Blackstone Alternative Investment Funds plc (an umbrella fund with segregated liability between sub-funds)

Transcription

1 (an umbrella fund with segregated liability between sub-funds) Semi-Annual Report and Unaudited Financial Statements for the period ended 30 June 2016 A claim for exemption has been made pursuant to the U.S Commodity Futures Trading Commission ( CFTC ) Rule 4.7.

2 Contents Page Company Information 1 Background to the Company 2 Investment Manager s Report 3 Statement of Financial Position 6 Statement of Comprehensive Income 7 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares 8 Statement of Cash Flows 9 Notes to the Semi-Annual Financial Statements 10 Schedule of Investments 19 Summary of Material Portfolio Changes 50 Total Expense Ratio ( TER ) / Information for Investors in Switzerland 51

3 Company Information The Board of Directors of the Company Registered Office Investment Manager and Distributor Depositary Administrator and Transfer Agent Company Secretary Independent Auditors Legal Advisers as to Irish Law Mr. Gerald Brady* (Irish resident) Mr. Peter Koffler (U.S. resident) Mr. David Mehenny (U.K. resident) Mr. Carl O Sullivan* (Irish resident) 78 Sir John Rogerson s Quay Dublin 2 Ireland Blackstone Alternative Investment Advisors LLC 345 Park Avenue New York, NY United States State Street Custodial Services (Ireland) Limited 78 Sir John Rogerson s Quay Dublin 2 Ireland State Street Fund Services (Ireland) Limited 78 Sir John Rogerson s Quay Dublin 2 Ireland Bradwell Limited Arthur Cox Building Earlsfort Terrace Dublin 2 Ireland Deloitte Chartered Accountants and Statutory Audit Firm Deloitte & Touche House Earlsfort Terrace Dublin 2 Ireland Arthur Cox Arthur Cox Building Earlsfort Terrace Dublin 2 Ireland * Independent Director 1

4 Background to the Company Unless otherwise provided for in this report, the capitalised terms have the same meaning herein as in the most recent prospectus of Blackstone Alternative Investment Funds plc (the Company ) and its supplement dated 16 March 2016 (together the Prospectus ). The following information is derived from and should be read in conjunction with the full text and definitions section of the Prospectus. Principal Activities The Company was incorporated on 13 May 2014 under registration number and was authorised as an undertaking for collective investment in transferable securities ( UCITS ) on 15 July 2014 by the Central Bank of Ireland ( Central Bank ). The Company is organised as an open-ended investment company with variable capital organised under the laws of Ireland as a public limited company pursuant to the Companies Act 2014 and the European Communities (Undertakings for Collective Investment in Transferable Securities) Regulations 2011 as amended, (the "UCITS Regulations"). The Company is organised in the form of an umbrella fund with segregated liability between sub-funds. The Articles of Association provide that the Company may offer separate classes of shares, each representing interests in a sub-fund, with each sub-fund comprising a separate and distinct portfolio of investments. The Company has obtained the approval of the Central Bank for the establishment of the initial fund, Blackstone Diversified Multi-Strategy Fund (the Fund ) which commenced operations on 11 August As of 30 June 2016, this was the only active sub-fund. As of 30 June 2016, Class A (EUR) Accumulating, Class A () Accumulating, Class I (AUD) Accumulating, Class I (CHF) Accumulating, Class I (EUR) Accumulating, Class I (GBP) Accumulating, Class I (GBP) Distributing, Class I (JPY) Accumulating, Class I (NOK) Accumulating, Class I () Accumulating and Class K (EUR) Accumulating shares were issued and outstanding. Additional sub-funds in respect of which a supplement will be issued may be established by the Company with the prior approval of the Central Bank. Investment objective and policies The investment objective of the Fund is to seek capital appreciation. The Fund seeks to achieve its objective by allocating its assets among a variety of discretionary investment advisers (the Sub-Advisers ) with experience managing non-traditional or alternative investment strategies. Blackstone Alternative Investment Advisors LLC (the Investment Manager ) is responsible for selecting the strategies, for identifying and retaining Sub-Advisers with expertise in the selected strategies, and for determining the amount of Fund assets to allocate to each strategy and to each Sub-Adviser. The Investment Manager may also manage a portion of the Fund s assets directly and may invest a portion of the Fund s assets in Eligible Collective Investment Schemes. The Fund may invest principally in derivatives. Full details of the investment policies of the Fund can be found in the supplement relating to the Fund. Sub-Advisers During the period covered by this report, the Investment Manager had engaged the following entities as Sub-Advisers to provide investment management services to the Fund: AlphaParity, LLC Bayview Asset Management, LLC Blackstone Senfina Advisors, L.L.C. Caspian Capital LP Cerberus Sub-Advisory I, LLC Cerebellum GP, LLC Chatham Asset Management, LLC EMSO Partners Limited GS Investment Strategies, LLC Good Hill Partners, LP HealthCor Management, L.P. IPM Informed Portfolio Management AB Rail-Splitter Capital Management, LLC Sorin Capital Management, LLC Two Sigma Advisers, LP Waterfall Asset Management, LLC Wellington Management Company, LLP The Investment Manager may determine not to employ one or more of the above Sub-Advisers and may add new Sub-Advisers at any time. A list of the current Sub-Advisers is available from the Investment Manager, free of charge, upon request and is available at the internet address 2

