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 Page 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

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 2013, 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 2013, and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. 5 June 2014 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 2013 US$ 2012 US$ Income Net gains on investments 6 12,793,019 11,210,556 Other income Total income 12,793,097 11,210,627 Expenses Management fee 8.1 2,147,725 1,911,417 Administration fee , ,746 Audit fee 35,650 33,350 Performance fee , Legal and professional fees 18,120 20,281 Other operating expenses 6,000 5,000 Total expenses 2,391,027 2,114,140 Operating profit 10,402,070 9,096,487 Finance costs 4,750 4,630 Increase in net assets attributable to holders of redeemable shares from operations 10,397,320 9,091,857 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 2013 US$ 2012 US$ Net assets attributable to holders of redeemable shares at the beginning of the year 97,586,333 93,658,857 Issue of redeemable shares 7 32,905,921 23,439,716 Redemption of redeemable shares 7 (30,135,632) (28,604,097) Net increase/(decrease) from share transactions 2,770,289 (5,164,381) Increase in net assets attributable to holders of redeemable shares from operations 10,397,320 9,091,857 Net assets attributable to holders of redeemable shares at the end of the year 110,753,942 97,586,333 The notes on pages 7 to 21 form an integral part of these financial statements. 5

8 STATEMENT OF CASH FLOWS 2013 US$ 2012 US$ Cash flows from operating activities Increase in net assets attributable to holders of redeemable shares from operations 10,397,320 9,091,857 Adjustments for: (Increase)/decrease in other assets (10,457) 9,575 Increase in other accrued expenses and liabilities 89,541 65,811 Net cash generated from operating activities 10,476,404 9,167,243 Cash flows from financing activities Proceeds from redeemable shares issued 31,388,993 24,751,274 Payments on redeemable shares redeemed (26,076,864) (28,914,250) Net cash generated from/(used in) financing activities 5,312,129 (4,162,976) Net increase in cash and cash equivalents 15,788,533 5,004,267 Cash and cash equivalents at the beginning of the year 101,502,081 96,497,814 Cash and cash equivalents at the end of the year 117,290, ,502,081 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 derivatives) 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 2013 Amendments to IFRS 7, Disclosures Offsetting financial assets and financial liabilities require additional disclosures to enable users of financial statements to evaluate the effect or the potential effects of netting arrangements, including rights of set-off associated with an entity s recognised financial assets and recognised financial liabilities, on the entity s financial position. As the Fund does not have any offsetting arrangements in place, the standard is not expected to have a significant impact on the Fund s financial position or performance. 7

10 2 Summary of significant accounting policies (continued) 2.1 Basis of preparation (continued) IFRS 13, effective for annual periods beginning on or after 1 January The standard improves consistency and reduces complexity by providing a precise definition of fair value and a single source of fair value measurement and disclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting but provide guidance on how it should be applied where its use is already required or permitted by other standards within IFRS. If an asset or a liability measured at fair value has a bid price and an ask price, the standard requires valuation to be based on a price within the bid-ask spread that is most representative of fair value and allows the use of mid-market pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurement within a bid-ask spread. On adoption of the standard, the Fund recognised its valuation inputs for listed financial assets and liabilities at last traded prices. The use of last traded prices is recognised as a standard pricing convention within the industry. The standard is not expected to have a significant impact on the Fund s financial position or performance. 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. The standard addresses the classification, measurement and recognition of financial assets and financial liabilities. IFRS 9 was issued in November 2009 and amended in October It replaces the parts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financial assets to be classified into two measurement categories: those measured at fair value and those measured at amortised cost. The determination is made at initial recognition. The classification depends on the entity s business model for managing its financial instruments and the contractual cash flow characteristics of the instrument. For financial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where the fair value option is taken for financial liabilities, the part of a fair value change due to an entity s own credit risk is recorded in other comprehensive income rather than the income statement, unless this creates an accounting mismatch. The Fund is yet to fully consider the impact of the issued standard. The Fund will do so when the remaining phases of IFRS 9 are issued by the International Accounting Standards Board. 8

11 2 Summary of significant accounting policies (continued) 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 dollar 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 financial assets and liabilities denominated in foreign currencies are recognised in the statement of comprehensive income. 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. 9

12 2 Summary of significant accounting policies (continued) 2.3 Financial assets and liabilities at fair value through profit or loss (continued) (i) Classification (continued) 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. 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. 10

13 2 Summary of significant accounting policies (continued) 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 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. 11

14 3 Financial risk management (continued) 3.1 Strategy in using financial instruments (continued) (ii) Investment policy The Fund's primary objective is to produce a high risk-adjusted return mainly from trading in foreign exchange, and secondary 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 3.2 Market risk 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. (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. 12

