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 financial period ended 30 June 2017 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 (Unaudited) 6 Statement of Comprehensive Income (Unaudited) 7 Statement of Changes in Net Assets Attributable to Holders of Redeemable Participating Shares (Unaudited) 8 Statement of Cash Flows (Unaudited) 9 Notes to the Semi-Annual Financial Statements (Unaudited) 10 Schedule of Investments (Unaudited) 18 Summary of Material Portfolio Changes (Unaudited) 52 Information for Investors in Switzerland Total Expense Ratio ("TER") 53 Performance Data 53 Supplemental Unaudited Information Securities Financing Transactions Regulation ("SFTR") 54

3 Company Information Directors 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 10 Earlsfort Terrace Dublin 2 Ireland Deloitte Chartered Accountants and Statutory Audit Firm Deloitte & Touche House Earlsfort Terrace Dublin 2 Ireland Arthur Cox 10 Earlsfort Terrace Dublin 2 Ireland * Independent Director 1

4 Background to the Company Unless otherwise provided for in this report, all capitalised terms shall have the same meaning herein as in the most recent prospectus of Blackstone Alternative Investment Funds plc (the Company ) and its supplement dated 6 February 2017 (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 (the 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, as amended, 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 2017, this was the only active sub-fund. As of 30 June 2017, Class A (EUR) Accumulating, Class A (SEK) Accumulating, Class A () Accumulating, Class C () 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 I () Distributing 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. 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 also manages 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 financial period covered by this report, the Investment Manager had engaged the following entities as Sub-Advisers to provide investment management services to the Fund: Bayview Asset Management, LLC Caspian Capital LP Cerberus Sub-Advisory I, LLC Cerebellum GP, LLC Chatham Asset Management, LLC Covalis Capital, LLP D. E. Shaw Investment Management, LLC Emso Asset Management Limited FT Alpha Parity, LLC Good Hill Partners, LP GS Investment Strategies, LLC GSA Capital Partners LLP H2O AM, LLP HealthCor Management, L.P. IPM Informed Portfolio Management AB Sorin Capital Management, LLC Two Sigma Advisers, LP Waterfall Asset Management, LLC 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 2017 (the Reporting Period ). The Fund s investment objective is to seek capital appreciation, which it seeks to achieve 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 also manages a portion of the Fund s assets directly. Market Commentary and Outlook The first half of 2017 saw a new U.S. presidential administration take office, which had broader implications for financial markets. Stocks had a strong start to the year, continuing their post-election rally on expectations of new pro-growth policies in the U.S. Early in the year, signs of improving economic health and anticipation of rising interest rates contributed to tighter spreads in both corporate and structured credit, which benefitted some of the Fund s Fundamental Credit and Opportunistic Trading strategies. Additionally, divergences in monetary and fiscal policy around the world and increased geopolitical risks improved the opportunity set for the Fund s Global Macro strategies. Markets appeared to pay close attention to President Trump-related news releases that seemingly increased dispersion among stocks. In fact, S&P 500 intra-stock correlation dropped below its pre-financial crisis average for the first time. Dispersion of this magnitude often creates an attractive environment for fundamental stock-pickers due to divergences in performance between winning and losing stocks. This phenomenon was supportive for the Fund s Equity Long/Short strategies, showcasing the value of active management. Additionally, higher levels of idiosyncratic movements and increased dispersion among trading styles and sectors benefitted Quantitative strategies that seek to take advantage of divergent trends across interest rates, fixed income and currency markets. The U.S. Federal Reserve ( Fed ) voted to hike the benchmark federal funds rate twice during the Reporting Period, and Fed Chairwoman Janet Yellen issued guidance that one more such increase may be in store later in However, a number of Fed bank presidents have voiced concerns about low inflation, thereby setting the stage for an increasingly divided Fed at upcoming meetings. In Portugal, in a closely watched speech late in the Reporting Period, European Central Bank ( ECB ) President Mario Draghi hinted that Europe s "strengthening and broadening" economic recovery may merit the unwinding of the ECB s large monetary