ayers alliance quantum fund sp - a segregated portfolio … · ayers alliance quantum fund sp - a...

AYERS ALLIANCE QUANTUM FUND SP - A SEGREGATED PORTFOLIO OF AYERS ALLIANCE SPC (Incorporated in the Cayman Islands with limited liability) Independent Auditor's Report and Audited Financial Statements For the year ended December 31, 2017

AYERS ALLIANCE QUANTUM FUND SP - A SEGREGATED PORTFOLIO OF AYERS ALLIANCE SPC (Incorporated in the Cayman Islands with limited liability)

REPORT AND AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 CONTENTS PAGE(S) MANAGEMENT AND ADMINISTRATION 1 INDEPENDENT AUDITOR'S REPORT 2 - 4 STATEMENT OF FINANCIAL POSITION 5 STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME 6 STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING SHARES 7 STATEMENT OF CASH FLOWS 8 NOTES TO THE FINANCIAL STATEMENTS 9 – 33


- 1 -

MANAGEMENT AND ADMINISTRATION Directors Wen Cyrus Jun-Ming (Resigned on 23 April 2018) Cheah Kok Leong Tung, Clement Sun Tat (Appointed on 23 April 2018)

Administrator and Transfer Agent SS&C Fund Services (Asia) Limited Suite 706 - 7, Central Plaza 18 Harbour Road Wan Chai, Hong Kong

Registered Office 4th Floor, Harbour Place 103 South Church Street PO Box 10240 Grand Cayman KY1-1002 Cayman Islands

Auditor Deloitte & Touche One Capital Place PO Box 1787 Grand Cayman KY1-1109 Cayman Islands

Investment Manager Ayers Alliance Asset Management Limited 4th Floor, Harbour Place 103 South Church Street Grand Cayman KY1-1002 Cayman Islands

Legal Adviser As to matters of Cayman Islands law Harney Westwood & Riegels 3601 Two Exchange Square 8 Connaught Place Central Hong Kong

Hong Kong Investment Advisor STI Asset Management Limited 3rd Floor, QRC100 100 Queen's Road Central Central Hong Kong

Legal Adviser As to matters of Australian law DLA Piper Australia 201 Elizabeth Street Sydney NSW 2000 Australia

Australian Investment Advisor Ayers Alliance Limited Level 2, Exchange House 10 Bridge Street Sydney NSW 2000 Australia

Prime Broker UBS AG, London Branch 1 Finsbury Avenue London EC2M 2PP UK

- 2 -

Deloitte & Touche

One Capital Place

PO Box 1787

Grand Cayman, KY1-1109

CAYMAN ISLANDS

Tel: +1 (345) 949 7500 Fax: +1 (345) 949 8238

www.deloitte.com/ky

INDEPENDENT AUDITOR'S REPORT

TO THE BOARD OF DIRECTORS OF AYERS ALLIANCE QUANTUM

FUND SP – A SEGREGATED PORTFOLIO OF AYERS ALLIANCE SPC

(Incorporated in the Cayman Islands with limited liability)

Opinion

We have audited the accompanying financial statements of Ayers Alliance Quantum Fund SP –

A Segregated Portfolio of Ayers Alliance SPC (the "Fund") set out on pages 5 to 33, which

comprise the statement of financial position as at December 31, 2017, and the statement of profit

or loss and other comprehensive income, the statement of changes in net assets attributable to

holders of participating shares and the statement of cash flows for the year then ended, and notes

to the financial statements, including a summary of significant accounting policies.

In our opinion, the accompanying financial statements present fairly, in all material respects, the

financial position of the Fund as at December 31, 2017, and its financial performance, its

changes in net assets attributable to holders of participating shares and its cash flows for the year

then ended in accordance with International Financial Reporting Standards ("IFRSs").

Basis for Opinion

We conducted our audit in accordance with International Standards on Auditing ("ISAs"). Our

responsibilities under those standards are further described in the Auditor's Responsibilities for

the Audit of the Financial Statements section of our report. We are independent of the Fund in

accordance with the International Ethics Standards Board for Accountants' Code of Ethics for

Professional Accountants (the "IESBA Code"), and we have fulfilled our other ethical

responsibilities in accordance with the IESBA Code. We believe that the audit evidence we have

obtained is sufficient and appropriate to provide a basis for our opinion.

Responsibilities of Management and Those Charged with Governance for the Financial

Statements

Management is responsible for the preparation and fair presentation of the financial statements in

accordance with IFRSs, and for such internal control as management determines is necessary to

enable the preparation of financial statements that are free from material misstatement, whether

due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Fund's ability

to continue as a going concern, disclosing, as applicable, matters related to going concern and

using the going concern basis of accounting unless management either intends to liquidate the

Fund or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Fund's financial reporting

process.

- 3 -



FUND SP – A SEGREGATED PORTFOLIO OF AYERS ALLIANCE SPC - continued


Auditor's Responsibilities for the Audit of the Financial Statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a

whole are free from material misstatement, whether due to fraud or error, and to issue an

auditor's report that includes our opinion solely to you, in accordance with the agreed terms of

engagement, and for no other purpose. We do not assume responsibility towards or accept

liability to any other person for the contents of this report. Reasonable assurance is a high level

of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always

detect a material misstatement when it exists. Misstatements can arise from fraud or error and

are considered material if, individually or in the aggregate, they could reasonably be expected to

influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain

professional recognized throughout the audit. We also:

Identify and assess the risks of material misstatement of the financial statements, whether

due to fraud or error, design and perform audit procedures responsive to those risks, and

obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion.

The risk of not detecting a material misstatement resulting from fraud is higher than for one

resulting from error, as fraud may involve collusion, forgery, intentional omissions,

misrepresentations, or the override of internal control.

Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the Fund's internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of

accounting estimates and related disclosures made by management.

Conclude on the appropriateness of management's use of the going concern basis of

accounting and, based on the audit evidence obtained, whether a material uncertainty exists

related to events or conditions that may cast significant doubt on the Fund's ability to

continue as a going concern. If we conclude that a material uncertainty exists, we are

required to draw attention in our auditor's report to the related disclosures in the financial

statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions

are based on the audit evidence obtained up to the date of our auditor's report. However,

future events or conditions may cause the Fund to cease to continue as a going concern.

Evaluate the overall presentation, structure and content of the financial statements,

including the disclosures, and whether the financial statements represent the underlying

transactions and events in a manner that achieves fair presentation.

- 4 -



FUND SP – A SEGREGATED PORTFOLIO OF AYERS ALLIANCE SPC – continued


Auditor's Responsibilities for the Audit of the Financial Statements – continued

We communicate with those charged with governance regarding, among other matters, the

planned scope and timing of the audit and significant audit findings, including any significant

deficiencies in internal control that we identify during our audit.

