man ahl diversified futures ltd ahl... · ahl is able to draw on the substantial business and...
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Man AHL Diversified Futures Ltd A company incorporated with limited liability under the Companies Act 1981 of Bermuda Second Addendum to the Prospectus issued by Man AHL Diversified Futures Ltd (the ‘Company’) dated 4 September 2012 (the ‘Prospectus’) containing particulars of the change in Investment Manager This Second addendum (‘Addendum’) is dated 22 July 2014 and is to be read in conjunction with the Prospectus, as amended by the First Addendum dated 7 November 2013. All capitalised and undefined terms in this Addendum shall have the meaning prescribed in the Prospectus. Page numbers as referred to below are to page numbers in the Prospectus. Except as amended in this Addendum, all provisions of the Prospectus shall remain in full force and effect. This Addendum will be effective from 22 July 2014. The Directors and the Investment Manager accept full responsibility for the accuracy of the information contained in this addendum and confirm, having made all reasonable enquiries, that to the best of their knowledge and belief there are no other facts the omission of which would make any statement misleading. The Prospectus is hereby amended as follows: A. Change in Investment Manager Page 2 (The offering) The ninth paragraph of page 2 (commencing “Investment Manger”) shall be deleted and replaced by: Investment Manger AHL Partners LLP Page 5 (Investment Manager) The last paragraph of the second column of page 5 (commencing “The Investment Manager”) and the first paragraph of the first column of page 6 (commencing “Man is a world leader”) shall be deleted and replaced by:
Following the novation of the Investment Management Agreement to AHL Partners LLP on 22 July 2014, the Investment Manager for the Company is AHL Partners LLP. The responsibility of the investment selection, portfolio construction and portfolio management of the Company’s portfolio rests with AHL. AHL operates as an investment division of the Man Group and operates through various legal vehicles including the Investment Manager (i.e. AHL Partners LLP). The Investment Manager is authorised and regulated by the FCA in the conduct of its regulated activities in the United Kingdom. A member of the Man Group, the Investment Manager provides access for private and institutional investors worldwide to alternative investment strategies through a range of innovative products and solutions designed to deliver long-term investment performance. Man Investments Limited, also a member of the Man Group, was the investment manager of the Company from inception until 22 July 2014.
The second paragraph of the first column of page 6 (commencing “AHL”) shall be deleted and replaced by:
AHL AHL operates as an investment division of Man Group and operates through various legal vehicles including the Investment Manager. AHL is one of the world’s leading quantitative managed futures managers. It provides investors with highly liquid and efficient trading strategies which offer low correlation to more traditional investment disciplines. The business was established in 1987 as a division of Man Investments Limited and has developed a long and successful track record, offering strong returns with a low correlation to other asset classes. As at 31 March 2014, the Investment Manager managed USD 9 billion in assets. AHL employs sophisticated computerised processes to identify inefficiencies in markets around the world. A stable and robust trading and implementation infrastructure is then employed to capitalise on these trading opportunities. AHL is able to draw on the substantial business and corporate infrastructure, information technology, administration, logistics, compliance and legal functions, and client servicing offered by Man through a worldwide network of offices and staff.
Page 22 (Brokerage fees) The final paragraph of the first column of page 22 (commencing “Neither the Investment Manager”) shall be deleted and replaced by: Use of Dealing Commission
The Investment Manager utilises various brokers and dealers to execute securities transactions. Portfolio transactions for the Company are allocated to brokers and dealers on the basis of best execution (in accordance with the rules of the FCA) based on a number of factors, including commissions/price, the ability of brokers and dealers to effect the transactions, the brokers and dealers facilities, reliability and financial responsibility. The Investment Manager need not solicit competitive bids and does not have an obligation to seek the lowest available commission cost. All such transactions will be undertaken in compliance with the rules of the FCA on inducements and the use of dealing commission. Accordingly, dealing commissions will be used only for the provision of execution or research services.
In addition, although soft dollars will be used for brokerage and research products and services with the Safe Harbor provided by Section 28 (e) of the US Securities Exchange Act of 1934, as amended, soft dollars may be generated in transactions and pursuant to arrangements not falling within the Section 28 (e) Safe Harbor. Soft dollars generated through transactions other than agency transactions in securities and riskless principal transactions in securities (e.g. transactions in rights, options, warrants or certificates to the extent that they relate to shares and principal transactions involving securities that are not riskless principal transactions) do not fall within the Safe Harbor created by Section 28 (e) and may be used to obtain brokerage and research products and services.
Brokers sometimes suggest a level of business they would like to receive in return for the various products and services they provide. Actual brokerage business received by any broker may be less than the suggested allocation, but can (and often does) exceed the suggested level, because total brokerage is allocated on the basis of all of the considerations described above. A broker is not excluded from receiving business because it has not been identified as providing research services or products. Research products and services received from the Company’s brokers may be used by the Investment Manager in servicing all of its accounts, and not all such research products and services need to be used in connection with the Company. Nonetheless the Investment Manager believes that such investment information provides the Company with benefits by supplementing the research otherwise available to the Company.
In entering into transactions with brokers or dealers connected to the Investment Manager on behalf of the Company, directors of the Company or any of their connected persons, the Investment Manager will ensure that: (a) such transactions are on arm’s length terms; (b) it uses due care in the selection of such brokers or dealers and ensure that they are suitably qualified in the circumstances; (c) transaction execution must be consistent with applicable best execution standards; (d) the fee or commission paid to any such broker or dealer in respect of a transaction must not be greater than that which is payable at the prevailing market rate for a transaction of that size and nature; (e) it monitors such transactions to ensure compliance with its obligations; and (f) the nature of such transactions and the total commissions and other quantifiable benefits received by such broker or dealer shall be disclosed in the annual report of the Company. Dealing commissions will be used for the provision of execution or research services in accordance with any applicable regulatory requirements. In particular, soft dollars will only be retained if the goods or services1 are of demonstrable benefit to Shareholders, transaction execution is consistent with best execution standards and brokerage rates are not in excess of customary institutional full-service brokerage rates. Periodic disclosure will be made in the Company’s annual report in the form of a statement describing the Investment Manager’s soft dollar practices, including a description of the goods and services received by the Investment Manager.
1 Goods and services may include: research and advisory services; economic and political analysis; portfolio analysis, including valuation and performance measurement; market analysis, data and quotation services; computer hardware and software incidental to the above goods and services; clearing and custodian services and investment-related publications. Such goods and services may not include travel, accommodation, entertainment, general administrative goods or services, general office equipment or premises, membership fees, employee salaries, or direct money payments.
Neither the Investment Manager nor any of its connected persons will retain cash or other rebates from brokers or dealers in consideration of directing transactions for the Manager to such brokers or dealers.
Page 23 (Names and addresses) The third paragraph of the second column of page 23 (commencing “Investment Manager”) shall be deleted and replaced by:
Investment Manager AHL Partners LLP 2 Swan Lane Riverbank House London EC4R 3AD United Kingdom
Page 26 (Appendix 1) The second paragraph of the first column of page 26 (commencing “Investment Manager”) shall be deleted and replaced by:
‘Investment Manager’ means AHL Partners LLP of Riverbank House, 2 Swan Lane, London EC4R 3AD, United Kingdom, a limited liability partnership established in England and authorised and regulated by the FCA in the conduct of its regulated activities in the United Kingdom.
Page 30 (Appendix 2) The first paragraph headed (a) of the first column of page 30 (commencing “the Investment Management Agreement”) shall be deleted and replaced by:
(a) the Investment Management Agreement between the Company, Man Investments AG (formerly Adam, Harding & Lueck AG which merged with Man Investments AG) and the Investment Manager, dated 25 March 2011, as amended and restated on 4 September 2012 and subsequently novated to the Investment Manager on 22 July 2014, pursuant to which the Investment Manager has agreed to provide investment management advice, trading advice and risk management services to the Company and pursuant to which Man Investments AG has been appointed as Marketing Adviser;
The second paragraph headed (g) of the second column of page 30 (commencing “the Hong Kong representative agreement”) shall be deleted and replaced by:
(g) the Hong Kong representative agreement between the Company, the Investment Manager and the Hong Kong Representative, dated 25 March 2011, as amended and restated on 22 July 2014, pursuant to which the Hong Kong Representative has been appointed as the Hong Kong Representative of the Company and the Investment Manager.
B. Administrative updates (i) Change in the name and address of the Registrar, the Principal Paying Agent
and the Company Secretary (including the address of the registered office of the Company).
All references in the Prospectus to “Citi Hedge Fund Services, Ltd.”, shall be deleted and replaced by “Citi Fund Services (Bermuda), Ltd.”. Pages 23 and 24 (Names and addresses) The first paragraph of the second column of page 23 (commencing “Registered office of the Company”) shall be deleted and replaced by:
Registered office of the Company Citi Fund Services (Bermuda), Ltd 5 Reid Street Hamilton HM 11 Bermuda
The second paragraph of the second column of page 23 (commencing “Company Secretary”) shall be deleted and replaced by:
Company Secretary Christine Perinchief c/o Citi Fund Services (Bermuda), Ltd. 5 Reid Street Hamilton HM 11 Bermuda
The last paragraph of the second column of page 23 (commencing “Registrar”) shall be deleted and replaced by:
Registrar Citi Fund Services (Bermuda), Ltd. 5 Reid Street Hamilton HM 11 Bermuda Tel: +1 441 295 9166 Fax: +1 441 292 6145 Contact: The Company Secretary
The third paragraph of the second column of page 24 (commencing “Principal Paying Agent”) shall be deleted and replaced by:
Principal Paying Agent Citi Fund Services (Bermuda), Ltd. 5 Reid Street Hamilton HM 11 Bermuda Tel: +1 441 295 9166 Fax: +1 441 292 6145
(ii) Reduction on the minimum investment amount from USD20,000 to USD10,000.
Page 2 (The offering) The sixth paragraph of page 2 (commencing “Minimum initial investment”) shall be deleted and replaced by:
Minimum initial investment USD 10,000 Page 17 (Procedure for applications) The last sentence in the first paragraph of the first column of page 17 (commencing “For all new applications”) as amended by the First Addendum dated 7 November 2013 shall be deleted and replaced by:
Please note that the minimum level of initial investment by each investor in Hong Kong in the Company is USD10,000.
The third paragraph of the second column of page 17 (commencing “When applying for Shares”) as amended by the First Addendum dated 7 November 2013 shall be deleted and replaced by:
When applying for Shares, Applicants should apply for a minimum initial investment of USD10,000.
(iii) Update on information regarding Board of Directors of the Company to reflect
the resignation of Ronan Daly and John Walley. All references to Ronan Daly and John Walley shall be deleted.
(iv) All references to “Financial Services Authority” or “FSA” shall be deleted and
replaced by “Financial Conduct Authority” or “FCA” respectively.
(v) Change of the website reference through which certain reporting and
statements were available. All references to “www.maninvestments.com” shall be deleted and replaced by “www.man.com (this website is not authorised and reviewed by the SFC)”.
(vi) Other miscellaneous updates
Page 23 (Names and addresses) The second paragraph of the first column of page 23 (commencing “Dawn Griffiths (British)”) shall be deleted and replaced by:
Dawn Griffiths (British) Conyers Dill & Pearman Limited Clarendon House 2 Church Street Hamilton HM 11 Bermuda Ms Griffiths is a director of Conyers Dill & Pearman Limited, barristers and attorneys, Bermuda.
Man AHL Diversified Futures Ltd A company incorporated with limited liability under the Companies Act 1981 of Bermuda
Addendum to the Prospectus issued by Man AHL Diversified Futures Ltd (the ‘Company’) dated 4 September 2012 (the ‘Prospectus’) containing particulars of an offering of participating shares This addendum (‘Addendum’) is dated 7 November 2013 and is to be read in conjunction with the Prospectus. All capitalised and undefined terms in this Addendum shall have the meaning prescribed in the Prospectus. Page numbers as referred to below are to page numbers in the Prospectus. Except as amended in this Addendum, all provisions of the Prospectus shall remain in full force and effect. This Addendum will be effective from 7 November 2013. The Directors and the Investment Manager accept responsibility for the information contained in this addendum. The Prospectus is hereby amended as follows: Page 16 (Procedure for applications)
The first paragraph of the first column of page 17 (commencing “For all new applications for subscriptions”) shall be deleted and replaced by:
For all new applications for subscriptions, Applicants must promptly mail the relevant original Application Form (and Anti-money Laundering Documents required in Appendix 4) duly completed and signed by or on behalf of the Applicant to Citibank (Hong Kong) or the Shareholder Services Provider who have been appointed to process applications. Shareholders will not be entitled to payment of any redemption proceeds (pursuant to a request for redemption) until the original Application Form (and Anti-money Laundering Documents) has been received by Citibank (Hong Kong) or the Shareholder Services Provider. Once completed applications have been received by the Company, they are irrevocable. The Directors may, in their absolute discretion, reject or scale down any application for Shares without giving any reason. In such event the subscription monies or any balance thereof, as appropriate, less any bank charges, will be returned to the source from which it was received. Please note that the minimum level of initial investment by each investor in Hong Kong in the Company is USD20,000 (or such lesser amount as the Directors in their discretion may determine, but in any event the minimum level of initial investment by each investor in Hong Kong in the Company must not be less than USD10,000).
The third paragraph of the second column of page 17 (commencing “When applying for Shares”) shall be deleted and replaced by:
When applying for Shares, Applicants should apply for a minimum initial investment of USD20,000 (or such lesser amount as the Directors in their discretion may determine, but in any event the minimum level of initial investment by each investor in Hong Kong in the Company must not be less than USD10,000).
Page 23 (Names and addresses) The second paragraph of page 24 (commencing “Transfer Agency”) shall be deleted and replaced by: Transfer Agency Citibank N.A., Hong Kong Branch 9/F, Two Harbourfront 22 Tak Fung Street Hunghom, Kowloon Hong Kong, Tel: +852 2306 8111 Fax: +852 3077 4889 (Dealing Forms only)
Man AHL Diversifi ed Futures Ltd
Prospectus
4 September 2012
A company incorporated with limited liability in Bermuda under the Companies Act 1981 of Bermuda
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Man AHL Diversified Futures Ltd
A company incorporated with limited liability in Bermuda under
the Companies Act 1981 of Bermuda
The prices of futures, options and other investments in which the
Company may invest may fall in value as rapidly as they may rise and it
may not be possible to liquidate the Company’s position in the relevant
markets before a loss is sustained.
No assurance can be given that the investment objective of the
Company will be achieved or that substantial losses will not be
suffered.
Man AHL Diversified Futures Ltd
Preliminary
If you are in any doubt about the contents of this
Prospectus you should consult your stockbroker, bank
manager, lawyer, accountant or other professional adviser.
Investors may contact Man Investments (Hong Kong)
Ltd (the ‘Hong Kong Representative’) for any queries or
complaints in relation to this investment product. To contact
the Hong Kong Representative, investors may either:
• write to the Hong Kong Representative (Man
Investments (Hong Kong) Ltd, Suite 1301, Chater
House, 8 Connaught Road Central, Hong Kong)
• e-mail the Hong Kong Representative (ComplaintsAsia@
man.com)
• call the Hong Kong Representative Complaints line:
+852 2230 7285
The Hong Kong Representative will respond to the enquiry
or complaint in writing within reasonable time.
This Prospectus contains particulars of Man AHL Diversified
Futures Ltd (the ‘Company’), an open-ended investment
company, and the offering of Participating Shares (the
‘Shares’) the proceeds of which are to be invested in
accordance with the objectives set out in this Prospectus.
The distribution of this Prospectus is not authorised unless
it is accompanied by a copy of the latest audited financial
statements of the Company, which together with this
Prospectus forms the Prospectus for the issue of Shares in
the Company.
This Prospectus does not constitute an offer or solicitation
to anyone in any jurisdiction in which such offer is not
authorised or to any person to whom it is unlawful to make
such offer or solicitation.
The Shares are offered on the basis of the information
and representations contained in this Prospectus and any
further information given or representations made by any
person may not be relied upon as having been authorised
by the Company or its Directors. Neither the delivery of
this Prospectus nor the allotment or issue of Shares shall
under any circumstances create any implication that there
has been no change in the affairs of the Company since the
date of this Prospectus.
No listing or other dealing facility is at present being sought
for the Shares although the Directors may consider seeking
a listing in the future.
The Company has been incorporated in Bermuda as an
open-ended investment company with limited liability. The
Company is open-ended in that it can issue and redeem
its Shares at prices based upon the Net Asset Value per
Share.
The Company has been classified as a Bermuda standard
fund. As such, the Company is subject to supervision and
regulation as provided for in the Bermuda Investment Funds
Act 2006. However, the Company should be viewed as an
investment suitable only for those investors who can fully
evaluate and bear the risks involved.
The Company is regulated in Bermuda by the Bermuda
Monetary Authority whose address is BMA House, 43
Victoria Street, Hamilton HM 12, Bermuda with telephone
number +1 441 295 5278. The Investment Manager is
authorised and regulated in the United Kingdom by the
Financial Services Authority whose address is 25 The
North Colonnade, Canary Wharf, London E14 5HS, United
Kingdom with telephone number +44 (0) 20 7066 1000.
Permission under the Exchange Control Act 1972 (and
regulations made thereunder) has been obtained from
the Bermuda Monetary Authority for the issue of the
Shares as defined and described herein. Authorisation
by the Bermuda Monetary Authority does not constitute
a guarantee by the Bermuda Monetary Authority as to
the performance of the Company or its creditworthiness.
Furthermore, in authorising the Company, the Bermuda
Monetary Authority shall not be liable for the performance
of the Company or in the default of its operators or service
providers, nor for the correctness of any opinions or
statements expressed in this Prospectus.
A copy of this Prospectus has been delivered to the
Registrar of Companies in Bermuda for filing pursuant to
the Act. It must be distinctly understood that, in accepting
this Prospectus for filing, the Registrar of Companies
in Bermuda accepts no responsibility for the financial
soundness of any proposals or for the correctness of any of
the statements made or opinions expressed with regard to
them.
Man AHL Diversified Futures Ltd
The Company has been authorised by the Securities and
Futures Commission (‘SFC’) in Hong Kong under the Code
on Unit Trusts and Mutual Funds as a ‘Futures Fund’ and
not as a ‘Hedge Fund’. In granting such authorisation the
Securities and Futures Commission takes no responsibility
for the financial soundness of the Company or for the
accuracy of any of the statements made or opinions
expressed in this Prospectus. SFC authorisation is not
a recommendation or endorsement of a scheme nor
does it guarantee the commercial merits of a scheme
or its performance. It does not mean the scheme is
suitable for all investors nor is it an endorsement of
its suitability for any particular investor or class of
investors.
The Investment Manager and the Directors of the Company,
whose names appear in this Prospectus, accept full
responsibility for the accuracy of the information contained
in this Prospectus and confirm, having made all reasonable
enquiries that to the best of their knowledge and belief
there are no other facts the omission of which would make
any statement misleading.
Investments in the Company are not deposits or obligations
of, or guaranteed or endorsed in any way by Citibank
Europe plc, Citi Hedge Fund Services, Ltd., or any of
their respective affiliates. None of Citibank Europe plc,
Citi Hedge Fund Services Ltd., nor any of their respective
affiliates, branches or subsidiaries, directly or indirectly,
guarantees, assumes or otherwise insures the obligations
or performance of the Company or any other investment
that the Company makes. Any losses of the Company
are solely borne by the investors and not by Citibank
Europe plc, Citi Hedge Fund Services, Ltd. or any of their
respective affiliates or subsidiaries.
As described in this Prospectus Citibank Europe plc and
Citi Hedge Fund Services, Ltd. may provide services to the
Company pursuant to the Citi Fund Services Agreement.
Neither Citibank Europe plc nor Citi Hedge Fund Services,
Ltd. is under that agreement acting as an investment
manager, as an investment, legal or tax adviser, or as a
custodian to the Company. In providing their services
Citibank Europe plc and Citi Hedge Fund Services, Ltd.
are only providing such services to the Company pursuant
to the Citi Fund Services Agreement and not to any other
person.
Neither Citibank Europe plc nor Citi Hedge Fund Services
Ltd. is responsible for the content of this Prospectus.
Such responsibility is with the Investment Manager and the
Directors of the Company and accordingly each investor
agrees that neither Citibank Europe plc nor Citi Hedge
Fund Services, Ltd. will have any liability arising from any
inaccuracies in this Prospectus.
United States
No Shares shall be issued in the US or to any US Person
other than pursuant to the provisions of the Prospectus in
this regard.
The Shares have not been, nor will they be, registered or
qualified under the US Securities Act of 1933, as amended
(the "Securities Act") or any applicable securities laws of
any state or other political sub divisions of the US. Except
with respect to Permitted US Persons, the Shares may not
be offered, sold, transferred or delivered directly or indirectly
in the US or to any US Person. Any sales or transfers
of Shares in violation of the foregoing shall be prohibited
and treated by the Company as void. All applicants and
transferees of Shares must complete an Application Form
which confirms, among other things, that a purchase or a
transfer of Shares would not result in a sale or transfer to an
entity which is a US Person precluded from the purchase of
Shares hereunder.
In reliance on Section 3(c) (7) of the US Investment
Company Act of 1940, as amended (the "US Company
Act"), the Company is not registered as an investment
company because any Shares sold within the US will be
sold on a private placement basis to persons who are
"qualified purchasers" (as defined in Section 2(a) (51) of the
US Company Act and the regulations thereunder).
The Company does not intend to permit investments by
"benefit plan investors" (as defined under Section 3(42) of
the US Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and any regulations promulgated
thereunder) to equal or exceed twenty five percent (25%) of
the aggregate Net Asset Value of any Class of Shares.
Except in relation to those prohibited recipients as
described in Appendix 3, copies of this Prospectus and of
the Application Form may be obtained from the Company,
the offices of Man and its authorised intermediaries, the
Shareholder Services Provider, Citibank (Hong Kong) and
the Hong Kong Representative.
Capitalised terms used herein, unless otherwise defined,
shall have the meanings ascribed to them in Appendix 1
entitled ‘Definitions’.
The date of this Prospectus is 4 September 2012.
The attention of potential investors is drawn to the
'Risk factors' section.
Man AHL Diversified Futures Ltd
Table of contents
The Shares 15
Purchase price
Share valuation
Reporting
Procedure for applications
Money laundering
Subscription Account
Restriction on applications
Transfer of Shares
Procedure for redemption
Fee for early redemption of Tranche B Shares
Compulsory redemption of Shares
Total redemption/winding up
Suspension of dealings
Dividends
Charges and fees 20
Investment management and incentive fees
Custodian fees
Hong Kong Representative fees
Services Manager fees
Company Secretary fees
Other fees and expenses
Brokerage fees
Names and addresses 23
Directors
Appendix 1 25
Definitions
Appendix 2 28
General information
Appendix 3 33
Selling restrictions
Appendix 4 40
Anti-money laundering documentation requirements
Man AHL Diversified Futures Ltd
Preliminary
Table of contents 1
The offering 2
Investment objective 3
The AHL Diversified Programme 3
AHL Risk management 4
Investment and borrowing restrictions 4
Investment Manager 5
Brokerage and Custodian 6
On-exchange contracts
Off-exchange contracts
Custodian
Risk factors 6
Investment in Shares
Overall investment approach
Soverign risk
European sovereign crisis
Fees and transaction costs
Exchange rate risks
Counterparty risk
Taxation and legal
No guarantee or principal or capital protection
Special purpose vehicle
Conflicts of interest
Directors
Man Group entities and affiliates
Services Manager conflicts
European Savings Directive
Management and administration 13
Introducing Broker
Custodian
Services Manager
General shareholder and registrar services
Valuation services
Paying Agency Services
The Citi Fund Services Agreement
Company Secretary
1
2 Man AHL Diversified Futures Ltd
General The Shares of the Company are divided into two tranches: Tranche A and Tranche B. The Company is offering only Participating Tranche A Shares to investors at the Subscription Price (as defi ned in Appendix 1) from (and including) 4 September 2012. The Directors have resolved that all Shares issued by the Company prior to 4 September 2012 shall be converted to Tranche B Shares on 4 September 2012. Shareholders wishing to purchase additional Shares from 4 September 2012 onwards must subscribe for Participating Tranche A Shares (unless the Directors may decide otherwise from time to time).