stimulus. This more hawkish tone caught markets off guard and spurred a broad rate re-pricing, somewhat reminiscent of 2013 s taper tantrum. Meanwhile, one year after the United Kingdom s ( U.K. ) monumental Brexit vote to leave the European Union, U.K. Prime Minister Theresa May s bid to bump up a Conservative majority in U.K. Parliament flopped, thus setting the U.K. on a rockier path as the Conservatives will need to forge a coalition majority in order to conduct successful divorce proceedings. Additionally, global geopolitical tumult intensified in June 2017, without any clear resolution in sight. North Korea tested several missiles and an ICBM rocket engine, prompting varying reactions from the major world powers. The existing conflict in Syria came to a head, and tensions escalated between the U.S. and Russia. While global and domestic equity markets have thus far withstood these tensions, such rising pressures have the potential to trigger market stress down the road. Amid these many loose ends at the close of the Reporting Period, we reiterate our view that equity markets continue to be priced relatively expensively and may be prone to elevated downside risk in the coming months. Therefore, we continue to manage our equity beta accordingly. In addition, at this juncture in the credit cycle, we are also moderating our exposure to such strategies and have been rounding out the portfolio with some additional diversifiers. Many investors have been optimistic about the U.S. economy post-election, but over the past few months, there has been a divergence between soft data (confidence indicators) and hard data (more concrete quantitative measures of economic health). While soft data measures, such as consumer confidence, small business confidence and CEO sentiment, have spiked in recent months, hard data metrics like consumer spending, home sales, and GDP growth have remained uninspiring, suggesting some discrepancy between expectation and reality. We believe that, at some point, the hard and soft data may realign, with economic growth and spending experiencing a boom or confidence waning. The current economic expansion more than eight years is among the longest on record. The cyclically-adjusted price/earnings ( CAPE ) ratio is at its highest level since the late 1990s, and historical data shows that future equity market returns tend to drop as the CAPE ratio rises, leaving us to believe there is the potential for lower returns going forward. Additionally, both investment grade and high yield credit spreads are near their tightest levels since the Great Financial Crisis, suggesting lower returns for credit may be on the horizon as well. Couple these valuation dynamics with geopolitical risks and central banks signaling the end of loose monetary policy, and we are potentially in the crosshairs of a major risk-off event in public markets. Therefore, we remain cautious of long-only exposure to traditional stocks and bonds and continue to espouse the value proposition of alternative investments. In spite of uncertainty as to what the rest of 2017 holds, we remain confident in investment strategies that are both diversified and hedged by nature, and that offer alpha generation potential through active security selection and strategic asset allocation. 3

6 Investment Manager s Report (continued) 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 4.28% and realised an annualised volatility (i) of 2.04% with a Sharpe Ratio (ii) of 1.96 (1)(2). For a summary of Fund performance of other share classes, please refer to Note 4 of these condensed unaudited semi-annual financial statements. Over the same period, the MSCI World Total Return Index, a measure of global equity market performance, returned 11.02% and realised an annualised volatility (i) of 6.26% with a Sharpe Ratio (ii) of 1.71; the Barclays Global Aggregate Bond Index, a measure of global investment grade bond performance, returned 4.41% and realised an annualised volatility (i) of 5.25% with a Sharpe Ratio (ii) of 0.79 (3). Equity Equity strategies added to performance over the Reporting Period. In the first quarter of 2017, Equity strategies posted gains, driven primarily by strong performance of Quantitative strategies. Throughout the quarter in the U.S., market attention to Capitol Hill and the White House contributed to dispersion and volatility among stocks, which created opportunities for equity strategies to perform well. In addition, speculation surrounding the direction of healthcare policy in the first few months of the year proved beneficial for managed care exposures in the portfolio, while these same exposures trimmed initial gains following U.S. House Republicans failure to repeal and replace the Affordable Care Act. Equity strategies also experienced some gains over the quarter in the software, biotech, and internet sub-sectors, while some short