ANNUAL REPORT. Finles Lowestoft Equities Fund. Period ended 31 December 2015

Transcription

1 ANNUAL REPORT Finles Lowestoft Equities Fund Period ended 31 December 2015

2 General information Registered office Finles Lowestoft Equities Fund Euclideslaan BS Utrecht The Netherlands Fund Manager Finles N.V. Euclideslaan BS Utrecht The Netherlands 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 Legal Owner Stichting Bewaarder Lowestoft Equities Fund Utrechtseweg 31D 3811 NA Amersfoort The Netherlands Tax Advisor Crowe Horwath Foederer B.V. Paasheuvelweg BH Amsterdam The Netherlands Independent auditor Crowe Horwath Foederer B.V. Paasheuvelweg BH Amsterdam The Netherlands Compliance Advisor Compliance Advies Rotondeweg BG Blaricum The Netherlands Banking Relationships ING Bank Slaski S.A. Pulawska Warszawa Poland 1

3 Table of contents General information 1 Financial statements Statement of financial position 4 Statement of comprehensive income 5 Statement of changes in net assets attributable to holders of redeemable shares 6 Statement of cash flows 7 Notes to the financial statements 8 General 8 Risk management 9 Other explanatory notes 14 Summary of significant accounting policies 18 Other information Independent auditor's report Page 2

4 Financial statements 3

5 Statement of financial position as at December 31, 2015 Note Assets Cash and cash equivalents 3 32, ,561 Other receivables and prepayments 4 50,000 24,557 Total assets 82, ,118 Liabilities Bank overdraft Other payables and accrued expenses 7 31, ,462 Total liabilities (excluding net assets attributable to holders of redeemable shares) 31, ,118 Net assets attributable to holders of redeemable shares 5 51,302 - Total liabilities (including net assets attributable to holders of redeemable shares) 82, ,118 Number of redeemable shares outstanding Net asset value per redeemable share 160,319 - The accompanying notes are an integral part of these financial statements. 4

6 Statement of comprehensive income for the period January 1, 2015 until December 31, 2015 Note / / Income Net gains/(losses) on financial assets and financial liabilities at fair value through profit or loss 8-1,780,153 Net currency gains/(losses) 9 8,230 (418,367) Interest income 10-19,438 Dividend income ,951 Stock loan fees - 856,930 Total income 8,230 3,059,105 Expense Management and performance fees 6-631,042 Interest expenses ,480 Custodian and administration fee 13 11,817 18,263 Audit and legal fees 14 20,635 79,462 Tax advisor 19,293 - Other general expenses - 130,419 Bank commissions 15 1, ,919 Total operating expense 52,956 1,823,585 Operating profit/(loss) (44,726) 1,235,520 Corporate Tax 16 96,028 - Withholding tax - (924,762) Increase/(decrease) in net assets attributable to holders of redeemable shares from operations 51, ,758 The accompanying notes are an integral part of these financial statements. 5

7 Statement of changes in net assets attributable to holders of redeemable shares for the period January 1, 2015 until December 31, 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, ,626 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 310,758 - 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 51,302 Balance as at December 31, , ,319 6

8 Statement of cash flows for the period January 1, 2015 until December 31, 2015 Net cash flow from operating activities / / Purchase of investments - (362,796,482) Proceeds from sales of investments - 366,742,751 Operating expenses paid (128,260) (703,100) Interest received Interest paid - (185,480) Dividend paid - (103,811) Corporate Tax 96,028 - Net cash provided by/(used in) operating activities (32,232) 2,954,198 Cash flows from financing activities Proceeds from redeemable shares issued - 32,485 Redemption of redeemable shares - (5,236,281) Prepaid redemption (50,000) - Net cash provided by/(used in) financing activities (50,000) (5,203,796) Net increase/(decrease) in cash and cash equivalents (82,232) (2,249,598) 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 8,228 (961,224) Cash and cash equivalents including bankoverdraft at the end of the period 32, ,905 7

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. No investment activities took place during The Fund manager authorized these financial statements for issue on April 21, 2016 (refer to note 22). 8

10 2 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. 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. 9

11 The following table summarizes the Fund s exposure to currency risk as at the end of the reporting period: FX rate Currency December 31, 2015 Net fair value % NAV () Pound Sterling US Dollars , Total 21,523 FX rate Currency December 31, 2014 Net fair value % NAV () Polish Zloty (656) 0 Pound Sterling US Dollars ,851 0 Total 93,215 At December 31, 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 1,076 (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. 10

12 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 credit ratings for these banks are respectively A3 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. 11

13 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 December 31, 2015 in relation to each class of recognized financial assets is the carrying amount of 82,901 (2014: 132,118) as indicated in the statement of financial position. 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. 12

14 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 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 5 (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. 13

15 Fair v Other explanatory notes 3 Cash and cash equivalents Cash at bank 32, ,561 Bank overdraft - (656) 32, ,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. 4 Other receivables and prepayments Receivable from Fund Manager - 20,958 Prepaid administration fee - 3,599 Prepaid shares redeemed 50,000 - Total 50,000 24,557 Receivable from Fund Manager discloses the subscription amount to be received in This amount was received on March 16, 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 legal owner 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 legal owner holds the legal title to the fund assets and fund 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. 14