The Company Man AHL Diversifi ed Futures Ltd
Shares Shares may be redeemed on any Dealing Day at the Net Asset Value per Share (an early redemption fee may be applicable to Tranche B Shares, see section headed ‘Fee for early redemption of Shares’). Shares will be denominated in USD.
Investment objective The Company seeks to achieve substantial medium-term capital growth while aiming to restrict the associated risk
Dividends It is not anticipated that any dividends will be paid. Investors’ returns will be determined by the trading profi ts, if any, to the redemption date.
Minimum initial investment USD 20,000
Minimum Redemption 200 Shares
Minimum Holding 300 Shares or USD 10,000, whichever is lesser (based on last published NAV) or such lesser amount as the Directors in their discretion may determine.
Investment Manager Man Investments Limited
Services Manager Man Investments AG
Registrar Citi Hedge Fund Services, Ltd.
Shareholder Services Provider Citibank Europe plc
Principal Paying Agent Citi Hedge Fund Services, Ltd.
Custodian HSBC Institutional Trust Services (Asia) Limited
Introducing Broker and Marketing Adviser
Man Investments AG
Valuations Service Provider Citibank Europe plc
Hong Kong Representative Man Investments (Hong Kong) Limited
Identification numbers of the Shares
ISIN code Valoren number
Tranche A BMG5777T1099 18478953
Tranche B BMG0122Q1087 895929
The Net Asset Value per Share may go down as well as up. The attention of potential investors is drawn to the ‘Risk factors’
section of this Prospectus. This is a summary concerning the Shares and is indicative only. The detailed terms and conditions
of this offering follow with substantial qualifications and restrictions that apply to this summary. Accordingly, the above terms
must be read in conjunction with the terms, qualifications, conditions and restrictions that follow. Capitalised terms used in
this summary have the meanings ascribed to them in Appendix 1.
The offering
Man AHL Diversified Futures Ltd 3
Investment objective
The Company seeks to achieve substantial medium-term
capital growth while aiming to restrict the associated risk.
The underlying investment programme, the AHL Diversified
Programme, seeks to capitalise primarily on upward and
downward price trends in a diversified range of global
stock index, bond, currency, short-term interest rate and
commodity futures markets. No more than 5% of the Net
Asset Value will be applied towards margin requirements
with respect to off-exchange Futures Contracts (that is,
contracts which are not traded on Recognised Exchanges).
The Company primarily invests in futures and options. The
Company will invest extensively in financial derivative
instruments (‘FDI(s)’) to achieve its investment objective,
including warrants, options, futures, convertible securities,
interest rates and equity swaps. It may use long or short
investment strategies.
Monies and any other assets of the Company which are not
immediately required for investment purposes will be held
by the Custodian. On the instructions of the Investment
Manager the Custodian may deposit such monies with
banks or credit institutions and may also invest part or all
of such monies in short-term money related instruments
including, but not limited to, fixed deposits, certificates of
deposit, commercial paper, treasury bills and bonds issued
or guaranteed by the government of any country of the
OECD.
The Company may also enter into arrangements by which
cash not required by the Company for trading purposes
will be managed by the Investment Manager. Such
arrangements may include the entry by the Company into
repurchase agreements or reverse repurchase transactions
and other cash management arrangements, including
holding cash in bank accounts, secured or unsecured
deposits or investing such cash in corporate or government
bonds, or such other instruments as deemed appropriate
by the Investment Manager.
A repurchase transaction involves the sale of securities by
a seller to a buyer for a purchase price, and an agreement
for the seller to repurchase such securities on a mutually
agreed future date for the same purchase price, plus
interest at a negotiated rate. From the perspective of the
buyer, the transaction is referred to as a reverse repurchase
transaction, and involves buying securities against payment
of a cash price, with the buyer agreeing to resell the
securities at a future date, and the original seller agreeing to
repurchase such securities at the same price, plus interest
at a negotiated rate. Such transactions are economically
equivalent to a cash loan collateralised by the securities.
Collateral obtained under a repo contract must be in the
form of one of the following:
(a) government or public securities;
(b) corporate bonds;
(c) shares/equities listed on a recognised stock exchange;
and
(d) such other collateral as the Investment Manager deems
appropriate.
The counterparty to a repo contract must have a credit
rating that is satisfactory to the Investment Manager,
acting reasonably. The counterparties must also be
approved by the Directors. The AHL Cash & Collateral
Committee is responsible for recommending counterparties
to the Directors and counterparties currently must have
an investment grade credit rating and be based in a
jurisdiction which is recognised to be a major financial
centre and subject to a very high standard of regulation or
be an offshore jurisdiction of such a jurisdiction.
On an on-going basis Man Group Risk/AHL Research
and Trading is responsible for monitoring the Company’s
credit risk in respect of the counterparties with whom the
Funds have placed cash by tracking each counterparty’s
credit rating, credit default swap spread and share price
movement.
The maximum level of the Company’s assets available for
repo contracts and other cash management arrangements
will not exceed the cash not required by the Company for
trading purposes. All incremental gross income will accrue
to the Company.
The Company may be geared to a significant extent, and is
accordingly exposed to abnormal levels of risk associated
with gearing.
The AHL Diversified Programme
AHL manages the AHL Diversified Programme which
employs sophisticated computerised processes primarily to
identify trends and other opportunities in markets around
the world. A trading and implementation infrastructure is
then employed to capitalise on these trading opportunities.
This process is quantitative and primarily directional
in nature, and is underpinned by risk control, ongoing
research, diversification and the constant quest for
efficiency.
4 Man AHL Diversified Futures Ltd
A product of continuing research and development carried
out by AHL since 1987, the AHL Diversified Programme
utilises and is committed to extending the range and
versatility of the original investment techniques, strategies
and markets. As such, subject to the restrictions set out
in this Prospectus, AHL may increase the number and
diversity of markets and instruments traded directly or
indirectly by the AHL Diversified Programme and deploy
new strategies or trading systems where appropriate. A
cornerstone of the investment philosophy is that financial
markets experience persistent trends and inefficiencies.
Trends are a manifestation of serial correlation in financial
markets – the phenomenon whereby past price movements
influence future price behaviour. Although they vary in
their intensity, duration and frequency, price trends are
universally recurrent across all sectors and markets. Trends
are an attractive focus for active trading styles applied
across a diverse range of global markets.
As well as emphasising sector and market diversification,
the AHL Diversified Programme has been constructed to
achieve diversification by combining various systems. The
systems are driven by powerful computerised processes
or trading algorithms, most of which work by sampling
prices in real time and measuring price momentum and
breakouts. With access to around 200 traded instruments,
AHL provides investors with one of the most diverse trading
programmes in the industry. Instruments traded encompass
currencies, bonds, rates, energies, metals and agriculturals.
The trading algorithms aim mainly to capture price trends
and close out positions when there is a high probability of a
different trend developing. The AHL Diversified Programme
may include algorithmic systems based on certain forms
of quantitative fundamental data that can be captured
efficiently, such as interest rate data.
Another important aspect of diversification is the fact that
the various systems generate signals across different time
frames, ranging from two to three days to several months,
which helps to reduce the risk of the AHL Diversified
Programme. In line with the principle of diversification, the
approach to portfolio construction and asset allocation is
premised on the importance of deploying investment capital
across the full range of sectors and markets. Particular
attention is paid to correlation of markets and sectors,
expected returns, market access costs and market liquidity.
Portfolios are regularly reviewed and, when necessary,
adjusted to reflect changes in these factors. The Investment
Manager also has a process for adjusting its market risk
exposure in real time to reflect changes in the volatility of
individual markets. The portfolio structure and constituents
are regularly reviewed by the investment management team
and allocations may change to access other sectors and
markets.
The leverage range of the AHL Diversified Programme
is typically around 400-600% of the Company’s NAV.
Leverage is calculated by summing the absolute values
of all FDIs contracts’ notional exposures in USD and
dividing by the Company’s NAV expressed in percentage
terms. Leverage is allowed to fluctuate both above and
below these average levels to some extent, as leverage
is a function of positions held, so strong trends and
other opportunities in a market tend to result in larger
positions and therefore higher leverage. Leverage is closely
monitored.
Additionally, AHL benefits from being part of Man. Man
offers expertise in client servicing through a worldwide
network of offices and staff, product structuring, marketing
and compliance together with back-office support functions
including information technology, administration and
logistics.
AHL Risk management
Risk management is an essential component of AHL's
investment management process. AHL has put in place
a risk management framework which is designed to
identify, monitor and mitigate the portfolio, operational
and outsourcing risks relevant to its operations. AHL's risk
management framework is part of, and is supported by, the
overarching risk management framework of Man.
Key principles of AHL's risk management framework
include the segregation of functions and duties where
material conflicts of interest may arise and having an
appropriate degree of independent and senior management
oversight of business activities. As part of this independent
oversight, AHL's activities are subject to regular review by
Man internal audit function.
Risk management consists primarily of monitoring risk
measures and ensuring the systems remain within
prescribed limits. The major risk monitoring measures
and focus areas include value-at-risk, stress testing,
implied volatility, leverage, margin-to-equity ratios and net
exposures to sectors and different currencies.
Investment and borrowing restrictions
The Company will at all times adhere to the principle of
diversification of risk in its derivatives trading.
Man AHL Diversified Futures Ltd 5
The following investment and borrowing restrictions shall
apply.
1. The Company may only enter into futures and options
contracts dealt with on a futures, commodities or
options exchange or any over-the-counter derivative
approved by the Custodian.
2. No more than 5% of the Company’s Net Asset Value will
be invested in short-term securities issued by the same
body. This limit may be increased to 30% for securities
issued by or funds maintained with or guaranteed by:
(a) a European Union (‘EU’) credit institution;
(b) a bank authorised in a member state of the
European Free Trade Association (‘EFTA’); or
(c) a bank authorised by a signatory state, other than
an EU member state, or a member state of EFTA,
to the Basle Capital Convergence Agreement of
July 1988. However, the Company may invest up to
100% of its assets in different transferable securities
issued or guaranteed by any member state of the
EU, the United States, Canada, Australia, Japan,
New Zealand and Switzerland, provided that the
Company invests in at least six different issues and
not more than 30% is invested in the same issue.
3. No more than 5% of the Company’s Net Asset Value
may be invested in the debt securities of companies,
other than banks, with shareholder funds of less than
USD 1 billion or equivalent in foreign currency.
4. The assets of the Company must include liquid assets
which have a total minimum value, at all times except
in extraordinary circumstances, at least equal to three
times the amount of the sum of margins deposited and
all premiums paid, in respect of transactions which have
not been closed out. (The Investment Manager shall
notify the Custodian immediately if such extraordinary
circumstances occur.) At least 30% of the Net Asset
Value must be held on deposit or invested in liquid
short-term debt instruments and may not be used for
margin requirements. Not more than 35% of the Net
Asset Value may be committed as margin for Futures
Contracts and/or premium paid for options purchased
(including put and/or call options).
5. The Company will not hold open contract positions in
any Futures Contract month or option series for which
the combined margin requirement represents 5% or
more of its Net Asset Value.
6. Premiums paid to acquire options outstanding with
identical characteristics may not exceed 5% of the Net
Asset Value.
7. The Company will not hold open positions in Futures
Contracts concerning a single commodity or single
financial instrument for which the combined margin
requirement represents 20% or more of its Net Asset
Value.
8. The Company may not invest in commodity contracts
other than commodity futures contracts and EFP
metals.
The Company will not undertake borrowings save for
borrowings to fund (a) redemption payments for redeeming
Shareholders; or (b) for the short-term funding of new
investments in each case pending redemption by the
Company of the proceeds of sale or redemption of other
investments which may be secured on the assets of
the Company. The aggregate borrowing capacity of the
Company shall be limited to a maximum of 10% of its Net
Asset Value at any time and from time to time. Additionally
the Broker (or one of its affiliated companies) may lend
monies to the Company in foreign currencies to finance
non-USD margins (both initial and variation). By matching
a non-USD obligation with a short-term borrowing in the
relevant currency, foreign exchange risks may be mitigated.
Any such borrowing will not be taken into account in
such 10% limit referred to above on the basis that such
borrowing is made on a back-to-back basis only.
The Investment Manager has designed and implemented a
statistically derived measure of risk through its computer-
based trading systems. This proprietary risk control
mechanism (which is continually monitored and updated)
operates to control the application of leverage to the
Company’s investments, such leverage being variable
depending on the nature of the investments and the
markets traded and prevailing market conditions.
No more than 35% of the Net Asset Value may be held
by the Broker and used for initial margin purposes except
in extraordinary circumstances. (The Investment Manager
shall notify the Custodian and the Securities and Futures
Commission immediately if such circumstances occur.) The
Company will not take legal or management control over
any of the entities in which it invests.
Investment Manager
The Investment Manager for the Company is Man
Investments Limited (Man). The responsibility of the
6 Man AHL Diversified Futures Ltd
investment selection, portfolio construction and portfolio
management of the Company's portfolio rests with AHL, a
division of Man.
Man is a world leader in alternative investments, offering a
comprehensive range of transparent, dynamic and thematic
trading strategies across the liquidity spectrum to a highly
diversified client base. The business currently has around
USD 59.0 billion of assets under management (as at 31
March 2012). Man can trace its origins back more than 225
years and is a member of the FTSE 250 Index (UK: EMG).
AHLAHL is Man’s industry-leading quantitative managed
futures manager. It provides investors with highly liquid and
efficient trading strategies which offer low correlation to
more traditional investment disciplines. Founded in 1987,
AHL has established itself as one of the world’s leaders in
systematic trading, with a long and enviable track record
supported by its strong commitment to innovation through
on-going research and development.
Marketing AdviserMan Investments AG has been appointed as the Marketing
Adviser. Man Investments AG, a member of the Man Group,
has principal responsibility for advising the Company in
relation to product structuring and for the set-up, optimisation,
co-ordination and maintenance of an efficient global
distribution network. Man Investments AG has also been
appointed as the Introducing Broker and Services Manager.
The Marketing Adviser may liaise with the relevant service
providers in respect of the Shares and arrange for the
provision of liquidity to the Company and the implementation
of any leverage facility.
Brokerage and Custodian
The nature of futures brokerage arrangements differs
substantively from securities brokerage in that significant
exposure to the futures markets can be effected with
minimal capital commitments. Additionally, transactions
in the off-exchange markets may be incurred without the
commitment of significant capital. These arrangements are
described in detail below.
On-exchange contractsOn-exchange futures contracts are entered into on a margin
basis whereby the Company is required to deposit only a
percentage of the relevant contract value with the Brokers.
The Brokers in turn post margin to the relevant exchange.
Pursuant to the FSA (or equivalent) client money rules
each Broker is obliged to request segregation of its client
and own assets held by the relevant exchange, although
not all exchanges offer segregation and this is taken into
consideration in determining the Broker selection for
each exchange. Therefore margins paid by the Company
to a Broker together with open trading positions and all
realised profits and losses derived from trading may be
held in a segregated customer account with that Broker
(the ‘brokerage account’) and the Company’s assets will
be designated as those of the Company by the Broker.
The assets held in the brokerage account will be subject to
a lien in favour of the Broker in respect of liabilities of the
Company due to the Broker since such monies constitute
the Broker’s collateral in the event of trading losses.
Off-exchange contractsFor off-exchange traded contracts, the Brokers make
available to the Company dealing facilities with various
counterparties. The Brokers satisfy the margin requirements
(if any) required by the counterparty for these contracts.
The Brokers in turn request margin from the Company,
including any additional margin required to cover any
unrealised losses on the contract. Any excess funds held
by the Brokers over the amounts needed to cover margin
requirements are withdrawn from the Brokerage Accounts
on a daily basis and returned to the Company.
CustodianMonies held by the Custodian shall be subject to the
Broker’s right to call for such monies in the event of trading
losses being incurred, or when additional margin is required
by the Broker for on-exchange contracts.
The Brokers will accept trading instructions for the
Brokerage Accounts directly from the Investment Manager
on the basis of a formal trading authorisation received from
the Company.
Risk factors
Investment in the Company is subject to certain risk factors.
Investors should carefully consider the risks associated
with acquiring and holding the Shares. As at the date of
this prospectus, the following risk factors set out the risks
associated with acquiring and holding the Shares. As
the Company's investment styles evolve, new risks may
emerge over time and an investment in the Company may
become subject to risk factors not described in this section.
Investment in Shares(a) Each investor must decide the amount to invest in
Shares of the Company taking into consideration the
risk factors described in this section and the terms
and conditions described in this Prospectus and the
Man AHL Diversified Futures Ltd 7
Application Form. It should be borne in mind that the
risk involved in this type of company is greater than
that normally associated with other types of investment
as the underlying investments of the Company can
be subject to sudden, unexpected and substantial
price movements. Investors should note that because
leverage is utilised and the value of the Shares can
therefore be volatile, the value of the Shares may decline
as well as appreciate and there can be no guarantee and
no assurance that the Company will be able to achieve
its overall investment objective. The Net Asset Value
per Share may go down as well as up. Accordingly, an
investment should be made only by those persons who
could sustain a loss in their investment.
(b) Shareholders’ return on the Shares will be determined
by reference to any cumulative net gains or losses from
the diversified investment activities of the Company. The
difference at any one time between the price paid for a
Share and the price at which a Share may be redeemed
(i.e. the Net Asset Value per Share less any applicable
redemption fee (for Tranche B investors) means that
an investment in Shares may not be suitable for all
investors and should be viewed as at least, a medium-
term investment.
(c) Market conditions are continually changing and the fact
that the investment strategy happened to be successful
in the past may largely be irrelevant to its prospects
for future profitability. Past results are not necessarily
indicative of future performance. No assurance can be
given that profits will be achieved or that substantial
losses will not be incurred.
(d) Any redemption of Shares will have the effect of
decreasing the assets of Shares of the Company,
thereby increasing the costs attributable to those
Shares which remain outstanding.
(e) In the event all of the Shares are redeemed by the
Company the investors may not receive all of their
original investment.
(f) Where an Applicant for Shares fails to pay the
subscription monies by the due date, the Directors
may, in accordance with the Company’s Articles, cancel
the allotment of the Shares. Redemption, transfer or
conversion instructions may be refused or treated
as though they have been withdrawn if payment for
the Shares has not been made. An Applicant may be
required to indemnify the Company against any losses,
costs or expenses incurred directly or indirectly as a
result of the Applicant’s failure to pay for Shares applied
for in a timely fashion. In computing any losses covered
under this paragraph (f), account shall be taken, where
appropriate, of any movement in the price of the Shares
concerned between the allotment date and cancellation
date of the Shares, and of the costs incurred by the
Company in taking proceedings against the Applicant.
The Company may also, at its discretion, redeem or sell
part of an investor’s existing shareholding to satisfy any
loss incurred. In addition, investors should note if the
Company decides not to or cannot take proceedings
against the Applicant in relation to any losses, costs
or expenses incurred directly or indirectly as a result of
the Applicant’s failure to pay for Shares applied for in a
timely fashion then the Company shall bear such losses,
costs or expenses.
Overall Investment approach(a) The Company primarily invests in futures and options.
The Company will invest extensively in financial
derivative instruments (‘FDIs”), including warrants,
options, futures, convertible securities, interest rates
and equity swaps, which can be highly volatile and
expose investors to a high risk of loss due to the
leveraged effect embedded in it.. Futures and options
investments are subject to key risk factors including
leverage, counterparty and liquidity risks and substantial
losses may be suffered. Risks associated with the use
of FDIs include leverage, counterparty and liquidity risks.
The Company may utilise over-the-counter (OTC) FDIs
which may increase these risks.
(b) Investors should carefully consider the investment
objective of the Company as set out in the section
entitled 'Investment objective' in this Prospectus.
There can be no guarantee that the Company or
the Investment Manager will realise the investment
objective.
(c) There can be no assurance that information on the
Investment Manager set out in this Prospectus will be
in any respect indicative of how it will perform (either
in terms of profitability or non-correlation with other
investments) in the future.
(d) Shareholders' returns on the Shares (by way of any
redemption payments (or their equivalent) will be
determined by reference to any cumulative net gains
or losses (if any), arising from the diversified investment
activities conducted on behalf of the Company. The
return on the Shares may vary significantly over the life
of the Shares, and may decrease as well as increase,
depending upon trading profits and investment gains.
The Company makes no representation as to any return
that a Shareholder will achieve on the Shares and there
can be no assurance that information on the Investment
8 Man AHL Diversified Futures Ltd
Manager or the AHL Diversified Programme set out in
this Prospectus will be in any respect indicative of how
they will perform (either in terms of profitability or low
correlation with other investments) in the future.
(e) The Investment Manager manages the risk for the
Company by seeking to ensure that the underlying
risk is within predetermined levels as defined by the
Investment Manager's trading strategy. Nevertheless,
investors should note that in the event of an exceptional
decline in the value of the Funds to a level insufficient to
sustain its normal trading strategies, the Company may
have to cease trading activities.
(f) Shareholders will need to submit a written notice of
redemption one Business Day prior to the Dealing
Day on which the redemption is to be made. There
is currently no secondary market for the Shares.
Shareholders will therefore not know in advance of
giving the notice of redemption the price at which the
Share will be redeemed. In the period after which the
notice of redemption has been given and before the
relevant Dealing Day, the Net Asset Value and therefore
the Redemption Price which will be payable to the
Shareholder may change substantially due to market
movements. Shareholders are not entitled to withdraw
a request for redemption unless the Directors otherwise
determine or unless a suspension of dealings and/or
calculations has been declared as per the terms of this
Prospectus.
(g) Funds not immediately required for margin requirements
are usually held in a bank account but the Investment
Manager has total discretion to allocate such Funds to
other managers subject to the sum so allocated not
being more than 10% of Net Asset Value. Funds so
invested will have a higher risk profile than a standard
bank account and losses incurred could have a
detrimental effect on the performance of the Company
though the objective would be to enhance the overall
potential performance profile of the Company.
(h) The complex trading systems/programmes operated
by or on behalf of the Investment Manager and the
speed and volume of transactions invariably results
in occasional trades being executed which, with the
benefit of hindsight, were not required by the trading
systems/programmes. Shareholders will receive the
benefit or bear the loss resulting from any unintentional
trades conducted in this manner for the Shares.
(i) Investments by the Company on the advice of the
Investment Manager may be concentrated and a
significant proportion of its assets may be in the
securities of a single issuer or agency. To the extent
it does concentrate in any of these ways, the overall
impact of adverse developments in the business of
such issuer or such agency or in relation to the currency
in which such securities are denominated could be
considerably greater than if it did not concentrate its
investments to such an extent.
