POWERFUND - SEGREGATED PORTFOLIO OF SPECTRA SPC (Incorporated as an exempted company with limited liability in the Cayman Islands)

Transcription

1 REPORT AND FINANCIAL STATEMENTS

2 CONTENTS Management and administration 1 Independent auditor's report 2 Statement of financial position 3 Statement of comprehensive income 4 Statement of changes in net assets attributable to holders of redeemable shares 5 Statement of cash flows 6 Notes to the financial statements 7-21 Page

3 MANAGEMENT AND ADMINISTRATION Directors Clement Tung Tin Wai Leung Registered Office P.O. Box 309 Ugland House Grand Cayman, KY Cayman Islands Investment Manager STI Wealth Management (Cayman) Limited P.O. Box 309 Ugland House Grand Cayman, KY Cayman Islands Investment Advisor STI Asset Management Limited 3rd Floor 100 Queen's Road Central Hong Kong Auditor PricewaterhouseCoopers P.O. Box 258 Strathvale House, Georgetown Grand Cayman, KY Cayman Islands Legal Advisors As to matters of the Cayman Islands law: Maples and Calder 53rd Floor The Center 99 Queen's Road Central Central, Hong Kong As to matters of Hong Kong and Taiwan laws: K & L Gates 44th Floor, Edinburgh Tower The Landmark 15 Queen's Road Central, Hong Kong Administrator Maples Fund Services (Cayman) Limited P.O. Box 1093 Boundary Hall, Cricket Square Grand Cayman, KY Cayman Islands Administrator's Delegate Maples Fund Services (Asia) Limited 5301, 53rd Floor The Center 99 Queen's Road Central Central, Hong Kong 1

4 Independent Auditor's Report To the Board of Directors of Spectra SPC We have audited the accompanying financial statements of Powerfund (the "Fund"), a segregated portfolio of Spectra SPC, set out on pages 3 to 21, which comprise the statement of financial position as at 31 December 2014, and the statements of comprehensive income, changes in net assets attributable to holders of redeemable shares and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements Management is responsible for the preparation of financial statements that give a true and fair view in accordance with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor's judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements give a true and fair view of the financial position of the Fund as at 31 December 2014, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 29 May 2015 PricewaterhouseCoopers, PO Box 258, Strathvale House, Grand Cayman KY1-1104, Cayman Islands T: +1 (345) , F: +1 (345) ,

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6 STATEMENT OF COMPREHENSIVE INCOME Note 2014 US$ 2013 US$ Income Net gains on investments 6 15,081,656 12,793,019 Other income Total income 15,081,723 12,793,097 Expenses Management fees 8.1 2,768,011 2,147,725 Administration fees , ,615 Audit fees 35,750 35,650 Performance fees ,917 Legal and professional fees 104,731 18,120 Transaction handling fees 91,200 - Other operating expenses 28,445 6,000 Total expenses 3,219,128 2,391,027 Operating profit 11,862,595 10,402,070 Finance costs 5,290 4,750 Increase in net assets attributable to holders of redeemable shares from operations 11,857,305 10,397,320 The notes on pages 7 to 21 form an integral part of these financial statements. 4

7 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES Note 2014 US$ 2013 US$ Net assets attributable to holders of redeemable shares at the beginning of the year 110,753,942 97,586,333 Issue of redeemable shares 7 71,697,275 32,905,921 Redemption of redeemable shares 7 (26,675,058) (30,135,632) Net increase from share transactions 45,022,217 2,770,289 Increase in net assets attributable to holders of redeemable shares from operations 11,857,305 10,397,320 Net assets attributable to holders of redeemable shares at the end of the year 167,633, ,753,942 The notes on pages 7 to 21 form an integral part of these financial statements. 5

8 STATEMENT OF CASH FLOWS 2014 US$ 2013 US$ Cash flows from operating activities Increase in net assets attributable to holders of redeemable shares from operations 11,857,305 10,397,320 Adjustments for: Increase in other assets (6,830) (10,457) Increase in other accrued expenses and liabilities 257,093 89,541 Net cash generated from operating activities 12,107,568 10,476,404 Cash flows from financing activities Proceeds from redeemable shares issued 82,491,457 31,388,993 Payments on redeemable shares redeemed (30,957,631) (26,076,864) Net cash generated from financing activities 51,533,826 5,312,129 Net increase in cash and cash equivalents 63,641,394 15,788,533 Cash and cash equivalents at beginning of year 117,290, ,502,081 Cash and cash equivalents at end of year 180,932, ,290,614 The notes on pages 7 to 21 form an integral part of these financial statements. 6