5 Investment Manager s Report Dear Shareholder, We are pleased to present this Investment Manager's report for the Fund for the period 1 January through 30 June 2016 (the Reporting Period ). The Fund s investment objective is to seek capital appreciation. The Fund seeks to achieve its objective by allocating assets among a variety of investment sub-advisers with experience managing non-traditional or alternative investment strategies. The Investment Manager is responsible for selecting the strategies, for identifying and retaining Sub- Advisers with expertise in the selected strategies, and for determining the amount of Fund assets to allocate to each strategy and to each Sub-Adviser. The Investment Manager may also manage a portion of the Fund s assets directly. Market Commentary The first quarter of 2016 was challenging for hedge fund strategies, particularly those that are equity-focused. At the end of the fourth quarter of 2015, we commented that the Fund benefited from reduced allocations to sub-advisers with higher beta and higher market directionality in favor of sub-advisers with less market directionality. While additive in 2015, these portfolio shifts created headwinds in the first quarter of 2016 as the Fund s Equity Market Neutral sub-advisers were most exposed to the extreme short squeeze that took place in February As managers sought to de-risk their portfolios, they covered their short positions, which drove prices up despite little to no improvement in fundamentals. The short squeeze was pervasive across Equity Long/Short and Equity Market Neutral strategies and dramatically affected many hedge funds that focus on single-name shorts. Despite the challenges, we continue to believe that single-name short exposures are a potential source of alpha over the long term, and may continue to benefit the portfolio over time. Finally, equity strategies were also negatively affected by a reversal in factor returns, particularly momentum. High momentum names tended to be crowded, and traded down due to selling pressure as hedge funds sought to unwind these exposures. The defining event of the second quarter of 2016 was undoubtedly the Brexit vote. The month of June 2016 was dominated by anticipation of the historic referendum and then the ensuing volatility once the results were announced. On 23 June 2016, United Kingdom voters made the decision to leave the European Union, with the leave campaign winning by a narrow margin of 52% to 48%. In the days leading up to the referendum, markets were pricing in an overwhelmingly high probability that the remain camp would prevail, shocking markets when final results were tallied. On 24 June 2016, the day following the referendum, the value of the British pound (Sterling) plunged to 30-year lows, overnight market futures dropped significantly in major markets, gold rallied, and the S&P 500 had its worst trading day since August 2015 (ending down more than -3%). Treasury yields also fell sharply, with the 10-year U.S. Treasury note hitting an intraday low of 1.41%, its lowest since July The volatility continued after the weekend on 27 June 2016, with the S&P and MSCI dropping an additional -1.81% and -2.30%, respectively. The Fund was positioned conservatively leading up to the Brexit referendum vote, both from a strategy allocation perspective as well as from a sub-adviser risk appetite perspective. From a geographic exposure standpoint, the Fund s net exposure to Core Europe including the UK is relatively low in relation to its AUM. In fact, the Fund is only 3.54% net long to Core Europe. Included within this exposure figure is a net short position of approximately -3.85% and -1.38% to the Euro and GBP, respectively. 4 This positioning helped protect capital and mitigate a significant amount of volatility that was seen during the two business days following Brexit. Review of Fund Performance During the Reporting Period, the Fund generated a cumulative return, net of fees and expenses, in the Class I () Accumulating share class of (1.93%) and realised an annualised volatility i of 5.42% with a Sharpe Ratio ii of (0.75) 1,2. For a summary of Fund performance of other share classes, please refer to Note 6 of these unaudited semi-annual financial statements. Over the same period, the MSCI World Total Return Index, a measure of global equity market performance, returned 1.02%; the Barclays Global Aggregate Bond Index, a measure of U.S. global investment grade bond performance, returned 8.96% 3. Multi-Asset The Multi-Asset strategy was the top contributor to performance across the Reporting Period. In the first quarter of 2016, the Fund s Multi-Asset strategies experienced weakness. Some strategies within this category generated positive returns, particularly those with exposure to emerging markets. Continued dovish, low-interest rate credit conditions in the U.S. made emerging markets credit exposure increasingly attractive, and we continue to source attractive opportunities in macro strategies. Strategies that avoided trading momentum also performed well, as momentum saw a big reversal in the first part of this year. Exposures that hurt the Multi-Asset category were value strategies that caused losses in fixed income and FX. In the second quarter of 2016, the Fund s Multi-Asset strategies also generated positive returns and continue to provide diversification to the portfolio with low betas to traditional asset classes such as equity and credit. On the macro side, positive developments in Argentina, Venezuela, and Greece have benefitted the Fund s exposures to sovereign high yield bonds in these regions. Local rates and FX exposures have also contributed positively. Systematic diversified strategies experienced gains across factor models, with momentum rallying in particular. Strategies that do not include momentum offset some gains. As we continue to reduce exposure to strategies with more market directionality, the multi-asset category is an area where we may look to add additional sub-advisers. 3