exposures to financials detracted. In the second quarter of 2017, Equity strategies also contributed to performance with gains coming from both Fundamental and Quantitative strategies. Healthcare exposure generated particularly meaningful gains, with managed care and surgical medtech exposures leading gains on the heels of the U.S. House of Representatives passage of the American Health Care Act and the Senate Republicans unveiling of its own such bill. While the Fund is diversified across a number of sectors, healthcare has been among our largest overweights this year on the belief that increased sub-sector dispersion could continue to spur trading opportunities. Later in the quarter, financials contributed positively to Equity Long/Short sub-strategies after satisfactory stress test results spurred dividend increases and share buybacks; losses attributable to June 2017 s so-called tech tantrum, however, ate into these gains. Meanwhile, although quantitative equity strategies endured a challenging end to the second quarter, in line with that of the broader quantitative hedge fund universe, they still ended the quarter in positive territory. While we have been steadily reducing beta within the Fund s Equity strategies, we remain optimistic about the alpha opportunity set for these strategies, given the diversity of ideas and reduced crowding over the first half of Credit Credit strategies were the top contributor to performance over the Reporting Period. In the first quarter of 2017, Credit strategies were the Fund s largest performance driver, with all sub-strategies well in the black. Corporate and structured credit exposures benefitted from positive carry and anticipated implications of a possible change to interest deductibility. Collateralized loan obligation (CLO) tranches appreciated due to rising interest rates, which has been driving a broader demand for floating rate credit instruments. Additionally, commercial mortgage-backed securities (CMBS) and asset-backed securities (ABS) generated positive cash flow, and an ongoing rally in credit risk transfer (CRT) bonds contributed additional gains to the credit book. In the second quarter of 2017, Credit strategies once again led gains, with positive performance generated primarily by Credit (MBS/ABS) sub-strategies, though Opportunistic Trading Credit and Fundamental Credit sub-strategies were marginally in the black. Exposures to CRT bonds continued to be key drivers of performance, and commercial real estate exposures contributed gains due to improving underlying fundamentals. Carry provided additional gains. Tepid performance from certain corporate credit exposures can be attributed, in part, to mark-to-market losses. Going forward, in applying our top-down economic views, we have begun to trim our Credit exposure to reduce risk at this point in the credit cycle. Multi-Asset Multi-Asset strategies also posted gains over the Reporting Period. In the first quarter of 2017, Multi-Asset strategies added to performance, with Multi-Strategy sub-strategies notching the largest gains. Early in the quarter, factor-based strategies proved especially strong, led by performance in fixed income and FX value strategies. Argentine bonds were winners on the quarter, rallying as Argentinian President Macri changed up his cabinet and focused on reform. Furthermore, the Multi-Asset book benefitted from the Mexican peso s huge almost 11% rally over the first quarter. Exposures to Brazilian and Mexican quasi-sovereign entity bonds also posted gains. On the other hand, the U.S. dollar s slippage due to mounting investor concerns about the Trump administration s ability to enact reforms contributed to some offsetting losses, as did fixed income momentum and carry strategies. In the second quarter of 2017, Multi-Asset strategies also added to performance, with gains driven by Multi-Strategy substrategies, reduced slightly by some losses among Macro Systematic sub-strategies. Several emerging market debt positions generated gains over the quarter amid Brazilian political drama and following the E.U. s inking of an 8.5 billion deal with Greece in June On the flip side, Macro Systematic sub-strategies FX and fixed income models struggled over the quarter, but losses were partially offset by equity models. 4