9 1 General information Powerfund (the Fund ) is a segregated portfolio of Spectra SPC (the Company ), an exempted company incorporated in the Cayman Islands with limited liability on 7 February The Company is registered as a segregated portfolio company on 27 August The Fund had no employees during the period from 27 August 2007 to 31 December The registered office of the Fund is P.O. Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. The Fund s investment activities are managed by STI Wealth Management (Cayman) Limited (the Investment Manager ). The Fund s objective is to achieve a high risk-adjusted return mainly from trading in foreign exchange and secondarily in other asset classes such as equities, options and index futures. 2 Summary of significant accounting policies The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied for all the years presented, unless otherwise stated. 2.1 Basis of preparation The financial statements have been prepared in accordance with International Financial Reporting Standards ( IFRS ). The financial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assets and liabilities (including derivative financial instruments) at fair value through profit or loss. The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires the board of directors to exercise its judgment in the process of applying the Fund s accounting policies. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 4. Standards and amendments to existing standards effective 1 January 2014 Amendments to IAS 32 Offsetting financial assets and financial liabilities are effective for annual periods beginning on or after 1 January 2014, and have been early adopted by the Fund since 1 January These amendments clarify the offsetting criteria in IAS 32 and address inconsistencies in their application. This includes clarifying the meaning of currently has a legally enforceable right of set-off and that some gross settlement arrangements may be considered equivalent to net settlement. The amendments did not have any impact on the Fund s financial position or performance. There are no other standards, interpretations or amendments to existing standards that are effective for the first time for the financial year beginning 1 January 2014 that would be expected to have a material impact on the Fund. 7

10 2 Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued) New standards and amendments to standards that are relevant to the Fund, but are not yet effective and have not been early adopted by the Fund IFRS 9, Financial instruments, addresses the classification, measurement and recognition of financial assets and financial liabilities. The complete version of IFRS 9 replaces most of the guidance in IAS 39. IFRS 9 retains but simplifies the mixed measurement model and establishes three primary measurement categories for financial assets: amortized cost, fair value through other comprehensive income ( OCI ) and fair value through profit or loss. The basis of classification depends on the entity's business model and the contractual cash flow characteristics of the financial asset. Investments in equity instruments are required to be measured at fair value through profit or loss with the irrevocable option at inception to present changes in fair value in OCI. There is now a new expected credit losses model that replaces the incurred loss impairment model used in IAS 39. For financial liabilities there were no changes to classification and measurement except for the recognition of changes in own credit risk in other comprehensive income for liabilities designated at fair value through profit or loss. IFRS 9 relaxes the requirements for hedge effectiveness by replacing the bright line hedge effectiveness tests. It requires an economic relationship between the hedged item and hedging instrument and for the hedged ratio to be the same as the one management actually use for risk management purposes. Contemporaneous documentation is still required but is different to that currently prepared under IAS 39. The standard is effective for accounting periods beginning on or after 1 January Early adoption is permitted. The adoption of the new standard is not expected to have any material impact on the Fund s financial statements. There are no other standards, interpretations or amendments to existing standards that are not yet effective that would be expected to have a significant impact on the Fund. 2.2 Foreign currency translation (i) Functional and presentation currency Items included in the Fund s financial statements are measured using the currency of the primary economic environment in which it operates (the functional currency ). This is the United States dollar, which reflects the currency in which the Fund issues its redeemable shares and pays its fees. The Fund has adopted the United States dollars as its presentation currency as the Fund reports its performance in that currency. (ii) Transactions and balances Foreign currency transactions are translated into United States dollars using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. 8