June 28, 2018


Notes are an integral part of the financial statements. - 5 -

STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2017 NOTES 2017 2016 US$ US$ ASSETS Financial assets at fair value through profit or loss 4(i) 10,474,958 9,948,974 Financial asset at amortised cost 5 10,000,000 10,000,000 Margin deposits 3,971,906 - Other receivables and prepayments 136,440 92,859 Amounts due from brokers 6 59,622,223 88,951,479 Cash and cash equivalents 1,255,754 563,781 ___________ ___________ TOTAL ASSETS 85,461,281 109,557,093 ___________ ___________ ___________ ___________ LIABILITIES Financial liabilities at fair value through profit or loss 4(i) 13,879,376 8,289,373 Amounts due to brokers 6 19,397,802 20,937,835 Margin deficit 3,003,449 - Other payables 485,200 840,173 Management fee payable 8 241,203 417,743 Performance fee payable 8 84,972 - Deferred income 141,696 700,000 ___________ ___________ TOTAL LIABILITIES (EXCLUDING NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING SHARES) 37,233,698 31,185,124 NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING SHARES 48,227,582 78,371,968 Management shares 7 1 1 ___________ ___________ TOTAL LIABILITIES AND EQUITY 85,461,281 109,557,093 ___________ ___________ ___________ ___________ Number of participating shares in issue 7 354,019.84 625,860.28 ___________ ___________ ___________ ___________ The financial statements on page 5 to 33 were approved and authorised for issue by the Directors of the Fund on June 28, 2018



STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2017 NOTES 2017 2016 US$ US$ INCOME Dividend income 360,222 226,532 Interest income 1,362,838 1,136,182 Other income 92,097 51 Net foreign exchange gain 4,386,163 7,668,073 Net realised gains on financial assets and liabilities at fair value through profit or loss 4(ii) 659,146 177,655 Net change in unrealised gains (losses) on financial assets and liabilities at fair value through profit or loss 4(ii) 476,626 (187,035) _________ __________ 7,337,092 9,021,458 _________ __________ EXPENSES Management fees 8 1,122,494 1,779,133 Performance fees 8 84,972 2,213 Commission fees 372,844 739,471 Dividend expense 385,949 224,630 Administration fees 10 78,000 88,448 Interest expense 341,935 372,515 Professional fees 6,355 66,000 Auditor's remuneration 40,766 36,000 Directors' fees 9 84,000 96,000 Other operating expenses 278,320 998,810 _________ __________ 2,795,635 4,403,220 _________ __________ TAXATION 14,336 18,216 _________ __________ NET INCREASE IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING SHARES FROM OPERATIONS 4,527,121 4,600,022 _________ __________ _________ __________



STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING SHARES FOR THE YEAR ENDED DECEMBER 31, 2017 2017 2016 US$ US$ NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING SHARES, BEGINNING OF THE YEAR 78,371,968 83,711,670 Net increase in net assets attributable to holders of participating shares from operations 4,527,121 4,600,022 Issuance of participating shares 149,998 13,291,490 Redemption of participating shares (34,821,505) (23,231,214) __________ __________ NET ASSETS ATTRIBUTABLE TO HOLDERS OF PARTICIPATING SHARES, END OF THE YEAR 48,227,582 78,371,968 __________ __________ __________ __________



STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2017 2017 2016 US$ US$ OPERATING ACTIVITIES Net increase in net assets attributable to holders of participating shares from operations 4,527,121 4,600,022 Adjustments for: Dividend income (360,222) (226,532) Interest income (1,362,838) (1,136,182) Interest expense 341,935 372,515 __________ __________ Operating cash flows before movements in working capital 3,145,996 3,609,823 Increase in financial assets at fair value through profit or loss (525,984) (5,785) Increase in financial asset at amortised cost - (7,000,000) Increase in financial liabilities at fair value through profit or loss 5,590,003 655,914 Decrease in other receivables and prepayments 55,018 197,308 Increase in margin deposits (3,971,906) - Increase in margin deficit 3,003,449 - Decrease in amounts due to brokers (1,540,033) (1,859,182) Decrease in amounts due from brokers 29,329,256 12,373,890 Decrease in management fee payable (176,540) (2,366) Increase in performance fee payable 84,972 - Decrease in other payables (354,973) (92,791) (Decrease) increase in deferred income (558,304) 700,000 __________ __________ CASH GENERATED FROM OPERATING ACTIVITIES 34,080,954 8,576,811 Dividend income received 281,617 224,241 Interest received 1,356,095 1,134,301 Interest paid (355,186) (354,242) __________ __________ NET CASH PROVIDED BY OPERATING ACTIVITIES 35,363,480 9,581,111 __________ __________ FINANCING ACTIVITIES Decrease in subscription in advance - (7,416,400) Proceeds from issuance of participating shares 149,998 13,291,490 Payments on redemption of participating shares (34,821,505) (23,231,214) __________ __________ NET CASH USED IN FINANCING ACTIVITIES (34,671,507) (17,356,124) __________ __________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 691,973 (7,775,013) CASH AND CASH EQUIVALENTS AT THE BEGINNING OF THE YEAR 563,781 8,338,794 __________ __________ CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR 1,255,754 563,781 __________ __________ __________ __________


- 9 -

NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2017 1. GENERAL

Ayers Alliance Quantum Fund SP – A Segregated Portfolio of Ayers Alliance SPC (the "Fund") was incorporated in the Cayman Islands on October 4, 2013 under the Companies Law of the Cayman Islands, as an exempted segregated portfolio company with limited liability and was registered under the Mutual Funds Law of the Cayman Islands on October 10, 2013. The address of its registered office is 4th Floor, Harbour Place, 103 South Church Street, Po Box 10240, Grand Cayman KY1 – 1002, Cayman Islands and its principal place of business is 3rd Floor, QRC100, 100 Queen's Road Central, Central, Hong Kong.

There is only one Segregated Portfolio in Ayers Alliance SPC as at December 31, 2017, the Ayers Alliance Quantum Fund SP. The assets, liabilities and equity of the portfolio are kept separated and segregated from the general assets of the Fund. In the case of insolvency with respect to the Fund's general business activities, creditors may be entitled to recourse only to the extent of the Fund's general assets. In the case of insolvency with respect to the portfolio, creditors may be entitled to have recourse only to the assets attributable to such portfolio. The investment objective of the Fund is to achieve long-term capital appreciation by investing its assets into one or more underlying funds or managed accounts managed by professional investment advisors whose investment focus is on the equity securities and derivative financial instruments in Hong Kong, Japan, Singapore, United States, United Kingdom and Australia.

Ayers Alliance Asset Management Limited (the "Investment Manager") is granted full discretion

over all matters relating to the operation of the Fund. The Investment Manager is entitled to receive performance and management fees.

The Fund's books of account are denominated in United States Dollars ("US$"), the functional

currency and the currency in which the Fund maintains its financial records. 2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING

STANDARDS ("IFRSs") Amendments to IFRSs that are mandatorily effective for the current year

The Fund has applied a number of amendments to IFRSs issued by the International Accounting

Standards Board ("IASB") and the International Financial Reporting Interpretations Committee ("IFRIC") of the IASB for the first time in the current year.