7 Investment Manager s Report (continued) Review of Fund Performance (continued) Multi-Asset (continued) Portfolio Changes There were several changes to the Fund s sub-adviser line-up during the Reporting Period. Three sub-advisers were added: GSA Capital Partners LLP ( GSA ), H2O AM LLP ( H2O ) and Gracian Capital LLC ( Gracian ). GSA offers a Macro Systematic trend-following strategy that seeks to produce long-term uncorrelated returns to traditional markets, and H2O runs a Discretionary Thematic strategy across FX, equities and fixed income. The Investment Manager also added a short-only fundamental equity strategy advised by Gracian on a non-discretionary basis. One equity-focused sub-adviser, Cerebellum GP, LLC ( Cerebellum ) and one credit-focused sub-adviser, Cerberus Sub- Advisory I, LLC ( Cerberus ) had their allocations reduced to zero during the Reporting Period, although both remain subadvisers to the Fund. Additionally, Wellington Management Company LLP ( Wellington ) no longer serves as a sub-adviser to the Fund. Sub-adviser additions and terminations are normal events in the our investment process and result from our dynamic evaluation of the top-down assessment of the opportunity set for hedge fund strategies as well as the bottom-up evaluation of a sub-adviser's ability to deliver alpha in a given environment. When done well, value may be generated by making the right topdown calls on which asset classes are attractive in a given environment and increasing the Fund s exposure to those asset classes through selecting the right sub-advisers to express those views. We appreciate your choosing to invest with us, and we look forward to serving you for years to come. Sincerely, Blackstone Alternative Investment Advisors LLC Date: August 2017 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. MSCI World Index is maintained by Morgan Stanley Capital International, and is comprised of large and mid-cap stocks across 23 developed markets countries. It covers approximately 85% of the free float-adjusted market capitalization in each country and MSCI World does not offer exposure to emerging markets. i ii (1) (2) (3) 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. 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 1 January June 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. 5

8 Statement of Financial Position (Unaudited) Blackstone Diversified Multi-Strategy Fund As at 30 Jun 2017 Blackstone Diversified Multi-Strategy Fund As at 31 Dec 2016 Assets Financial assets at fair value through profit or loss: Held for trading: Investments in securities 813,429, ,468,721 Purchased options 2,264,433 5,554,833 Futures contracts 7,835,921 14,594,950 Forward foreign currency exchange contracts 23,080,144 13,585,492 Swap contracts 15,048,741 9,332,629 TBA contracts 78,645 - Securities purchased under agreement to resell 626,440, ,715,000 Cash 113,714, ,316,167 Due from broker 252,332, ,862,471 Receivable for investments sold 1,595, ,158 Interest receivable 3,294,789 4,671,509 Receivable for Fund shares sold 9,168,396 2,748,686 Receivable for financial derivative instruments sold 208, ,159 Other assets 314, ,457 Total current assets 1,868,805,407 1,638,157,232 Liabilities Financial liabilities at fair value through profit or loss: Held for trading: Options written (826,774) (12,967) Futures contracts (15,931,664) (16,273,228) Forward foreign currency exchange contracts (9,853,383) (4,558,475) Swap contracts (15,184,200) (6,335,581) TBA contracts (260,346) - Due to broker (8,712,652) (4,025,569) Payable for investments purchased (4,357,442) (28,309,178) Payable for Fund shares redeemed (836,605) (2,000,158) Investment Management fees payable (5,993,479) (5,674,042) Administrator fees payable (877,898) (853,220) Performance fees payable (7,371,040) (2,385,685) Audit and tax fees payable (18,520) (92,300) Depositary fees payable (157,178) (253,160) Trustee fees payable (134,384) (133,474) Payable for financial derivative instruments purchased (1,566,606) (535,050) Legal fees payable - (2,472) Other payables and accrued expenses (244,102) (188,116) Liabilities (excluding net assets attributable to holders of redeemable participating shares) (72,326,273) (71,632,675) Net assets attributable to holders of redeemable participating shares 1,796,479,134 1,566,524,557 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 2017 Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2016 Investment income Dividends 892,551 1,172,041 Interest 22,037,314 12,318,414 Net gain/(loss) from investments in securities included in financial assets at fair value through profit or loss 42,085,899 (9,303,273) Net gain on foreign exchange 956, ,331 Net gain from financial derivative instruments included in financial assets and liabilities at fair value through profit or loss 71,225,987 4,631,764 Total investment income 137,197,944 8,955,277 Investment Management fees (11,118,546) (6,719,776) Administrator fees (1,285,434) (996,777) Performance fees (7,371,039) (421,983) Legal fees (112,183) (73,196) Audit and tax fees (50,930) (41,954) Depositary fees (292,899) (173,199) Trustee fees (193,766) (122,377) Directors fees (21,025) (22,530) Other operating expenses (213,310) (194,039) Total expenses (20,659,132) (8,765,831) Operating profit 116,538, ,446 Finance costs Distributions to redeemable participating shareholders (787,706) - Total finance costs (787,706) - Profit before tax 115,751, ,446 Withholding tax (149,268) (739,575) Increase/(decrease) in net assets attributable to holders of redeemable participating shares resulting from operations 115,601,838 (550,129) 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 4. 