(j) In order to implement the AHL Diversified Programme
the Company may borrow and may utilise FDIs together
with other forms of leverage. While leverage presents
opportunities for increasing total return, it has the
effect of potentially increasing losses as well. If income
and appreciation on investments made with borrowed
funds are less than the cost of the leverage, the value
of the Company's net assets and the Net Asset Value
per Share will decrease. Accordingly, any event which
adversely affects the value of an investment by the
Company would be magnified to the extent leverage is
employed. The cumulative effect of the use of leverage
in a market that moves adversely to a leveraged
investment could result in a substantial loss which
would be greater than if leverage were not used.
(k) Generally, most leveraged transactions involve the
posting of collateral. Increases in the amount of
margin or similar payments could result in the need
for trading activity at times and prices which could be
disadvantageous to the Company and could result in
substantial losses. Some investment approaches and
the AHL Diversified Programme may require the use
of considerable leverage. There is no assurance that
any leverage facility will be renewed. In particular, third
parties may not be available to act as leverage facility
providers and the Man Group itself may face regulatory,
commercial or other constraints, resulting in it not
offering or renewing a leverage facility. Additionally, any
leverage facility may be subject to early termination in
accordance with its terms and may be terminated by
counterparty. A loss of, a termination of, or a reduction
in, a leverage facility may have the effect of causing
the Company to reduce its investment exposure
with a corresponding reduction in investment return
expectations. The renewal of a the leverage facility
might be subject to a change in terms of that leverage
facility including but not limited to a change in applicable
interest margins.
(l) In order to implement the AHL Diversified Programme,
the Company may make extensive use of various
derivative instruments, including warrants, options,
futures, convertible securities, interest rate and equity
swaps. Many derivatives are valued on the basis of
dealers' equivalents. However, the price at which
Man AHL Diversified Futures Ltd 9
dealers value a particular derivative and the price
which the same dealers would actually be willing to
pay for such derivative may be materially different.
Such differences can result in an overstatement of the
Net Asset Value, and may have a materially adverse
effect on performance in situations where positions are
required to be liquidated in order to raise funds.
(m) Some of the investment strategies utilised by the
Company may include short selling which involves
agreeing to sell securities at a future date although, at
the time of such agreement, the securities to be sold
may or may not be owned by the seller. The seller may,
at times, have to borrow securities of the same type
for delivery to the purchaser, with an obligation on the
seller (the Company) to replace any such borrowed
securities at a later date. Short selling allows the
investor to profit from declines in market prices to the
extent such decline exceeds the transaction costs and
any costs of borrowing the securities. However, if the
borrowed securities must be replaced by purchases at
market prices in order to close out the short position,
any appreciation in the price of the borrowed securities
would result in a loss. Purchasing securities to close
out the short position can itself cause the price of the
securities to rise further, thereby exacerbating the loss.
In addition, in some markets there are rules prohibiting
short sales at prices below the last sale price, which
may prevent the Company from executing short sales at
the most desirable time.
(n) The Company may make investments in markets that
are volatile and which may become illiquid. Accordingly,
although certain investments may give greater liquidity
than an equity investment it may be impossible (in the
event of trading halts or daily price fluctuation limits
on the markets traded or otherwise) or expensive for
the Company to liquidate positions against which the
market is moving. Alternatively, it may not be possible
in certain circumstances for a position to be initiated or
liquidated promptly (in the event of insufficient trading
activity in the relevant market or otherwise). These risks
may be accentuated where the Company is required to
liquidate positions to meet margin requests, margin calls
or other funding requirements.
(o) The Company is exposed to risks of investments in
commodities markets which may be more volatile
and may be of higher risk than investments on other
markets. As such the net asset value of the Company
may be very volatile and could go down substantially
within a short period of time.
(p) The Company may invest in futures and options with
interest rates as an underlying asset. If the Company
has long positions in futures and options with interest
rates as an underlying asset, an increase in interest
rates may result in a decrease in the market-to-market
value of such instrument, an d hence, the Company
may incur significant loss, and vice versa. The factors
influencing interest rates include, amongst other things,
monetary policy, fiscal policy and inflation.
(q) A significant portion of the Company’s asset will be
managed in currency(ies) other than that in which
the Company is denominated, and the Company, will
therefore be affected by the fluctuation of the exchange
rate(s).
(r) The Company may employ certain strategies which
depend upon the reliability and accuracy of the
Investment Manager’s analytical models. To the extent
such models or the assumptions underlying them
do not prove to be correct, the investments of the
Company may not perform as anticipated which could
result in losses.
(s) The Company may enter into arrangements by which
cash not required by the Company for trading purposes
will be managed by the Investment Manager. Such
arrangements may include the entry by the Company
into repurchase or reverse repurchase transactions
and other cash management arrangements, including
holding cash in bank accounts or secured or unsecured
deposits or investing such cash in corporate or
government bonds, or such other instruments as
deemed appropriate by the Investment Manager.
(t) A repurchase transaction involves the sale of securities
by a seller to a buyer for a purchase price, and an
agreement for the seller to repurchase such securities
on a mutually agreed future date for the same purchase
price, plus interest at a negotiated rate. From the
perspective of the buyer, the transaction is referred
to as a reverse repurchase transaction, and involves
buying securities against payment of a cash price, with
the buyer agreeing to resell the securities at a future
date, and the original seller agreeing to repurchase
such securities at the same price, plus interest at a
negotiated rate. Such transactions are economically
equivalent to a cash loan collateralised by the securities.
(u) The use of repurchase and reverse repurchase
agreements by the Company involves certain risks.
For example, if the seller of securities to the Company
under a reverse repurchase transaction defaults on its
obligation to repurchase the underlying securities, as a
10 Man AHL Diversified Futures Ltd
result of its bankruptcy or otherwise, the Company will
seek to dispose of such securities, which action could
involve costs or delays. The Company may suffer a loss
to the extent that the proceeds from the disposal of the
underlying securities are less than the repurchase price
due from the defaulting seller.
Sovereign riskThe AHL Diversified Programme may invest in debt
securities issued or guaranteed by governments and/or
supranational institutions (or in related financial derivative
instruments) and thus may be exposed to credit risk of
such governments and/or supranational institutions. If such
governments and/or supranational institutions default on
their debt securities, e.g. when they are not able to meet
their obligations as to the payment of principal and/or
interest, or become insolvent, Company could lose money.
There may not be any bankruptcy proceedings by which
the Company could enforce its rights against a defaulted
government or a supranational institution in whole or in
part.
European sovereign crisisIn light of the current fiscal conditions and concerns on the
sovereign risk of certain European countries, investments
in European securities might face higher volatility, liquidity
and foreign exchange risk. The performance of these
investments could deteriorate significantly should there be
any adverse credit events (e.g. further downgrade of the
sovereign credit rating) of any European country.
Should the current fiscal conditions on certain European
countries continue to deteriorate, there is a possibility
that a European government may default. Funds investing
in securities issued or guaranteed by governments and/
or supranational institutions in a European country may
thereby be exposed to additional credit risks relating to
sovereign debts as described in the risk factor headed
“Sovereign Risk” above.
Fees and transaction costsThe performance of the Company will be affected by
charges related to the investments of the Company.
The Company may be engaged in a high level of trading
resulting in commensurably higher transaction costs.
Typically, high portfolio turnover will result in correspondingly
high transaction costs and the exact amount of brokerage
and related transaction costs that will be incurred will
depend upon a number of factors including the nature and
frequency of the market opportunities presented, the size
of transactions and the transaction rates in effect from time
to time.
The Company is obliged to support significant costs as
disclosed in the sections entitled ‘Charges and fees’ in this
Prospectus including management and incentive fees and
transaction brokerage charges, and these costs will affect
the Net Asset Value of the Share and therefore the ability of
the Company to generate positive performance. Such fees
and transaction costs are to a substantial degree, payable
to the Man Group.
Investors should note there will be no equalisation methods
used for the purpose of determining the incentive fee
payable to the Investment Manager. Therefore there is
a risk an investor redeeming Shares may still incur an
incentive fee in respect of the Shares, even though a loss
in investment capital has been suffered by the redeeming
investor.
For further information on fees and transaction costs,
please refer to the section entitled 'Charges and fees'.
Exchange rate risksInvestments in the Company must be made in USD.
Shareholders dealing in a different local currency should be
aware that exchange rate fluctuations could cause the value
of the investment to diminish or increase. Additionally, the
Company may have to finance non-USD margins.
Counterparty risk(a) The Company is subject to the possibility of insolvency
of any counterparty with which it trades financial
derivative instrument contracts off exchange. In the
event of the insolvency of any counterparty or of any
Broker through which the Investment Manager trades
for the account of the Company, the Company may only
rank as an unsecured creditor in respect of sums due to
the Company on the margin account or otherwise and
any losses (which could be substantial) will be borne
by the Company. The insolvency of any counterparty
may also result in a delay in the recovery of such
margins due to the Company on the margin account or
otherwise.
(b) On-exchange contracts will be entered into between
the Company and Broker as either principal or agent.
Accordingly, the Company is exposed to the risk
that the Broker, where acting as Principal may, in
an insolvency or similar event, be unable to meet its
contractual obligations to the Company.
(c) To the extent that margin monies of the Company held
by a Broker are placed with a market counterparty of
the Broker, such margin monies may be pooled with
Man AHL Diversified Futures Ltd 11
margin monies of other customers of both the Broker
and/or the market counterparty that are held with such
market counterparty and may be exposed to loss.
(d) The Company may also enter into currency, interest
rate, total return or other swaps which may be
surrogates for other instruments such as currency
forwards and interest rate options. The value of such
instruments generally depends upon price movements
in the underlying assets as well as counterparty risk.
Taxation and Legal(a) This Prospectus does not take into consideration
any tax consequences of investing in the Company.
Potential investors in the Company should understand
the taxation regime in their own jurisdictions as well
as the implications of such regime on an investment
in the Shares and should, where appropriate, take
independent taxation advice.
(b) Applicable laws, regulations or taxation arrangements
may change and adversely affect the Company and/
or Shareholders. Furthermore the interpretation of such
laws, regulations or taxation arrangements may differ
from jurisdiction to jurisdiction and/or be construed
differently by a court of law from the legal advice
obtained by the Company.
(c) The United States Hiring Incentives to Restore
Employment Act (the “HIRE Act”) was signed into US
law in March 2010 creating a new withholding regime
referred to as the Foreign Account Tax Compliance Act
(“FATCA”). In order for the Company to avoid a US
withholding under FATCA (i.e. a tax of thirty percent
(30%) on certain payments (including payments of gross
proceeds) made with respect to certain actual and
deemed US investments), the Company will be required
to enter into an agreement with the US Internal Revenue
Service (the “Service”) by 30 June 2013 agreeing
to identify certain direct and indirect US investors.
Investors in the Company will be required to provide
information which identifies any direct and indirect US
ownership as well as information that may certify other
FATCA compliance or non-US status. The Company
will be required to provide information on its direct and
indirect US investors to the Service. A non-US investor
that is a "foreign financial institution" within the meaning
of Section 1471(d)(4) of the US Internal Revenue
Code of 1986, as amended (“IRC”) will generally be
required to enter into an agreement with the Service
by 30 June 2013 identifying certain direct and indirect
US investors. A non-US investor who fails to provide
such information to the Company or enter into such
an agreement with the Service, as applicable, may be
subject to the thirty percent (30%) withholding tax with
respect to its share of any such payments attributable
to actual and deemed US investments of the Company
and the Directors may take any action in relation to an
investor's Shares or redemption proceeds to ensure
that such withholding is economically borne by the
relevant investor whose failure to provide the necessary
information gave rise to the withholding. Shareholders
should consult their own tax advisors and (where
applicable) financial intermediary regarding the possible
implications of these rules on their investments in the
Company.
(d) Prospective investors should note that they may be
exposed to the unknown risks of changes in laws,
regulations or taxation which may affect the Company
or their investment.
(e) The Company intends to conduct its affairs such that
it should not be deemed to be engaged in a trade
or business in any jurisdiction other than Bermuda
and should not therefore, be liable to taxes of any
jurisdiction other than Bermuda. If any of the activities
were deemed to constitute a trade or business in a
jurisdiction other than Bermuda, then that jurisdiction's
taxes may apply. Any such taxes would adversely affect
the investment performance of the Shares.
No guarantee or principal or capital protectionAny investment in Shares is not guaranteed or subject
to principal or capital protection and investors could lose
some or all of their investment. Potential investors in Shares
should carefully consider the information contained in this
Prospectus before making any investment in Shares.
Special purpose vehicleThe Company is an unregulated special purpose vehicle
which does not have its own infrastructure and is reliant
on service providers to fulfil its obligations to Shareholders.
Where a service provider is unable to fulfil its obligations
to the Company, for example where a service provider
becomes insolvent, the Company in turn may encounter
difficulties in performing its obligations to Shareholders.
Conflicts of interestEach of the Directors, the Investment Manager, the Brokers,
the other members of the Man Group from time to time
and their respective officers, employees and affiliates (the
'Interested Parties') is involved in other financial, investment
or professional activities which may on occasion give rise
to conflicts of interest with the Company. In particular,
the Investment Manager provides and may in the future
provide investment management, investment advice or
other services in relation to a number of funds or managed
12 Man AHL Diversified Futures Ltd
accounts which may have similar investment policies to
that of the Company. Interested Parties may exercise
investment discretion with respect to a portion of the
assets of the Company. The Interested Parties will have
regard to their obligations under their agreements with the
Company and to their obligations to act in the best interests
of the Company, so far as is practicable having regard to
their obligations to other clients, when potential conflicts
of interest arise. If a conflict does arise, the Directors will
endeavour to ensure that such conflict is resolved fairly
having regard to various issues, such as the frequency of
trading, the importance of timely execution of trades and
applicable laws and regulations. Having regard to these
obligations, the Company may buy investments from or
sell investments to the Investment Manager or its affiliates
according to normal market standards and applicable law.
In particular, the Investment Manager will use its reasonable
efforts to ensure that the Company have the opportunity
to participate in potential investments identified by the
Investment Manager which fall within the Company's
investment objective and policies on the best terms
reasonably obtainable at the relevant time having regard to
the interests of the Company.
DirectorsThe Directors may have conflicts of interests, principally
arising from their role within various service providers to
the Company and from their role as directors of other
investment vehicles. The Directors will have regard to their
obligations to act in the best interests of the Company in
managing these conflicts.
Man Group entities and affiliatesEach of the Investment Manager and the other members
or affiliates of the Man Group and their respective
officers, employees and affiliates may undertake financial,
investment or professional activities which give rise to
conflicts of interest with the Company (‘Man Conflicts’).
Where there is a material risk of damage to the Company
arising from any Man Conflict, the conflict shall be managed
by the Man Group entities and affiliates in accordance with
the conflict of interests policy that has been adopted by
the relevant Man Group entity or affiliate in order to prevent
the conflict from adversely affecting the interests of the
Company so far as it is practicable having regard to their
obligations to other clients. Where it cannot be managed it
will be disclosed to the Company. In many cases, approval
by the Company with the Man Group entities will be the
primary mechanism of managing potential Man Conflicts.
Examples of potential Man Conflicts include the following:
Competitor products: the Investment Manager and/or its
affiliates provide and may in the future provide investment
advice or other services in relation to separate competitor
investment products or managed accounts. These
competitor vehicles may have investment policies similar to
those of the Company and the Investment Manager may
be compensated in a different manner in respect of those
vehicles. The Investment Manager will follow procedures
designed to ensure an appropriate allocation of available
investment opportunities for the Company and competitor
vehicles.
There may be potential conflicts of interest between the
activities of the Company and the activities of others
using the same Investment Manager. In order to deal with
these conflicts of interest, investment opportunities will
be allocated in a non-discretionary manner designed to
treat each user equally and fairly. The Investment Manager
or its affiliates may invest in the same investments as the
Company or may take the same, different or opposite
positions to that of the Company (as principal or agent) in
respect of any instrument or any market.
Proprietary investment activities: any of the Man Group
entities may buy, hold and redeem Shares in the Company
in the normal course of their business and may on
occasions hold a significant percentage of the Company’s
issued Shares of one or more Class. They may also enter
into transactions as principal with the Company.
Allocations: there will be occasions when a member of the
Man Group has an interest in fees and expenses charged
by or in relation to the AHL Diversified Programme. In
this context, the term ‘interest’ means, without limitation,
a business relationship, financial relationship or other
commercial dynamic which results in a business,
commercial, financial or other material interest being
generated in relation to the subject matter.
Service provision: Man Investments AG, in its roles as
Marketing Adviser providing structuring services, as the
Introducing Broker, or as the Services Manager, may
propose that the Company enters into agreements with
Man Investments AG, affiliated entities or third parties
with which Man Investments AG or its affiliates have a
broader commercial relationship for the provision of various
services, including the leverage facility, valuation and
brokerage services in respect of which affiliates of the Man
Group may receive fees, spreads and other compensation
in respect of the Company. The final decision as to which
service provider is chosen is made by the Directors.
The Investment Manager has policies and processes
designed to prevent market abuse.
Man AHL Diversified Futures Ltd 13
Services Manager conflictsThe Services Manager and other members of the Man
Group have selected and appointed the Shareholder
Services Provider, the Registrar, the Principal Paying
Agent, and the Valuations Service Provider to also provide
similar services to a number of other funds, investment
companies and other clients of the Services Manager or
other members of the Man Group. The fees payable by
the Services Manager or other members of the Man Group
to the relevant service providers in respect of the services
provided to the Company may not directly correlate to the
fees paid to the Services Manager by the Company. Further,
the Services Manager or another member of the Man Group
may, pursuant to their appointment as a services manager
to another fund, investment company or other client, in
relation to processing claims by that other client, act as
a claims manager for that other client in connection with
claims against the relevant service providers appointed by
the Company. Neither the Services Manager nor any other
member of the Man Group shall be restricted from acting
in a manner that is, or may be, contrary to the interests of
the Company in processing claims. The Services Manager
or other member of the Man Group shall also not be
required to inform the Company of the actions that it has
taken when acting as services manager for another fund,
investment company or client.
European Savings DirectiveThe European Union Savings Directive 2003/48/EC (the
‘Directive’) came into force with effect from 1 July 2005.
The Directive requires a paying agent (as defined in the
Directive), established in an EU member state, associated/
dependent territories, or certain third countries to either
report or withhold tax from payments of ‘savings income’
to an individual beneficial owner residing in another EU
member state or covered territory.’ Savings income’ is
defined in the Directive and can include coupon and
dividend payments, distribution and redemption payments
in respect of investments in bonds/shares and certain
investment funds. Investors should seek independent
advice on the impact of the Directive on their investment.
It is the investment objective of the Company to generate
capital gains rather than interest.
Management and administration
After deduction of the preliminary expenses of the
Company (as set out in the ‘Charges and fees’ section to
this Prospectus) the unutilised balance of the proceeds
of the Share issue will be invested in the AHL Diversified
Programme.
Introducing BrokerThe Company may appoint a number of Brokers to provide
clearing services in relation to its trading activities. Man
Investments AG, a member of the Man Group, has been
appointed as the Introducing Broker to the Company and is
responsible for recommending appropriate Brokers to the
Company as well as actively managing these relationships,
ensuring appropriate service levels as well as an adequate
diversification of Brokers.
CustodianThe Company has appointed HSBC Institutional Trust
Services (Asia) Limited, a company incorporated with
limited liability in Hong Kong in 1974, to act as Custodian
of the Company’s assets pursuant to the custodian
agreement. The Custodian provides safe custody for the
cash and registrable assets of the Company held by it
(other than monies and trading assets with the Broker)
and collects any income arising on such assets on the
Company’s behalf.
The Custodian is an indirect wholly owned subsidiary of
HSBC Holdings plc, a public company incorporated in
England and Wales. The HSBC Group is one of the world’s
largest banking and financial services organisations with
well-established business in Europe, the Asia-Pacific region,
the Americas, the Middle East and Africa. The Custodian
was incorporated in Hong Kong in 1974 and is registered
as a trust company under the Trustee Ordinance in Hong
Kong, and approved by the Mandatory Provident Funds
Authority to provide trustee services.
Services ManagerMan Investments AG has been appointed by the Company
as the Services Manager. In performing that role, Man
Investments AG will be responsible to the Company for
selecting and appointing (as principal) service providers
to provide general shareholder services (which will include
maintenance of the Company's register) and certain
accounting and valuation services to the Company, as
well as monitoring the providers of those services. The
Company will not itself select or appoint these service
providers.
The Company has agreed to both indemnify and exempt
from liability each of the Services Manager, members
of its group, its delegates (which, for the avoidance of
doubt, shall not include the service providers appointed
by the Services Manager which are referred to below) and
its associates from losses, liabilities, damages or costs
in connection with the Services Manager's appointment
and provision of its services, the appointment of service
providers or the performance or non-performance of
the relevant service provider's duties and/or any untrue
14 Man AHL Diversified Futures Ltd
statement of material fact contained in the Prospectus that
is not due to fraud, gross negligence or wilful default of the
Services Manager, members of its group, its delegates or
its associates.
The Services Management Agreement also includes
provisions pursuant to which the Company has agreed to
both indemnify and exempt from liability Citibank Europe
plc, members of its group, its delegates and its associates
from losses, liabilities, damages or costs in connection with
the appointment of the service provider or the performance
or non-performance of its duties and/or any untrue
statement of material fact contained in the Prospectus that
is not due to a breach of the Citi Fund Services Agreement
between the Services Manager, Citibank Europe plc and
Citi Hedge Fund Services, Ltd. by, or the negligence, wilful
default, bad faith or fraud of, Citibank Europe plc, members
of its group, its delegates or its associates. Citibank Europe
plc and the members of its group, delegates and associates
are able to enforce the indemnity and exclusion of liability
directly against the Company through third party rights
granted to them pursuant to the terms of the Services
Management Agreement. The Services Management
Agreement may be terminated by any party giving not less
than 3 months’ notice in writing to the other parties.
General shareholder and registrar servicesIn accordance with the Services Management Agreement,
the Services Manager (as principal) has selected and
appointed Citibank Europe plc as Shareholder Services
Provider and Citi Hedge Fund Services, Ltd. as the
Registrar pursuant to the Citi Fund Services Agreement.
The Shareholder Services Provider and the Registrar will
perform certain general shareholder services including
maintaining the register of investors of the Company and
processing certain Anti-money Laundering Documents.
The Shareholder Services Provider and the Registrar may
delegate their duties with the prior written consent of the
Services Manager, not to be unreasonably withheld.
The Shareholder Services Provider has delegated certain of
its duties to Citibank (Hong Kong).
Valuation servicesIn accordance with the Services Management Agreement,
the Services Manager (as principal) has selected and
appointed Citibank Europe plc pursuant to the Citi Fund
Services Agreement as Valuations Service Provider to the
Company. The Valuations Service Provider will perform
certain valuation and accounting services for the Company.
The Valuations Service Provider may delegate some of
its duties with the prior written consent of the Services
Manager, not to be unreasonably withheld.
The Valuations Service Provider is not responsible and will
have no liability in connection with any trading decisions
of the Company. The Valuations Service Provider will not
provide any investment advisory or investment management
services to the Company. The Valuations Service Provider
will not be responsible for and will have no liability in
connection with monitoring any investment restrictions or
compliance with the investment restrictions.