11 2 Summary of significant accounting policies (continued) 2.3 Financial assets and liabilities at fair value through profit or loss (i) Classification The Fund classifies its investments in derivatives as financial assets or liabilities at fair value through profit or loss. These financial assets and liabilities are classified as held for trading. 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, as the Fund does not designate any derivatives as hedges in a hedging relationship. The Fund makes short sales in which a borrowed security is sold in anticipation of a decline in the market value of that security, or it may use short sales for various arbitrage transactions. Short sales are financial liabilities at fair value through profit or loss. (ii) Recognition/de-recognition Regular-way purchases and sales of investments are recognised on the trade date the date on which the Fund commits to purchase or sell the investment. Investments are de-recognised when the rights to receive cash flows from the investments have expired or the Fund has transferred substantially all risks and rewards of ownership. (iii) Measurement Investments are initially recognised at fair value, and transaction costs for all financial assets and liabilities at fair value through profit or loss are expensed as incurred. Subsequent to initial recognition, all financial assets and 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 liabilities at fair value through profit or loss are recognised in the statement of comprehensive income in the period in which they arise. (iv) Fair Value estimation 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 reporting date. The quoted market price used for financial assets and financial liabilities held by the Fund is the last traded price. When the Fund holds derivatives with offsetting market risks, it uses mid-market prices as a basis for establishing fair value for the offsetting risk positions and applies the bid or ask price to the net open position, as appropriate. In circumstances where the last traded price is not within the bid-ask spread, management will determine the point within the bid-ask spread that is most representative of fair value. 9

12 2 Summary of significant accounting policies (continued) 2.4 Offsetting financial instruments Financial assets and liabilities are offset and the net amount reported in the statement of financial position where the Fund currently has a legally enforceable right to set-off the recognised amounts and there is an intention to settle on a net basis or realise the asset and settle the liability simultaneously. 2.5 Cash and cash equivalents Cash comprises cash on hand and demand deposits held with brokers. Cash equivalents are short-term, highly liquid investments that are readily convertible into known amounts of cash and which are subject to insignificant changes in value. 2.6 Receivables and payables Receivables and payables are initially recognised at fair value and subsequently stated at amortised cost using the effective interest method. A provision for impairment of receivables is established when there is objective evidence that the Fund will not be able to collect all amounts due. 2.7 Redeemable shares The Fund issues redeemable shares, which are redeemable at the holders option and are classified as financial liabilities. No distributions are paid on redeemable shares. Redeemable shares are issued and redeemed at the holders option at prices based on the Fund s net asset value per share attributable to holders of redeemable shares at the time of issue or redemption. The Fund s net asset value per share is calculated by dividing the net assets attributable to holders of redeemable shares with the total number of outstanding redeemable shares. In accordance with the provisions of the Fund s regulations, investment positions are valued based on the last traded market prices for the purpose of determining the net asset value per share for subscriptions and redemptions and for fees calculation. 2.8 Income and expenses Interest income and expense are recognised on a time-proportion basis using the effective interest method. Other expenses are accounted for on an accruals basis in the statement of comprehensive income. 2.9 Taxation Investment income and capital gains are recorded gross of any withholding tax in the statement of comprehensive income. Withholding tax, if any, is shown as a separate item in the statement of comprehensive income. 10

13 2 Summary of significant accounting policies (continued) 2.10 Related party transactions Related parties are individuals and companies where the individual, company or group has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. 3 Financial risk management 3.1 Strategy in using financial instruments The Investment Manager adopted the following investment objectives, policies and processes. (i) Investment objective The principal investment objective of the Fund is to produce a high risk-adjusted return mainly from derivatives markets. (ii) Investment policy The Fund's primary objective is to produce a high risk-adjusted return mainly from trading in foreign exchange, and secondarily in other asset classes such as equities, options and index futures. Investment strategies with different styles and competitive advantages may provide diversification benefits to traditional asset mixes such as global equity and fixed income portfolios. (iii) Investment processes The Investment Manager adopts investment strategies with different styles and competitive advantages, which may provide diversification benefits to traditional asset mixes such as global equity and fixed income portfolios. The Fund adopts the following strategies: Tug of war Spot currency swapping Three point arbitrage Foreign exchange trading accounts Strategic and tactical trading in other asset classes such as equity, options and futures Money market instruments The risks and the respective risk management policies employed by the Fund to manage these risks are discussed below. 11