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 2017 Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2016 Net assets attributable to holders of redeemable participating shares at beginning of period 1,566,524, ,697,458 Issuance of shares during the period 703,562, ,250,170 Redemption of shares during the period (589,209,677) (34,352,933) Net increase from share transactions 114,352, ,897,237 Increase/(decrease) in net assets attributable to holders of redeemable participating shares from operations 115,601,838 (550,129) Net assets attributable to holders of redeemable participating shares at end of period 1,796,479,134 1,197,044,566 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 2017 Blackstone Diversified Multi-Strategy Fund For the period ended 30 Jun 2016 Cash flows from operating activities Net increase/(decrease) in net assets resulting from operations 115,601,838 (550,129) Adjustments to reconcile net increase/(decrease) in net assets resulting from operations to net cash used in operating activities: Purchases of investments in securities (514,633,222) (570,391,012) Proceeds from disposition of investments in securities 606,643, ,968,281 Premiums paid on purchased options (9,539,374) (26,196,900) Proceeds from disposition of purchased options 7,572,979 17,725,448 Premiums paid on closing options written (1,155,422) (70,466,548) Proceeds from premiums received from options written 1,165,392 66,784,318 Net premiums (paid)/received on swaps (4,395,317) 2,603,656 Net realised (gain)/loss on investments in securities (23,344,156) 16,402,912 Net realised loss on purchased options 4,702,648 6,167,233 Net realised loss/(gain) on options written 505,079 (1,400,502) Net change in unrealised (gain) on investments in securities (18,741,743) (7,099,639) Net amortisation of bonds and swap premium (1,385,114) (55,058) Net change in unrealised loss on purchased options 554, ,841 Net change in unrealised loss/(gain) on options written 298,759 (460,492) Net change in unrealised loss on derivatives 9,745,545 7,221,430 Changes in assets and liabilities: (Increase)/decrease in assets: Securities purchased under agreement to resell (228,725,000) (98,645,000) Due from broker (57,469,738) (62,710,481) Interest receivable 1,376,720 (2,819,922) Receivable for financial derivative instruments sold (21,139) 301,166 Other assets (60,930) (154,082) Increase/(decrease) in liabilities: Due to broker 4,687,083 3,739,429 Investment Management fees payable 319,437 1,482,236 Administrator fees payable 24, ,548 Performance fees payable 4,985,355 (1,573,365) Audit and tax fees payable (73,780) (41,320) Depositary fees payable (95,982) 40,371 Trustee fees payable ,951 Directors' fees payable - (27,894) Legal fees payable (2,472) (2,573) Payable for financial derivative instruments purchased 1,031, ,005 Other payables and accrued expenses 55, ,614 Net cash used in operating activities (100,371,311) (387,745,478) Cash flows from financing activities: Proceeds from issue of shares 564,623, ,542,358 Cost of shares redeemed (457,853,841) (34,700,371) Net cash flows provided by financing activities 106,769, ,841,987 Net increase/(decrease) in cash 6,398,165 (63,903,491) Cash at beginning of period 107,316, ,770,056 Cash at end of period 113,714, ,866,565 Supplemental information: Interest received 23,414,034 9,498,492 Dividend received 846,576 1,501,833 Tax paid (115,566) (749,081) The accompanying notes are an integral part of these financial statements.

12 Notes to the Semi-Annual Financial Statements for the financial period ended 30 June 2017 (Unaudited) Note 1. Basis of presentation These condensed unaudited semi-annual financial statements for the six months ended 30 June 2017 have been prepared in accordance with IAS 34, Interim Financial Reporting issued by the Financial Reporting Council. These condensed 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 2016, 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 amended) 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 condensed 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 No new accounting standards have been adopted since 31 December 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 2016 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 condensed 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 2017 There have been no new standards, amendments or interpretation to existing standards effective for the financial period beginning 1 January 2017 that would be expected to have a significant impact on the Company. New standards, amendments and interpretations issued but not yet effective for the financial period beginning 1 January 2017 and not early adopted IFRS 9 Financial Instruments, issued on 24 July 2014, is the IASB s replacement of IAS 39 Financial Instruments: Recognition and Measurement. The standard includes requirements for recognition and measurement, impairment, derecognition and general hedge accounting. The new standard will become effective for period beginning on or after 1 January 2018 and 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. 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. 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 2. 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, for example: (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. 10