In determining the Net Asset Value per Share, the
Valuations Service Provider will follow the valuation policies
and procedures adopted by the Company. The manner
in which the services of the Valuations Service Provider
will be performed by the Valuations Service Provider will
be determined in accordance with the Bye-laws and
the Prospectus and the liability of the Valuations Service
Provider will be determined in accordance with the Citi
Fund Services Agreement. For the purpose of calculating
the Net Asset Value per Share, the Valuations Service
Provider shall in certain circumstances, and shall be entitled
to, rely on, and will not be responsible for and will have no
liability in connection with the accuracy of, financial data
furnished to it by various third parties which may include the
Custodian and/or the Investment Manager.
Paying agency servicesIn accordance with the Services Management Agreement,
the Services Manager (as principal) has selected and
appointed Citi Hedge Fund Services, Ltd. pursuant to the
Citi Fund Services Agreement as Principal Paying Agent
to the Company. The Principal Paying Agent will perform
certain paying agency services for the Company. The
Principal Paying Agent may delegate some of its duties with
the prior written consent of the Services Manager, not to be
unreasonably withheld.
The Citi Fund Services AgreementCitibank Europe plc is a licensed bank, authorised and
regulated by the Central Bank of Ireland. Citibank Europe
plc was incorporated in Ireland on 9 June 1988 under
registered number 132781. Citibank Europe plc and Citi
Hedge Fund Services, Ltd. are members of the Citigroup
group of companies, having as their ultimate parent
Citigroup Inc., a US publicly quoted company.
Although Citibank Europe plc and Citi Hedge Fund
Services, Ltd. are appointed by the Services Manager
as principal, not agent for the Company, the Company is
able to enforce certain of the obligations in the Citi Fund
Services Agreement through third party rights granted to it
pursuant to the terms of that agreement. Any enforcement
by the Company is subject to a specific conduct of claims
process set out in the Citi Fund Services Agreement. Under
this process the Services Manager or a member of its group
Man AHL Diversified Futures Ltd 15
will, unless certain defined exceptions apply, represent the
Company if it is bringing a claim against Citibank Europe
plc, Citi Hedge Fund Services, Ltd. or their delegates or if
Citibank Europe plc, Citi Hedge Fund Services, Ltd. or one
of their delegates is bringing a claim against the Company.
Company SecretaryThe Company has appointed an employee of Citi Hedge Fund
Services, Ltd. to act as Company Secretary (together, the
‘Company Secretary’). Pursuant to the Company Secretarial
Services Agreement, the Company Secretary is responsible
for, amongst other things, the following matters: (a) preparing
and filing the annual return of the Company with the Registrar
of Companies; (b) maintaining the Company's minute book
and records; (c) updating the Company's registers of directors
and members; (d) making all necessary filings with the
Registrar of Companies and the BMA; (e) organising payment
to the BMA of the Company’s annual registration fees; and
(f) arranging the Company's board meetings and providing
agendas and minutes of each of the Company's meetings. In
each case, the Company Secretary provides services under
the general supervision of the Directors.
The terms of the Company Secretarial Services Agreement
contains certain indemnification and exclusion of liability
provisions in favour of Citi Hedge Fund Services, Ltd., its
officers, servants, agents and delegates. However, the
Company Secretary is not entitled to indemnification or
exclusion of liability in the event that Citi Hedge Fund Services,
Ltd. or its officers, servants, agents or delegates acted with
negligence, wilful default, fraud or dishonesty in performing its
obligations or duties under the Company Secretarial Services
Agreement.
The Shares
Purchase priceThe price at which Shares may be purchased will be by
reference to the Subscription Price, as defined in Appendix 1.
Share valuationThe Net Asset Value per Share will be equal to the value of
the assets of the Company less its liabilities divided by the
number of Shares outstanding at each Valuation Point. The
value of the assets and the liabilities of the Company will
be determined by computing as at each Valuation Point in
accordance with the Bye-laws as follows:
(a) all calculations based on the value of investments
quoted, listed, traded or dealt in or on any futures
exchange shall be made by reference to the settlement
price (or, in the absence of any trades, at the mean
between the latest offer and bid prices quoted thereon)
on the principal exchange for such investments as
at the close of business on the day for which such
calculation is to be made; all calculations based on the
value of investments traded or dealt in on any over-
the-counter market which is the principal exchange
therefore shall be made by reference to the mean
between the latest offer and bid prices quoted thereon
PROVIDED ALWAYS that:
(i) if the Directors at their discretion consider that the
prices ruling on an exchange other than the principal
exchange provide in all the circumstances a fairer
criterion of value in relation to any such investment,
they may adopt such prices; and
(ii) the Directors may, at their absolute discretion, permit
some other method of valuation to be used if they
consider that such valuation better reflects the fair
value;
(b) forward foreign exchange contracts will be valued by
reference to the price at the Valuation Point at which
a new forward contract of the same size and maturity
could be undertaken;
(c) if no price quotations are available as above provided,
the value thereof shall be determined from time to time
in such manner as the Directors shall determine; and
(d) any value (whether of a security or cash) otherwise
than in USD shall be translated into USD at the rate
(whether official or otherwise) that the Directors shall
in their absolute discretion deem appropriate to the
circumstances having regard inter alia to any premium
or discount that they consider may be relevant and to
costs of exchange.
ReportingThe Net Asset Value per Share as at each Valuation Point
will be published in the Hong Kong Economic Times,
the South China Morning Post, and on Bloomberg,
Morningstar, Reuters and SIX Financial Information and at
the Director’s discretion in other financial publications. In
addition it will be available from the Registrar, and the Hong
Kong Representative and can be accessed via Man’s Hong
Kong country website www.maninvestments.com (this
website is not authorised and reviewed by the SFC and it
may contain non-SFC authorised funds).
The following documents, among others, will be published
on www.maninvestments.com (select Hong Kong):
• Monthly performance report of the Company (in English
and Chinese language);
16 Man AHL Diversified Futures Ltd
• Audited financial statements prior to the annual general
meeting in each year within four months of the financial
year end (in English language only);
• Unaudited semi-annual financial report within two
months of the relevant accounting period (in English
language only); and
• Copies of Shareholder notification letters (in English and
Chinese language) (the original notification letters will be
mailed to Shareholders).
Shareholders will be notified in writing when new audited
financial statements or new semi-annual financial report
are available in electronic form on the Hong Kong country
website of Man.
Procedure for applications The Shares of the Company are divided into two tranches:
Tranche A and Tranche B. The Company is offering
only Participating Tranche A Shares to investors at the
Subscription Price (as defined in Appendix 1) from (and
including) 4 September 2012. The Directors have resolved
that all Shares issued by the Company prior to 4 September
2012 shall be converted to Participating Tranche B Shares
on 4 September 2012. Shareholders wishing to purchase
additional Shares from 4 September 2012 onwards must
subscribe for Participating Tranche A Shares (unless the
Directors may decide otherwise from time to time).
Shareholders as at the date of this Prospectus should note
their rights have not been changed.
Completed and signed application forms can be sent
to Citibank (Hong Kong) or the Shareholder Services
Provider at the contact address referred to in the
'Names and addresses' section of this Prospectus. The
information required in the Application Form is necessary
for consideration of the application. Failure to provide
the information may result in rejection of the application.
The data Applicants provide (the 'Data') to the Company
may be disclosed to the Registrar, the Shareholder
Services Provider and/or any other service provider and
their affiliates, Citibank (Hong Kong), entities within Man
Group (which includes but is not limited to the Hong Kong
Representative) and/or the Applicant's account executive
so far as is necessary for the Data Purposes as defined
below (the 'Data Recipients'). The Data may only be used
by the Company or the Data Recipients for consideration
of the application, for the administration of an Applicant's
investment; for informing Applicants about their investment
and (if agreed by Applicants on the Application Form and
then only such Data as is necessary for this purpose) may
be used for direct marketing of services any Data Recipient
thinks may be of interest to each Applicant (all the 'Data
Purposes').
Applicants have the right to revoke their consent to the
use of the Data for direct marketing purposes by notice
in writing to the Shareholder Services Provider, Citibank
(Hong Kong) or the Hong Kong Representative. Applicants
further agree that any Data Recipient may contact them
by post, telephone, fax, e-mail or other available method
for the Data Purposes. Applicants have the right to require
corrections to, and receive a copy of, the Data and a
reasonable fee may be charged to Applicants for any
such copy. Applicants also have the right to ascertain
the Company's policies and practices in relation to the
Data and to be informed of the kind of Data held by the
Company. The person to whom requests for correction of
Data or copies of Data or for information regarding policies
and practices and kinds of data held are to be addressed
as follow:
The Data Protection Officer
Man Investments (Hong Kong) Ltd,
Suite 1301, Chater House,
8 Connaught Road Central,
Hong Kong
By providing an e-mail address on an Application Form (the
'Authorised E-mail Address'), an Applicant will agree that
the Data Recipients and/or any other service provider and
their affiliates may contact the Applicant by e-mail (which
is a non-secure medium) at the Authorised E-mail Address
in connection with any of the following: (a) requesting
further documentation or information from the Applicant
relating to the investment products in which the Applicant
has an investment (the 'Investments'); and (b) providing
the Applicant with trading advisory reports, performance
reports, contract notes and ancillary or generic information
relating to Investments. The Applicant will be required to
acknowledge that all electronic correspondence between
the Applicant, the Company, Man Group and/or any other
Data Recipient shall be governed by the relevant standard
terms and conditions, a copy of which is available upon
request.
Applications should be made by fax or by original to
Citibank (Hong Kong) or the Shareholder Services Provider
not later than 17:00 (Hong Kong time), one Business Day
prior to the Dealing Day on which the subscription is to
take place. Any applications received after this deadline will
not (unless the Directors agree otherwise) be accepted for
subscription on that Dealing Day and will automatically be
moved to the next following Dealing Day.
Man AHL Diversified Futures Ltd 17
For all new applications for subscriptions, Applicants must
promptly mail the relevant original Application Form (and
Anti-money Laundering Documents required in Appendix
4) duly completed and signed by or on behalf of the
Applicant to Citibank (Hong Kong) or the Shareholder
Services Provider who have been appointed to process
applications. Shareholders will not be entitled to payment
of any redemption proceeds (pursuant to a request for
redemption) until the original Application Form (and Anti-
money Laundering Documents) has been received by
Citibank (Hong Kong) or the Shareholder Services Provider.
Once completed applications have been received by the
Company, they are irrevocable. The Directors may, in their
absolute discretion, reject or scale down any application
for Shares without giving any reason. In such event the
subscription monies or any balance thereof, as appropriate,
less any bank charges, will be returned to the source from
which it was received.
Citibank (Hong Kong) or the Shareholder Services
Provider will not require an original executed version of any
subsequent Application Form in respect of any application
for additional Shares and, in such circumstances, will regard
a faxed Application Form as authentic and conclusive,
provided that the Applicant has agreed to indemnify
Citibank (Hong Kong) or the Shareholder Services Provider
in connection with such faxed subsequent Application Form
and has provided their relevant bank account information
in relation to the account which the redemption proceeds
should be credited to as part of its original executed and
delivered initial Application Form (as described in the
previous paragraph). The Applicant will also always be
under the obligation to promptly mail the duly completed
and signed Anti-money Laundering Documents to Citibank
(Hong Kong) or the Shareholder Services Provider.
Shares will be allotted on the Dealing Day after acceptance
of the application. The Company will issue fractions of
Shares.
Subscription monies should be sent by SWIFT MT103
transfer using the bank instruction letter provided with the
Application Form (see the end of this Prospectus for the
Application Form). Subscription monies are due immediately
but in any case cleared funds net of bank charges must
be received in the Subscription Account within three (3)
Business Days of the relevant Dealing Day in respect of
which the application is made. If timely settlement is not
made the relevant allotment of Shares may be cancelled
and an Applicant may be required to compensate the
Company (see paragraph (f) of “Investment in Shares”
section of the Risk Factors section of the Prospectus). The
Company may also, at its discretion, redeem or sell part
of an investors existing shareholding to satisfy any loss
incurred.
Subscription monies denominated in a certain currency
cannot be transferred on any public holiday relating to such
currency e.g. USD cannot be transferred on a US federal
public holiday and in such circumstances the subscription
monies will be transferred on the next Business Day.
When applying for Shares, Applicants should apply for
a minimum initial investment of USD 20,000 (or such
lesser amount as the Directors in their discretion may
determine). A Shareholder may increase its holding of
Shares in increments of not less than USD 10,000 (or such
other amount or number of Shares as the Directors may
determine from time to time).
A sales fee of up to 5% may be charged on new
applications by the relevant distributor. Unless otherwise
indicated in the Application Form, all the amounts received
in the Subscription Account shall be applied to the AHL
Diversified Programme and the Company shall have
absolutely no obligation to repay any amount as a sales
commission to the relevant distributor.
Once applications have been received by Citibank (Hong
Kong) or the Shareholder Services Provider they may not
be withdrawn without the consent of the Directors, acting in
their sole discretion.
By signing the Application Form, an Applicant will certify,
represent, warrant and agree that he/she/it is not a US
person for the purposes of US Federal income tax or that
the Shares applied for are not being acquired directly
or indirectly by or on behalf of, or for the account of a
US person. An Applicant will further certify, represent,
warrant and agree that the Applicant will notify Citibank
(Hong Kong), the Shareholder Services Provider or the
Company (as the case may be) in the event that either the
Applicant becomes a US person or holds the Shares on
behalf of, or for the account or benefit of, a US person.
A false statement or misrepresentation of tax status by
a US person could lead to penalties under US law. If an
Applicant's tax status changes and it becomes a US citizen
or a resident, it must notify the relevant party as mentioned
above within 30 days.
Money launderingThe Registrar, the Shareholder Services Provider and
Citibank (Hong Kong) and any of their delegates are
responsible to regulators for compliance by the Company
with money laundering regulations and for that reason,
existing Shareholders, potential subscribers for and
18 Man AHL Diversified Futures Ltd
transferees of Shares may be asked for Anti-money
Laundering Documents. Until satisfactory Anti-money
Laundering Documents are provided by potential investors
or transferees, as determined by the Directors, the Directors
reserve the right to withhold issuance and approval of
transfers of Shares.
In case of delay or failure to provide satisfactory Anti-money
Laundering documents, the Company may take such action
as they see fit including the right to redeem issued Shares
compulsorily.
Contract notes will be issued to successful Shareholders
confirming allocation.
No money should be paid to any intermediary in Hong
Kong who is not licensed or registered to carry on Type 1
regulated activity under Part V of the Securities and Futures
Ordinance.
In accordance with Bermudian law, Shares are only issued
in the names of companies, partnerships or individuals. In
the case of an Applicant acting in a special capacity (for
example as trustee), contract notes (or Share certificates,
if issued) may, at the request of the Applicant, record the
capacity in which the Applicant is acting.
Shares purchased for those under 18 years of age must be
registered in the name of the parent or guardian, but may
be designated with the minor’s initials for the purposes of
identification. The Company will take no cognisance of any
trust applicable to its Shares.
Subscription AccountThe Company has opened an interest bearing Subscription
Account. Any monies credited to the Subscription Account
shall be held on trust for the benefit of the relevant
Applicant pending the allocation of the Shares. Any interest
accruing on the Subscription Account shall belong to the
Company absolutely.
Restriction on applicationsThere are no restrictions on the eligibility of any person to
subscribe for Shares provided that such person is not a
Non-qualified Person. Applicants subscribing for Shares
in the Company are advised that the Shares are issued
subject to the provisions of the Bye-laws.
Transfer of SharesShareholders are entitled to transfer Shares to anyone
other than a Non-qualified Person by completion of the
Man ‘Transfer request form’ (available from the Shareholder
Services Provider or Citibank (Hong Kong) (or such other
entity contracted to provide such form)) and signed by
or on behalf of the transferor and the transferee subject
to the restrictions mentioned above. A transfer must be
accompanied by a completed original ‘Transfer request
form’ signed for and on behalf of the transferor and
the transferee as well as the Anti-money Laundering
Documents.
Shareholders wishing to transfer Shares must sign the
transfer instrument in the exact name or names in which
the Shares are registered, indicating any special capacity
in which they are signing and supplying all other requested
details.
The Directors may at their discretion decline to register any
transfer. A Shareholder is not entitled to transfer Shares if
as a result of such transfer either he or the person to whom
the Shares are to be transferred would hold Shares with a
value of less than the Minimum Holding unless the whole of
the Shareholder’s holding is transferred.
Procedure for redemptionShares are redeemable, and written notices to redeem
Shares should be received by Citibank (Hong Kong) or
the Shareholder Services Provider at the contact address
referred to in the 'Names and addresses' section of this
Prospectus not later than 17:00 pm (Hong Kong time)
one Business Day prior to the Dealing Day on which the
redemption is to take place, except in the event that the
calculation of the Net Asset Value per Share has been
suspended (see below for details of where notice should
be given). Any applications received after this deadline will
not (unless the Directors agree otherwise) be accepted for
redemption on that Dealing Day and shall automatically
be moved to the next following Dealing Day. The written
redemption notices must contain the exact name of
the investor, the amount of Shares to be redeemed and
an original signature(s) as per the Application Form,
Redemptions must be for a number of Shares at least equal
to the Minimum Redemption of 200 Shares and must not
(unless all of the relevant Shareholder’s Shares are being
redeemed) result in the Shareholder holding a number of
Shares less than the Minimum Holding.
If the redemption notice was sent by fax, the Company is
under no obligation to pay any redemption proceeds until
the original of that redemption notice has been received by
Citibank (Hong Kong) or the Shareholder Services Provider.
In relation to any redemption notice sent by fax, Citibank
(Hong Kong) or the Shareholder Services Provider will not
require an original executed version of the redemption
notice to be sent as described in the previous paragraph,
provided that the redeeming Shareholder has agreed to
indemnify Citibank (Hong Kong) or the Shareholder Services
Provider in connection with such faxed redemption notices
Man AHL Diversified Futures Ltd 19
and has provided their relevant bank account information
in relation to the account which the redemption proceeds
should be credited to as part of its original executed and
delivered initial Application Form.
The redemption price will be calculated by reference to
the Net Asset Value as at the Valuation Point immediately
preceding the Dealing Day. Shareholders are not entitled
to withdraw a request for redemption unless the Directors
otherwise determine or unless redemptions or the payment
of redemption proceeds have been suspended or the
determination of the Net Asset Value per Share has been
suspended (see ‘Suspension of valuations’ in section 5 of
Appendix 2 to the Prospectus). The Directors are not bound
to redeem part only of a holding of Shares if as a result of
such redemption a Shareholder would hold less than the
Minimum Holding.
Upon receipt of a Shareholder's redemption notice,
payment of redemption proceeds to Shareholders will
be made without interest in USD by bank transfer at the
expense and risk of the Shareholder in accordance with
the bank instructions provided by that Shareholder within
five (5) Business Days after the Dealing Day or as soon as
practicable thereafter. Any bank wire charges incurred by
the Company associated with the payment of redemption
proceeds to investors will be borne by the Company rather
than by the redeeming investor. The redeeming investor's
bank wire charges incurred by their own bank will be borne
by the redeeming investor. The Company is under no
obligation to pay any redemption proceeds until the original
Application Form (and Anti-money Laundering Documents)
has been received.
The Directors may, in their sole discretion, waive the
Minimum Redemption and Minimum Holding requirements.
Fee for early redemption of Tranche B SharesAll costs of marketing the Shares and certain amounts
payable to intermediaries are borne by the Marketing
Adviser. No such costs are borne by the Company. In
case the Tranche B Shares are redeemed before they have
been in issue for the periods shown below after their initial
issuance, the current Net Asset Value per Share redeemed
will be paid by the Company to the Shareholder after
deduction of a fee for early redemption, which will, in turn
be paid to the Marketing Adviser primarily to compensate it
for the costs of marketing the Shares, as follows:
Tranche B Shares redeemed on a Dealing Day before they have been in issue for: Fee for early redemption:
2 years 4.0 % of redemption price per Share
4 years 2.5 % of redemption price per Share
6 years 1.0 % of redemption price per Share
There will be no redemption fee applied on Tranche B
Shares which are redeemed after they have been in issue
for six years after their initial issuance.
For the avoidance of doubt, the Directors have
determined that in general no redemption fees will be
applied for redemptions of Tranche A Shares.
There may be circumstances in which the Company will be
able to procure a purchase of a redeeming Shareholder’s
Shares and, although no actual redemption will be effected,
where a purchase is procured in these circumstances
a redeeming Shareholder will receive an amount equal
to those proceeds that would have been paid to the
Shareholder had an actual redemption taken place (that
is, less the redemption fee, where applicable). In these
circumstances the redemption fee will operate as an
administrative charge to be paid to the Marketing Adviser.
In certain circumstances, the Directors have the discretion
to waive all or any of the fee for early redemption and in
particular cases or generally.
Compulsory redemption of SharesThe Bye-laws empower the Company to require the
redemption (or transfer) of any Shares, if in the opinion of
the Directors, such Shares are acquired or held by a Non-
qualified Person.
In the event that a Shareholder (or the ultimate beneficial
holder of the Shares held by a Shareholder) fails to disclose
its identity to the reasonable satisfaction of the Directors,
the Directors are empowered to redeem compulsorily all
of the Shares held by such Shareholder (or such number
thereof as are being held on behalf of that ultimate
beneficial holder).
Total redemption/winding upAll of the Shares may be redeemed by the Company if:
(a) the holders of not less than 75% in value of the issued
Shares of the Company carrying voting rights at general
meetings of the Company approve of the redemption at
a general meeting of which not more than 12 and not
less than four weeks notice has been given; or
(b) at any time, the aggregate of the Net Asset Value per
Share of all Shares in issue on each of three successive
Valuation Points is less than USD 3,000,000 and
provided that notice of not less than four and not
more than 12 weeks has been given to the holders of
the Shares within four weeks after the third relevant
Valuation Point; or
20 Man AHL Diversified Futures Ltd
(c) the Custodian has served notice of its intention to
retire under the terms of the custodian agreement (and
has not revoked such notice) and no new custodian
has been formally approved and appointed within six
months of the date of service of such notice.
On a winding up of the Company the assets available
for distribution (after satisfaction of creditors) shall be
distributed to the holders of the Manager Shares and the
Shares pari passu to the extent of their nominal value up to
the nominal amount paid thereon and thereafter all surplus
assets shall be distributed to the holders of the Shares in
proportion to the number of Shares held.
Suspension of dealingsThe Directors may declare a suspension of the
determination of the Net Asset Value per Share in certain
circumstances as described in section 5 of Appendix 2. No
Shares will be redeemed during such period of suspension,
but whilst such suspension subsists, a redemption notice
may be withdrawn. However, if a redemption notice is not
withdrawn, it will be acted upon on the first Dealing Day
following the end of the suspension.
DividendsIt is not the intention of the Directors to make any distribution
of net income by way of dividends. Net income will, therefore,
effectively be represented in the value of the Shares.
Charges and fees
Investment management and incentive feesThe Investment Manager will be entitled to a management
fee of 3% per annum of the Net Asset Value of the
Company (the ‘Management Fee’) accrued daily and
calculated on the aggregate Net Asset Value at the
immediately preceding Valuation Point. The Management
Fee is payable monthly in arrears by the Company.