15 3 Financial risk management (continued) 3.2 Market risk (continued) (i) Market price risk (continued) 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. 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 endeavor 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, 94% (2012: 96%) of the Fund s cash and cash equivalents at 31 December 2013 were 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 Fund s 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 as a result of 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 2013, the majority of the net gains on investments have been derived from currency derivatives. Furthermore, at 31 December 2013 and 2012, all of the Fund s financial assets and liabilities were 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 be 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 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. For the year ended 31 December 2012, the average trading volume in Euro, Japanese yen and Great British pound currency derivatives amounted to approximately US$33,580,000, US$26,837,000 and US$30,000,000 respectively. It is the intent of management and the Fund s policy to monitor the Fund s 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. 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. (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 A1 (2012: Aa3) to Bank of New York Mellon at 31 December No external credit rating is available for MaplesFS Limited. At 31 December 2013, cash amounting to US$6,836,443 (2012: US$3,840,929) was held in the omnibus account by MaplesFS Limited. 14

17 3 Financial risk management (continued) 3.3 Credit and counterparty risk (continued) (ii) Brokers 3.4 Liquidity risk The currency trades have been carried out with a licensed broker, City Credit Capital (Labuan) Limited, which has no external credit ratings available. At 31 December 2013, cash amounting to US$110,454,171 (2012: US$97,661,152) was held with a single broker (2012: a single broker). There is no history of default and hence the directors do not expect any losses from non-performance by this broker. Liquidity risk is the risk that the Fund will encounter difficulty in settling a financial 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 financial 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 a counterparty. At 31 December 2013 and 2012, 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 2013, the Fund held cash and cash equivalents of US$117,290,614 (2012: US$101,502,081) that are expected to be able to immediately generate cash inflows for managing liquidity risk. At 31 December 2013, 1 investor (2012: 1 investor) held interests in more than 10% and in aggregate 40% (2012: 48%) of the Fund s net assets attributable to holders of redeemable shares. 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). 15

18 3 Financial risk management (continued) 3.5 Fair value estimation (continued) 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 2013 and 2012, 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. 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. 16

19 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 2013 US$ 2012 US$ Cash at banks 6,836,443 3,840,929 Cash at brokers 110,454,171 97,661, ,290, ,502,081 6 Net gains on investments 2013 US$ 2012 US$ Realised gains 14,113,895 11,418,624 Realised losses (1,320,876) (208,068) 12,793,019 11,210,556 17

20 7 Share capital The Company has an authorised share capital of US$100, divided into 100 management shares of US$1 par value each. At 31 December 2013 and 2012, the Fund had an authorised share capital of US$49,900 divided into 499,000,000 non-voting redeemable shares of US$ par value each. Issued and fully paid Class A Number of shares Class B Number of shares At 1 January ,882,662 4,000,058 Issue of redeemable shares 14,267, ,844 Redemption of redeemable shares (15,949,731) (1,718,096) At 31 December ,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 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 2013, the net asset value per share was US$ (2012: US$1.6922) 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 2013 was US$2,147,725 (2012: US$1,911,417). The amount payable to the Investment Manager in respect of accrued management fee at 31 December 2013 was US$560,656 (2012: US$491,043). 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 fee charged for the year ended 31 December 2013 was US$25,917 (2012: US$346). The amount payable to the Investment Manager in respect of accrued performance fee at 31 December 2013 was US$25,917 (2012: US$346). 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. 19

22 8 Related party transactions (continued) 8.2 Performance fee (continued) (ii) Adjustments to performance fee (continued) 8.3 Administration fee 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 2013, nil was accrued for equalisation credits (2012: Nil). 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 a scale as described below, subject to a monthly minimum fee of US$8,000. Net asset value in US$ Fee rate per annum > 200 million 0.08% Administration fee charged for the year ended 31 December 2013 was US$157,615 (2012: US$143,746). The amount payable to the Administrator in respect of accrued administration fee at 31 December 2013 was US$80,856 (2012: US$36,565). 8.4 Related party shareholdings At 31 December 2013, Spectra Nominee Company, a fellow subsidiary of the Company, held 21,785,224 (2012: 25,968,435) Class A shares amounted to US$40,589,645 (2012: US$43,943,967) and 1,753,139 (2012: 1,890,621) Class B shares amounted to US$3,266,402 (2012 US$3,199,322). 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) (ii) not exempted under the Hong Kong Revenue (Profits Tax Exemption for Offshore Funds) Ordinance 2006 (the Ordinance ); and 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% (2012: 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 5 June