6 Investment Manager s Report (continued) Credit The Credit strategy was a positive contributor to performance over the Reporting Period. In the first quarter of 2016, Credit strategies faced challenging market conditions, detracting from performance. While the Fund s asset-backed sub-strategies experienced mark-to-market losses in January and February 2016, our sub-advisers continued to search for opportunities to take advantage of market dislocations, and these exposures performed well in March We are also increasingly bullish on some opportunities in corporate credit, which is an area where Blackstone has been underweight for several years. Now that excessive issuance, volatility, interest rate-hikes, and slowing global growth have led to weakness in corporate credit markets, redemptions and fund outflows have created forced sellers of attractive risk across the corporate credit spectrum. In the second quarter of 2016, Credit strategies contributed gains, with corporate credit contributing significantly. Going into 2016, we have seen increased opportunities in corporate credit, an area we have been underweight for several years. The Fund s allocation to corporate credit strategies was approximately tripled over the first half of the year on the belief that increasing weakness due to forced sellers across the corporate credit spectrum would provide greater opportunities for liquidity providers to capture excess spread. At this point, we believe this opportunity has mostly played out. With rates as low as they are, attractive yields are especially hard to find. Equity The Equity strategy was the top detractor over the Reporting Period. In the first quarter of 2016, Equity strategies contributed positively in March, with both the Fund s Equity Long/Short and Equity Market Neutral sub-strategies generating positive returns overall. However, performance across sub-advisers was mixed with some capturing meaningful portions of the equity upside while others continued to struggle in the volatile markets. As a group, the Equity Long/Short sub-strategies did not capture as much of the market s upside as they have historically. Several of the Equity Long/Short sub-advisers cut risk in February 2016, which limited their ability to fully snap back when markets recovered. However, we did see sub-advisers begin to become more constructive as the month progressed and their levels of risk reflected this view. From a sector perspective, exposures to Financials proved beneficial as this sector rebounded on the month. Meanwhile, Healthcare continued to struggle returning to pre-january 2016 levels, with Biotech offsetting broader sector losses in the Fund. As for Equity Market Neutral sub-strategies, our sub-advisers benefited from a normalisation in markets post what we observed to be one of the most extreme short squeeze environments on record. Several of the short exposures that experienced violent, technically-driven upward moves in February 2016 began to trade again on fundamentals. This reversal resulted in positive performance for the month and re-capture of some of the mark to market losses from previous months. In the second quarter of 2016, Equity strategies contributed positively, even though the Fund s equity market neutral strategies generated losses. Despite challenges in the second quarter, we believe equity market neutral strategies can be advantageous in volatile and uncertain markets and are maintaining allocations to these strategies. Looking at equity strategies broadly over the first half of the year, the Fund benefitted from reduced exposure to higher beta strategies, but suffered from overweight exposures to underperforming sectors, particularly financials and technology. Going forward, we maintain cautious views on equity markets and look to continue to reduce exposure to strategies with higher betas and market directionality. Portfolio Changes and Market Outlook During the Reporting Period, one Multi-Strategy sub-adviser employing risk premia strategies intended to capture well defined and well understood risk premia across multiple asset classes was added to the Fund. Additionally, one Equity-focused subadviser had its allocation reduced to zero during the Reporting Period, although remains a sub-adviser to the platform. The Investment Manager also made adjustments to the Fund s asset allocation in response to market conditions and the Investment Manager s assessment of the relative attractiveness of certain investment strategies to the current and anticipated market environment. It has been a tumultuous first half of the year for markets, despite the MSCI ending in positive territory. Starting in January 2016 with the second Chinese currency depreciation, all the way through June 2016 with the culmination of Brexit, investors have experienced significant volatility. To the extent that events like the Brexit vote dominate markets and drive volatility higher, diversifying exposures such as the Fund seek to provide stability and downside protection within a portfolio, as well as take advantage of emerging dislocations that can create compelling investment opportunities. Thank you for your continued confidence. We look forward to continuing to service your investment needs in the years to come. Sincerely, Blackstone Alternative Investment Advisors LLC Date: August