In addition to the management fee, an incentive fee (the
‘Incentive Fee) will also be payable by the Company to the
Investment Manager. The Incentive Fee is payable annually
in arrears on the last Dealing Day in each financial year of
the Company, and accrued daily at each Valuation Point,
and is calculated at the rate of 20% of any net appreciation
(after deduction of the Management Fees in respect of the
period for which the calculation is being made but prior
to deduction of the Incentive Fee) in the Net Asset Value
per Share as at the Valuation Point applicable to such
Dealing Day above any previous highest Net Asset Value
per Share on any preceding Dealing Day in respect of
which an Incentive Fee shall have previously been paid (the
‘Benchmark NAV’), multiplied by the number of Shares in
issue as at the Valuation Point applicable to such Dealing
Day.
A hypothetical example of the calculation of the incentive
fee is set out below.
*This is a hypothetical example and is not indicative of future performance.
Benchmark Net Asset Value per Share (high watermark)*
Net Asset Value per Share at year end (prior to deduction of incentive fees (if any))*
Will an incentive fee be applied?*
Net appreciation on which incentive fee is applied*
Incentive fee per Share (20% of the net appreciation)*
Net Asset Value per Share at year end (including incentive fees (if any))*
Year 1 10.0 12.0 Yes 2.0 0.4 11.6
Year 2 11.6 10.5 No N/A N/A 10.5
Year 3 11.6 12.6 Yes 1.0 0.2 12.4
Year 4 12.4 12.0 No N/A N/A 12.0
Man AHL Diversified Futures Ltd 21
Investors should note there will be no equalisation methods
used for the purpose of determining the Incentive Fee
payable by the Company to the Investment Manager. The
use of equalisation methods ensures the Incentive Fee
payable by the investor is directly referable to the specific
performance of such individual investor’s holding of Shares.
If an investor redeems Shares part way through a financial
year, the Incentive Fee accrued in respect of the Shares
redeemed, over the period from the end of the previous
financial year in respect of which an Incentive Fee was
previously paid to the date of redemption, shall be
crystallised. The amount of the crystallisation (i.e. the
Incentive Fee associated with the redeemed Shares) in
respect of each Share redeemed will be 20% of the net
appreciation (as described above) in the Net Asset Value
per Share as at the Valuation Point applicable to the
Dealing Day on which the Shares are redeemed above the
Benchmark NAV. The aggregate crystallisation associated
with the redeemed Shares during a financial year shall be
paid by the Company to the Investment Manager at the
end of the financial year in which the relevant Shares are
redeemed. The crystallisation of Incentive Fees and the
payment of such crystallisation will neither affect the price
of Shares remaining in issue nor the holdings of existing
investors.
If an investor subscribes part way through a financial year
and the Net Asset Value per Share on the Valuation Point
applicable to the date of the subscription is above the
Benchmark NAV the Company will increase the overall
Incentive Fee accrual by an amount equal to the current
Incentive Fee accrual per Share for the period from the
last Dealing Day in respect of which an Incentive Fee was
previously paid to the date of the subscription, multiplied by
the number of Shares issued to the subscribing investor.
The increase in the Incentive Fee accrual due to new
subscriptions may result in a dilution of the Net Asset Value
per Share for the remaining investors. The amount of any
dilution will depend on the current Incentive Fee accrual
per Share applicable on the date of the subscription and
the size of the Shares issued in respect of the subscription
relative to the total number of outstanding Shares of the
Company.
If an investor subscribes part way through a financial
year and the Net Asset Value per Share applicable at the
date of the subscription is below the Benchmark NAV
there would be no Incentive Fee accrual for these Shares
until the Net Asset Value per Share increases above the
Benchmark NAV. This means that the Company would not
pay any Incentive Fee for these new Shares for the positive
performance between the Net Asset Value per Share on the
date of the subscription and the Benchmark NAV.
Full details of the calculation of the Management Fee
and the Incentive Fee are contained in the Investment
Management Agreement referred to in section 11 of
Appendix 2.
Fees payable to the Investment Manager will be paid
directly to Man Investments AG which has been appointed
as Marketing Adviser for receipt of such fees in accordance
with the Investment Management Agreement.
Custodian feesThe Custodian shall be paid by the Company a fee accruing
at each Valuation Day and payable monthly at a rate of
up to 0.10% per annum of the Net Asset Value subject
to a minimum annual fee of USD 15,000. In addition, the
Custodian is entitled to be reimbursed for all out-of-pocket
expenses properly incurred by it in the performance of its
duties. The Company will be responsible for the fees and
expenses of any sub-custodians appointed by the Custodian.
Hong Kong Representative feesThe Hong Kong Representative shall be paid by the
Company a fee accruing at each Valuation Day and
calculated monthly at a rate of up to USD 5,000 per annum.
Services Manager feesIn consideration for the services provided by the Services
Manager pursuant to the Services Management Agreement,
the Company will pay the Services Manager in respect
of shareholder services an annual fixed fee of USD 1,000
plus an annual variable fee accruing at each Valuation Day
and payable quarterly as per a sliding scale based on the
number of investors as follows:
Up to 100 investors USD 10,000
101 to 200 investors USD 13,000
201 to 400 investors USD 16,000
401 to 600 investors USD 19,000
When there are more than 600 investors, the annual
variable fee shall be increased by increments of USD 3,000
for every additional 200 investors. The Services Manager
will also be paid by the Company an annual fee of 0.05%
of the Net Asset Value. In addition, a fee of USD 27 shall
be paid in arrears by the Company in respect of outward
payments to Shareholders.
In respect of valuation services, the Company will pay the
Services Manager a fee of 0.23% per annum of the Net
Asset Value accrued daily and paid monthly in arrears. The
valuation fees payable will be subject to a minimum of USD
25,000 per annum.
The Services Manager will pay a portion of the fees it
receives from the Company to the Shareholder Services
Provider and Registrar and the Valuations Service Provider.
The Services Manager is solely responsible for the payment
22 Man AHL Diversified Futures Ltd
of fees to the Shareholder Services Provider and Registrar
and the Valuations Service Provider and the Company will
have no responsibility or liability for such fees.
Company Secretary feesIn consideration for the secretarial services provided by
the Company Secretary to the Company, the Company
will pay an annual retainer fee at the Company Secretary's
customary rates for such services. The Company Secretary
will be reimbursed for all disbursements and reasonable
expenses incurred in the performance of its duties, and
such disbursements will be invoiced separately and payable
annually.
Other fees and expenses
The Company bears, directly or indirectly, the Bermuda
annual company registration fees of the Company, the cost
of printing and distributing periodic and annual reports and
statements, and all other operating expenses.
The Directors reserve the right to charge all or any of the
fees and expenses to the Company and to effect payment
accordingly. Directors will receive an amount of up to USD
5,000 per annum per Director plus other fees and be
reimbursed for out-of-pocket expenses, including those in
relation to attendance at meetings.
The preliminary expenses of establishing the Company have
been fully amortised.
Brokerage feesThe Company shall bear all costs of trading transactions and
interest on borrowing.
Brokerage fees will be charged at market rates by the
Broker and comprise execution fees charged by executing
brokers, exchange fees and the fee charged by the
Brokers. The Introducing Broker will charge a fee to the
Company of 1% per annum of the Net Asset Value.
Neither the Investment Manager nor their connected
persons of the Company has entered into any cash or ‘soft
dollar’ commission agreements with the Brokers.
Man AHL Diversified Futures Ltd 23
Names and addresses
Directors
Michael Collins (President) (British)
Argonaut Limited
Argonaut House
5 Park Road
Hamilton HM 09
Bermuda
Mr Collins is the managing director of Argonaut Limited, Bermuda. Shirelle Jones is an alternate director to Mr Collins.
Dawn Griffiths (British)
Conyers Dill & Pearman Limited
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
Ms Griffiths is a director of Conyers Dill & Pearman Limited, barristers and attorneys, Bermuda. John Collis is an alternative director to Ms Griffiths.
Ronan Daly (British)
Centaur Fund Services
13-17 Dawson Street
Dublin 2
Ireland
Mr Daly is the chairman of Centaur Fund Services Limited.
John Walley (Irish)
62 The Avenue
Carrickmines Wood
Foxrock
Dublin 18
Ireland
Mr Walley is a financial services consultant specialising in the offshore funds administration business.
David Smith (British)
Equus Asset Management Partners L.P.
27 Queen Street
Hamilton HM 11
Bermuda
Mr Smith is a partner of Equus Asset Management Partners L.P.
Registered office of the Company
Hemisphere House
9 Church Street
Hamilton HM 11
Bermuda
Company Secretary
Christine Perinchief
c/o Citi Hedge Fund Services, Ltd.
Hemisphere House
9 Church Street
Hamilton HM 11
Bermuda
Investment Manager
Man Investments Limited
2 Swan Lane
Riverbank House
London EC4R 3AD
United Kingdom
Introducing Broker, Marketing Adviser
Man Investments AG
Huobstrasse 3
8808 Pfäffikon SZ
Switzerland
Custodian
HSBC Institutional Trust Services (Asia) Limited
HSBC Main Building
1 Queen’s Road Central
Hong Kong
Services Manager
Man Investments AG
Huobstrasse 3
8808 Pfäffikon SZ
Switzerland
Registrar
Citi Hedge Fund Services, Ltd.
Hemisphere House
9 Church Street
Hamilton HM 11
Bermuda
Tel: +1 441 295 9166
Fax: +1 441 292 6145
Contact: The Company Secretary
24 Man AHL Diversified Futures Ltd
Shareholder Services Provider
Citibank Europe plc
1 North Wall Quay
Dublin 1
Ireland
Tel: +353 1 647 0000
Fax: +353 1 647 0027
Fax: +353 1 661 7435 (Application Forms only)
Transfer Agency
Citibank N.A., Hong Kong Branch
10/F, Two Harbourfront
22 Tak Fung Street
Hunghom, Kowloon
Hong Kong,
Tel: +852 2306 8111
Fax: +852 2805 0190 (Dealing Forms only)
Principal Paying Agent
Citi Hedge Fund Services, Ltd.
Hemisphere House
9 Church Street
Hamilton HM 11
Bermuda
Tel: +1 441 295 9166
Fax: +1 441 292 6145
Hong Kong Representative
Man Investments (Hong Kong) Limited
Suite 1301 Chater House
8 Connaught Road Central
Hong Kong
Tel: +852 2521 2933
Email: [email protected]
Valuations Service Provider
Citibank Europe plc
1 North Wall Quay
Dublin 1
Ireland
Auditors
Ernst & Young Ltd.
3 Bermudiana Road
Hamilton HM 11
Bermuda
Legal adviser as to matters of Bermudian law
Conyers Dill & Pearman Limited
Clarendon House
2 Church Street
Hamilton HM 11
Bermuda
Man AHL Diversified Futures Ltd 25
Appendix 1
Definitions
‘Act’ means the Companies Act 1981 of Bermuda, as the
same may be amended from time to time.
‘AHL’ means an investment division of the Investment
Manager.
‘AHL Diversified Programme’ means the programme
described in the section entitled ‘The AHL Diversified
Programme’.
‘Anti-money Laundering Documents’ means the
documentation required to be provided by an Applicant as
part of their application for Shares as set out in Appendix 4
to the Prospectus.
‘Applicant’ means any person, in whose name an
application to subscribe for Shares is made by submitting
a duly completed and signed Application Form and
‘Applicants’ shall be construed accordingly.
‘Application Form’ means the application form to be
completed and executed by an investor upon applying
for Shares and ‘Application Forms’ shall be construed
accordingly.
‘Auditors’ means Ernst & Young Ltd, chartered accountants
of 3 Bermudiana Road, Hamilton HM 11, Bermuda.
‘Broker’ means any party or parties appointed from time to
time as clearing and/or prime broker of the Company and
‘Brokers’ shall be construed accordingly.
‘Business Day’ means a day on which financial markets
are generally open for business in Dublin, London,
Hong Kong, and New York and ‘Business Days’ shall
be construed accordingly.
‘Bye-laws’ means the bye-laws of the Company,
as amended from time to time.
‘Citibank (Hong Kong)’ means Citibank N.A., Hong Kong
Branch.
‘Company’ means Man AHL Diversified Futures Ltd,
a company incorporated with limited liability in Bermuda
under the Companies Act 1981 of Bermuda.
'Company Secretary’ means Citi Hedge Fund Services,
Ltd. or such other person as may be appointed by the
Company from time to time as its company secretary.
‘Company Secretarial Services Agreement’ means the
company secretarial services agreement entered into by and
between the Company and Citi Hedge Fund Services, Ltd.
‘Custodian’ means HSBC Institutional Trust Services (Asia)
Limited.
‘Dealing Day’ means the first Business Day following a
Valuation Day or such other days as the Directors shall from
time to time determine.
‘Directors’ means the directors (or any alternate director)
of the Company or any duly authorised committee thereof
and ‘Director’ shall be construed accordingly.
‘FSA’ means the Financial Services Authority, a company
limited by guarantee established and authorised to carry
out its regulatory functions under the FSMA (and any
successor regulatory organisation).
‘FSMA’ means the Financial Services and Markets
Act 2000 of the United Kingdom, as the same may be
amended from time to time.
‘Fund’ means all consideration received by the Company
for the allotment or issue of Participating Shares together
with all investments in which such consideration is invested
or reinvested and all income earnings, profits and proceeds
thereof and ‘Funds’ shall be construed accordingly
‘Futures Contracts’ means contracts (including contracts
which are not traded on-exchange and which are not readily
realisable investments) on and for physical commodities,
currencies, mortgage-backed securities, money market
instruments, obligations of and guaranteed by the
governments of sovereign nations, and any other financial
instruments, securities, stock, financial, and economic
indices, and items which are now, or may hereafter be, the
subject of futures contract trading, futures contracts, options
on futures contracts and physical commodities, cash and
forward contracts, foreign exchange commitments, deferred
delivery contracts, leverage contracts, and other commodity
related contracts, agreements and transactions (including
contingent liability transactions), and ‘Futures Contract’
shall be construed accordingly.
‘Hong Kong Representative’ means Man Investments
(Hong Kong) Limited, a limited liability company incorporated
in Hong Kong and a member of the Man Group, or such
other party as is appointed Hong Kong Representative of the
Company and the Investment Manager from time to time.
‘Introducing Broker’ means Man Investments AG, a
limited liability company incorporated in Switzerland.
26 Man AHL Diversified Futures Ltd
‘Investment Management Agreement’ means the
agreement between the Company, the Investment Manager
and Man Investments AG, as described in section 11 of
Appendix 2 to this Prospectus.
‘Investment Manager’ means Man Investments Limited
(formerly Man Investment Products Limited), a limited
liability company incorporated in England and regulated in
the conduct of its regulated activities in the United Kingdom
by the FSA.
‘Man Group’ means:
(i) Man Group plc;
(ii) any company or other entity which directly or indirectly
controls, is controlled by or is under common control
with Man Group plc (including any holding company or
subsidiary, each within the meaning of section 1159 of
the Companies Act 2006); and
(iii) any limited partnership or limited liability partnership
whose general partner or managing member is an entity
in (ii) above,
but excluding any investment fund in relation to which Man
Group plc or an entity or partnership in (ii) or (iii) above
provides investment management, advisory, marketing or
related services.
‘Manager Shares’ means the shares of a par value of USD
1 in the capital of the Company having the rights and being
subject to the restrictions described in sections 1 and 2
of appendix 2 and ‘Manager Share’ shall be construed
accordingly.
‘Marketing Adviser’ means Man Investments AG, acting
in its capacity as marketing adviser pursuant to the
investment management agreement.
‘Minimum Holding’ means the minimum number of
Shares or USD amount which a Shareholder must maintain,
being 300 Shares or USD 10,000, whichever is lesser
(based on last published NAV) or such lesser amount as the
Directors in their discretion may determine.
‘Minimum Redemption’ means the minimum number of
Shares which a Shareholder may redeem pursuant to any
single redemption application being 200 Shares.
‘Net Asset Value’ or ‘NAV’ means the amount calculated by
the Valuations Service Provider on each Valuation Point, which
amount is equal to the value of the net assets of the Company
for the benefit of the Shareholders (as such value is more
particularly described in the section headed ‘Share valuation’).
‘Net Asset Value per Share’ means the Net Asset Value
divided by the numbers of Shares outstanding at each
Valuation Point.
‘Non-qualified Person’ means (i) any person who by
acquiring and/or holding Shares, would be in breach of the
law or requirements of any country or governmental authority;
or (ii) any person or persons in circumstances (whether
directly or indirectly affecting such person or persons and
whether taken alone or in conjunction with any other persons,
connected or not, or any other circumstances appearing
to the Directors to be relevant) which, in the opinion of the
Directors, might result in the Company incurring any liability
to taxation or suffering any other pecuniary or commercial
disadvantage that the Company might not otherwise have
incurred or suffered; or (iii) any person under the age of 18
years; or (iv) any United States person other than a corporate
entity situated in the US applying on behalf of its own client(s)
who are non-US Person(s).
‘OECD’ means the Organisation for Economic
Co-operation and Development.
‘Participating Share’ or ‘Share’ means each of the
75,000,000 redeemable participating shares of USD 0.01
offered pursuant to this Prospectus (comprising both
Tranche A Shares and Tranche B Shares) and ‘Participating
Shares’ or ‘Shares’ shall be construed accordingly.
‘Principal Paying Agent’ means Citi Hedge Fund
Services, Ltd.
‘Prospectus’ means this prospectus dated 4 September
2012 relating to the offering of Shares by the Company
including the appendices to this Prospectus accompanied
by a copy of the latest audited financial statements of the
Company.
‘Recognised Exchange’ means an investment exchange
recognised under the Financial Services and Markets Act
2000 (UK) or designated by the Securities and Investments
Board and, when the context so admits, includes a
recognised clearing house through which transactions
effected under the rules of a Recognised Exchange may be
cleared and ‘Recognised Exchanges’ shall be construed
accordingly.
‘Registrar’ means Citi Hedge Fund Services, Ltd.
‘Service’ means United States Internal Revenue Service
Man AHL Diversified Futures Ltd 27
‘Services Management Agreement’ means the services
management agreement entered into by and between the
Company and the Services Manager, as amended and
restated from time to time.
‘Services Manager’ means Man Investments AG.
‘SFC’ means the Securities and Futures Commission in
Hong Kong referred to in section 3(1) of the Securities and
Futures Ordinance.
‘Shareholder Services Provider’ means Citibank Europe plc.
‘Shareholders’ means the holders of a Participating Share
and ‘Shareholder’ shall be construed accordingly.
‘Subscription Account’ means the subscription account
opened by the Company with Citibank N.A., Hong Kong
Branch (the details of which are set out in the Application
Form).
‘Subscription Price’ means the price at which Shares
can be purchased, which shall be ascertained by: (a)
determining the Net Asset Value of the Company calculated
as at the last Valuation Point prior to the Dealing Day
the relevant Shares are issued; (b) dividing the amount
calculated under (a) above by the number of Shares in
issue or deemed to be in issue as at the relevant Valuation
Point; and (c) deducting therefrom such amount as may
be necessary to round the resulting amount down to the
nearest cent.
‘United States’ or ‘US’ means the United States of
America and its territories and possessions including any
state thereof and the District of Columbia.
‘United States person’ or ‘US person’ has the meaning
given to it in section 7701 (a) (30) of the Internal Revenue
Code of 1986 as amended and ‘United States persons’ or
‘US persons’ shall be construed accordingly.
‘USD’ means dollars in the currency of the United States
of America.
‘Valuation Day’ means any Business Day and/or such
other day or days in addition thereto or in substitution
thereof as may from time to time be determined by the
Directors, either in any particular case or generally, but so
that there shall be at least one Valuation Day in each month.
‘Valuation Point’ means the time of close of business
in the market or markets relevant for the valuation of the
assets and liabilities of the Company on the Valuation Day
and ‘Valuation Points’ shall be construed accordingly.
‘Valuations Service Provider’ means Citibank Europe plc.
28 Man AHL Diversified Futures Ltd
Appendix 2
General information
1. IncorporationThe Company was incorporated on 11 September 1997 in
Bermuda with limited liability under the Companies Act 1981
of Bermuda. The memorandum of association and the Bye-
laws of the Company comprise its constitution.
On incorporation the authorised share capital of the
Company was USD 12,000 divided into 12,000 Manager
Shares of a par value of USD 1 each. Shortly after
incorporation the authorised share capital was increased
from USD 12,000 to USD 762,000 by the creation of
an additional 75,000,000 shares of USD 0.01 par value
designated as Participating Shares.
The Manager Shares are owned by Master Multi-Product
Holdings Ltd, a Bermuda exempted company, which
is itself owned by Codan Trust Company Limited in its
capacity as trustee of the Master Multi-Product Purpose
Trust, a special purpose trust formed under the laws of
Bermuda pursuant to a Deed of Trust made by Codan Trust
Company Limited dated 14 December 2005.
The Shares are available for issue at the discretion of the
Directors.
2. Manager Share rightsThe holders of Manager Shares shall:
(a) not be entitled to vote;
(b) not be entitled to any dividends whatsoever in respect
of such Manager Shares;
(c) in the event of a winding up or dissolution of the
Company, whether voluntary or involuntary or for
the purpose of reorganisation or otherwise or upon
distribution of capital, be entitled pari passu with the
holders of Shares, to an amount equal to the nominal
amount paid up on such Manager Shares out of the
assets of the Company but shall not be entitled to any
other or further amount; and
(d) not be subject to redemptions or repurchase of such
Manager Shares, whether at the option of the Company
or the holder.
3. The SharesThe holders of the Shares shall:
(a) be entitled to one vote per Share;
(b) be entitled to such dividends as the Directors may from
time to time declare;
(c) in the event of a winding up or dissolution of the
Company, whether voluntary or involuntary or for
the purposes of reorganisation or otherwise or upon
any distribution of capital, be entitled, subject to the
provisions of the Bye-laws, to share pro rata in the
remaining assets of the Company; and
(d) be entitled, and subject, to redemption or repurchase of
such Shares as provided in these Bye-laws.
4. Redemption priceOn each Dealing Day, the redemption price per Share will
be the Net Asset Value per Share as at the last Valuation
Point rounded down to the nearest whole cent.
Any certificate as to the Net Asset Value per Share and/
or redemption price per Share given in good faith by or on
behalf of the Directors is binding on all parties.
The payment of redemption proceeds will be made usually
within five Business Days or as soon as practicable
thereafter following the calculation of the Net Asset Value
as at the relevant Valuation Point (but in any event within
one calendar month of receipt by Citibank (Hong Kong)
(or such other entity contracted to receive applications)
of the relevant redemption notice) in accordance with the
provisions set out under the section headed ‘Procedure for
redemption’.
5. Suspension of valuationsThe Directors may suspend the determination of the
Net Asset Value for the whole or any part of a period
during which: any exchange or market on which any
significant portion of the investments of the Company
are listed, quoted, traded or dealt in is closed (other than
customary weekend and holiday closing) or trading on
any such exchange or market is restricted; circumstances
exist as a result of which in the opinion of the Directors
it is not reasonably practicable for the Company to
dispose of investments of the Company, or as a result of
which any such disposal would be materially prejudicial
to Shareholders; a breakdown occurs in any of the
means normally employed in ascertaining the value of
investments or when for any other reason the value of
any of the investments or other assets of the Company
cannot reasonably or fairly be ascertained; the Company
is unable to repatriate funds required for the purpose of
making payments due on redemption of the Shares; or any
transfer of funds involved in the realisation or acquisition
Man AHL Diversified Futures Ltd 29
of investments or payments due on redemptions of the
Shares cannot, in the opinion of the Directors, be effected
at normal rates of exchange.