Amendments to IAS 7 Disclosure initiative Amendments to IAS 12 Recognition of deferred tax assets for recognized losses Amendments to IFRS 12 As part of the annual improvements to IFRSs 2014 – 2016 cycle


- 10 -

2. APPLICATION OF NEW AND REVISED INTERNATIONAL FINANCIAL REPORTING

STANDARDS ("IFRSs") – continued

The application of the amendments to IFRSs in the current year has had no material impact on the Fund's financial performance and positions for the current and prior years and/or on the disclosures set out in these financial statements. New and amendments to IFRSs in issue but not yet effective

The Fund has not early applied the following new and amendments to IFRSs that have been

issued but are not yet effective that are relevant to the Fund: IFRS 9 Financial Instrument1 IFRS 15 Revenue from Contracts with Customers and the related Amendments1 IFRS 16 Leases2 IFRS 17 Insurance Contracts4 IFRIC - Int 22 Foreign Currency Transactions and Advance Consideration1 IFRIC - Int 23 Uncertainty over Income Tax Treatments2 Amendments to IFRS 2 Classification and Measurement of Share-based Payment Transactions1 Amendments to IFRS 4 Applying IFRS 9 Financial Instruments with IFRS 4 Insurance Contracts1 Amendments to IFRS 9 Prepayment Features with Negative Compensation2 Amendments to IFRS 10 Sale or Contribution of Assets between an Investor and and IAS 28 its Associate or Joint Venture3

Amendments to IAS 19 Plan Amendment, Curtailment or Settlement2 Amendments to IAS 28 Long-term Interests in Associates and Joint Ventures2 Amendments to IAS 28 As part of the Annual Improvements to IFRSs 2014 - 2016 Cycle1

Amendments to IAS 40 Transfers of Investment Property1 Amendments to IFRSs Annual Improvements to IFRSs 2015 - 2017 Cycle2

1 Effective for annual periods beginning on or after January 1, 2018 2 Effective for annual periods beginning on or after January 1, 2019 3 Effective for annual periods beginning on or after a date to be determined 4 Effective for annual periods beginning on or after January 1, 2021

Except as describe below, the Directors of the Fund anticipate that the application of these new and revised IFRSs and amendments will have no material impact on the financial statements. IFRS 9 Financial instruments IFRS 9 introduces new requirements for the classification and measurement of financial assets, financial liabilities, general hedge accounting and impairment requirements for financial assets.


- 11 -


STANDARDS ("IFRSs") – continued

IFRS 9 Financial instruments - continued

Key requirements of IFRS 9: • all recognised financial assets that are within the scope of IFRS 9 are required to be

subsequently measured at amortised cost or fair value. Specifically, debt investments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal outstanding are generally measured at amortised cost at the end of subsequent accounting periods. Debt instruments that are held within a business model whose objective is achieved both by collecting contractual cash flows and selling financial assets, and that have contractual terms that give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding, are generally measured at fair value through other comprehensive income ("FVTOCI"). All other debt investments and equity investments are measured at their fair value at the end of subsequent accounting periods. In addition, under IFRS 9, entities may make an irrevocable election to present subsequent changes in the fair value of an equity investment (that is not held for trading) in other comprehensive income, with only dividend income generally recognised in profit or loss.

• with regard to the measurement of financial liabilities designated as at fair value through

profit or loss, IFRS 9 requires that the amount of change in the fair value of the financial liability that is attributable to changes in the credit risk of that liability is presented in other comprehensive income, unless the recognition of the effects of changes in the liability's credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. Changes in fair value attributable to a financial liability's credit risk are not subsequently reclassified to profit or loss. Under IAS 39, the entire amount of the change in the fair value of the financial liability designated as fair value through profit or loss is presented in profit or loss.

• in relation to the impairment of financial assets, IFRS 9 requires an expected credit loss

model, as opposed to an incurred credit loss model under IAS 39. The expected credit loss model requires an entity to account for expected credit losses and changes in those expected credit losses at each reporting date to reflect changes in credit risk since initial recognition. In other words, it is no longer necessary for a credit event to have occurred before credit losses are recognised.

Based on the Fund's risk management policies as at December 31, 2017, the Directors of the Fund anticipate the following impact on initial application of IFRS 9:

Classification Based on the Fund's financial instruments and risk management policies as at December 31, 2017, the Directors of the Fund does not anticipate that the application of IFRS 9 in the future may have a material impact on the classification and measurement of the Fund's financial assets.


- 12 -


STANDARDS ("IFRSs") – continued IFRS 9 Financial instruments – continued

Impairment

In general, the Directors of the Fund anticipates that the application of the expected credit loss model of IFRS 9 will result in earlier provision of credit losses which are not yet incurred in relation to the Fund's financial asset measured at amortised cost and other items that are subject to the impairment provisions upon application of IFRS 9 by the Fund.

Based on the assessment by the Directors of the Fund, the adoption of the expected credit loss model were to be applied by the Fund, the accumulated amount of the impairment loss to be recognised by the Fund as at January 1, 2018 would be slightly increased as compared to the accumulated amount recognised under IAS 39 mainly attributable to expected credit losses provision on financial asset at amortised cost, margin deposits, other receivables, amounts due from brokers and cash and bank balances. Such further impairment recognised under expected credit loss model would reduce the opening retained profits at January 1, 2018.

3. SIGNIFICANT ACCOUNTING POLICIES Basis of preparation The financial statements have been prepared on the historical cost basis except for certain

financial instruments, which are measured at fair values at the end of each reporting period, as explained in the accounting policies set out below. Historical cost is generally based on the fair value of the consideration given in exchange for goods.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, regardless of whether that price is directly observable or estimated using another valuation technique. In estimating the fair value of an asset or a liability, the Fund takes into account the characteristics of the asset or liability if market participants would take those characteristics into account when pricing the asset or liability at the measurement date. Fair value for measurement and/or disclosure purposes in these financial statements is determined on such a basis. In addition, for financial reporting purposes, fair value measurements are categorised into Level 1, 2 or 3 based on the degree to which the inputs to the fair value measurements are observable and the significance of the inputs to the fair value measurement in its entirety, which are described as follows:

• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or

liabilities that the entity can access at the measurement date;


- 13 -

3. SIGNIFICANT ACCOUNTING POLICIES – continued

Basis of preparation - continued

• Level 2 inputs are inputs, other than quoted prices included within Level 1, that are observable for the asset or liability, either directly or indirectly; and

• Level 3 inputs are unobservable inputs for the asset or liability.

The principal accounting policies are set out below:

Revenue recognition

Revenue is measured at the fair value of the consideration received or receivable. Interest income from a financial asset is recognised when it is probable that the economic benefits

will flow to the Fund and the amount of revenue can be measured reliably. Interest income is accrued on a time basis, by reference to the principal outstanding and the effective interest rate applicable, which is the rate that exactly discounts the estimated future cash receipt through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Dividend income from investments is recognised when the shareholders' right to receive payment

has been established.