7 Investment Manager s Report (continued) Information about principal risks of investing in the Fund is set forth in the Prospectus and Supplement. The portfolio composition, industries and holdings of the Fund are subject to change. The opinions expressed are those of Blackstone Alternative Investment Advisors LLC. The opinions are as of the date of this report and are subject to change without notice. Glossary of Indices: The volatility of the indices presented may be materially different from that of the performance of the Fund. In addition, these indices employ different investment guidelines and criteria than the Fund; as a result, the holdings in the Fund may differ significantly from the securities that comprise the indices. The performance of these indices has not been selected to represent an appropriate benchmark to compare to the performance of the Fund, but rather is disclosed to allow for comparison of Fund performance to that of well-known and widely recognised indices. A summary of the investment guidelines for these indices is available upon request. In the case of equity indices, performance of the indices reflects the reinvestment of dividends. Barclays Global Aggregate Bond Index: provides a broad-based measure of the global investment grade fixed-rate debt markets. The index includes securities issued in U.S., European and Asian currencies. The principal asset classes in the index include local currency sovereign debt, government-related, corporate and securitised (including MBS, ABS and CMBS) bonds. MSCI World Total Return Index: A market capitalisation weighted index designed to provide a broad measure of equity market performance throughout the world. The MSCI ACWI is maintained by Morgan Stanley Capital International, and is comprised of stocks from both developed and emerging markets i ii Class I () Accumulating is the Fund share class with the longest track record that is currently open to new investors. Net performance for the Class I () Accumulating class, as well as indices, is from 01/01/16 30/06/16. Fund performance is shown net of all fees and expenses. Past performance may not be a reliable guide to future performance. The value of Fund shares may go down as well as up and there can be no assurance that the Fund will achieve its investment objectives or avoid significant losses. The indices presented are indicative and for illustrative purposes only. There is no guarantee the Fund will outperform an index. Exposure data is as of 30/06/16. Core Europe is defined to include Belgium, Czech Republic, Denmark, Finland, France, Germany, Jersey, Luxembourg, Monaco, Netherlands, Norway, Sweden, Switzerland, and the United Kingdom. Volatility / Standard Deviation: A measure of the dispersion of a set of data from its mean. The more spread apart the data, the higher the deviation. Standard deviation is calculated as the square root of variance Sharpe Ratio: A ratio to measure risk adjusted performance. The Sharpe Ratio is calculated by subtracting the risk free rate such as that of the 10 year U.S. Treasury bond from the rate of return for a portfolio and dividing the result by the standard deviation of the portfolio returns. The greater a portfolio s Sharpe Ratio, the better its risk adjusted performance has been. 5

8 Statement of Financial Position (Unaudited) Blackstone Diversified Multi-Strategy Fund As at 30 Jun 2016 Blackstone Diversified Multi-Strategy Fund As at 31 Dec 2015 Assets Financial assets at fair value through profit or loss: Held for trading: Investments in securities 633,273, ,153,633 Purchased options 4,017,959 2,165,582 Futures contracts 15,081,944 3,571,074 Forward foreign currency exchange contracts 4,891,693 2,142,192 Swap contracts 8,639,848 2,969,525 Securities purchased under agreement to resell 287,145, ,500,000 Cash 104,866, ,770,056 Due from broker 192,100, ,390,161 Receivable for investments sold 17,333, ,103 Interest receivable 5,019,174 2,199,252 Receivable for fund shares sold 4,392,069 4,684,257 Receivable for financial derivative instruments sold 285, ,834 Other assets 435, ,149 Total current assets 1,277,481, ,567,818 Liabilities Financial liabilities at fair value through profit or loss: Held for trading: Options written (4,447,700) (9,990,925) Futures contracts (13,233,760) (2,282,309) Forward foreign currency exchange contracts (17,445,359) (6,978,188) Swap contracts (12,785,445) (4,448,287) Due to broker (3,799,429) (60,000) Payable for investments purchased (22,167,425) (17,043,558) Payable for Fund shares redeemed (166,333) (513,771) Investment Management fees payable (3,663,811) (2,181,575) Administrator fees payable (605,034) (434,486) Performance fees payable (421,985) (1,995,350) Audit and tax fees payable (61,619) (102,939) Custodian fees payable (109,695) (69,324) Trustee fees payable (85,091) (40,140) Directors fees payable - (27,894) Legal fees payable (19,072) (21,645) Payable for financial derivative instruments purchased (1,103,598) (565,593) Other payables and accrued expenses (321,990) (114,376) Liabilities (excluding net assets attributable to holders of redeemable participating shares) (80,437,346) (46,870,360) Net assets attributable to holders of redeemable participating shares 1,197,044, ,697,458 The accompanying notes are an integral part of these financial statements. 6

9 Statement of Comprehensive Income (Unaudited) Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2016 Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2015 Investment income/(loss) Dividends 1,172, ,109 Interest 12,318,414 4,963,048 Net (loss)/gain from investments in securities included in financial assets at fair value through profit or loss (9,303,273) 10,596,927 Net gain/(loss) on foreign exchange 136,331 (104,777) Net gain/(loss) from financial derivative instruments included in financial assets and liabilities at fair value through profit or loss 4,631,764 (22,438,537) Total investment income/(loss) 8,955,277 (6,296,230) Investment Management fees (6,719,776) (2,782,152) Administrator fees (996,777) (427,506) Performance fees (421,983) (2,053,665) Legal fees (73,196) (53,599) Audit and tax fees (41,954) (60,076) Custodian fees (173,199) (176,927) Trustee fees (122,377) (52,736) Directors fees (22,530) (32,505) Other operating expenses (194,039) (59,618) Total expenses (8,765,831) (5,698,784) Operating profit/(loss) 189,446 (11,995,014) Profit/(loss) before tax 189,446 (11,995,014) Withholding tax (739,575) (165,795) Decrease in net assets attributable to holders of redeemable participating shares resulting from operations (550,129) (12,160,809) There are no recognised gains or losses in the financial period other than those dealt with in the Statement of Comprehensive Income. All results are from continuing activities. The accompanying notes are an integral part of these financial statements. For a summary of share class performance in local currency, please refer to Note 6. 7