6. Directors(a) The remuneration of the Directors will be determined
by the Company in a general meeting. The Directors
may also be paid, inter alia, for travelling, hotel and
other expenses properly incurred by them in attending
meetings of the Directors or in connection with the
business of the Company. Any Director who devotes
special attention to the business of the Company may
be paid such extra remuneration as the Directors may
determine.
(b) A Director may hold any other office or place of profit
under the Company (other than the office of auditor)
in conjunction with his office of Director, or may act
in a professional capacity for the Company on such
terms as the Directors may determine. No Director shall
be disqualified by his office from contracting with the
Company in any capacity, nor shall any such contract
or arrangement entered into by the Company in which
any Director is in any way interested be liable to be
avoided, nor shall any Director so contracting or being
so interested be liable to account to the Company for
any profit realised by any such contract or arrangement
by reason of such Director holding that office if he shall
declare the nature of his interest. However, with certain
limited exceptions, in the case of obligations incurred
on behalf of the Company, and of proposals concerning
other companies in which he has a beneficial interest of
at least one percent, a Director shall not vote and shall
not be counted in the quorum in respect of any contract
or arrangement in which he is so interested, and if he
shall vote, his vote shall not be counted, unless he has
declared the nature of his interest at the first opportunity
at a meeting of the Directors or in writing to the
Directors and no other Director objects to the interested
Director voting on such arrangement.
(c) A Director, notwithstanding his interest, may be counted
in the quorum present at any meeting at which he or
any other Director is appointed to hold any such office
or place of profit under the Company or at which the
terms of any such appointment are arranged, and he
may vote on any such appointment or arrangement
other than his own appointment or the arrangement of
terms thereof.
(d) There is no provision in the Bye-laws requiring a Director
to retire by reason of any age limit and there is no share
qualification for Directors.
7. Restrictions on ShareholdersThe Directors have power to impose such restrictions as
they may think necessary for the purpose of ensuring that
no Shares are acquired or held by a Non-qualified Person.
If it comes to the notice of the Directors that any Shares
are so held by any such Non-qualified Person the Directors
may give notice to such person requiring the redemption or
transfer of such Shares in accordance with the provisions
of the Bye-laws. A person who becomes aware that he is
holding or owning Shares in breach of any such restriction
is required either to deliver to the Company a written
request for redemption of his Shares in accordance with the
Bye-laws, or to transfer the same to a person who would
not thereby be a Non-qualified Person.
8. IndemnitiesThe Bye-laws of the Company contain indemnities in favour
of the Directors, secretary and other officers and servants
for the time being of the Company. In addition, certain
of the material contracts referred to in section 11 below
contain provisions under which the Company indemnifies
the other parties thereto.
9. CommissionSave as disclosed in this Prospectus, no commission,
discounts, brokerage or other special terms have been
granted by the Company in connection with the issue or
sale of any Shares.
10. InterestsThe Investment Manager is indirectly wholly owned by the
Man Group. The Man Group or affiliated companies will
receive, directly or indirectly, fees in respect of valuation
services provided, advisory and management and registrar
fees from the Company and will, from time to time, make
loans bearing commercial rates of interest to the Company.
No Director has any interest in the Shares. Ms Griffiths,
Mr Collins, Mr Daly and Mr Walley also serve as directors
of Master Multi-Product Holdings Ltd which is the owner
of the Manager Shares of the Company. Ms Perinchief is
an employee of Citi Hedge Fund Services, Ltd., which is
acting as Registrar and Paying Agent for the Company and
receives fees for its services.
There are no existing or proposed service contracts between
any of the Directors and the Company but the Directors may
receive remuneration as provided in the Bye-laws.
11. Material contractsThe following contracts (not being contracts in the
ordinary course of business) have been entered into by the
Company and are, or may be, material:
30 Man AHL Diversified Futures Ltd
(a) the Investment Management Agreement between
the Company, Man Investments AG (formerly Adam,
Harding & Lueck AG which merged with Man
Investments AG) and the Investment Manager, dated 25
March 2011, as amended and restated in the amended
and restated Investment Management Agreement dated
4 September 2012 pursuant to which the Investment
Manager has agreed to provide trading advice to the
Company and pursuant to which Man Investments AG
has been appointed as Marketing Adviser;
(b) the introducing broker agreement between the
Introducing Broker and the Company, dated 4
September 2012 pursuant to which Man Investments
AG has been appointed as Introducing Broker of the
Company;
(c) the early redemption agreement between the Company
and the Marketing Adviser, dated 11 March 1998 as
amended and restated in the amended and restated
early redemption agreement dated 4 September 2012,
pursuant to which the Company has agreed to pay, in
consideration of certain marketing related expenses
incurred by the Marketing Adviser on behalf of the
Company, to the Marketing Adviser a fee for early
redemption of Shares. The amount of this fee is set out
under the section headed ‘Fee for early redemption of
Shares’;
(d) the Services Management Agreement between
the Company and the Services Manager dated 4
September 2012, pursuant to which the Services
Manager will select and appoint (as principal) service
providers to provide general shareholder services (which
will include maintenance of the Company's register)
and certain accounting and valuation services to the
Company, as well as monitoring the providers of those
services;
(e) the Company Secretarial Services Agreement between
the Company and Citi Hedge Fund Services, Ltd. dated
4 September 2012, pursuant to which the Company
Secretary has agreed to provide certain corporate
administrative services to the Company;
(f) the custodian agreement between the Company, the
Investment Manager and HSBC International Trustee
Limited (the original custodian to the Company), dated
13 March 1998 (which was subsequently novated
to the Custodian pursuant to a novation agreement
between them and the Custodian dated 20 June
2008), as amended and restated in the amended and
restated Custodian agreement dated 4 September 2012
pursuant to which the Custodian has been appointed as
Custodian for the assets of the Company; and
(g) the Hong Kong representative agreement between the
Company and the Hong Kong Representative, dated
25 March 2011 pursuant to which the Hong Kong
Representative has been appointed as the Hong Kong
Representative of the Company.
12. ConsentsThe Auditors have given and have not, before delivery of
a copy of this Prospectus for filing with the Registrar of
Companies in Hong Kong and in Bermuda, withdrawn their
written consent to the inclusion of their name and their
report in the form and context in which they appear.
13. MeetingsThe financial year end of the Company is 30 September
in each year. Audited financial statements and unaudited
semi-annual financial reports will be published on the Hong
Kong website of Man at www.maninvestments.com (select
Hong Kong) (this website is not authorised and reviewed
by the SFC and it may contain non-SFC authorised funds).
Audited financial statements will be made available prior
to the annual general meeting in each year within four
months of the financial year end and unaudited semi-annual
financial report will be made available within two months of
the relevant accounting period. Audited financial statements
and unaudited semi-annual financial reports will only be
available in English. Copies will be provided by the Hong
Kong Representative upon request
Annual general meetings will usually be held in Bermuda
(normally during February or March of each calendar year
or such other date as the Directors may determine). Notices
convening each annual general meeting will be sent to
Shareholders not later than 21 days before the date fixed
for the meeting.
14. LitigationThe Company is not engaged in any litigation or arbitration
proceedings and is not aware of any litigation or claim
pending or threatened by or against it.
15. Change in financial positionThere has been no significant change in the financial position
of the Company since the date of the latest audited financial
statements of the Company to the date of this Prospectus.
The Directors confirm that as of the date of issue of this
Prospectus, there are no events which have occurred
subsequent to the date of the last audited financial
statements and prior to the date of issue of this document
Man AHL Diversified Futures Ltd 31
that either provide material additional information relating
to conditions that existed at the date of such financial
statements or which cause significant changes to assets or
liabilities relating to the Company or which will or may have
a significant effect on the future operations of the Company
other than those events which occur in the normal course
of business of a fund (including the subscriptions and
redemptions of Shares and changes in the market value of
the assets of the Company).
16. TaxationInvestors should appreciate that as a result of changing law
or practice, or unfulfilled expectations as to how the Shares,
the Company or investors will be regarded by revenue
authorities in different jurisdictions, taxation consequences
for investors may vary. Investors should consult their
professional advisers on the possible tax consequences
of their subscribing for, purchasing, holding, selling or
redeeming Shares under the laws of their countries of
citizenship, residence, ordinary residence or domicile. The
following comments are based on advice received by the
Directors regarding current law and practice in Bermuda
and Hong Kong and are intended to assist investors.
BermudaAt the date of this Prospectus, there is no Bermuda
income, corporation, or profits tax, withholding tax, capital
gains tax, capital transfer tax, estate duty or inheritance tax
payable by the Company or its Shareholders, other than
Shareholders ordinarily resident in Bermuda.
The Company has obtained from the Minister of Finance of
Bermuda under the Exempted Undertakings Tax Protection
Act, 1966, as amended, an undertaking that, in the event
of there being enacted in Bermuda any legislation imposing
tax computed on profits or income, or computed on any
capital assets, gain or appreciation or any tax in the nature
of estate duty or inheritance tax, such tax shall not until
28 March 2016 be applicable to the Company or to any
of its operations or to the shares, debentures or other
obligations of the Company, except in so far as such tax
applies to persons ordinarily resident in Bermuda and
holding such shares, debentures or other obligations of
the Company or any land leased or let to the Company. As
an exempted company, the Company is liable to pay the
Bermuda Government a fixed registration fee currently at
rates between USD 1,995 and USD 31, 120 per annum,
calculated by reference to the authorised share capital of
the Company. In addition there is an annual fee payable to
the Bermuda Monetary Authority under the provisions of the
Investment Funds Act 2006.
Hong KongUnder current Hong Kong law and practice:
(a) profits of the Company arising from the sale or disposal
of securities, interest received by or accrued to the
Company and profits arising under foreign exchange
and Futures Contracts are exempt from profits tax;
(b) profits tax will not be payable by any investors in
respect of the sale, redemption or other disposal of
Shares (unless such transactions form part of a trade,
profession or business carried on in Hong Kong); and
(c) no tax will be payable by investors in Hong Kong in
respect of dividends or other income distribution of
the Company (if any).
Identity of Beneficial Ownership and Withholding on Certain PaymentsIn order to avoid a US withholding tax of thirty percent
(30%) on certain payments (including payments of gross
proceeds) made with respect to certain actual and deemed
US investments, the Company will be required to enter into
an agreement with the Service by 30 June 2013 identifying
certain direct and indirect US investors. A non-US investor
in the Company will generally be required to provide to
the Company information which identifies its direct and
indirect US ownership. Any such information provided to
the Company will be shared with the Service. A non-US
investor that is a "foreign financial institution" within the
meaning of Section 1471(d)(4) of the US Internal Revenue
Code of 1986, as amended (“IRC”) will generally be required
to enter into an agreement with the Service by 30 June
2013 identifying certain direct and indirect US investors.
A non-US investor who fails to provide such information
to the Company or enter into such an agreement with
the Service, as applicable, would be subject to the thirty
percent (30%) withholding tax with respect to its share of
any such payments attributable to actual and deemed US
investments of the Company and the Directors may take
any action in relation to an investor's Shares or redemption
proceeds to ensure that such withholding is economically
borne by the relevant investor whose failure to provide
the necessary information gave rise to the withholding.
Shareholders should consult their own tax advisors and
(where applicable) financial intermediary regarding the
possible implications of these rules on their investments in
the Company. Shareholders should consult their own tax
advisors regarding the possible implications of these rules
on their investments in the Company.
17. Exchange control
The Company has been classified as non-resident of
Bermuda for exchange control purposes by the Bermuda
Monetary Authority, whose permission for the issue of
Shares of the Company has been obtained. The transfer
32 Man AHL Diversified Futures Ltd
of Shares between persons regarded as resident outside
Bermuda for exchange control purposes and the issue
and redemption of Shares to or by such persons may be
effected without specific consent under the Exchange
Control Act 1972 of Bermuda and regulations made
thereunder. Issues and transfers involving any person
regarded as resident in Bermuda for exchange control
purposes require specific prior authorisation under the Act.
The Company, by virtue of being non-resident in Bermuda
for exchange control purposes, is free to acquire, hold and
sell any foreign currency and investments without restriction.
18. Inspection of documentsCopies of the following documents are available for
inspection at any time during normal business hours on any
day (excluding Saturdays, Sundays and public holidays) free
of charge at the offices of the Company in Bermuda and at
the offices of the Hong Kong Representative (from whom
copies may be purchased):
(a) the Companies Act 1981 (as amended) of Bermuda;
(b) the memorandum of association and Bye-laws of the
Company;
(c) the material contracts referred to in section 11 above;
(d) latest financial statements and audited report thereon;
and
(e) the written consent of the Auditors referred to above.
Man AHL Diversified Futures Ltd 33
Appendix 3
Selling restrictions
The distribution of this Prospectus and the offering of
the Shares may be restricted in certain jurisdictions. The
information below is for general guidance only. It is the
responsibility of any person or persons in possession of this
Prospectus and wishing to make an application for Shares
to inform themselves of and to observe all applicable laws
and regulations of any relevant jurisdiction.
Argentina This Prospectus and any supplement(s) is highly confidential
and has been prepared by the Company solely for use
in connection with the private placement of Shares. This
Prospectus and any supplement(s) is personal to you and
does not constitute an offer to any other person or to the
public generally to purchase the Shares under applicable
Argentinean laws. Neither the Argentine Securities
Commission nor any other regulatory authority in Argentina
has either verified the accuracy of this Prospectus or any
supplement(s) or approved or disapproved the registration
of any Shares. Distribution of this Prospectus and any
supplement(s) to any person other than to those, if any,
retained to advise you in respect thereto, is unauthorised
and any disclosure of any of its contents, without the prior
written consent of the Company, is prohibited. By accepting
delivery of this Prospectus you agree to the foregoing
and to make no further copies of this Prospectus, any
supplement(s) or any other documents referred to herein.
AustraliaThe Company is a foreign body corporate not registered in
Australia. It does not hold an Australian financial services
licence. This document is not a prospectus or product
disclosure statement under Australian law. It is not required
to, and does not include all the information that such
documents are required to contain. It has not been lodged
with or been the subject of notification to the Australian
Securities and Investments Commission. Investors do not
have any cooling off rights in relation to their investment
under Australian law.
Australian persons who may invest in the Shares are
persons to whom an offer of securities may be made
without a prospectus under Australian law ('Eligible
Investor'). This includes a person who:
(a) is a 'professional investor' (such as an Australian
financial services licensee, a trustee of superannuation
funds with net assets of at least AUD 10 million, other
bodies regulated by the Australian Prudential Regulation
Authority, a listed entity or its related body corporate,
or a person who has or controls gross assets of at
least AUD 10 million (including any assets held by an
associate or under a trust that the person manages));
(b) invests more than AUD 500,000 in the Shares (not
including any amount lent by the Company or an
associate);
(c) provides a copy of a certificate given within the preceding
two years by a qualified accountant which states that the
person has net assets of at least AUD 2.5 million or had
gross annual income of AUD 250,000 for each of the last
two financial years; or
(d) invests through an Australian financial services
licensee where the licensee is satisfied on reasonable
grounds that the investor has sufficient previous
experience to assess the offer and the investor signs
an acknowledgement that they have not received a
prospectus in accordance with the Corporations Act
2001 (Cth).
The provision of this document to any person does
not constitute an offer of the Shares to that person
or an invitation to that person to apply for Shares.
Any such offer or invitation will only be extended to a
person if that person has first satisfied the Company
that the person is an Eligible Investor.
It is a term of issue of the Shares that the investor
may not transfer or offer to transfer their Shares to
any person located or resident in Australia unless the
transferee is an Eligible Investor.
This document is not intended to be read by any
person in Australia who is not an Eligible Investor.
This document does not constitute or contain
investment advice. Prospective investors should seek
their own professional advice in assessing whether or
not to invest.
Austria The Shares may only be offered in the Republic of Austria
in compliance with the provisions of the Austrian Capital
Markets Act, the Austrian Investment Funds Act and any
other laws applicable in the Republic of Austria governing
the offer and sale of the Shares in the Republic of Austria.
The Shares are not registered or otherwise authorised
for public offer under either the Austrian Capital Market
Act or the Austrian Investment Funds Act or any other
relevant securities legislation in Austria. The recipients of
this document and other marketing material or information
of any kind in respect to the Shares have been individually
34 Man AHL Diversified Futures Ltd
selected and are targeted exclusively on the basis of a
private placement. Accordingly, the Shares may not be,
and are not being, offered or advertised publicly or offered
similarly under either the Austrian Capital Markets Act or
the Austrian Investment Funds Act or any other relevant
securities legislation in Austria. This offer may not be made
to any other persons than the recipients to whom this
document is personally addressed.
BrazilShares have not been and will not be issued nor placed,
distributed, offered or negotiated in the Brazilian capital
markets. Neither the Company nor the issuance of any
Shares has been or will be registered with the Brazilian
Securities and Exchange Commission (Comissão de Valores
Mobiliários, the CVM). Therefore, each of the Managers
has represented and agreed that it has not offered or sold,
and will not offer or sell, the Shares in Brazil, except in
compliance with the applicable circumstances which do
not constitute a public offering, placement, distribution or
negotiation of securities in the Brazilian capital markets
regulated by Brazilian legislation or pursuant to an available
exemption therefrom.
CanadaThe Shares may not be offered or sold, and this Prospectus
may not be delivered, in Canada or to a resident of Canada
unless and until this Prospectus is accompanied by an
appropriate Canadian wrapper. In addition, the Shares may
only be offered or sold to qualified investors in Canada,
in accordance with the requirements of the securities
regulations of the investor's place of residence or domicile.
CyprusThis document does not constitute, and may not be used
for the purposes of, an offer or an invitation to subscribe for
or otherwise acquire any shares by any person in Cyprus
(i) in any circumstances which require the publication,
approval or filing of a prospectus pursuant to the Law
on Public Offer and Prospectus of 2005 (as amended) or
the Companies Law, Cap.113 (as amended), or (ii) to any
person to whom it is unlawful to make such an offer or
invitation or (iii) by any person who is not qualified to make
such an offer or invitation.
DenmarkThis Prospectus has not been filed with or approved by
the Danish Financial Supervisory Authority or any other
Regulatory Authority in the Kingdom of Denmark. The
Shares in the Company have not been offered or sold and
may not be offered, sold or delivered directly or indirectly
in Denmark, unless in compliance with Chapter 4 of the
Danish Act on Investment Associations, Special-Purpose
Associations and Other Collective Investment Funds and
Executive Orders issued pursuant thereto as amended from
time to time.
Dubai International Financial CentreThis Prospectus relates to a fund which is not subject to
any form of regulation or approval by the Dubai Financial
Services Authority ('DFSA').
This Prospectus is intended for distribution only to persons
of a type specified in the DFSA's Rules (i.e. 'Qualified
Investors') and must not, therefore, be delivered to, or relied
on by, any other type of person.
The DFSA has no responsibility for reviewing or verifying
any Prospectus or other documents in connection with
this fund. Accordingly, the DFSA has not approved this
Prospectus or any other associated documents nor
taken any steps to verify the information set out in this
Prospectus, and has no responsibility for it.
The Shares to which this Prospectus relates may be illiquid
and/or subject to restrictions on their resale. Prospective
purchasers of the Shares offered should conduct their own
due diligence on the Shares.
If you do not understand the contents of this Prospectus
you should consult an authorised financial adviser.
FinlandThe Shares are offered in Finland solely to investors who
automatically qualify as professional investors, as defined in
the Finnish Investment Funds Act (48/1999, as amended).
This Prospectus and any supplement(s) have neither been
filed with nor approved by the Finnish Financial Supervision
Authority and do not constitute a prospectus under the
Prospectus Directive (2003/71/EC), the Finnish Securities
Market Act (495/1989, as amended) or the Finnish
Investment Funds Act (48/1999, as amended).
FranceThis Prospectus is for information purposes only and
does not constitute an offer, an invitation or a solicitation
for any investment or subscription for the Shares of the
Company in France. Any person who is in possession of
this Prospectus is hereby notified that no action has or
will be taken that would allow an offering of the Shares
in France and neither the Prospectus nor any offering
material relating to the Shares have been submitted to
the Autorité des Marchés Financiers for prior review or
approval. Accordingly, the Shares may not be offered, sold,
transferred or delivered and neither this Prospectus nor any
offering material relating to the Shares may be distributed
or made available (in whole or in part) in France, directly or
indirectly, except as permitted by French law and regulation.
Man AHL Diversified Futures Ltd 35
GermanyNo class of Share which is the object of this Prospectus
and any relevant supplement is registered for public
distribution with the Federal Financial Supervisory Authority
(Bundesanstalt für Finanzdienstleistungsaufsicht - 'BaFin')
according to the German Investment Act (Investmentgesetz)
or listed on a German exchange. No sales prospectus
pursuant to the German Securities Prospectus Act
(Wertpapierprospektgesetz) or German Sales Prospectus
Act (Verkaufsprospektgesetz) has been filed with the BaFin.
Consequently, Shares must not be distributed within the
Federal Republic of Germany by way of a public offer,
public advertisement or in any similar manner and this
Prospectus, each supplement and any other document
relating to the Shares, as well as information or statements
contained therein, may not be supplied to the public in the
Federal Republic of Germany or used in connection with
any offer for subscription of the Shares to the public in the
Federal Republic of Germany or any other means of public
marketing. Any resale of the Shares in Germany may only be
made in accordance with the German Securities Prospectus
Act and any other applicable laws governing the sale and
offering of shares in Germany.
No view on taxation is expressed. Prospective investors in
Germany are urged to consult their own tax advisers as to
the tax consequences that may arise from an investment in
the Shares.
Guernsey The Shares are not being offered to the public in Guernsey
and the Shares will not be offered to the public unless all
the relevant legal and regulatory requirements of Guernsey
law have been complied with. This Prospectus may not be
generally distributed in Guernsey.
IndonesiaThis Prospectus will not be distributed or passed on in the
Republic of Indonesia or to Indonesian citizens, nationals,
corporations or residents and the Company will not be
offered or sold in the Republic of Indonesia or to Indonesian
citizens, nationals, corporations or residents, in each case,
in a manner which constitutes a public offering of the
Company under the laws and regulations of the Republic of
Indonesia.
Isle of Man The Company is an unregulated collective investment
scheme for the purposes of Isle of Man law. Accordingly,
the promotion in the Isle of Man of the Shares is restricted
by Section 1 of the Financial Supervision Act 1988 and the
Shares may only be promoted in the Isle of Man to holders
of banking or investment business licences issued pursuant
to the Banking Act 1998, or Section 3 of the Investment
Business Act 1991 ('IBA'), or to persons whose ordinary
business involves the acquisition or disposal of property of
the same kind as the property or a substantial part of the
property to which the Company relates. Promotion of the
Shares may also be made by persons who are 'permitted
persons' for the purposes of the IBA to those persons to
whom unregulated collective investment schemes can be
marketed pursuant to the Financial Supervision (Promotion
of Unregulated Schemes) (Exemption) Regulations 1992.
The Company is not subject to approval in the Isle of
Man and investors are not protected by any statutory
compensation arrangements in the event of the Company's
failure.
The Isle of Man Financial Supervision Commission does not
vouch for the financial soundness of the Company or the
correctness of any statements made or opinions expressed
with regard to it in this Prospectus.
