level Risk management at the Company level can be segregated into pre and post-investment risk management. Pre-investment risk management involves determining asset allocation and portfolio construction. Thereafter, risk management involves conducting risk and return analysis, monitoring the relevant Company specific portfolio restrictions and investment guidelines and managing currency, interest rate, credit and liquidity risks at the Company level and making relevant adjustments to asset allocation and portfolio construction. Risk considerations or the need to bring the portfolio back in line with product guidelines may trigger a rebalancing of the portfolio, which is typically done on a weekly basis by the Investment Manager's portfolio management team. AHL In the case of the AHL Programme, the trading activity is managed by AHL. AHL identifies opportunities to profit from price movements in more than 300 diverse international markets through specialised investment techniques, advanced technology and daily risk control. The AHL Programme seeks to identify and take advantage of upward and downward price trends. Trading takes place around-the-clock and realtime price information is used to respond to price movements across a diverse range of global markets. Investment rules are executed within a systematic framework. AHL employs a number of risk measures including proprietary measurement methods similar to the industry standard Value-at-Risk ("VaR") and conducts daily stress testing based on historical data. Depending upon the risks identified, AHL may alter the exposure to different markets it trades in. Substantially, all derivative contracts are transacted on a margin basis. The Investment Manager manages the risk associated with these transactions by maintaining margin deposits in compliance with individual exchange regulations and internal guidelines. The Investment Manager also takes an active role in managing and controlling the Company s market and counterparty risks, monitoring trading activities and margin levels daily and, as necessary, deposits additional collateral or reduces positions. Market risk Market risk is the risk that fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and security prices. There are many risk measures used by the Investment Manager, however one generally understood measure is annualised volatility. Annualised volatility is a measure of risk that is calculated as the standard deviation of the returns on the NAV per Redeemable Participating Share from inception up the reporting date. As it is based on the NAV per Redeemable Participating Share, annualised volatility incorporates all performance characteristics of the Company including the impact of interest rate movements and currency exchange differences from inception. Although the direct investments of the Company may change, the investment strategies employed by its underlying investments will not significantly change, meaning that the risk and return characteristics that the Company is exposed to are broadly consistent. Annualised volatility has limitations as it assumes a normal distribution of periodic returns, which may not be fully representative of hedge fund behaviour. The annualised volatility will also be a more accurate measure where more data points exist. Annualised volatility is based upon historical data. There is no guarantee of trading performance and past performance is no indication of future performance or results. As at 30 September 2013, the annualised volatility for the Company was 11.28% (2012: 10.17%) calculated on a weekly basis. 19

20 5. Financial Risk Management (continued) Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Company is directly exposed to interest rate risk through its investment strategy, which is deliberately designed to generate returns through trading strategies focussed on exploiting price differentials in rates. The sensitivity of these exposures is modelled through the overall volatility analysis provided in the market risk section. The Company is significantly exposed to interest rate risk on cash at bank and brokers, Interest Rate Futures and Interest Rate Swaps held at 30 September The following table details the Company's exposure to interest rate risk by the earlier of contractual maturities or re-pricing: As at 30 September 2013 Less than one month One month to one year Over one year Not exposed to interest rate Current Assets: Cash at bank 366,128, ,128,245 Cash with brokers 105,780, ,780,701 Due from brokers 4,282, ,282,697 Financial assets at fair value through profit or loss - 7,001,573 39,173,066 44,766,978 90,941,617 Subscription receivable , ,882 Prepayment and other assets ,969 47,969 Total Total current assets 476,191,643 7,001,573 39,173,066 45,012, ,379,111 Current Liabilities: Due to brokers (2,206,559) (2,206,559) Financial liabilities at fair value through profit or loss - (6,184,864) (49,166,571) (45,684,778) (101,036,213) Redemption payable (3,021,396) (3,021,396) Accounts payable and accrued expenses (2,111,972) (2,111,972) Total current liabilities (excluding Net Assets Attributable to Holders of Redeemable Participating Shares) (2,206,559) (6,184,864) (49,166,571) (50,818,146) (108,376,140) Total interest rate sensitivity gap 473,985, ,709 (9,993,505) (5,805,317) 459,002,971 Cumulative interest rate sensitivity gap 473,985, ,801, ,808, ,002, ,002,971 20

21 5. Financial Risk Management (continued) Interest rate risk (continued) As at 30 September 2012 Less than one month One month to one year Over one year Not exposed to interest rate Current Assets: Cash at bank 416,221, ,779, ,000,077 Cash with brokers 97,458, ,458,097 Financial assets at fair value through profit or loss - 5,823,477 6,238,344 21,568,566 33,630,387 Subscription receivable , ,683 Prepayment and other assets , ,054 Total Total current assets 513,679, ,602,477 6,238,344 22,467, ,987,298 Current Liabilities: Due to brokers (5,625,656) (5,625,656) Financial liabilities at fair value through profit or loss - (4,446,741) (169,387) (22,944,311) (27,560,439) Redemption payable (2,833,408) (2,833,408) Accounts payable and accrued expenses (3,546,500) (3,546,500) Total current liabilities (excluding Net Assets Attributable to Holders of Redeemable Participating Shares) (5,625,656) (4,446,741) (169,387) (29,324,219) (39,566,003) Total interest rate sensitivity gap 508,053, ,155,736 6,068,957 (6,856,916) 724,421,295 Cumulative interest rate sensitivity gap 508,053, ,209, ,278, ,421, ,421,295 Liabilities not exposed to interest rate risk comprise accounts payable and accrued expenses. These amounts normally require contractual settlement within one quarter and, in all cases, within one year. The following tables details the effect on net assets should interest rates have increase/decreased by 50 basis points (bps) with all other variables remaining constant: As at 30 September 2013 Less than one month One month to one year Over one year Not exposed to interest rate Net assets 50 bps increase 476,355, ,793 (10,043,473) (5,805,317) 461,327,012 Net assets 50 bps decrease 471,615, ,625 (9,943,537) (5,805,317) 456,678,930 Total As at 30 September 2012 Less than one month One month to one year Over one year Not exposed to interest rate Net assets 50 bps increase 510,593, ,241,515 6,099,302 (6,856,916) 728,077,687 Net assets 50 bps decrease 505,513, ,069,957 6,038,612 (6,856,916) 720,764,903 Total 21