14 3 Financial risk management (continued) 3.2 Market risk (i) Market price risk Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices, whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments in the market. All securities investments present a risk of loss of capital. The Fund s investment activities expose it to various types of market price risk which are associated with the markets in which it invests. The Fund s trading derivatives are susceptible to market price risk arising from uncertainties about future prices of the instruments. The Investment Manager moderates this risk through a selection of securities and other financial instruments within specified limits. It is the intent of management and the Fund s policy to monitor the Fund s overall portfolio on a periodic basis by the Investment Manager and the directors. Most of the transactions carried out by the Fund are intra-day trading in foreign currency markets. Therefore, the underlying assets of the Fund are exposed to limited market price risk. As the directors believe that the Fund has no significant market price risk exposure, no market price risk sensitivity analysis is disclosed. (ii) Market price risk management program The Fund currently adopts three systematic trading programs: SOFX, DOS (Dynamic Option Strategy) and STF (Systematic Trend Following). The objective of each trading program is to achieve capital appreciation through trading in spot currencies and over-the-counter currency derivatives while taking reasonable steps to reduce volatility and protect capital. No assurance can be given that this objective will be met and the SOFX, DOS and STF cannot be regarded as a shield to any substantial asset loss. These strategies are elaborated below. In general, the SOFX, DOS and STF rely on technical analysis and are not based on anticipated supply and demand, macro-economic or political study. Technical analysis operates on the theory that market prices at any given point in time reflect all known factors affecting supply and demand for a particular commodity, currency or financial instrument. With the analysis base, trading instructions would be generated by the systematic trading programs. All currency trades are pair trades with profits derived from arbitrage in spot currency prices. These systematic trading programs would not generate an instruction to sell/purchase a currency derivative unless an instruction to purchase/sell a corresponding currency derivative could be secured. 12

15 3 Financial risk management (continued) 3.2 Market risk (continued) (ii) Market price risk management program (continued) Generally, most of the generated instructions will be followed without further analysis. If it is necessary, the Investment Manager may exercise its discretionary authority, based on its expertise, to fine tune the program generated instructions regarding aspects of trading volume, such as execution time. In periods of market disruptions, the Investment Manager may even suspend the program generated instructions or determine the most appropriate way to handle the program generated instructions. However, such a period is not expected to be commonly seen and the Investment Manager will endeavour not to individualise any program generated instruction so that personalised investment management is expected to be minimal. (iii) Interest rate risk Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate as a result of changes in market interest rates. The majority of the Fund s financial assets and liabilities are non-interest bearing as the Fund mainly invests in currency derivatives. As disclosed in Note 5, 86% (2013: 94%) of the Fund s cash and cash equivalents at 31 December 2014 are held in non-interest bearing accounts at brokers. Similar level of cash and cash equivalents has been held at the respective brokers during the year for the purpose of trading in foreign currency markets. The directors consider the interest rate risk on the Fund s remaining cash at banks to be minimal as it represents a small part of the Fund s cash and cash equivalents and is in a demand deposit account with interest rate set on a daily basis. As a result, the Fund is not subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates. It is the intent of management and the Fund s policy to monitor the overall interest rate sensitivity on a periodic basis by the Investment Manager and the directors. As the directors believe that the Fund has no significant interest rate risk exposure, no interest rate risk sensitivity analysis is disclosed. 13