13 Notes to the Semi-Annual Financial Statements for the financial period ended 30 June 2017 (Unaudited) (continued) Note 2. Financial derivative instruments and efficient portfolio management (continued) 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 interest 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. Note 3. 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. Broker quotes are classified as Level 2 holdings because the inputs into the price supplied by the brokers are observable and may include recent trades, interest rates, yields and credit spreads. The Investment Manager reviews the prices independently recorded as broker 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 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. 11

14 Notes to the Semi-Annual Financial Statements for the financial period ended 30 June 2017 (Unaudited) (continued) Note 3. Fair value hierarchy (continued) Transfers between levels in the fair value hierarchy are deemed to have occurred if the pricing source has changed at financial period end. There were no transfers between Level 1 and Level 2 during the financial period. Transfers into Level 3 were primarily related to an update to the valuation methodology that is based on observable inputs. At financial period end no Fair Factor was applied as price movement did not meet the Fair Trigger. The financial instruments held at 30 June 2017 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 96,674,592-1,059,098 97,733,690 Preferred Stock 353,148-1,695,600 2,048,748 Asset-Backed Securities - 95,417,346-95,417,346 Bank Debt - - 5,722 5,722 Corporate Bonds & Notes - 62,331,715 8,314,084 70,645,799 Mortgage-Backed Securities - 394,111, ,111,243 Sovereign Debt - 84,114,128-84,114,128 U.S. Government Sponsored Agency Securities - 10,430,398-10,430,398 U.S. Treasury Obligations - 34,289,764-34,289,764 Exchange-Traded Funds 24,632, ,632,816 Investments in Financial Derivative Instruments Purchased options 1,241,389 1,023,044-2,264,433 Futures contracts 7,835, ,835,921 Forward foreign currency exchange contracts - 23,080,144-23,080,144 Swap contracts - 15,048,741-15,048,741 TBA contracts - 78,645-78,645 Securities purchased under agreement to resell - 626,440, ,440,000 Cash 113,714, ,714,332 Due from broker 252,332, ,332,209 Receivable for Fund shares sold - 9,168,396-9,168,396 Interest receivable - 3,294,789-3,294,789 Receivable for investments sold - 1,595,458-1,595,458 Receivable for financial derivative instruments sold - 208, ,298 Other assets - 314, ,387 Total assets 496,784,407 1,360,946,496 11,074,504 1,868,805,407 Financial liabilities at fair value through profit or loss: Investments in Financial Derivative Instruments Options written - (826,774) - (826,774) Futures contracts (15,931,664) - - (15,931,664) Forward foreign currency exchange contracts - (9,853,383) - (9,853,383) Swap contracts - (15,184,200) - (15,184,200) TBA contracts - (260,346) - (260,346) Due to broker (8,712,652) - - (8,712,652) Payable for Fund shares redeemed - (836,605) - (836,605) Payable for investments purchased - (4,357,442) - (4,357,442) Payable for financial derivative instruments purchased - (1,566,606) - (1,566,606) Other payables and accrued expenses - (14,796,601) - (14,796,601) Total liabilities (excluding net assets attributable to holders of redeemable participating shares) (24,644,316) (47,681,957) - (72,326,273) 12

15 Notes to the Semi-Annual Financial Statements for the financial period ended 30 June 2017 (Unaudited) (continued) Note 3. Fair value hierarchy (continued) The financial instruments held at 31 December 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 107,867, ,867,181 Asset-Backed Securities - 141,164, ,164,732 Bank Debt - - 4,354 4,354 Corporate Bonds & Notes - 140,060, ,060,944 Mortgage-Backed Securities - 365,828, ,828,553 Sovereign Debt - 71,648,923-71,648,923 U.S. Government Sponsored Agency Securities - 9,603,456-9,603,456 U.S. Treasury Obligations - 28,274,677-28,274,677 Exchange-Traded Funds 22,015, ,015,901 Investments in Financial Derivative Instruments Purchased options 4,548,636 1,006,197-5,554,833 Futures contracts 14,594, ,594,950 Forward foreign currency exchange contracts - 13,585,492-13,585,492 Swap