Foreign currencies In preparing the financial statements of the Fund, transactions in currencies other than the

functional currency of the Fund (foreign currencies) are recorded in its functional currency (i.e. the currency of the primary economic environment in which the entity operates) at the rates of exchange prevailing at that date. At the end of the reporting period, monetary items denominated in foreign currencies are re-translated at the exchange rates prevailing at that date. Non-monetary items carried at fair value that are denominated in foreign currencies are re-translated at the rates prevailing on the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not retranslated.

Exchange differences arising on the settlement of monetary items, and on the retranslation of

monetary items, are recognised in the profit or loss in the period in which they arise. Exchange differences arising on the retranslation of non-monetary items carried at fair value are included in profit or loss for the period.

Financial instruments Financial assets and financial liabilities are recognised on the statement of financial position when

the Fund becomes a party to the contractual provisions of the instrument.


- 14 -

3. SIGNIFICANT ACCOUNTING POLICIES – continued Financial instruments - continued Financial assets and financial liabilities are initially measured at fair value. Transaction costs that

are directly attributable to the acquisition or issue of financial assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acquisition of financial assets or financial liabilities at fair value through profit or loss are recognised immediately in the profit or loss.

Financial assets

The Fund's financial assets are classified as financial assets at fair value through profit or loss ("FVTPL") and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition. All regular way purchases or sales of financial assets are recognised and derecognised on a trade date basis. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the time frame established by regulation or convention in the marketplace.

Effective interest method The effective interest method is a method of calculating the amortised cost of a financial asset and

of allocating interest income over the relevant year. The effective interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial asset, or, where appropriate, a shorter year to the net carrying amount on initial recognition.

Interest income is recognised on an effective interest basis for debt instruments other than those

financial assets classified as FVTPL. Financial assets at FVTPL Financial assets at FVTPL includes financial assets held for trading. A financial asset is classified as held for trading if:

• it has been acquired principally for the purpose of selling in the near future; or • it is a part of a portfolio of identified financial instruments that the Fund manages together

and has a recent actual pattern of short-term profit-taking; or • it is a derivative that is not designated and effective as a hedging instrument.


- 15 -


Financial instruments – continued Financial assets - continued Financial assets at FVTPL - continued Financial assets at FVTPL are measured at fair value with reference to the last traded price, with

changes in fair value recognised directly in the statement of profit or loss and other comprehensive income for the year in which they arise. The net gain or loss recognised in the statement of profit or loss and other comprehensive income excludes any dividend or interest earned on the financial assets.

Loans and receivables Loans and receivables are non-derivative financial assets with fixed or determinable payments

that are not quoted in an active market. Subsequent to initial recognition, loans and receivables (including financial asset at amortised cost, margin deposits, cash and cash equivalents, amounts due from brokers and other receivables) are carried at amortised cost using the effective interest method less any identified impairment losses (see accounting policies on impairment of financial assets below).

Interest income is recognised by applying the effective interest rate, except for short-term

receivables when the effect of discounting is immaterial.

Impairment of financial assets Financial assets, other than those at FVTPL, are assessed for indicators of impairment at the end

of the reporting period. Financial assets are impaired when there is objective evidence that, as a result of one or more events that occurred after the initial recognition of the financial asset, the estimated future cash flows of the financial assets have been affected.

Objective evidence of impairment could include:

• significant financial difficulty of the issuer or counterparty; or • breach of contract, such as default or delinquency in interest or principal payments; or • it becoming probable that the borrower will enter bankruptcy or financial re-organisation.

For financial assets carried at amortised cost, an impairment loss is recognised in the statement of profit or loss and other comprehensive income when there is objective evidence that the asset is impaired, and is measured as the difference between the asset's carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate.


- 16 -


Financial instruments – continued

Impairment of financial assets - continued The carrying amount of the financial asset is reduced by the impairment loss directly for all

financial assets. Changes in the carrying amount of the allowance account are recognised in the statement of profit or loss and other comprehensive income. Subsequent recoveries of amounts previously written off are credited to the statement of profit or loss and other comprehensive income.

If, in a subsequent year, the amount of the impairment loss decreases and the decrease can be

related objectively to an event occurring after the impairment loss was recognised, the previously recognised impairment loss is reversed through the statement of profit or loss and other comprehensive income to the extent that the carrying amount of the asset at the date the impairment is reversed does not exceed what the amortised cost would have been had the impairment not been recognised.

Financial liabilities and equity instruments Financial liabilities and equity instruments are classified as either financial liabilities or as equity

in accordance with the substance of the contractual arrangement and the definitions of a financial liability and an equity instrument.

Equity instruments An equity instrument is any contract that evidences a residual interest in the assets of the Fund

after deducting all of its liabilities. Management shares issued by the Fund are recognised at the proceeds received, net of direct issue costs.

Effective interest method The effective interest method is a method of calculating the amortised cost of a financial liability

and of allocating interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments (including all fees and points paid or received that form an integral part of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the financial liability, or, where appropriate, a shorter year, to the net carrying amount on initial recognition.

Interest expense is recognised on an effective interest basis. Financial liabilities at FVTPL Financial liabilities at FVTPL are financial liabilities held for trading.


- 17 -


Financial instruments – continued Financial liabilities and equity instruments - continued Financial liabilities at FVTPL - continued A financial liability is classified as held for trading if:

• it has been incurred principally for the purpose of repurchasing in the near future; or • on initial recognition it is a part of a portfolio of identified financial instruments that the

Fund manages together and has a recent actual pattern of short-term profit-taking; or • it is a derivative that is not designated and effective as a hedging instrument.

Financial liabilities at FVTPL are measured at fair value, with changes in fair value arising on

remeasurement recognised directly in profit or loss in the year in which they arise. Other financial liabilities Other financial liabilities including amounts due to brokers, margin deficit, management fee

payable, performance fee payable and other payables are subsequently measured at amortised cost, using the effective interest method.

Derivative financial instruments The Fund uses derivative financial instruments including futures, interest rate swaps and options

for trading and hedging purposes. Derivatives are initially recognised at fair value at the date a derivative contract is entered into and are subsequently remeasured to their fair value at the end of the reporting period. The resulting gain or loss is recognised in the profit or loss immediately.

Margin deposits/deficit Margin deposits/deficit represent margin deposits/deficit held with brokers in respect of open

exchange-traded futures contracts and other derivative financial instruments. Participating shares The liabilities to holders of participating shares is presented in the statement of financial position

as "net assets attributable to holders of participating shares" and is determined based on the residual assets of the Fund after deducting the Fund's other liabilities and management share capital.


- 18 -


Financial instruments – continued Derecognition The Fund derecognises a financial asset only when the contractual rights to the cash flows from

the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Fund neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Fund continues to recognise the asset to the extent of its continuing involvement and recognises an associated liability. If the Fund retains substantially all the risks and rewards of ownership of a transferred financial asset, the Fund continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset's carrying

amount and the sum of the consideration received and receivable and the cumulative gain or loss that had been recognised in other comprehensive income and accumulated in equity is recognised in profit or loss.

The Fund derecognises a financial liability when, and only when, the Fund's obligations are

discharged, cancelled or have expired. The difference between the carrying amount of the financial liability derecognised and the consideration paid and payable is recognised in profit or loss.