10 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares (Unaudited) Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2016 Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2015 Net assets attributable to holders of redeemable participating shares at beginning of period 873,697, ,296,759 Issuance of shares during the period 358,250, ,046,964 Redemption of shares during the period (34,352,933) (38,160,067) Net increase from share transactions 323,897, ,886,897 Decrease in net assets attributable to holders of redeemable participating shares from operations (550,129) (12,160,809) Net assets attributable to holders of redeemable participating shares at end of period 1,197,044, ,022,847 The accompanying notes are an integral part of these financial statements. 8

11 Statement of Cash Flows (Unaudited) 9 Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2016 Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2015 Cash flows from operating activities Net decrease in net assets resulting from operations (550,129) (12,160,809) Adjustments to reconcile net decrease in net assets resulting from operations to net cash used in operating activities: Purchases of investments in securities (570,391,012) (436,246,610) Proceeds from disposition of investments in securities 330,968, ,940,255 Premiums paid on purchased options (26,196,900) (10,601,598) Proceeds from disposition of purchased options 17,725,448 5,670,858 Premiums paid on closing options written (70,466,548) (849,379) Proceeds from premiums received from options written 66,784,318 1,771,919 Net premiums received on swaps 2,603, ,510 Net realised loss/(gain) on investments in securities 16,402,912 (8,643,356) Net realised loss on purchased options 6,167,233 3,757,789 Net realised (gain) on options written (1,400,502) (782,593) Net change in unrealised loss on investments in securities (7,099,639) (1,953,571) Net amortisation of bonds (55,058) 787,247 Net change in unrealised loss/(gain) on purchased options 451,841 (288,354) Net change in unrealised gain on options written (460,492) (256,245) Net change in unrealised loss/(gain) on derivatives 7,221,430 (286,246) Changes in assets and liabilities: (Increase)/decrease in assets: Securities purchased under agreement to resell (98,645,000) 25,430,000 Due from broker (62,710,481) (29,378,022) Interest receivable (2,819,922) (693,040) Receivable from Investment Manager - 254,305 Other assets 147,084 (157,993) Increase/(decrease) in liabilities: Due to broker 3,739,429 (449,649) Investment Management fees payable 1,482, ,182 Administrator fees payable 170, ,112 Performance fees payable (1,573,365) 1,885,514 Audit and tax fees payable (41,320) (27,654) Custodian fees payable 40,371 98,318 Trustee fees payable 44,951 24,603 Directors' fees payable (27,894) (70,880) Legal fees payable (2,573) (59,032) Other payables and accrued expenses 745,619 (22,655) Net cash used in operating activities (387,745,478) (91,206,074) Cash flows from financing activities: Proceeds from issue of shares 358,542, ,485,791 Cost of shares redeemed (34,700,371) (38,160,067) Net cash flows provided by financing activities 323,841, ,325,724 Net (decrease)/increase in cash (63,903,491) 42,119,650 Cash at beginning of period 168,770,056 13,953,943 Cash at end of period 104,866,565 56,073,593 Supplemental information: Interest received 9,498,492 4,270,008 Dividend received 1,501, ,044 Tax paid (749,081) (157,972) The accompanying notes are an integral part of these financial statements.

12 Notes to the Semi-Annual Financial Statements for the period ended 30 June 2016 (Unaudited) Note 1. Organisation The Company is an open-ended investment company organised under the laws of Ireland as a public limited company pursuant to the Companies Act 2014 and the UCITS Regulations as an umbrella company with variable capital and segregated liability between sub-funds. The Company was incorporated on 13 May 2014 and was authorised by the Central Bank on 15 July 2014 as an undertaking for collective investment in transferable securities. The Company has obtained approval of the Central Bank for the establishment of the initial sub-fund, the Blackstone Diversified Multi-Strategy Fund, which commenced operations on 11 August The objective of the Fund is to seek capital appreciation. The Fund seeks to achieve its objective by allocating its assets among a variety of discretionary investment advisers, the Sub-Advisers, with experience managing non-traditional or alternative investment strategies. As of 30 June 2016, the investment manager of the Company and the Fund was Blackstone Alternative Investment Advisors LLC. Note 2. Basis of presentation These condensed unaudited semi-annual financial statements for the six months ended 30 June 2016 have been prepared in accordance with IAS 34, Interim Financial Reporting issued by the Financial Reporting Council. These unaudited semi-annual financial statements do not contain all of the information and disclosures required in the annual audited financial statements and should be read in conjunction with the annual audited financial statements of the Company for the year ended 31 December 2015, which have been prepared in accordance with European Union ( EU ) endorsed International Financial Reporting Standards ( IFRS ) and interpretations adopted by the International Accounting Standards Board ( IASB ) and the Companies Act 2014 as applicable to companies reporting under IFRS and the UCITS Regulations. The same accounting policies, presentation and methods of computation have been followed in these unaudited semi-annual financial statements as were applied in the preparation of the Company's annual audited financial statements for the year ended 31 December 2015, with the exception of any new standards adopted during the period, as outlined below. These semi-annual financial statements are unaudited. We note that the statutory auditor s report in the Company's annual audited financial statements for the year ended 31 December 2015 was unqualified. The Company s financial risk management objectives and policies are consistent with those disclosed in the Company s annual audited financial statements for the year ended 31 December These unaudited semi-annual financial statements are presented in U.S. dollar. New standards, amendments and interpretations issued and effective for the financial period beginning 1 January 2016 IFRS 14 Regulatory Deferred Accounts was issued in January 2014 and became effective for the periods beginning on or after 1 January The new standard does not have any impact on the Company s financial position, performance or disclosures in its financial statements. IFRS 7 Financial Instruments: Disclosures amendment was issued in September 2014 and became effective for periods beginning on or after 1 January Disclosure requirements regarding the offsetting of financial assets and financial liabilities are not specifically required in condensed interim financial statements that are prepared in accordance with IAS 34 Interim Financial Reporting for all interim periods. However, the additional disclosure is given when its inclusion would be required in accordance with the general principles of IAS 34. This amendment does not have any impact on the Company s financial position or performance and has not resulted in additional disclosures in the current reporting period. IAS 1 Presentation of Financial Statements amendment was issued in December 2014 and became effective for periods beginning on or after 1 January The amendment introduces five narrow-focus improvements to the disclosure requirements that relate to materiality, order of the notes, subtotals, accounting policies and disaggregation. The amendment does not have any impact on the Company s financial position, performance and has not resulted in additional disclosures in the current reporting period and has not resulted in additional disclosures in the current reporting period. IAS 34 Interim Financial Reporting amendment was issued in September 2014 and became effective for periods beginning on or after 1 January The amendment clarifies the meaning of elsewhere in the interim financial report and states that information not included in the financial statements must be cross referenced from the interim financial statements to the location of this information within the interim financial report e.g. the Investment Manager Report. This amendment does not have any impact on the Company s financial position or performance and has not resulted in additional disclosures in the current reporting period. 10