22 5. Financial Risk Management (continued) Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk though its investments in non- denominated investments. The Investment Manager has an active procedure to monitor foreign exchange exposures and manages this risk though offsetting non denominated balances and entering into offsetting forward foreign exchange contracts. Monetary assets and liabilities denominated in foreign currencies are summarised below: As at 30 September 2013 Amounts are expressed in their equivalents EUR CAD JPY HKD KRW Other Total Current Assets: Cash at bank 359,305,069 6,823, ,128,245 Cash with brokers 67,263,953 17,534,009 2,440,290 3,265,640 1,876,241 4,770,945 8,629, ,780,701 Due from brokers 3,406, , ,282,697 Financial assets at fair value through profit or loss 20,093,067 16,057,115 2,395, ,536 6,501,005 2,949,369 42,058,050 90,941,617 Subscription receivable 197, ,882 Prepayments and other assets 47, ,969 Total current assets 450,314,237 41,290,700 4,835,765 4,153,176 8,377,246 7,720,314 50,687, ,379,111 Current Liabilities: Due to brokers (2,172,533) (34,026) (2,206,559) Financial liabilities at fair value through profit or loss (22,873,841) (12,789,517) (2,261,862) (1,721,027) (8,729,721) (1,633,141) (51,027,104) (101,036,213) Redemption payable (3,021,396) (3,021,396) Accounts payable and accrued expenses (2,111,972) (2,111,972) Total current liabilities (30,179,742) (12,823,543) (2,261,862) (1,721,027) (8,729,721) (1,633,141) (51,027,104) (108,376,140) Net assets 420,134,495 28,467,157 2,573,903 2,432,149 (352,475) 6,087,173 (339,431) 459,002,971 22

23 5. Financial Risk Management (continued) Currency risk (continued) Monetary assets and liabilities denominated in foreign currencies are summarised below. The amounts stated represent the Company s pre-hedged exposure and do not take account of the significantly reduced sensitivity to foreign currency risk that results from currency hedging techniques used As at 30 September 2012 Amounts are expressed in their equivalents EUR CAD JPY HKD KRW Other Total Current Assets: Cash at bank 632,000, ,000,077 Cash with brokers 78,763,000 15,964,715 (500,051) (2,844,601) (1,774,240) 6,733,854 1,115,420 97,458,097 Financial assets at fair value through profit or loss 10,144,488 5,128, ,902 1,738, ,377 2,253,884 13,430,350 33,630,387 Subscription receivable 201, ,683 Prepayments and other assets 697, ,054 Total current assets 721,806,300 21,093, ,851 (1,105,894) (1,449,863) 8,987,738 14,545, ,987,298 Current Liabilities: Due to brokers (5,625,656) (5,625,656) Financial liabilities at fair value through profit or loss (14,911,613) (6,912,510) (711,881) (936,904) (1,064) (86,356) (4,000,111) (27,560,439) Redemption payable (2,833,408) (2,833,408) Accounts payable and accrued expenses (3,546,500) (3,546,500) Total current liabilities (26,917,177) (6,912,510) (711,881) (936,904) (1,064) (86,356) (4,000,111) (39,566,003) Net assets 694,889,123 14,180,884 (602,030) (2,042,798) (1,450,927) 8,901,382 10,545, ,421,295 Other price risk Price risk is the risk that the price of a financial instrument will fluctuate due to changes in market conditions influencing, directly or indirectly, the value of the instrument. The Company is exposed to price risk from its investments. Due to the nature of the trading strategies followed by these investments, no direct relationship between any market factors and the expected prices of the investments can be reliably established. Price risk is managed through the overall risk management processes described above. Credit/Counterparty risk Credit risk is the risk that an issuer or counterparty will be unable to meet a commitment that it has entered into with the Company. The Company's maximum exposure to credit risk (not taking into account the value of any collateral or other security held) in the event that the counterparties fail to perform their obligations as of 30 September 2013 in relation to each class of recognised financial assets, other than derivatives, is the carrying amount of those assets in the statement of financial position. With respect to derivative financial instruments, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. Credit risk is mitigated for the AHL Programme through the diversity of counterparties and regular monitoring of concentration risk. With regards to the credit default swaps, the maximum exposure as a result of a potential future credit event is disclosed as the notional amount in Note 4. 23