Taxation The Fund is domiciled in the Cayman Islands. Under the current law governing the Fund in the

Cayman Islands, the Fund is not subject to tax on income, profits or capital gains or other taxes payable.

Income from the investments held by the Fund may be subject to withholding and other taxes

levied by the jurisdiction in which the income is sourced. Withholding taxes, if any, are shown as a separate item in the statement of profit or loss and other comprehensive income.

Cash and cash equivalents

Cash and cash equivalents in the statement of financial position comprises cash at bank.

Expenses All expenses, including administration and management fees, are recognised in the statement of

profit or loss and other comprehensive income on an accrual basis.


- 19 -

4. FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS

(i) Categories of financial assets and liabilities at fair value through profit or loss

Financial assets at FVTPL – held for trading 2017 2016 US$ US$ Listed equity securities, at fair value (cost – 2017: US$8,908,388; 2016: US$8,781,569) 9,592,644 9,616,964 Derivatives financial instruments 882,314 332,010 _________ _________ 10,474,958 9,948,974 _________ _________ _________ _________

Financial liabilities at FVTPL – held for trading 2017 2016 US$ US$ Listed equity securities sold short, at fair value (cost – 2017: US$12,688,080; 2016: US$6,899,634) 13,245,798 7,131,717 Derivatives financial instruments 633,578 1,157,656 _________ _________ 13,879,376 8,289,373 _________ _________ _________ _________

(ii) Net gains (losses) on financial assets and liabilities at fair value through profit or loss 2017 2016 US$ US$ Net realised gains on financial assets at FVTPL – held for trading 356,416 25,853,722 Net realised gains (losses) on financial liabilities at FVTPL – held for trading 302,730 (25,676,067) ________ __________ Net realised gains on financial assets and liabilities at FVTPL 659,146 177,655 ________ __________ Net change in unrealised gains on financial assets at FVTPL – held for trading 207,968 2,065,883 Net change in unrealised losses on financial liabilities at FVTPL – held for trading 268,658 (2,252,918) ________ __________ Net change in unrealised gain (losses) on financial assets and liabilities at FVTPL 476,626 (187,035) ________ ___________ ________ ___________


- 20 -

4. FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS -

continued

(ii) Net gains (losses) on financial assets and liabilities at fair value through profit or loss – continued

2017 2016 US$ US$ Net realised gains on Equity securities 1,404,328 1,500,650 Options - (677,986) Futures (86,504) 138,126 Contract for differences (658,678) (783,135) _________ _________ 659,146 177,655 _________ _________ _________ _________ Net change in unrealised gains (losses) on Equity securities (602,627) 474,384 Futures 791 (132) Contract for differences 1,079,553 (666,395) Foreign currency forwards (1,091) 5,108 _________ _________ 476,626 (187,035) _________ _________ _________ _________

(iii) Derivative financial instruments At December 31, 2017, the Fund had the following open positions in derivative financial

instruments and their respective fair values:

2017 Notional amount Assets Liabilities US$ US$ US$ Contract for differences 3,301,565 878,339 (629,303) Foreign currency forward 4,127,593 3,184 (4,275) Futures 791 - ________ ________ Total derivative financial instruments assets (liabilities) 882,134 (633,578) ________ ________ ________ ________


- 21 -

4. FINANCIAL ASSETS/LIABILITIES AT FAIR VALUE THROUGH PROFIT OR LOSS -

continued (iii) Derivative financial instruments - continued

At December 31, 2016, the Fund had the following open positions in derivative financial

instruments and their respective fair values:

2016 Notional amount Assets Liabilities US$ US$ US$ Contract for differences 90,412,808 321,615 (1,152,369) Foreign currency forward 3,089,086 10,395 (5,287) _______ _________ Total derivative financial instruments assets (liabilities) 332,010 (1,157,656) _______ _________ _______ _________

These derivative financial instruments were stated at fair values at the end of reporting

year resulting in unrealised fair value gains and losses. 5. FINANCIAL ASSET AT AMORTISED COST

During 2015, the Fund held an unsecured loan note that carried interest at 23.25% per annum, payable quarterly and matured in August 2016. During 2016, the Fund entered into another unsecured loan note with the same counterparty that carries interest at 13% per annum. The loan note was fully repaid in August 2017.

In August 2017, the Fund entered into a loan participating agreement with an independent third party (the "Lender") to hold an undivided participating interest in the loan of amount of US$10,000,000. The Fund was entitled to an interest rate of 13% and administrative fee of 0.5% charged by the Lender upon the receipt of the first quarter payments from the borrower. The loan will mature on 10 August 2018. None of the assets were past due or impaired at the end of the reporting period.

6. AMOUNTS DUE FROM (TO) BROKERS

Amounts are unsecured, repayable on demand and bear interest at market rates.


- 22 -

7. SHARE CAPITAL

The Ayers Alliance SPC (the "SPC") has an authorised share capital of US$50,000 which is made up of (i) 4,999,900 participating non-voting redeemable shares, each with a par value of US$0.01 (the "participating shares") and (ii) 100 voting non-redeemable, each with a par value of US$0.01 (the "management shares"). The management shares have been issued and are held by the Investment Manager. They carry the right to return of the nominal amount paid up thereon upon the winding up of the SPC. Participating shares of each segregated portfolio are issuable by the directors of the SPC in different classes and series in accordance with the relevant portfolio supplement. Each class of participating shares will be issued by reference to a particular segregated portfolio.

US$ Authorised: 100 management shares of US$0.01 each, voting non-redeemable 1 Class A 4,999,900 participating shares of US$0.01 each, non-voting redeemable 49,999 _______ 50,000 _______ _______ 2017 2016 US$ US$ Issued and paid: 100 management shares of US$0.01 each 1 1 _______ _______ _______ _______ 2017 Number of Number of shares shares outstanding at outstanding at December 31, Issuance Redemption December 31, 2016 of shares of shares 2017 Class A participating shares Series 1 546,209.33 - (251,730.23) 294,479.10 2016 Series 1 34,779.55 - (1,094.09) 33,685.46 2016 Series 2 1,272.74 - (1,272.72) 0.02 2016 Series 3 1,052.45 - (1,052.45) - 2016 Series 4 18,930.10 - (331.22) 18,598.88 2016 Series 5 13,820.69 - (11,422.39) 2,398.30 2016 Series 6 2,418.37 - (430.43) 1,987.94 2016 Series 7 2,915.59 - (1,838.79) 1,076.80 2016 Series 8 1,139.23 - (406.86) 732.37 2016 Series 9 3,322.23 - (3,078.54) 243.69 2017 Series 1 - 316.50 (316.50) - 2017 Series 2 - 817.28 - 817.28 __________ __________ __________ __________ 625,860.28 1,133.78 (272,974.22) 354,019.84 __________ __________ __________ __________ __________ __________ __________ __________