13 Notes to the Semi-Annual Financial Statements for the period ended 30 June 2016 (Unaudited) (continued) Note 2. Basis of presentation (continued) New standards, amendments and interpretations issued but not yet effective for the financial period beginning 1 January 2016 and not early adopted IFRS 16 Leases was issued in January 2016 and will become effective for period beginning on or after 1 January The new standard is not expected to have any impact on the Company s financial position, performance or disclosures in its financial statements. IFRS 15 Revenue from Contracts with Customers was issued in May 2014 and will become effective for periods beginning on or after 1 January The new standard is not expected to have any impact on the Company s financial position, performance or disclosures in its 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 Company. Note 3. Taxation Under current law and practice the Company and the Fund qualify as an investment undertaking as defined in Section 739B of the Taxes Consolidation Act, 1997, as amended. On that basis, it is not generally chargeable to Irish tax on its income and gains. However, Irish tax may arise on the happening of a chargeable event. A chargeable event includes any distribution payments to shareholders or any encashment, redemption, cancellation or transfer of shares, or the holding of shares at the end of each eight year period beginning with the acquisition of such shares. No Irish tax will arise on the Company in respect of chargeable events in respect of: 1) a shareholder who is neither Irish resident nor ordinarily resident in Ireland for tax purposes, at the time of the chargeable event, provided appropriate valid declarations in accordance with the provisions of the Taxes Consolidation Act, 1997, as amended, are held by the Company, or the Company has been authorised by the Irish Revenue Commissioners to make gross payments in the absence of appropriate declarations; and 2) certain exempted Irish tax resident shareholders who have provided the Company with the necessary signed statutory declarations. Dividends, interest and capital gains (if any) received on investments made by the Company/Fund may be subject to taxes imposed by the country from which the investments income/gains are received, and such taxes may not be recoverable by the Company/Fund and its shareholders. Note 4. Financial derivative instruments and efficient portfolio management The Investment Manager may, on behalf of the Fund and subject to the conditions and limits set out in the UCITS Regulations, the Central Bank Regulations and the Fund s investment objective and policies as outlined in the Prospectus, employ certain investment management techniques. Such techniques may be used for efficient portfolio management purposes as follows: (i) (ii) (iii) for the purposes of hedging against market movements, currency exchange, interest rate or other risks; and/or to enhance the performance of the Fund s portfolio of investments; and/or for investment purposes. Techniques and instruments used may include trading in financial derivative instruments, such as futures, forward foreign currency exchange contracts, options contracts, swap agreements and repurchase agreements. The gains and losses associated with the financial derivative instruments are included within net gain/(loss) from financial derivative instruments included in financial assets and liabilities at fair value through profit or loss in the Statement of Comprehensive Income, while the gains and losses associated with the repurchase agreements are included within net gain/(loss) from investments in securities included in financial assets at fair value through profit or loss in the Statement of Comprehensive Income. Details regarding the exposure obtained through financial derivative instruments and repurchase agreements are disclosed in the Schedule of Investments. The counterparties to the financial derivative instruments and repurchase agreements are also identified on the Schedule of Investments. The Fund receives cash collateral to reduce counterparty exposure which is classified as due from broker in the Statement of Financial Position. 11