16 3 Financial risk management (continued) 3.2 Market risk (continued) (iv) Currency risk Currency risk is the risk that the value or future cash flows of a financial instrument will fluctuate due to changes in foreign exchange rates. The Fund is exposed to currency risk from investments which are denominated in, or which derive revenues and incur costs in currencies other than the United States dollar. For the year ended 31 December 2014, the majority of the net gains on investments have been derived from currency derivatives. Furthermore, at 31 December 2014 and 2013, all of the Fund s assets are denominated in the United States dollar. As described in Note 3.2(i), most of the transactions carried out by the Fund are intra-day trading in foreign currency markets. As such, the currency exposure at the end of the day may not representative of the currency exposure during the day and the currency exposure before a position is closed could be significant. For the year ended 31 December 2014, the average trading volume in Euro, Japanese yen and Great British pound currency derivatives amounted to approximately US$38,507,000, US$34,513,000 and US$20,000,000 per day on the days that the Fund trades respectively. For the year ended 31 December 2013, the average trading volume in Euro and Japanese yen currency derivatives amounted to approximately US$31,070,000 and US$30,000,000 per day on the days that the Fund trades respectively. It is the intent of management and the Fund s policy to monitor the overall currency exposure on a periodic basis by the Investment Manager and the directors. As the directors believe that the Fund has no significant currency risk exposure at the reporting date, no currency risk sensitivity analysis is disclosed. The year-end exposures are not representative of risk exposure during the year as no currency derivatives were held at year-end. 3.3 Credit and counterparty risk Credit and counterparty risk is the risk that one party to a financial instrument is unable or unwilling to discharge its obligation and cause the other party to incur a financial loss. All investment transactions are settled/ paid for upon delivery using approved brokers. The risk of default is considered minimal since delivery of securities sold is only made when the broker has received payment. On a purchase, payment is made when the broker has received the securities. If either party fails to meet its obligation, the trade will fail. Credit and counterparty risk also arises from deposit accounts at banks and brokers and investments held at brokers. The Fund limits its exposure to this risk by transacting the majority of its investment and contractual commitment activities with broker-dealers, banks and regulated exchanges with high credit ratings and that the Fund considers to be well established. 14

17 3 Financial risk management (continued) 3.3 Credit and counterparty risk (continued) (i) Banks Through executing an omnibus account agreement with the Fund dated 6 September 2007, MaplesFS Limited holds a segregated account with Bank of New York Mellon in its own name for the use and benefit of the Fund. Moody s has assigned a credit rating of Aa2 (2013: A1) to Bank of New York Mellon at 31 December No external credit rating is available for MaplesFS Limited. At 31 December 2014, cash amounting to US$26,207,381 (2013: US$6,836,443) was held in the omnibus account by MaplesFS Limited. (ii) Brokers 3.4 Liquidity risk The currency trades have been carried out with licensed brokers in different regions where they are regulated but no external credit ratings are available. At 31 December 2014, cash amounting to US$142,942,002 (2013: US$110,454,171) was held with City Credit Capital (Labuan) Ltd and cash amounting to US$11,782,625 (2013: nil) was held with City Credit Capital (UK) Limited. There is no history of default and hence the directors do not expect any losses from non-performance by the brokers. Liquidity risk is the risk that the Fund will encounter difficulty in settling a liability, including a redemption request, or selling a financial asset quickly at close to its fair value. The Fund is exposed to cash redemptions of redeemable shares in accordance with its offering memorandum. Therefore, the majority of its investments are traded in an active market and can be readily disposed of. The directors consider that the majority of the Fund s assets are liquid as they are in the form of demand deposits at banks and brokers. The Fund may, from time to time, invest in derivatives traded over the counter, which are not traded in an organised market and may be illiquid. As a result, the Fund may not be able to realise quickly its investments in these instruments at an amount close to their fair value to meet its liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of the counterparty. At 31 December 2014 and 2013, all of the Fund s financial liabilities, including net assets attributable to holders of redeemable shares, had contractual maturity less than one month, with redemptions subject to a redemption gate that can be imposed by the directors as discussed in Note 3.6. At 31 December 2014, the Fund held cash and cash equivalents of US$180,932,008 (2013: US$117,290,614) that are expected to be able to immediately generate cash inflows for managing liquidity risk. As at 31 December 2014, 2 investors (2013: 1 investor) held interests individually in more than 10% and in aggregate, 69% (2013: 40%) of the Fund s net assets attributable to holders of redeemable shares. 15

18 3 Financial risk management (continued) 3.5 Fair value estimation The Fund classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in making the measurements. The fair value hierarchy has the following levels: Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly (that is, as prices) or indirectly (that is, derived from prices). Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs). The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on the basis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance of an input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs that require significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing the significance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific to the asset or liability. The determination of what constitutes observable requires significant judgement by the Fund. The Fund considers observable data to be such market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, and provided by independent sources that are actively involved in the relevant market. At 31 December 2014 and 2013, the Fund did not have any investments. The carrying amount of cash and cash equivalents, other assets, subscriptions in advance, redemption payable and other accrued expenses and liabilities approximated their fair values and are presented in the statement of financial position. There are no financial assets and liabilities not carried at fair value but for which the fair value is disclosed. 16