IsraelThis Prospectus has not been approved for public offering
by the Israeli Securities Authority. The Shares are being
offered to a limited number of investors (35 investors or
less) and/or special types of investors ('Investors') such as:
mutual trust funds, managing companies of mutual trust
funds, provident funds, managing companies of provident
funds, insurers, banking corporations and subsidiary
corporations, except for mutual service companies
(purchasing securities for themselves and for clients who
are Investors), portfolio managers (purchasing securities for
themselves and for clients who are Investors), investment
counsellors (purchasing securities for themselves),
members of the Tel-Aviv Stock Exchange (purchasing
securities for themselves and for clients who are Investors),
underwriters (purchasing securities for themselves),
venture capital funds, corporate entities wholly owned
by Investors the main business of which is the capital
market, and corporate entities whose net wealth exceeds
NIS 250 million, except for those incorporated for the
purpose of purchasing securities in a specific offer; and
in all cases under circumstances that will fall within the
private placement exemption or other exemptions of the
Securities Law, 5728-1968 or Joint Investment Trusts Law
5754-1994. This Prospectus may not be reproduced or
used for any other purpose, nor be furnished to any person
other than those to whom copies have been sent. Nothing
in this Prospectus should be considered as counselling or
investment marketing advice, as defined in The Regulation
of Investment Counselling, Investment Marketing and
Portfolio Management Law, 5755-1995. Any offeree who
purchases a Bond is purchasing such a Bond for its own
benefit and account and not with the aim or intention
of distributing or offering such a Bond to other parties.
36 Man AHL Diversified Futures Ltd
Investors are encouraged to seek competent investment
counselling from a locally licensed investment counsellor
prior to making the investment.
ItalyNo offering of Shares or distribution of any offering
materials relating to Shares will be made in the Republic
of Italy unless the requirements of Italian law concerning
the offering of collective investment schemes have been
complied with, including (i) the requirements of Article 42
and Article 98-ter4 and seq. of Legislative Decree No. 58
of 24 February 1998 and CONSOB Regulation No. 11971
of 14 May 1999; and (ii) all other Italian securities tax and
exchange controls and any other applicable laws and
regulations, all as amended from time to time.
JapanThe Shares have not been and will not be registered for a
public offering in Japan under the Financial Instruments and
Exchange Law of Japan. The Company does not intend to
offer the Shares directly or indirectly to a resident of Japan.
As used in this paragraph 'resident of Japan' means any
person resident in Japan, including any corporation or other
entity organised under the laws of Japan.
JerseyNo steps have been taken to obtain a consent under the
Control of Borrowing (Jersey) Order 1958, as amended
and the Shares may not be offered or sold in Jersey in
circumstances which would constitute an offer to the public
for the purposes of Article 8 of such law.
LuxembourgThe Shares are not for public offering in or from the Grand
Duchy of Luxembourg. The recipients of this Prospectus
and any other marketing material in respect of the Shares in
Luxembourg are less than 100 and have been individually
selected and identified prior to the offer being made and
are targeted exclusively on the basis of a private placement.
Accordingly, the Shares may not be and are not being
offered or advertised publicly or offered similarly in or from
the Grand Duchy of Luxembourg. The Shares may not be
offered to any persons other than the recipients to whom
this Prospectus is directed, and may not be reproduced or
used for any other purpose nor provided to any persons
other than the recipient. As a result, the Luxembourg
regulatory authorities have neither reviewed nor approved
this Prospectus and any other marketing material.
MacaoThe Company has been registered by the Monetary
Authority of Macao ('AMCM') in Macao Special
Administrative Region ('Macao SAR') and authorised for
advertising and marketing as a 'Foreign Investment Fund'
in Macao SAR in accordance with Article No. 62 of Decree
Law no.83/99/M of 22 November 1999.
MalaysiaThis Prospectus will not be distributed or passed on in
Malaysia or to Malaysian citizens, nationals, corporations
or residents and the Company will not be offered or sold in
Malaysia or to Malaysian citizens, nationals, corporations
or residents, in each case, in a manner which constitutes
a public offering of the Company under the laws and
regulations of Malaysia.
Mexico Shares have not been and will not be registered with the
National Register of Securities maintained by the Mexican
National Banking and Securities Commission and may
not be offered or sold publicly in Mexico. The Shares may,
however, be privately offered under any of the private
placement exceptions permitted under the Securities
Market Law.
New ZealandThe Shares may not be offered or sold directly or indirectly,
and no offering material or advertisement relating to the
Shares (including this Prospectus) may be distributed
directly or indirectly, in either case, in New Zealand or to, or
for the benefit of, any person resident in New Zealand.
NorwayThe Shares are not offered or available to persons in
Norway. Nothing in this Prospectus and offering materials is
directed to or intended for persons in Norway.
The NetherlandsThe Shares in the Company will not be offered or sold,
directly or indirectly, in the Netherlands, other than:
(a) with a minimum denomination of € 50,000 or the
equivalent in another currency per class of Shares per
investor;
(b) for a minimum consideration of € 50,000 or the
equivalent in another currency per class of Shares per
investor;
(c) to fewer than 100 individuals or legal entities other than
qualified investors; or
(d) solely to qualified investors,
all within the meaning of article 1:12 of the Netherlands
Financial Supervision Act (Wet op het financieel toezicht)
and article 4 of the Netherlands Financial Supervision Act
Exemption Regulation (Vrijstellingsregeling Wft).
Man AHL Diversified Futures Ltd 37
If the Shares will be offered or sold in reliance on the
exemption referred to in (i) or (ii) above, the following
additional requirements apply:
(1) the first drawdown amount per investor must be at
least € 50,000 or the equivalent in another currency
(exclusive of any costs), payable as a lump sum;
(2) any subsequent drawdown may be in an amount
less than € 50,000 or the equivalent in another
currency;
(3) the amount invested by each investor may never
be less than € 50,000 or the equivalent in another
currency (exclusive of a decrease of the value of the
amount invested),
all in accordance with the interpretation of the Netherlands
Authority for the Financial Markets (Stichting Autoriteit
Financiële Markten) dated 11 June 2008 on the
denomination and package exceptions/exemptions
(Coupure en pakket uitzonderingen/vrijstellingen aanbieden
effecten aan het publiek en aanbieden deelnemingsrechten
in beleggingsinstellingen).
In respect of the offer of Shares under this Prospectus, the
Company is not required to obtain a license as a collective
investment scheme pursuant to the Netherlands Financial
Supervision Act (Wet op het financieel toezicht) and is not
subject to market conduct supervision of the Netherlands
Authority for the Financial Markets and prudential
supervision of the Dutch Central Bank (De Nederlandsche
Bank N.V.).
The PhilippinesTHE SHARES BEING OFFERED OR SOLD HEREIN
HAVE NOT BEEN REGISTERED WITH THE PHILIPPINE
SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES REGULATION CODE. ANY FUTURE OFFER
OR SALE THEREOF IS SUBJECT TO REGISTRATION
REQUIREMENTS UNDER THE CODE UNLESS
SUCH OFFER OR SALE QUALIFIES AS AN EXEMPT
TRANSACTION.
No action has been or will be taken to permit an offering
of the Shares or the distribution of this Prospectus in the
Philippines, except under circumstances that will result in
compliance with the provisions on exempt transactions
under the Securities Regulation Code and applicable rules
(including but not limited to the requirement on the delivery
to the offeree of a written disclosure stating the provision
of section 10.1 of the Code under which exemption from
registration is claimed and stating whether a confirmation of
exemption has been obtained from the Philippine Securities
and Exchange Commission). Accordingly, this Prospectus
may not be used for the purpose of sale or solicitation in
the Philippines, except under those circumstances.
Republic of KoreaThis Prospectus will not be distributed or passed on in the
Republic of Korea ('ROK') or to ROK citizens, nationals,
corporations or residents and the Company will not be
offered or sold in ROK or to ROK citizens, nationals,
corporations or residents, in each case, in a manner which
constitutes a public offering of the Company under the laws
and regulations of ROK.
Saudi ArabiaThis Prospectus is provided for informational and illustration
purposes only. It does not constitute a solicitation,
recommendation or offer to buy or sell any securities.
Prospective investors in the Shares must obtain and
carefully read the Prospectus prior to making an investment
in the Shares.
The information contained herein, including any expression
of opinion, has been obtained from or is based upon
sources believed to be reliable, and is believed to be fair
and not misleading. However, the Man Group does not
guarantee its accuracy or completeness.
Moreover, the Capital Market Authority does not make any
representation as to the accuracy or completeness of this
Prospectus, and expressly disclaims any liability whatsoever
for any loss arising from, or incurred in reliance upon, any
part of this Prospectus. Prospective purchasers of the
Shares should conduct their own due diligence on the
accuracy of the information relating to the Shares. If you do
not understand the contents of this Prospectus you should
consult an authorized financial adviser.
This Prospectus may not be distributed in the Kingdom
of Saudi Arabia except to such persons as are permitted
under the Offers of Securities Regulations and/or the
Investment Fund Regulations issued by the Capital Market
Authority (the 'Regulations'). Investors are informed that the
Regulations place restrictions on secondary market activity
with respect to the Shares.
SingaporeThe offer or invitation of the shares (the 'Shares') of Man
AHL Diversified Futures Ltd (the 'Company), which is the
subject of this Prospectus, does not relate to a collective
investment scheme which is authorised under section
286 of the Securities and Futures Act, Chapter 289 of
Singapore (the 'SFA') or recognised under section 287 of
the SFA. The Company is not authorised or recognised by
the Monetary Authority of Singapore (the 'MAS') and Shares
38 Man AHL Diversified Futures Ltd
are not allowed to be offered to the retail public. Each of
this Prospectus and any other document or material issued
in connection with the offer or sale is not a prospectus as
defined in the SFA. Accordingly, statutory liability under the
SFA in relation to the content of prospectuses would not
apply. You should consider carefully whether the investment
is suitable for you.
This Prospectus has not been registered as a prospectus
with the MAS. Accordingly, this Prospectus and any other
document or material in connection with the offer or sale, or
invitation for subscription or purchase, of Shares may not
be circulated or distributed, nor may Shares be offered or
sold, or be made the subject of an invitation for subscription
or purchase, whether directly or indirectly, to persons in
Singapore other than (i) to an institutional investor under
Section 304 of the SFA, (ii) to a relevant person pursuant
to Section 305(1), or any person pursuant to Section
305(2), and in accordance with the conditions specified in
Section 305 of the SFA, or (iii) otherwise pursuant to, and
in accordance with the conditions of, any other applicable
provision of the SFA.
Where Shares are subscribed or purchased under Section
305 by a relevant person which is:
(a) a corporation (which is not an accredited investor (as
defined in Section 4A of the SFA)) the sole business of
which is to hold investments and the entire share capital
of which is owned by one or more individuals, each of
whom is an accredited investor; or
(b) a trust (where the trustee is not an accredited investor)
whose sole purpose is to hold investments and each
beneficiary of the trust is an individual who is an
accredited investor,
securities (as defined in Section 239(1) of the SFA) of
that corporation or the beneficiaries' rights and interest
(howsoever described) in that trust shall not be transferred
within six months after that corporation or that trust has
acquired the Shares pursuant to an offer made under
Section 305 except:
(1) to an institutional investor or to a relevant person
defined in Section 305(5) of the SFA, or to any
person pursuant to an offer referred to in Section
275(1A) or Section 305A(3)(i)(B) of the SFA;
(2) where no consideration is or will be given for the
transfer; or
(3) where the transfer is by operation of law; or
(4) as specified in Section 305A(5) of the SFA
Notwithstanding the above, upon the Company being
removed from the MAS’ List of Restricted Schemes,
this Prospectus and any other document or material
in connection with the offer or sale, or invitation for
subscription or purchase, of Shares may not be circulated
or distributed, nor may Shares be offered or sold, or
be made the subject of an invitation for subscription or
purchase, whether directly or indirectly, to persons in
Singapore other than (i) to an institutional investor under
Section 304 of the SFA, or (ii) otherwise pursuant to, and
in accordance with the conditions of, any other applicable
provision of the SFA. MAS’ List of Restricted Schemes may
be accessed at https://masnetsvc2.mas.gov.sg/cisnet/
home/CISNetHome.action .
South Africa The Company is not regulated under the Collective
Investment Schemes Control Act 45 of 2002 (as amended)
and this Prospectus and any supplement(s) are not
intended to be and do not constitute a solicitation for
investments from members of the public. A potential
investor will be able to invest in the Company only upon
conclusion of the relevant investment agreement and will
be required to warrant it has the requisite exchange control
approvals in place for such investment.
This document does not constitute an offer for the sale of
or subscription for, or the solicitation of an offer to buy and
subscribe for, shares to the public as defined in the South
African Companies Act, No. 61 of 1973 (as amended).
This document does not, nor is it intended to, constitute a
prospectus prepared and registered under such Companies
Act. It is only distributed in South Africa to banks, mutual
banks or insurers, registered as such under the applicable
South African legislation or to a wholly owned subsidiary
of such bank, mutual bank or insurer acting as either an
agent for an authorised portfolio manager for a pension fund
registered in terms of the Pension Funds Act, 1956 or as a
manager for a collective investment scheme registered in
terms of the Collective Investment Schemes Control Act,
2002, and to addressees acting as principals who are willing
to subscribe for shares to a value of at least R100 000.
This Prospectus and any supplement(s) do not constitute
an express or implied recommendation, guidance or
proposal that an investment in the Company is appropriate
to the particular investment objectives, financial situation or
particular needs of the addressee.
Neither the Company nor the Investment Manager is a
registered financial services provider in South Africa.
Man AHL Diversified Futures Ltd 39
South African investors will need to procure their own
exchange control approvals for such investment.
Sweden The Company is not authorised under the Swedish
Investment Funds Act. The Shares in the Company
are being offered to a limited number of investors and
therefore this Prospectus and any supplement(s) have
not been, and will not be, registered with the Swedish
Financial Supervisory Authority under the Swedish Financial
Instruments Trading Act (1991:980). Further, no single
investor may invest an amount less than EUR 50,000.
Accordingly, this Prospectus and any supplement(s) may
not be made available, nor may the Shares in the Company
otherwise be marketed and offered for sale in Sweden,
other than in circumstances which are deemed not to
be an offer to the public in Sweden under the Financial
Instruments Trading Act.
SwitzerlandThe Company has not been approved by the Swiss
Federal Banking Commission Financial Market Supervisory
Authority FINMA as a foreign collective investment scheme
pursuant to Article 120 of the Swiss Collective Investment
Scheme Act of June 23, 2006 (the 'CISA'). Accordingly,
Shares may not be publicly offered in or from Switzerland
and neither this Prospectus nor any other offering materials
relating to the Shares may be made available through a
public offering in or from Switzerland. Shares may only be
offered and this Prospectus may only be distributed in or
from Switzerland to 'Qualified Investors' (as defined in the
CISA and its implementing ordinance).
Taiwan The Shares have not been and will not be registered with
the Financial Supervisory Commission of Taiwan (R.O.C.)
pursuant to applicable securities laws and regulations
and the Shares may not be offered or sold within Taiwan
(R.O.C.) through a public offering or in circumstances
which constitute an offer within the meaning of the
Securities and Exchange Law or Securities Investment
Trust and Consulting Law of Taiwan (R.O.C.) that requires
a registration or the approval of the Financial Supervisory
Commission of Taiwan (R.O.C.).
United KingdomThis Prospectus and any supplement(s) are not available
for general distribution in, from or into the United Kingdom
because the Company is an unregulated collective
investment scheme whose promotion is restricted by
Sections 238 and 240 of the Financial Services and
Markets Act 2000. When distributed in, from or into the
United Kingdom this Prospectus and any supplement(s)
are only intended for investment professionals having
professional experience of investing in unregulated
schemes, high net worth companies, partnerships,
associations or trusts and investment personnel of any of
the foregoing persons having professional experience of
investing in unregulated schemes (each within the Financial
Services and Markets Act 2000 (Financial Promotion)
Order 2005) and the Financial Services and Markets
Act 2000 (Promotion of Collective Investment Schemes)
(Exemptions) Order 2001), persons outside the European
Economic Area receiving it electronically, persons outside
the United Kingdom receiving it non-electronically and any
other persons to whom it may be communicated lawfully.
No other person should act or rely on it. Other persons
distributing this Prospectus and any supplement(s) in, from
or into the United Kingdom must satisfy themselves that it
is lawful to do so.
ThailandThis document will not be distributed or passed on in the
Thailand or to Thailand citizens, nationals, corporations or
residents and the Company will not be offered or sold in
the Thailand or to Thailand citizens, nationals, corporations
or residents, in each case, in a manner which constitutes
a public offering of the Company under the laws and
regulations of Thailand.
United StatesThe Shares have not been and will not be registered under
the US Securities Act of 1933, as amended (the 'Securities
Act') and may not at any time be directly or indirectly
offered or sold in the United States or to or for the benefit
of any US person (as defined herein) unless the Shares are
registered under the Securities Act, or an exemption from
the registration requirement of the Securities Act is available.
UruguayThis offering of Shares constitutes a private placement. The
Shares will not be offered or sold to the public in Uruguay,
except in circumstances which do not constitute a public
offering under Uruguayan laws and regulations. The Shares
have not been and will not be listed on any Uruguayan
Stock Exchange. There is no requirement for the Company
or the Shares to be registered with the Central Bank of
Uruguay and so no such registration has been or will be
effected. The Company does not qualify as an investment
fund created under Uruguayan law 16,774 of 27 September
1996, as amended.
The attention of potential investors is drawn to the
section entitled 'Risk factors' and also to the 'Anti-
money laundering documentation requirements' in
Appendix 4 to this Prospectus.
40 Man AHL Diversified Futures Ltd
Appendix 4
Anti-money laundering documentation requirements
(a) If the Applicant is a sole proprietor or an individual
please provide a certified copy (within 6 months) of
current valid passport or current valid identity card
or current valid driver’s license. The document must
contain a photograph, date of birth and signature.
Please also provide two original or two certified copies
(within 3 months) of differing current utility bills, or an
original or certified copy of one utility bill and an original
or certified copy of a recent bank statement from a
reputable Financial Institution.
(b) If the Applicant is a corporation or a limited liability
company, Please supply:
(i) an original or certified copy of the certificate of
incorporation or its equivalent in the jurisdiction of
domicile;
(ii) an original or certified copy of the memorandum
and articles of association or its equivalent in the
jurisdiction of domicile;
(iii) a list of all directors’ names, occupations,
residential addresses, business addresses and
dates of birth;
(iv) a properly authorized mandate of the directors to
make the investment (i.e. a certified copy of board
minutes);
(v) documentation (as outlined in section (a) above)
confirming the identity of at least two directors and
all persons authorized to operate the account from
time to time; and
(vi) a list of names and addresses of any shareholders
holding 10% or more of the company’s issued
share capital. If the shareholder is individual,
please supply documentation (as outlined in
section (a) above) confirming the identity of such
shareholder; if the shareholder is a company, the
following is required: original or certified copy of
the certificate of incorporation or its equivalent
in the jurisdiction of domicile; original or certified
copy of the Memorandum and Articles of
Association or its equivalent in the jurisdiction of
residence; list of all directors’ names, occupations,
residential and business addresses, and dates of
birth.
Additional information and/or documentation may be
required at the Shareholder Services Provider's discretion
to verify the source of the subscription monies and/or the
beneficial owner(s) of the investment.
The Shareholder Services Provider reserves the right to
request such information and/or documentation as is
necessary to verify the identity of an Applicant,any benefical
owner(s) of the investment or the source of the subscription
monies. In the event of delay or failure by the Applicant to
produce any information required for verification purposes,
the Shareholder Services Provider may refuse to accept the
application and subscription monies.
It is further acknowledged that the Shareholder Services
Provider, in the performance of its delegated duties, shall
be held harmless by the Applicant against any loss arising
as a result of a failure to process the subscription if such
information as has been requested by the Shareholder
Services Provider has not been provided by the Applicant.
Man AHL Diversified Futures Ltd
Report and Financial Statements For the year ended 30 September 2013
Man AHL Diversified Futures Ltd
Table of Contents
2
Page
Corporate information 3
Report of the custodian 5
Statement of financial position 6
Statement of changes in equity 7
Statement of comprehensive income 8
Statement of cash flows 9
Notes to the financial statements 10
Independent auditors’ report 29
Man AHL Diversified Futures Ltd
Corporate information
3
Directors Investment Manager Michael B Collins Man Investments Limited Argonaut Limited Riverbank House Argonaut House 2 Swan Lane 5 Park Road London EC4R 3AD Hamilton HM 09 United Kingdom Bermuda
Introducing Broker and Marketing Adviser Shirelle Jones is an alternate director to Man Investments AG Mr Collins Huobstrasse 3
8808 Pfäffikon SZ Dawn C Griffiths Switzerland Conyers Dill & Pearman Limited Clarendon House Services Manager 2 Church Street Man Investments AG Hamilton HM 11 Huobstrasse 3 Bermuda 8808 Pfäffikon SZ
Switzerland John Collis (resigned 31 March 2013) was an alternate director to Ms Griffiths Valuation Service Provider
Citibank Europe plc David Smith 1 North Wall Quay Equus Asset Management Partners Dublin 27 Queen Street Ireland Hamilton HM11 Bermuda Legal advisor as to matters of Bermudian law
Conyers Dill & Pearman Limited Company Secretary and Registered Office Clarendon House of the Company 2 Church Street Christine Perinchief Hamilton HM 11 To 31 December 2012 Bermuda Citi Hedge Fund Services, Ltd. Hemisphere House Custodian 9 Church Street HSBC Institutional Trust Services (Asia) Limited Hamilton HM 11 HSBC Main Building Bermuda 1 Queen’s Road Central
Hong Kong From 1 January 2013 Citi Fund Services (Bermuda), Ltd. Principal Paying Agent 5 Reid Street To 31 December 2012 Hamilton HM 11 Citi Hedge Fund Services, Ltd. Bermuda Hemisphere House 9 Church Street Hong Kong Representative Hamilton HM 11 Man Investments (Hong Kong) Limited Suite 1301 Chater House From 1 January 2013 8 Connaught Road Central Citi Fund Services (Bermuda), Ltd. Hong Kong 5 Reid Street Hamilton HM 11 Bermuda Effective as of 1 January 2013 the Company’s registered office provider, Registrar and Principal Paying Agent formally changed its name from ‘Citi Hedge Fund Services, Ltd.’ to ‘Citi Fund Services (Bermuda), Ltd’ (“Citi Bermuda”). As of the same date Citi Fund Services (Bermuda), Ltd changed its registered office address, and thus the registered office address for all companies for which it provides registered office, to 5 Reid Street, Hamilton HM 11, Bermuda.
Man AHL Diversified Futures Ltd
Corporate information (continued)
4
Auditors Registrar Ernst & Young Ltd. To 31 December 2012 3 Bermudiana Road Citi Hedge Fund Services, Ltd. Hamilton HM 11 Hemisphere House Bermuda 9 Church Street
Hamilton HM 11 Shareholder Services Provider Bermuda Citibank Europe plc 1 North Wall Quay From 1 January 2013 Dublin 1 Citi Fund Services (Bermuda), Ltd. Ireland 5 Reid Street
Hamilton HM 11 Bermuda
Man AHL Diversified Futures Ltd
Statement of financial position
As at 30 September 2013
The accompanying notes form an integral part of the financial statements.