14 Notes to the Semi-Annual Financial Statements for the period ended 30 June 2016 (Unaudited) (continued) Note 5. Fair value hierarchy The Company measures fair values 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 Level 2 Level 3 Quoted market price in an active market for an identical instrument. Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs could have a significant impact on the instrument s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. The level in the fair value hierarchy within which the financial asset or liability 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. 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 Company. The Company considers observable data to be that 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. Vendor quotes are classified as Level 2 holdings because the inputs into the price supplied by the vendors are observable and may include recent trades, interest rates, yields and credit spreads. The Investment Manager reviews the prices independently recorded as vendor quotes and ensures that they are in accordance with fair value. For each class of assets and liabilities not measured at fair value in the Statement of Financial Position but for which fair value is disclosed, IFRS 13 Fair Value Measurement requires the Company to disclose the level within the fair value hierarchy which the fair value measurement would be categorised and a description of the valuation technique and inputs used in the technique. Assets and liabilities not carried at fair value are carried at amortised cost, their carrying values being reasonable approximations of fair value. Cash and cash held at broker include deposits held with banks and other short-term investments in an active market and are categorised as Level 1. Receivable for investments sold and other assets include the contractual amounts for settlement of trades and other obligations due to the Company. Payable for investments purchased and other payables represent the contractual amounts and obligations due by the Company for settlement of trades and other obligations due by the Company for settlement of trades and expenses. All of the receivable and payable balances are categorised as Level 2. There were transfers of 664,788 between Levels 1 and 2 of the fair value hierarchy during the period. Transfers between levels in the fair value hierarchy are deemed to have occurred if the pricing source has changed at period end. There was no Level 3 holdings held at period end or 31 December

15 Notes to the Semi-Annual Financial Statements for the period ended 30 June 2016 (Unaudited) (continued) Note 5. Fair value hierarchy (continued) The financial instruments held at 30 June 2016 are classified into the following Levels: Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss: Investments in securities at fair value Common Stock 61,845,494 31,470,923-93,316,417 Asset-Backed Securities - 140,123, ,123,957 Bank Loan Corporate Bonds & Notes - 115,073, ,073,832 Sovereign Debt - 38,699,891-38,699,891 Mortgage-Backed Securities - 244,401, ,401,160 Exchange-Traded Fund 1,657, ,657,027 Investments in Financial Derivative Instruments Purchased options 1,333,938 2,684,021-4,017,959 Futures contracts 15,081, ,081,944 Forward foreign currency exchange contracts - 4,891,693-4,891,693 Swap contracts - 8,639,848-8,639,848 Securities purchased under agreement to resell - 287,145, ,145,000 Cash 104,866, ,866,565 Due from broker 192,100, ,100,642 Receivable for Fund shares sold - 4,392,069-4,392,069 Receivable for investments sold - 17,333,071-17,333,071 Receivable for financial derivative instruments sold - 285, ,668 Other assets - 5,454,405-5,454,405 Total assets 376,885, ,596,302-1,277,481,912 Financial liabilities at fair value through profit or loss: Investments in Financial Derivative Instruments Options written (96,348) (4,351,352) - (4,447,700) Futures contracts (13,233,760) - - (13,233,760) Forward foreign currency exchange contracts - (17,445,359) - (17,445,359) Swap contracts - (12,785,445) - (12,785,445) Due to broker (3,799,429) - - (3,799,429) Payable for Fund shares redeemed - (166,333) - (166,333) Payable for investments purchased - (22,167,425) - (22,167,425) Payable for financial derivative instruments purchased - (1,103,598) - (1,103,598) Other payables and accrued expenses - (5,288,297) - (5,288,297) Total liabilities (excluding net assets attributable to holders of redeemable participating shares) (17,129,537) (63,307,809) - (80,437,346) 13

16 Notes to the Semi-Annual Financial Statements for the period ended 30 June 2016 (Unaudited) (continued) Note 5. Fair value hierarchy (continued) The financial instruments held at 31 December 2015 are classified into the following Levels: Level 1 Level 2 Level 3 Total Financial assets at fair value through profit or loss: Investments in securities at fair value Common Stock 88,329,953 30,389, ,719,705 Asset-Backed Securities - 80,206,817-80,206,817 Bank Loan - 1,392-1,392 Corporate Bonds & Notes - 31,288,681-31,288,681 Mortgage-Backed Securities - 151,655, ,655,904 Sovereign Debt - 26,668,273-26,668,273 U.S. Government Sponsored Agency Securities 6,612,861-6,612,861 Investments in Financial Derivative Instruments Purchased options 1,307, ,910-2,165,582 Futures contracts 3,571, ,571,074 Forward foreign currency exchange contracts - 2,142,192-2,142,192 Swap contracts - 2,969,525-2,969,525 Securities purchased under agreement to resell 188,500, ,500,000 Cash 168,770, ,770,056 Due from broker 129,390, ,390,161 Receivable for Fund shares sold - 4,684,257-4,684,257 Receivable for investments sold - 154, ,103 Receivable for financial derivative instruments sold - 586, ,834 Other assets - 2,480,401-2,480,401 Total assets 391,368, ,198, ,567,818 Financial liabilities at fair value through profit or loss: Investments in Financial Derivative Instruments Options written (539,311) (9,451,614) - (9,990,925) Futures contracts (2,282,309) - - (2,282,309) Forward foreign currency exchange contracts - (6,978,188) - (6,978,188) Swap contracts - (4,448,287) - (4,448,287) Due to broker (60,000) - - (60,000) Payable for Fund shares redeemed - (513,771) - (513,771) Payable for investments purchased - (17,043,558) - (17,043,558) Payable for financial derivative instruments purchased - (565,593) - (565,593) Other payables and accrued expenses - (4,987,729) - (4,987,729) Total liabilities (excluding net assets attributable to holders of redeemable participating shares) (2,881,620) (43,988,740) - (46,870,360) 14