19 3 Financial risk management (continued) 3.6 Capital risk management The capital of the Fund is represented by the net assets attributable to holders of redeemable shares. The amount of net assets attributable to holders of redeemable shares can change significantly on a monthly basis as the Fund is open for subscriptions and redemptions at the discretion of shareholders on two dealing dates each month the 1st and 15th business day of the month. The Fund s objectives when managing capital are to safeguard its ability to continue as a going concern in order to provide returns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the investment activities of the Fund. In the event that redemption requests are received for redeemable shares representing in aggregate more than 10% of the latest available net asset value of the Fund, the directors may declare that no redeemable shares in excess of 10% of the net asset value of the Fund shall be redeemed on that redemption day and the remaining redemption requests shall be carried forward for redemption on the next redemption day, or such later day as the directors may determine (being not more than one calendar month). 3.7 Financial instruments by category All financial assets as disclosed in the statement of financial position, including cash and cash equivalents and other assets, are categorised as loans and receivables. All financial liabilities as disclosed in the statement of financial position, including subscriptions in advance, redemption payable and other accrued expenses and liabilities are categorised as other financial liabilities. 4 Critical accounting estimates and judgements Management makes estimates and assumptions concerning the future. The resulting accounting estimates may, by definition, not equal the related actual results. The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are outlined below. Fair value of derivatives The Fund may, from time to time, hold financial instruments that are not quoted in active markets, such as over-the-counter derivatives. Fair values of such instruments are obtained from broker quotes. 5 Cash and cash equivalents 2014 US$ 2013 US$ Cash at banks 26,207,381 6,836,443 Cash at brokers 154,724, ,454, ,932, ,290,614 17

20 6 Net gains on investments 2014 US$ 2013 US$ Realised gains 16,055,848 14,113,895 Realised losses (974,192) (1,320,876) 15,081,656 12,793,019 7 Net assets attributable to holders of redeemable shares The Company has an authorised share capital of US$100 divided into 100 management shares of par value of US$1 each. At 31 December 2014 and 2013, the Fund had an authorised share capital of US$49,900 divided into 499,000,000 non-voting redeemable shares of par value of US$ each. Issued and fully paid Class A Number of Shares Class B Number of Shares At 1 January ,200,263 2,467,806 Issue of redeemable shares 18,841,251 - Redemption of redeemable shares (16,731,426) (334,175) At 31 December ,310,088 2,133,631 Issue of redeemable shares 36,517, ,240 Redemption of redeemable shares (13,546,434) (126,366) At 31 December ,281,578 2,209,505 Holders of Class A and B shares have the same rights and entitlement to Fund returns and expenses. The only difference is that Class A shares are subject to subscription fees while Class B shares are subject to redemption fees. Class A shares are subject to a subscription fee of up to 5% of the net asset value per Class A share subscribed, and the subscription price is inclusive of the subscription fee which is paid to the Investment Manager. Class B shares are subject to a redemption fee of 2% of the net asset value per Class B share for shares redeemed from the 4th to the 12th month (both days inclusive) from the date on which the holders subscribed for the Class B shares. The redemption fee is reduced to 1% of the net asset value per Class B share for shares redeemed after 12 months but within 24 months from the date on which the holders subscribed for the Class B shares. The redemption price is inclusive of the redemption fee which is paid to the Investment Manager. Where any resolution varies, abrogates or otherwise alters the rights attaching to the shares of the Fund or any class of redeemable shares attributable to the Fund, or for purposes of winding up the Fund, the holders of redeemable shares of such class have the right to receive notice of, attend and vote at the relevant meeting. Shareholders are entitled to vote either personally or by proxy. At 31 December 2014, the net asset value per share was US$ (2013: US$1.8632) for Class A and B shares. 18