- 23 -

7. SHARE CAPITAL - continued 2016 Number of Number of shares shares outstanding at outstanding at December 31, Issuance Redemption December 31, 2015 of shares of shares 2016 Class A participating shares Series 1 639,848.82 65,091.47 (158,730.96) 546,209.33 2015 Series 1 4,491.82 - (4,491.82) - 2015 Series 2 10,269.21 - (10,269.21) - 2015 Series 3 4,239.86 - (4,239.86) - 2015 Series 4 10,966.30 - (10,966.30) - 2015 Series 5 17,342.95 - (17,342.95) - 2015 Series 6 4,167.58 - (4,167.58) - 2015 Series 7 4,024.68 - (4,024.68) - 2015 Series 8 4,328.54 - (4,328.54) - 2015 Series 9 1,571.82 - (1,571.82) - 2015 Series 10 1,383.12 - (1,383.12) - 2015 Series 11 94.16 - (94.16) - 2015 Series 12 2,211.54 - (2,211.54) - 2016 Series 1 - 62,156.25 (27,376.70) 34,779.55 2016 Series 2 - 4,502.80 (3,230.06) 1,272.74 2016 Series 3 - 1,135.32 (82.87) 1,052.45 2016 Series 4 - 18,930.10 - 18,930.10 2016 Series 5 - 14,233.46 (412.77) 13,820.69 2016 Series 6 - 2,418.37 - 2,418.37 2016 Series 7 - 2,915.59 - 2,915.59 2016 Series 8 - 1,139.23 - 1,139.23 2016 Series 9 - 3,322.23 - 3,322.23 __________ __________ __________ __________ 704,940.40 175,844.82 (254,924.94) 625,860.28 __________ __________ __________ __________ __________ __________ __________ __________


- 24 -

7. SHARE CAPITAL - continued The net asset value of each series of shares as of December 31, 2017 and 2016 are as follows: 2017 Net Number of Net asset value shares issues asset value per share US$ US$ Class A participating shares Series 1 2014 Series 1 294,479.10 40,098,817.98 136.17 2016 Series 1 33,685.46 4,608,042.91 136.80 2016 Series 2 0.02 2.73 136.30 2016 Series 4 18,598.88 2,532,584.15 136.17 2016 Series 5 2,398.30 326,573.25 136.17 2016 Series 6 1,987.94 270,695.08 136.17 2016 Series 7 1,076.80 146,626.39 136.17 2016 Series 8 732.37 99,725.83 136.17 2016 Series 9 243.69 33,182.94 136.17 2017 Series 2 817.28 111,333.67 136.22 2016 Net Number of Net asset value shares issues asset value per share US$ US$ Class A participating shares Series 1 546,209.33 68,379,946 125.19 2016 Series 1 34,779.55 4,374,572 125.78 2016 Series 2 1,272.74 159,334 125.19 2016 Series 3 1,052.45 131,756 125.19 2016 Series 4 18,930.10 2,369,859 125.19 2016 Series 5 13,820.69 1,730,212 125.19 2016 Series 6 2,418.37 302,756 125.19 2016 Series 7 2,915.59 365,003 125.19 2016 Series 8 1,139.23 142,620 125.19 2016 Series 9 3,322.23 415,910 125.19


- 25 -

8. MANAGEMENT AND PERFORMANCE FEES The Fund will pay the Manager a Management Fee out of the assets of the Fund, in respect of

each calendar quarter, an amount equal to one quarter (¼) of 2 per cent of the average Net Asset Value of each series of Class A Shares during the relevant quarter. The average Net Asset Value of a series will be determined by reference to the Net Asset Value of the relevant series (before making any deduction for accrued Management Fee and Performance Fee) on the last Valuation Day in each month in the relevant quarter. The Management Fee will be payable in US Dollars quarterly in arrears.

The Manager will also be entitled to receive a Performance Fee from the Fund in respect of each

series of Shares in issue. For each Calculation Period, the Performance Fee in respect of each series will be equal to 20 per cent of the appreciation in the Net Asset Value of the series (adjusted for any redemptions and distributions) during the Calculation Period above the High Water Mark which is in excess of the Hurdle Rate. The Performance Fee will be calculated as at each Valuation Day in respect of each series by reference to the Net Asset Value of such series before deduction for any accrued Performance Fees. The Performance Fee will be paid to the Manager in arrears as soon as reasonably practicable after the end of each Calculation Period and in any event, within 30 days of the finalisation of the Net Asset Value as at the last Valuation Day of each Calculation Period.

The Investment Manager reserves the right to waive or rebate any fees to which it is entitled,

whether in part or in full and whether in respect of a particular participating shareholder or generally.

9. RELATED PARTY TRANSACTIONS In addition to the related party transactions disclosed elsewhere in the financial statements during

the year, the Fund had the following significant transactions with related parties: 2017 2016 US$ US$ During the year ended 31 December, Management fees to Investment Manager 1,122,494 1,779,133 Performance fees to Investment Manager 84,972 2,213 Directors' fees (Note) 84,000 96,000 _________ _________ 1,291,466 1,877,346 _________ _________ _________ _________ As at 31 December of the year, Management fees payable to Investment Manager 241,203 417,743 Performance fees payable to Investment Manager 84,972 - Directors' fees payable (Note) 24,000 36,000 _________ _________ 350,175 453,743 _________ _________ _________ _________ Note:

Under the agreement dated 1 January 2015, the Fund has engaged a service provider, STI Professional Services Limited, to provide directors' services.


- 26 -

10. ADMINISTRATION FEES Citi Fund Service (Asia) Limited (the "Administrator") is the administrator for the Fund to

provide administrative services. On 12 March 2016, SS&C Technologies Holdings Inc. completed the acquisition of Citi's Alterative Investor Services business, including its hedge fund and private equity administration business. As a result, Citi was renamed as SS&C Fund Services (Asia) Limited ("SS&C"). The fee is calculated at the following basis:

(i) 10 basis points per annum whereby the net asset value of the Fund is up to and including

US$100 million, with a minimum fee of US$5,500 per month for the first year; and (ii) 8 basis points per annum for the portion of the net asset value of the Fund from US$100

to US$500 million, with a minimum fee of US$5,500 per month for the first year; and (iii) 6 basis points per annum for the portion of the net asset value of the Fund that exceeds

US$500 million, with a minimum fee of US$5,500 per month. The fees are accrued on a monthly basis. The Administrator will also be entitled to various

transaction and processing fees and to be reimbursed for all out of pocket expenses properly incurred by it in the performance of its duties.