17 Notes to the Semi-Annual Financial Statements for the period ended 30 June 2016 (Unaudited) (continued) Note 6. Subscriber and redeemable participating shares Authorised The authorised share capital of the Company is 500 billion shares of no par value to be issued at the Net Asset Value per Share on such terms as the Directors may think fit. As of the period ended 30 June 2016, the Directors have authorised and issued two Subscriber Shares to the value of EUR2. Subscriber Shares do not participate in the dividends or assets of any sub-fund. Redeemable participating shares The Company s capital is represented by the redeemable participating shares outstanding of the Fund. The Fund currently offers Class A, Class I, Class K and Class Z shares. Class A and Class I offer distributing and accumulating interests (with respect to dividends) in, AUD, EUR, DKK, GBP, JPY, NOK, SEK and CHF. Class K offers accumulating interests in EUR and Class Z offers accumulating interests in. As of the period ended 30 June 2016, Class A (EUR) Accumulating, Class A () Accumulating, Class I (AUD) Accumulating, Class I (CHF) Accumulating, Class I (EUR) Accumulating, Class I (GBP) Accumulating, Class I (GBP) Distributing, Class I (JPY) Accumulating, Class I (NOK) Accumulating, Class I () Accumulating and Class K (EUR) Accumulating shares were issued and outstanding. Redeemable participating shares rights The issued redeemable participating share capital is at all times equal to the NAV of the Fund. Redeemable participating shares are redeemable at the shareholders option and are classified as financial liabilities. The rights attaching to the redeemable participating shares are as follows: each of the shares entitles the shareholder to participate equally on a pro-rata basis in the distributions and net assets of the Fund attributable to the relevant class in respect of which they are issued. each of the shares entitles the holder to attend and vote at meetings of the Company and of the Fund represented by those shares. No class of share confers on the holder any preferential or pre-emptive rights to participate in the profits and distributions of any other class of shares or any voting rights in relation to matters relating solely to any other class of shares. Below details the redeemable participating shares outstanding, net assets, NAV per redeemable participating share and total return for each share class as at 30 June 2016 and 31 December 2015: Class A (EUR) Accumulating* 30 June December 2015 Fund shares outstanding 5,503,731 - Net Assets EUR54,982,268 - NAV per share EUR Total Return (0.10%) - Class A () Accumulating* Fund shares outstanding 128,691 - Net Assets 1,284,336 - NAV per share Total Return (0.20%) - Class I (AUD) Accumulating Fund shares outstanding 1,471, ,679 Net Assets AUD14,454,700 AUD8,933,817 NAV per share AUD9.82 AUD9.93 Total Return (1.11%) (0.70%) Class I (CHF) Accumulating Fund shares outstanding 890, ,595 Net Assets CHF8,587,337 CHF9,212,281 NAV per share CHF9.64 CHF9.91 Total Return (2.72%) (0.90%) Class I (EUR) Accumulating Fund shares outstanding 21,934,193 14,748,756 Net Assets EUR220,877,326 EUR152,207,167 NAV per share EUR10.07 EUR10.32 Total Return (2.42%) 3.10% * Share class launched during the period ended 30 June See Note

18 Notes to the Semi-Annual Financial Statements for the period ended 30 June 2016 (Unaudited) (continued) Note 6. Subscriber and redeemable participating shares (continued) Redeemable participating shares reconciliation (continued) Below details the redeemable participating shares outstanding, net assets, NAV per redeemable participating share and total return for each share class as at 30 June 2016 and 31 December 2015: 30 June December 2015 Class I (GBP) Accumulating* Fund shares outstanding 10,000 - Net Assets GBP99,400 - NAV per share GBP Total Return (0.60%) - Class I (GBP) Distributing Fund shares outstanding 6,344, ,816 Net Assets GBP61,854,899 GBP1,203,324 NAV per share GBP9.75 GBP9.96 Total Return (2.11%) (0.40%) Class I (JPY) Accumulating Fund shares outstanding 17,545,859 10,761,204 Net Assets JPY17,562,702,701 JPY11,037,982,474 NAV per share JPY1, JPY1, Total Return (2.41%) 2.57% Class I (NOK) Accumulating Fund shares outstanding 1,254, ,466 Net Assets NOK123,948,787 NOK85,952,528 NAV per share NOK98.79 NOK Total Return (1.91%) 0.71% Class I () Accumulating Fund shares outstanding 37,357,252 35,240,815 Net Assets 379,176, ,742,437 NAV per share Total Return (1.93%) 3.40% Class K (EUR) Accumulating Fund shares outstanding 20,000,000 20,000,000 Net Assets EUR201,800,000 EUR206,800,000 NAV per share EUR10.09 EUR10.34 Total Return (2.42%) 3.19% * Share class launched during the period ended 30 June See Note