16 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. 6 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 31 December 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 31 December 2015 amounted to 0. 7 Other payables and accrued expenses FATCA Fees 1,815 1,815 Audit fees 15,459 27,830 Reporting fees 3,025 1,250 DNB Reporting fees 1,250 4,537 Corporate Tax - 96,028 Bank and brokerage fees 50 - Tax advisor fees 10,000 - Total 31, ,460 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 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 Net unrealized result on financial assets and liabilities at fair value through profit or loss Unrealized result on derivative assets / / ,403,594 - (623,441) Total result - 1,780,153 15

17 9 Net currency gains/(losses) Net currency results on equity Net currency results on derivatives Net currency results on foreign currency / / (4,935) - (1,026,083) 8, ,651 8,230 (418,367) Note 9 illustrates the foreign currency effects on the equities, call options and foreign currencies at bank as per period 2015 and Interest expenses / / Interest income - 19,438 Interest expenses - 185,480 - (166,042) The Fund has no interest expenses 11 Dividend income / / Dividend Income - 820, Investment return Profit Loss Profit Loss Direct result Interest Income ,438 - Dividend Income ,951 - Indirect result Net realized result on equity ,691,985 (11,718,004) Net realized result on derivatives ,243,512 (870,397,746) Net unrealized result on derivatives ,026,116 (20,021,304) 903,802,002 (902,137,054) 16

18 13 Custodian and administration fee / / Custodian fee Administration fee - 13,702 Fatca fee 1,815 Reporting fee 9,508 4,109 Total 11,817 18,263 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. 14 Audit and legal fees / / Audit fee 19,324 26,343 Legal fees 1,311 53,119 Total 20,635 79, Bank commissions / / Bank commissions 1, , Corporate Tax In 2014 the fund has accrued an amount of USD 116,175 (corresponding amount of 96,028) as payable for corporate tax. However, during 2015 after consulting Crowe Horwath Foederer B.V. it was concluded that this liability should be released. 17 Related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party making financial or operational decisions. All services rendered by Finles N.V. therefore qualify as related party transactions. 18 Personnel The Fund did not employ personnel during Remuneration of the fund manager The Fund Manager of Finles Lowestoft Equities Fund has paid during the financial year 2015 a total remuneration of 606,176 to its employees. An amount of 10,725 can be attributed to the Finles Lowestoft Equities Fund. This amount consists a fixed fee of 8,538 and a variable fee of 2,187. This amount is not charged to the investment entity and is part of the management fees that are recognized in the financial statements. 17

19 The Fund Manager had an average of 9 employees, including three directors in the fiscal year. Carried interest is not applicable of the total compensation as mentioned above, 332,372 pertains to the directors of the Fund Manager. This amount consists a fixed fee of 113,720 and a variable fee of 218,652. The rest of the remuneration is related to the other employees. The number of employees in whole or in part in the activities of investment entity Finles Lowestoft Equities Fund involved is estimated to be 0,1 FTE. This number has been calculated using a formula based on the time spent by the portfolio managers who are exclusively working for the fund. For other employees, the average assets under management of the funds are used as base for the calculation. 20 Subsequent events There were no material events after reporting period. 21 Summary of significant accounting policies 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. Upcoming standards and amendments New standards, amendments and interpretations to existing standards which are relevant to the Fund and not yet effective The International Accounting Standards Board (IASB) completed the final element of its comprehensive response to the financial crisis with the publication of IFRS 9 Financial Instruments in July The package of improvements introduced by IFRS 9 includes a logical model for classification and measurement, a single, forward-looking expected loss impairment model and a substantially-reformed approach to hedge accounting. The effective date for mandatory adoption of IFRS 9 Financial Instruments is 1 January The Fund has not early adopted this standard for the current reporting period. No significant impact of IFRS 9 is expected for the Fund. The adoption will not affect the Funds financial statements as all financial instruments are measured and presented at fair value. In December 2014, the IASB issued amendments to IAS 1 which will be effective as per 1 January 2016 as part of the IASB s Disclosure Initiative. The amendments clarify the materiality guidance in IAS 1. The Fund has not early adopted this standard for the current reporting period. No significant impact of the amendments to IAS 1 is expected for the Fund. The adoption will not have a substantive affect on the Funds financial statements as the amendments only impact line items and non significant notes. 18

20 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. 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. 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. 19

21 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. 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. (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. 20

22 (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. (v) Identification and measurement of impairment At each reporting date the Fund assesses whether there is objective evidence that financial assets carried at amortized cost are impaired. A financial asset or a group of financial assets is (are) impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the asset(s), and that the loss event has an impact on the future cash flows of the asset(s) that can be estimated reliably. Objective evidence that financial assets are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Fund on terms that the Fund would not otherwise consider, indications that a borrower or issuer will enter bankruptcy or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. Impairment losses on assets carried at amortized cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset s current effective interest rate. Impairment losses are recognized in profit or loss. Interest on impaired assets continues to be recognized through the unwinding of the discount. When a subsequent event causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss. 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. 21

23 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. 22

24 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 receivables and prepayments are amounts that the Fund still has to receive due to transaction that are executed in 2015 but will be settled in 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 2015 to the Fund on a monthly basis and for which the Fund will receive invoices in the These amounts are recognised initially at fair value and subsequently stated at amortised cost using the effective interest method. 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 23