contracts - 9,332,629-9,332,629 Securities purchased under agreement to resell - 397,715, ,715,000 Cash 107,316, ,316,167 Due from broker 194,862, ,862,471 Receivable for investments sold - 866, ,158 Receivable for Fund shares sold - 2,748,686-2,748,686 Receivable for financial derivative instruments sold - 187, ,159 Other assets - 4,924,966-4,924,966 Total assets 451,205,306 1,186,947,572 4,354 1,638,157,232 Financial liabilities at fair value through profit or loss: Investments in Financial Derivative Instruments Options written - (12,967) - (12,967) Futures contracts (16,273,228) - - (16,273,228) Forward foreign currency exchange contracts - (4,558,475) - (4,558,475) Swap contracts - (6,335,581) - (6,335,581) Due to broker (4,025,569) - - (4,025,569) Payable for investments purchased - (28,309,178) - (28,309,178) Payable for Fund shares redeemed - (2,000,158) - (2,000,158) Payable for financial derivative instruments purchased - (535,050) - (535,050) Other payables and accrued expenses - (9,582,469) - (9,582,469) Total liabilities (excluding net assets attributable to holders of redeemable participating shares) (20,298,797) (51,333,878) - (71,632,675) 13

16 Notes to the Semi-Annual Financial Statements for the financial period ended 30 June 2017 (Unaudited) (continued) Note 3. Fair value hierarchy (continued) Level 3 Reconciliation The following table reconciles the fair value changes in the Level 3 holding for the period ended 30 June 2017: Balance as at 31 December ,354 Purchases 10,896,824 Sales - Realised gain/(loss) - Movement in unrealised gain/(loss) 170,954 Transfers from Level 2 to Level 3 2,372 Balance as at 30 June ,074,504 Note 4. 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 per Share on such terms as the Directors may deem fit. As of the financial period ended 30 June 2017, the Directors have authorised and issued 300,002 Subscriber Shares of no par value. Subscriber Shares do not participate in the dividends or assets of any subfund. 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 C, Class I 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 C offers distributing and accumulating interests in EUR, CHF and and Class Z offers accumulating interests in. As of the financial period ended 30 June 2017, Class A (EUR) Accumulating, Class A (SEK) Accumulating, Class A () Accumulating, Class C () 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 I () Distributing 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. The NAV per redeemable share for the Fund as at 30 June 2017 and 31 December 2016 is as follows: 30 June December 2016 Class A (EUR) Accumulating Fund shares outstanding 10,437,662 7,502,791 Net Assets EUR107,925,422 EUR75,177,962 NAV per share EUR10.34 EUR10.02 Net Total Return 3.19% 0.20% Class A (SEK) Accumulating Fund shares outstanding 517, ,177 Net Assets SEK52,548,494 SEK72,801,540 NAV per share SEK SEK98.49 Net Total Return 3.07% (1.51%) Class A () Accumulating Fund shares outstanding 205, ,544 Net Assets 2,155,875 1,467,084 NAV per share Net Total Return 4.07% 0.80% 14

17 Notes to the Semi-Annual Financial Statements for the financial period ended 30 June 2017 (Unaudited) (continued) Note 4. Subscriber and redeemable participating shares (continued) Redeemable participating shares reconciliation (continued) 30 June December 2016 Class I (AUD) Accumulating Fund shares outstanding 1,383,296 1,787,181 Net Assets AUD14,455,445 AUD17,853,943 NAV per share AUD10.45 AUD9.99 Net Total Return 4.60% 0.60% Class I (CHF) Accumulating Fund shares outstanding 960, ,004 Net Assets CHF9,607,942 CHF6,034,119 NAV per share CHF10.00 CHF9.67 Net Total Return 3.41% (2.42%) Class I (EUR) Accumulating Fund shares outstanding 46,115,231 23,349,508 Net Assets EUR483,287,620 EUR236,530,514 NAV per share EUR10.48 EUR10.13 Net Total Return 3.46% (1.84%) Class I (GBP) Accumulating Fund shares outstanding 1,217, ,286 Net Assets GBP12,693,398 GBP1,520,421 NAV per share GBP10.43 GBP10.05 Net Total Return 3.78% 0.50% Class I (GBP) Distributing Fund shares outstanding 9,353,773 7,708,815 Net Assets GBP95,034,329 GBP76,008,918 NAV per share GBP10.16 GBP9.86 Net Total Return 3.04% (1.00%) Class I (JPY) Accumulating Fund shares outstanding 21,305,576 16,863,975 Net Assets JPY22,228,746,966 JPY16,994,501,669 NAV per share JPY1, JPY1, Net Total Return 3.53% (1.75%) Class I (NOK) Accumulating Fund shares outstanding 1,336,427 1,302,831 Net Assets NOK139,135,395 NOK130,309,168 NAV per share NOK NOK Net Total Return 4.09% (0.69%) Class I () Accumulating Fund shares outstanding 57,247,798 66,363,096 Net Assets 614,268, ,876,259 NAV per share Net Total Return 4.28% (0.58%) Class I () Distributing Fund shares outstanding 12,001,316 - Net Assets 122,893,472 - NAV per share Net Total Return 2.40% - Class C () Accumulating Fund Shares outstanding 35,000 - Net Assets 350,000 - NAV per Share Net Total Return 0.00% - 15