11. CAPITAL RISK MANAGEMENT The Fund manages its capital to ensure that it will be able to continue as a going concern while

maximising the return to holders of participating shares. The capital structure of the Fund consists of management shares and participating share interests

comprising contributed amounts and accumulated earnings. The Fund does not have any externally imposed capital requirements. 12. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS Categories of financial instruments 2017 2016 US$ US$ Financial assets Financial assets at FVTPL - held for trading 10,474,958 9,948,974 Loans and receivables (including margin deposits, cash and cash equivalents, amounts due from brokers and other receivables) 74,947,240 99,598,391 ___________ ___________ 85,422,198 109,547,365 ___________ ___________ ___________ ___________


- 27 -

12. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS - continued

Categories of financial instruments - continued 2017 2016 US$ US$

Financial liabilities Financial liabilities at FVTPL - held for trading (13,879,376) (8,289,373) Amortised cost (23,212,626) (22,195,751) Net assets attributable to holders of participating shares (48,227,582) (78,371,968) ___________ ___________ (85,319,584) (108,857,092) ___________ ___________ ___________ ___________

Financial risk management objectives and policies The Fund's major financial instruments include investments in securities and derivative contracts,

financial asset at amortised cost, amounts due from brokers, other receivables, cash and cash equivalents, amounts due to brokers, margin deposits, management fee payable, performance fee payable, margin deficit and other payables. Details of the financial instruments are disclosed in the respective notes. The risks associated with these financial instruments include credit risk, liquidity risk and market risk (foreign currency risk, interest rate risk and other price risk). The policies on how to mitigate these risks are set out below. Management manages and monitors these exposures to ensure appropriate measures are implemented in a timely and effective manner.

Credit risk Financial assets which potentially subject the Fund to concentrations of credit risk consist

principally of derivative financial assets, financial assets at amortised cost, other receivables, amounts due from brokers, cash and cash equivalents and margin deposits. The credit risk on the derivative financial assets, financial assets at amortised cost, amounts due from brokers, margin deposits and other receivables is limited because the counterparties and issuers are corporations with high credit ratings assigned by international credit-rating agencies. None of the receivables are past due and they are normally short term in nature or can be called at the Fund's discretion. No collateral is held against these liquid funds and receivables.

The analysis below shows the maximum exposure to credit risk arising from the carrying amount

of the respective recognised financial assets as stated in the statement of financial position: 2017 2016 US$ US$ Derivative financial assets 882,314 332,010 Financial asset at amortised cost 10,000,000 10,000,000 Other receivables 97,357 83,131 Amounts due from brokers 59,622,223 84,957,436 Cash and cash equivalents 1,255,754 563,781 Margin deposits 3,971,906 3,994,043 __________ __________ 75,829,554 99,930,401 __________ __________ __________ __________


- 28 -


Credit risk - continued Credit risk exposure on derivative financial instruments is mitigated by the terms outlined in the

ISDA Master Agreement with the broker, UBS AG, London Branch ("UBS"). Under the ISDA Master Agreement, in certain circumstances - e.g. when a credit event such as a default occurs - all outstanding transactions under the agreement are terminated, the termination value is assessed and only a single net amount is due or payable in settlement of all transactions.

Credit risk exposure on amounts due from/to brokers is mitigated by the terms outlined in the

Master Prime brokerage Agreement with UBS and similar terms with other brokers. Under such agreements between the Fund and brokers, financial receivables and payables with brokers on termination date are settled on net basis in the event of a credit default.

The following tables present the offsetting of assets and liabilities as of December 31, 2017: Financial assets subject to enforceable master netting arrangement and similar arrangement (i) (ii) (iii) = (i) - (ii) (iv) (v) = (iii) - (iv) Net amounts Gross amounts not Gross amounts of assets offset in the statement offset in the presented in of financial position Gross amounts statement the statement Cash of recognised of financial of financial Financial collateral Description assets position position instruments received Net amount US$ US$ US$ US$ US$ US$ Derivatives 882,314 - 882,314 (633,578) - 248,736 Amounts due from brokers 59,622,223 - 59,622,223 (19,397,802) - 40,224,421 __________ _______ __________ __________ _______ __________ __________ _______ __________ __________ _______ __________

Financial liabilities subject to offsetting, enforceable master netting arrangement and similar

arrangement (i) (ii) (iii) = (i) - (ii) (iv) (v) = (iii) - (iv) Net amounts Gross amounts not Gross amounts of liabilities offset in the statement offset in the presented in of financial position Gross amounts statement the statement Cash of recognised of financial of financial Financial collateral Description liabilities position position instruments pledged Net amount US$ US$ US$ US$ US$ US$ Derivatives 633,578 - 633,578 (633,578) - - Amounts due to brokers 19,397,802 - 19,397,802 (19,397,802) - - __________ _______ __________ __________ _______ __________ __________ _______ __________ __________ _______ __________


- 29 -


Credit risk – Continued The following tables present the offsetting of assets and liabilities as of December 31, 2016: Financial assets subject to enforceable master netting arrangement and similar arrangement (i) (ii) (iii) = (i) - (ii) (iv) (v) = (iii) - (iv) Net amounts Gross amounts not Gross amounts of assets offset in the statement offset in the presented in of financial position Gross amounts statement the statement Cash of recognised of financial of financial Financial collateral Description assets position position instruments received Net amount US$ US$ US$ US$ US$ US$ Derivatives 332,010 - 332,010 (332,010) - - Amounts due from brokers 88,951,479 - 88,951,479 (20,937,835) - 68,013,644 __________ _______ __________ __________ _______ __________ __________ _______ __________ __________ _______ __________

Financial liabilities subject to offsetting, enforceable master netting arrangement and similar

arrangement (i) (ii) (iii) = (i) - (ii) (iv) (v) = (iii) - (iv) Net amounts Gross amounts not Gross amounts of liabilities offset in the statement offset in the presented in of financial position Gross amounts statement the statement Cash of recognised of financial of financial Financial collateral Description liabilities position position instruments pledged Net amount US$ US$ US$ US$ US$ US$ Derivatives 1,157,656 - 1,157,656 (332,010) - 825,646 Amounts due to brokers 20,937,835 - 20,937,835 (20,937,835) - - __________ _______ __________ __________ _______ __________ __________ _______ __________ __________ _______ __________

Liquidity risk Liquidity risk is the risk that the Fund will encounter difficulty in raising funds to meet

commitments associated with its financial liabilities. The Fund monitors and maintains a level of cash and cash equivalents to finance the Fund's operations. The Fund has no illiquid investments and the investments can be liquidated in a short period of time to meet the cash flow needs for the redemptions of participating shares. All financial liabilities of the Fund are generally repayable on demand and the Fund does not expose itself to any significant liquidity risk. The Fund does not anticipate any significant liquidity concerns in funding redemption requests and other liabilities.

Market risk The Fund's activities expose the Fund primarily to the financial risk of changes in foreign

currency exchange rates, interest rates and market prices.


- 30 -

12. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS - continued Financial risk management objectives and policies - continued Market risk – continued Foreign currency risk Foreign currency risk is the risk that the value of a financial instrument fluctuates as a result of

changes in foreign exchange rates. The Fund is exposed to foreign currency risk primarily from its assets and liabilities that derive their revenues and/or incur expenses in currencies other than US$. The Investment Manager manages the foreign currency risk mainly by minimising exposures to foreign currencies and using foreign currency forward contracts to hedge the significant foreign currency exposures.