21 8 Related party transactions The Fund has entered into the following related party transactions in the ordinary course of business. 8.1 Management fee The Fund is managed by STI Wealth Management (Cayman) Limited. Under the management agreement dated 30 August 2007, the Investment Manager provides management services to the Fund and in return receives a management fee calculated at 2% per annum of the net asset value of the Fund on each valuation day, payable quarterly in arrears. Management fee charged for the year ended 31 December 2014 was US$2,768,011 (2013: US$2,147,725). The amount payable to the Investment Manager in respect of accrued management fee at 31 December 2014 was US$822,984 (2013: US$560,656). 8.2 Performance fee (i) Calculation basis Under the management agreement dated 30 August 2007, the Investment Manager provides management services to the Fund and in return receives a performance fee calculated at 20% of the excess of the annual return of the Fund over 10% per annum (the "Hurdle Rate"). Any performance fee which becomes payable will be paid annually within 30 days after the Fund s fiscal year end. The performance fee is calculated in respect of each period of 12 months ending on 31 December in each year (the Calculation Period ). (ii) Adjustments to performance fee Performance fees charged for the year ended 31 December 2014 was nil (2013: US$25,917). The amount payable to the Investment Manager in respect of accrued performance fee at 31 December 2014 was nil (2013: US$25,917). Adjustments are made to the performance fee charged to each shareholder in cases where the redeemable shares were subscribed at a time when the net asset value per share is different from the Peak Net Asset Value Per Share ( PNAVPS ), which is defined as the greater of US$1 being the price at which redeemable shares were first issued, taking into the effect of share split and the highest net asset value per share of the relevant class on the last valuation day of any preceding Calculation Period. If redeemable shares are subscribed at a time when the net asset value per share is less than the PNAVPS, the shareholder is required to pay performance fee with respect to any subsequent appreciation in the value of those redeemable shares above the Hurdle Rate at 20%. This performance fee is charged at the end of each Calculation Period, i.e. at 31 December. If redeemable shares are subscribed at a time when the net asset value per share is greater than the PNAVPS, the shareholder is issued additional redeemable shares equal to 20% of the difference between the net asset value per share at subscription (before accrual for performance fee) and the PNAVPS increased by the Hurdle Rate. At 31 December 2014, nil was accrued for equalisation credits (2013: Nil). 19

22 8 Related party transactions (continued) 8.3 Administration fee Maples Fund Services (Cayman) Limited (the Administrator ) is entitled to receive a fee for providing services to the Fund. This fee is based on the net asset value of the Fund and charged at a rate as agreed in the agreement entered into between the Fund and the Administrator dated 6 September Such fee is accrued daily and calculated at each valuation day of the Fund. The fee is charged on scale as described below, subject to a monthly minimum fee of US$8,000. Net asset value in US$ Fee rate per annum < 50 Million 0.16% > 50 million < 100 million 0.14% > 100 million < 150 million 0.12% > 150 million < 200 million 0.10% > 200 million 0.08% Administration fee charged for the year ended 31 December 2014 was US$190,991 (2013: US$157,615). The amount payable to the Administrator in respect of accrued administration fee at 31 December 2014 was US$55,217 (2013: US$80,856). 8.4 Related party shareholdings As at 31 December 2014, Spectra Nominee Company, a fellow subsidiary of the Company, held 18,759,015 (2013: 21,785,224) Class A shares amounted to US$38,120,945 (2013: US$40,589,645); and 1,691,200 (2013: 1,753,139) Class B shares amounted to US$3,436,755 (2013: US$3,266,402). Spectra Nominee Company held shares on behalf of investors with subscription amount less than US$100,000, the minimum subscription amount. 20

23 9 Taxation The Fund is domiciled in the Cayman Islands. Under the current laws of the Cayman Islands, there is no income, estate, corporation, capital gains or other taxes payable by the Fund. As a result, no provision for income taxes has been made in these financial statements. The Fund would only be exposed to Hong Kong profits tax if it is: i) not exempted under the Hong Kong Revenue (Profits Tax Exemption for Offshore Funds) Ordinance 2006 (the Ordinance ); and ii) treated as carrying on a trade or business in Hong Kong either on its own account or through any person as an agent. If the Fund is not exempted under the Ordinance and is treated as carrying on a trade or business in Hong Kong, a liability to profits tax, currently at the rate of 16.5% (2013: 16.5%), would arise in respect of any profits which arise in or are derived from Hong Kong and which are not capital profits or exempt profits. No provision for Hong Kong profits tax has been made as the directors believe that the Fund is exempted under the Ordinance and is not carrying on a trade or business in Hong Kong. 10 Approval of the financial statements The financial statements were approved and authorised for issue by the board of directors on 29 May