The carrying amount of the Fund's major foreign currency denominated monetary assets and

monetary liabilities at the reporting date is as follows: Assets Liabilities 2017 2016 2017 2016 US$ US$ US$ US$ Hong Kong Dollar ("HKD") 6,304,672 23,755,564 74,815 2,360,168 Australian Dollar ("AUD") 5,637,896 4,559,138 119,931 1,395,312 Canadian Dollar ("CAD") 62,475 284,427 7,825,560 1,961,690 Pound Sterling ("GBP") 7,552,991 1,684,884 4,663 16,870,661 Japanese Yen ("JPY") 100,278 283,154 115,378 826,631 Philippine Peso ("PHP") 4,283 874,884 53,729 - Singapore Dollar ("SGD") 314,098 64,860 2,173,780 56,667 South African Rand ("ZAR") 11,128 407,553 9,823,433 960,566 Swiss Franc ("CHF") - - 343 220 Euro ("EUR") - 55,814 494,824 17,001 __________ _________ __________ _________ __________ _________ __________ _________

The following table details the Fund's sensitivity to a 10 percent change in the respective foreign currencies against the US$. HKD is pegged to US$ and management considers that the foreign currency risk relating to HKD exposure is insignificant. The 10 percent variance is the rate used when reporting foreign currency risk internally to key management personnel and represents management's assessment of the likely range of foreign exchange rates. A 10 percent variance is deemed reasonable, since the maximum exchange rate fluctuation of the respective currencies has been approximately 10 percent over the past year. The sensitivity analysis includes outstanding foreign currency denominated monetary items and foreign currency forward contracts.


- 31 -

12. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS - continued Financial risk management objectives and policies - continued Market risk - continued Foreign currency risk - continued AUD CAD +10% -10% +10% -10% 2017 2016 2017 2016 2017 2016 2017 2016 In US$ Change in currency rate increase (decrease) in profit and loss 551,796 316,387 (551,796) (316,387) (776,309) (167,726) 776,309 167,726 ________ _________ _______ ________ ________ ________ _______ _______ ________ _________ _______ ________ ________ ________ _______ _______

GBP JPY +10% -10% +10% -10% 2017 2016 2017 2016 2017 2016 2017 2016 In US$ Change in currency rate Increase (decrease) in profit and loss 754,833 (1,518,578) (754,833) 1,518,578 (1,510) (54,438) 1,510 54,348 ________ _________ _______ ________ ________ ________ _______ _______ ________ _________ _______ ________ ________ ________ _______ _______

PHP SGD +10% -10% +10% -10% 2017 2016 2017 2016 2017 2016 2017 2016 In US$ Change in currency rate increase (decrease) in profit and loss (4,945) 87,488 4,945 (87,488) (185,968) 819 185,968 (819) ________ _________ _______ ________ ________ ________ _______ _______ ________ _________ _______ ________ ________ ________ _______ _______

ZAR EUR +10% -10% +10% -10% 2017 2016 2017 2016 2017 2016 2017 2016 In US$ Change in currency rate increase (decrease) in profit and loss (981,231) (55,301) 981,231 55,301 (49,482) 3,881 49,482 (3,881) ________ _________ _______ ________ ________ ________ _______ _______ ________ _________ _______ ________ ________ ________ _______ _______

Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will

fluctuate because of changes in market interest rates. Floating rate instruments expose the Fund to cash flow interest rate risk, whereas fixed interest rate instruments expose the Fund to fair value interest rate risk.

The Fund is mainly exposed to cash flow interest rate risk in relation to its margin deposits,

margin deficit, bank balances, amounts due from brokers and amounts due to brokers. With a 50 basis points increase/decrease in market interest rates in relation to the cash and cash equivalents, there would be approximately US$2,122,432 (2016: US$3,428,871) increase/decrease in profit for the year.


- 32 -

12. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS - continued Financial risk management objectives and policies - continued Market risk - continued Price risk Price risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate

because of changes in market prices (other than those arising from interest rate risk or currency risk), whether those changes are caused by factors specific to the individual financial instrument or its issuer, or factors affecting similar financial instruments traded in the market.

The Fund is exposed to equity price risk through its investments in equity securities and related

derivatives. The Investment Manager manages these exposures by maintaining a portfolio of investments with different risks.

The capital return and income of the Fund are mainly based on the capital appreciation and

income from the investments it holds. Therefore, the return should be expected to fluctuate in response to changes in these factors. A 10% increase/decrease in the fair values of financial instruments held for trading would result in approximately a US$340,442 (2016: US$165,960) decrease/increase (2016: increase/decrease) in profit and loss.

Fair value The fair values of financial assets and financial liabilities are determined with reference to last

traded prices or using generally accepted pricing models based on discounted cash flow analysis using prices or rates from observable current market transactions as input.

The fair value of derivative instruments is calculated using quoted prices. However, if such prices

are not available, fair value is calculated based on discounted cash flow analysis using the applicable yield curve for the duration of the instruments for non-option derivatives, and option pricing models for option derivatives.

The Directors consider that the carrying amounts of financial assets and financial liabilities

recorded at amortised cost in the financial statements approximate their fair values. Fair value measurements recognised in the statement of financial position The following table provides an analysis of financial instruments that are measured subsequent to

initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable.

• Level 1 fair value measurements are those derived from quoted prices (unadjusted) in

active markets for identical assets or liabilities. • Level 2 fair value measurements are those derived from inputs other than quoted prices

included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).


- 33 -

12. FINANCIAL INSTRUMENTS AND ASSOCIATED RISKS - continued Fair value measurements recognised in the statement of financial position - continued

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

2017 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Financial assets at FVTPL Equity securities 9,592,644 - - 9,592,644 Derivative financial assets - 882,314 - 882,314 _________ _________ _______ _________ 9,592,644 882,314 - 10,474,958 _________ _________ _______ _________ _________ _________ _______ _________ Financial liabilities at FVTPL Equity securities 13,245,798 - - 13,245,798 Derivative financial liabilities - 633,578 - 633,578 _________ _________ _______ _________ 13,245,798 633,578 - 13,879,376 _________ _________ _______ _________ _________ _________ _______ _________ 2016 Level 1 Level 2 Level 3 Total US$ US$ US$ US$ Financial assets at FVTPL Equity securities 9,616,964 - - 9,616,964 Derivative financial assets - 332,010 - 332,010 _________ _________ _______ _________ 9,616,964 332,010 - 9,948,974 _________ _________ _______ _________ _________ _________ _______ _________ Financial liabilities at FVTPL Equity securities 7,131,717 - - 7,131,717 Derivative financial liabilities - 1,157,656 - 1,157,656 _________ _________ _______ _________ 7,131,717 1,157,656 - 8,289,373 _________ _________ _______ _________ _________ _________ _______ _________ There were no transfers between Level 1 and 2 in the current and prior years. 13. SUBSEQUENT EVENTS There have been no significant events after the statement of financial position date which in the

opinion of the Investment Manager requires recognition or disclosure in the financial statements. 14. APPROVAL OF FINANCIAL STATEMENTS The financial statements on pages 5 to 33 were approved and authorised for issue by the Directors

of the Fund on June 28, 2018.

ayers alliance quantum fund sp - a segregated portfolio … · ayers alliance quantum fund sp - a...

Documents