6
Notes 2013 USD
2012USD
Current assets Cash at bank 3 366,128,245 632,000,077Cash with brokers 3 105,780,701 97,458,097Due from brokers 4,282,697 -Financial assets at fair value through profit or loss (Cost: $19,108,697; 2012: Nil) 4 90,941,617 33,630,387Subscription receivable 197,882 201,683 Prepayments and other assets 47,969 697,054 Total current assets 567,379,111 763,987,298
Current liabilities Financial liabilities at fair value through profit or loss (Cost: $(11,017,025); 2012: Nil) 4 (101,036,213) (27,560,439)Redemption payable (3,021,396) (2,833,408)Due to brokers (2,206,559) (5,625,656)Accounts payable and accrued expenses 7,8 (2,111,972) (3,546,500)Total current liabilities (108,376,140) (39,566,003)
Net Assets Attributable to Holders of Redeemable Participating Shares 459,002,971 724,421,295
Which are represented by:
Equity 15,260,148 (2012: 20,994,600) Redeemable Participating Shares with a Net Asset Value per Redeemable Participating Share of USD 30.07 (2012: USD 34.50) 9 459,002,971 724,421,295 Management Shares Issued, uncalled ordinary Management Share capital (12,000 Management Shares of USD 1.00 each) 9 - -
Approved and authorised for issue on behalf of the Board on 23 January 2014.
Dawn Griffiths Michael Collins Director Director
Man AHL Diversified Futures Ltd
Statement of changes in equity
For the year ended 30 September 2013
The accompanying notes form an integral part of the financial statements.
7
2013 USD
2012USD
Net Assets Attributable to Holders of Redeemable Participating Shares at beginning of year
724,421,295 1,060,996,444
Net loss for the year attributable to Redeemable Participating Shareholders (72,226,756) (107,261,676) Issue of 1,268,529 (2012: 12,028,466 ) Redeemable Participating Shares 42,500,002 420,771,911Redemption of 7,002,981 (2012: 18,437,341) Redeemable Participating Shares (235,691,570) (650,085,384) Net Assets Attributable to Holders of Redeemable Participating Shares at end of year
459,002,971 724,421,295
Man AHL Diversified Futures Ltd
Statement of comprehensive income
For the year ended 30 September 2013
The accompanying notes form an integral part of the financial statements.
8
Notes 2013 USD
2012USD
Income Interest income 2 1,856,398 4,826,316Net loss on financial assets and liabilities at fair value through profit or loss 6 (47,894,195) (75,371,504)Net gain on foreign exchange 6 442,816 943,497
(45,594,981) (69,601,692)
Expenses Management and incentive fees 7,8 (17,923,348) (25,967,028)Introducing broker fees 7,8 (5,974,449) (8,652,448)Director fees 7,8 (14,157) (10,139)Custody fees 7 (117,380) (40,569)Auditor fees (27,000) (13,636)Legal and Other Professional fees 8 (149,747) (140,396)Bank charges (129,953) (129,811)Other connected person expenses 7,8 (1,734,435) (2,040,711)Other expenses 7 (504,777) (478,135)Interest expense 2 (56,529) (187,111)
(26,631,775) (37,659,984)
Net loss for the year attributable to Redeemable Participating Shareholders (72,226,756) (107,261,676)
Man AHL Diversified Futures Ltd
Statement of cash flows
For the year ended 30 September 2013
The accompanying notes form an integral part of the financial statements.
9
2013 USD
2012USD
Cash flows from operating activities Net loss for the year attributable to Redeemable Participating Shareholders (72,226,756) (107,261,676) Adjustments to reconcile net loss for the year to net cash used in operating activities: Financial assets and liabilities at fair value through profit or loss 16,164,544 15,405,984Due from brokers (4,282,697) -Due to brokers (3,419,097) (14,488,435)Prepayment and other assets 649,085 (697,054)Accounts payable and accrued expenses (1,434,528) (14,049,848)Net cash used in operating activities (64,549,449) (121,091,029) Cash flows from financing activities Proceeds on issue of Redeemable Participating Shares 42,503,803 420,570,228Payments on redemption of Redeemable Participating Shares (235,503,582) (647,251,976)Net cash used in financing activities (192,999,779) (226,681,748) Net change in cash and cash equivalents (257,549,228) (347,772,777)Cash and cash equivalents at beginning of year 729,458,174 1,077,230,951Cash and cash equivalents at end of year 471,908,946 729,458,174 Cash and cash equivalents consist of: Cash at bank 366,128,245 632,000,077Cash with brokers 105,780,701 97,458,097 471,908,946 729,458,174 Supplemental disclosure of cash flow information: Interest paid (80,624) (187,111)Interest received 12,451,699 4,129,262
Man AHL Diversified Futures Ltd
Notes to the financial statements
For the year ended 30 September 2013
10
1. General Man AHL Diversified Futures Ltd (the “Company”) was incorporated under the laws of Bermuda on 11 September 1997 and carries on business as an open-ended investment company, trading a diversified portfolio of international interbank currency and financial futures. The Company commenced trading on 12 May 1998.
2. Summary of Significant Accounting Policies a) Accounting convention The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and where relevant, in accordance with the provisions of the Hong Kong Securities & Futures Commission Code on Unit Trusts and Mutual Funds pursuant to the Securities and Futures Ordinance (Cap 571) April 2003 (as amended effective 25 June 2010). The financial statements have been prepared on historical cost basis except for financial assets and liabilities held at fair value through profit or loss that have been accounted for based on fair value.
b) Changes in Accounting Policy and Disclosure The following new standards and amendments to standards are relevant but not yet effective for the Company’s operations:
IAS 27 – Separate Financial Statements (as revised in 2011)
As a consequence of the new IFRS 10 and IFRS 12, what remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. As the Company has no subsidiaries, this amendment has no impact on the Company‘s financial position or performance and becomes effective for annual periods beginning on or after 1 January 2013.
IFRS 9 – Financial Instruments: Classification and Measurement
IFRS 9 as issued reflects the first phase of the IASB’s work on the replacement of IAS 39 and applies to classification and measurement of financial assets and financial liabilities as defined in IAS 39. The standard is effective for annual periods beginning on or after 1 January 2015. In subsequent phases, the IASB will address hedge accounting and impairment of financial assets. The adoption of the first phase of IFRS 9 is not expected to have an effect on the classification and measurement of the Company‘s financial assets and liabilities. The Company will quantify the effect in conjunction with the other phases, when issued, to present a comprehensive picture.
IFRS 10 – Consolidated Financial Statements
IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also replaces SIC-12 Consolidation - Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including ‘special purpose entities’. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013. This amendment is not expected to have an impact on the Company’s financial position or performance.
IFRS 13 – Fair Value measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. This standard becomes effective for annual periods beginning on or after 1 January 2013. At the date of authorisation of the financial statements there were a number of Standards and Interpretations which were in issue but not yet
effective. The Directors anticipate that the adoption of these Standards and Interpretations in future periods will have no material impact on the
financial statements of the Company.
The accounting policies have been consistently applied by the Company in the current and prior year.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
11
2. Summary of Significant Accounting Policies (continued)
c) Use of Accounting Judgements and Estimates The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the amounts reported and disclosures made in these financial statements and accompanying notes, including certain valuation assumptions. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in the future.
d) Going Concern The Company’s management has made an assessment of the Company’s ability to continue as a going concern and is satisfied that the Company has resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern, therefore, the financial statements continue to be prepared on a going concern basis.
e) Revenue Recognition Interest on financial assets held at fair value through profit or loss for the year are credited to net gain loss on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income on an accrual basis.
f) Financial Assets and Liabilities at Fair Value through Profit or Loss Valuation of investments This category has two sub-categories: (i) financial assets and liabilities held for trading; and (ii) those designated by management at fair value through profit or loss at initial recognition. Financial assets or liabilities held for trading are acquired or incurred principally for the purpose of selling or repurchasing in the short term. Derivatives are also categorised as held for trading by definition. After initial measurement, the Company measures financial instruments, which are classified as at fair value through profit or loss, at their fair values. IAS 39 indicates that for listed assets and liabilities the best evidence of fair value is usually the last bid price for securities held and offer price for securities sold short. Financial instruments are designated at fair value through profit and loss because they are managed on a fair value basis. Regular-way purchases and sales of investments are recognised on the trade date, which is the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership. The fair value of financial instruments traded in active markets (such as publicly traded derivatives and trading securities) is based on quoted market prices at the statement of financial position date. The quoted market price used for financial assets held by the Company is the current ‘bid’ price, whilst the ‘ask’ price is used for financial liabilities. When the Company holds derivatives with offsetting market risks, it uses midmarket prices as a basis for establishing fair values for the offsetting risk positions and applies the bid or asking price to the net open position, as appropriate. The Company may from time to time invest in financial instruments that are not traded in an active market (for example over-the-counter derivatives and private placements of both equities and fixed income securities). The fair value of these financial instruments is determined based on observable inputs such as current interest and currency rates.
g) Securities Sold Short The Company may engage in securities sold short. A short sale is a transaction in which the Company sells a security it does not own. The proceeds received for short sales are recorded as liabilities and the Company records an unrealised gain or loss to the extent of the difference between the proceeds received and the value of the open short position. The Company records a realised gain or loss when the short position is closed. By entering into short sales, the Company bears the market risk of an unfavourable change in the price of the security sold short in excess of the proceeds received. Short sales expose the Company to potentially unlimited liability.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
12
2. Summary of significant accounting policies (continued)
h) Derivatives The Company may trade derivative financial instruments, including futures and forwards whose values are based upon an underlying asset, index, currency or interest rate. The unrealised gains or losses, rather than contract or notional amounts, represent the approximate future cash flows from trading. Derivative financial instruments are recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. Models are calibrated by back testing to actual transactions to ensure outputs are reliable. Models use observable data to the extent practicable. However, areas such as credit risk (both own and counterparty); volatilities and correlations require the Board of Directors to make estimates. Changes in assumptions about these factors could affect the reported fair value of derivative financial instruments at the valuation date. All derivative financial instruments are carried in assets when amounts are receivable by the Company and in liabilities when amounts are payable by the Company. Changes in the fair values of derivatives are included in the statement of comprehensive income. During the year, when the contract is open, changes in the value of the contracts are recognised as unrealised appreciation or depreciation to reflect the fair value of the contract at the last day of the valuation period. When the contract is closed, the Company records a realised gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Company’s basis in the contract. The Company may engage in futures contracts, forward contracts and swap contracts. – Futures contracts Futures contracts are recorded on the trade date and are valued at the applicable closing bid or offer prices on the last business day of the period. The difference between the original contract amount and the fair value of the open futures position is reflected as unrealised appreciation or depreciation in the statement of financial position and as a net change in unrealised appreciation or depreciation in the statement of comprehensive income. Realised gains or losses are recognised on the closing or trade date of the contract and are included in revenue under net realised gain/(loss) on futures contracts in the statement of comprehensive income. – Forward contracts Forward contracts are recorded on the trade date and are valued at the applicable foreign exchange rates on the last business day of the period. The difference between the fair value of the original contract amount and the fair value of the open forward contract position is reflected as unrealised appreciation or depreciation on open forward contracts in the statement of financial position and as a net change in unrealised appreciation or depreciation on open forward contracts in the statement of comprehensive income. Realised gains or losses are recognised on the maturity or trade date of the contract and are included in net realised gain/(loss) on forward contracts in the statement of comprehensive income. – Swap contracts Swaps are contractual agreements between two parties to exchange streams of payments over time based on specified notional amounts. The Company’s main swap contracts consist of interest rate swaps and credit default swaps as detailed below. – Interest Rate Swaps Interest rate swaps relate to contracts taken out by the Company with major brokers in which the Company either receives or pays a floating rate of interest in return for paying or receiving, respectively, a fixed rate of interest. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Changes in the value of the interest rate swap agreements and amounts received or paid in connection with these contracts, are recognised as net gains/(losses) on investments at fair value through profit or loss in the statement of comprehensive income. – Credit Default Swaps The Company may enter into credit default swaps for speculative purposes or to manage its exposure to certain sectors of the market or to reduce credit risk. The Company may enter into credit default swap agreements to provide a measure of protection against the default of an issuer (as buyer of protection) and/or gain credit exposure to an issuer to which it is not otherwise exposed (as seller of protection). Credit default swaps are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make a specific payment should a negative credit event take place (e.g. default, bankruptcy or debt restructuring). The Company may either buy or sell (write) credit default swaps. If a credit event occurs, as a buyer, the Company will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising of an index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising of an index. As a seller (writer), the Company will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising of an index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising of an index.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
13
2. Summary of significant accounting policies (continued)
h) Derivatives (continued) The periodic payments received or made by the Company are included in net realised gain/(loss) on investments at fair value through profit or loss in the statement of comprehensive income. Swaps are marked-to-market daily and changes in value are recorded as unrealised appreciation/(depreciation). When the swap is terminated, the Company will record a realised gain/(loss) equal to the difference between the proceeds from (or cost of) the closing transaction and the Company’s basis in the contract, if any. Swap transactions involve, to varying degrees, elements of credit and market risk in excess of the amounts recognised in the statement of financial position. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavourable changes in interest rates and/or market values associated with these transactions. i) Realised and Unrealised Gains and Losses All realised and unrealised gains and losses on securities and derivatives are recognised as net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. The cost of securities sold is accounted for on a First In – First Out (“FIFO”) basis. The unrealised gain or loss on open derivative contracts is calculated as the difference between the contracted rate and the rate to close out the contract. Realised gains or losses include net gains on contracts which have been settled or offset by other contracts. j) Functional and Presentational Currency The primary objective of the Company is to generate returns in United States dollars, its capital-raising currency. The liquidity of the Company is managed on a day-to-day basis in United States dollars in order to handle the issue and redemption of the Company’s Redeemable Participating Shares. The Company performance is also evaluated in United States dollars. Therefore, as United States dollars is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions, the Company’s functional currency is United States dollars. The Directors have also chosen United States dollars as the presentational currency. k) Foreign Currency Transactions during the year denominated in foreign currencies have been translated at the rates of exchange ruling at the dates of transactions. For foreign currency transactions and foreign currency investments held at the year end, the resulting gains or losses are included in the net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. Assets and liabilities denominated in foreign currencies are translated at the rates of exchange in effect at the date of the statement of financial position.
l) Interest Income and Expense Interest income and expense are recognised in the statement of comprehensive income on an accruals basis, in line with the contractual terms.
m) Other Expenses All expenses are recognised in the statement of comprehensive income on an accruals basis.
n) Reclassification of Prior Year Comparative Figures Certain prior year comparatives have been reclassified to conform to the current year’s presentation.
o) Redeemable Participating Shares Redeemable Participating Shares are redeemable at the Redeemable Participating Shareholder’s option. The Redeemable Participating Shares are carried at the redemption amount that is payable at the statement of financial position date if the Redeemable Participating Shareholders exercise their right to redeem their participating shares.
p) Distributions It is not the intention of the Directors to make any distribution of net income by way of dividends. Net income will, therefore, effectively be represented in the value of the Redeemable Participating Shares.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
14
3. Cash and Cash Equivalents and Due from/(to) Brokers
At year end amounts disclosed as Cash at bank and Cash with broker were held at Citibank N.A., ABN Amro, Barclays Bank, Mizuho Bank, Royal Bank of Scotland, National Bank of Abu Dhabi, Commerzbank AG and BNP Paribas (the “Banks”), and Deutsche Bank, J.P. Morgan, Royal Bank of Scotland, Credit Suisse, and Merrill Lynch (the “Brokers”). Cash at bank in the statement of financial position comprises cash on hand, term deposits, demand deposits, short-term deposits in banks and short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, with original maturities of three months or less. Cash with broker include amounts transferred as collateral against open futures and forward contracts and other derivatives. Amounts receivable from short sales and collateral may be restricted in whole or in part until the related securities are purchased. To the extent that securities are purchased on margin, the margin debt may be secured on the related securities. The maturities of the term deposits held by the Company are listed below:
Counterparty Maturity dateCommerzbank AG 01 October 2013National Bank of Abu Dhabi 01 October 2013
Barclays Bank 04 October 2013
National Bank of Abu Dhabi 23 October 2013
Mizuho Bank 23 October 2013
4. Financial Assets and Liabilities at Fair Value through Profit or Loss The following tables summarise financial assets and liabilities at fair value through profit or loss as at 30 September. The table also discloses the % of Net Assets for each derivative position and the notional amount at year end, with the exception of forward currency contracts, which are disclosed by the payable and receivable legs entered into by the Company.
Notional
2013Fair Value
USD
% of Net
Assets Notional
2012Fair Value
USD
% of Net
Assets
Financial assets at fair value through profit or loss Derivatives Commodity futures 156,837,385 6,295,922 1.37 269,132,615 5,109,560 0.71Foreign exchange futures - 205,277 0.04 28,675,630 173,014 0.02Forward currency contracts 2,760,258,974 16,713,953 3.64 1,564,041,470 8,803,325 1.22Interest rate futures 2,453,949,712 6,146,005 1.34 7,057,722,917 12,061,821 1.66Index futures 536,367,420 2,047,733 0.45 449,311,137 801,332 0.11Commodity forwards 29,531,603 406,209 0.09 153,652,626 6,681,335 0.92Credit default swap 281,127,000 19,097,884 4.16 - - -Interest rate swap 3,925,679,071 40,028,634 8.72 - - -Total derivatives 10,143,751,165 90,941,617 19.81 9,522,536,395 33,630,387 4.64
Total financial assets at fair value through profit or loss 10,143,751,165 90,941,617 19.81 9,522,536,395 33,630,387 4.64
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
15
4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Notional
2013Fair Value
USD
% of Net
Assets Notional
2012Fair Value
USD
% of Net
Assets
Financial liabilities at fair value through profit or loss Derivatives Commodity futures (220,680,732) (4,180,047) (0.91) (185,078,309) (7,302,453) (1.00)Foreign exchange futures (16,466,215) (7,880) - (25,569,358) (219,502) (0.03)Forward currency contracts (2,768,003,199) (24,458,178) (5.32) (1,561,254,754) (6,016,610) (0.83)Interest rate futures (550,105,165) (3,110,889) (0.68) (752,891,678) (4,616,128) (0.64)Index futures (17,199,993) (4,593,242) (1.00) (7,961,950) (5,911,118) (0.82)Commodity forwards (29,656,346) (530,952) (0.12) (150,465,918) (3,494,628) (0.48)Credit default swap (851,646,999) (11,914,479) (2.60) - - -Interest rate swap (4,013,733,028) (52,240,546) (11.38) - - -Total derivatives (8,467,491,677) (101,036,213) (22.01) (2,683,221,967) (27,560,439) (3.80)
Total financial liabilities at fair value through profit or loss (8,467,491,677) (101,036,213) (22.01) (2,683,221,967) (27,560,439) (3.80) The Company invests in a range of derivative securities, as detailed above. The derivatives are cleared through the following brokers, who are situated in the following countries,; Deutsche Bank, England, J.P. Morgan Chase Bank, Scotland, The Royal Bank of Scotland plc, Scotland, Credit Suisse, Australia and Merrill Lynch, London. The Company’s Swap notional amounts should be reviewed on a net basis. The Company’s Foreign exchange futures held at 30 September consisted only of short positions which have been split by Market Value gain or loss in the above table. The following table details the movements in notional values of the portfolio since the end of the preceding accounting period.
Opening Net Additions/Realisations Closing
Financial assets at fair value through profit or loss
Commodity futures 269,132,615 (112,295,230) 156,837,385Foreign exchange futures 28,675,630 (28,675,630) -Forward currency contracts 1,564,041,470 1,196,217,504 2,760,258,974Interest rate futures 7,057,722,917 (4,603,773,205) 2,453,949,712Index futures 449,311,137 87,056,283 536,367,420Commodity forwards 153,652,626 (124,121,023) 29,531,603Credit default swap - 281,127,000 281,127,000Interest rate swap - 3,925,679,071 3,925,679,071
Total 9,522,536,395 621,214,770 10,143,751,165
Opening Net Additions/Realisations Closing
Financial liabilities at fair value through profit or loss
Commodity futures (185,078,309) (35,602,423) (220,680,732)Foreign exchange futures (25,569,358) 9,103,143 (16,466,215)Forward currency contracts (1,561,254,754) (1,206,748,445) (2,768,003,199)Interest rate futures (752,891,678) 202,786,513 (550,105,165)Index futures (7,961,950) (9,238,043) (17,199,993)Commodity forwards (150,465,918) 120,809,572 (29,656,346)Credit default swap - (851,646,999) (851,646,999)Interest rate swap - (4,013,733,028) (4,013,733,028)
Total (2,683,221,967) (5,784,269,710) (8,467,491,677)
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
16
4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Derivative financial instruments The Company trades derivative financial instruments, including futures, swaps and currencies whose values are based upon an underlying asset, index, currency or interest rate. The net unrealised gains or losses, rather than contract or notional amounts, represent the Company’s approximate future cash flows from trading activities.
Forward contracts As part of its portfolio management techniques, the Company may use forward contracts to economically hedge its non-functional currency liability to Redeemable Participating Shareholders (although formal hedge accounting is not used). The Company may also use forward contracts for speculative trading purposes. Forward contracts entered into by the Company represent a firm commitment to buy or sell an underlying asset, or currency at a specified value and point in time based upon an agreed or contracted quantity. The realised/unrealised gain or loss is equal to the difference between the value of the contract at the commencement and the value of the contract at settlement date/year end date and are included in the statement of comprehensive income.
Futures contracts The Company may use exchange-traded futures for speculative trading purposes or to maintain the appropriate exposure to stock markets in accordance with the Investment Manager’s recommended overall asset allocation. Futures are contracts for delayed delivery of commodities, securities or money market instruments in which the seller agrees to make delivery at a specified future date of a specified commodity or instrument, at a specified price or yield. Gains and losses on futures are recorded by the Company based upon market fluctuations and are recorded as net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income.
Swap contracts At 30 September 2013, the Company was exposed, via its investments in swap contracts, to the underlying positions representing financial instruments for which notional amounts are summarised on pages 14 and 15.
Fair value of financial instruments The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in determining the measurements in line with IFRS 7. The fair value hierarchy has the following levels:
Level 1 - Quoted market price in an active market for an identical instrument. Level 2 - 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.
Level 3 - 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.
At the reporting date any listed equities, debt securities and publicly traded derivatives are included within Level 1 of the hierarchy where their fair values are based on quoted market prices or binding dealer price quotations, without any deduction for transaction costs. For all other financial instruments, fair value is determined using valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. The Company uses widely recognised valuation models for determining fair values of over-the-counter derivatives. For these financial instruments, inputs into models are market observable and are, therefore, included within Level 2. The Company has no level 3 financial instruments.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
17
4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Fair value of financial instruments (continued) The following tables analyse the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value at 30 September 2013 and 30 September 2012: As at 30 September 2013
Level 1USD
Level 2USD
Level 3
USD
TotalFair Value
USD
Financial assets at fair value through profit or loss
Derivatives Commodity futures 6,295,922 - - 6,295,922 Foreign exchange futures 205,277 - - 205,277 Forward currency contracts - 16,713,953 - 16,713,953 Interest rate futures 6,146,005 - - 6,146,005 Index futures 2,047,733 - - 2,047,733 Commodity forwards - 406,209 - 406,209 Credit default swap - 19,097,884 - 19,097,884 Interest rate swap - 40,028,634 - 40,028,634 Total derivatives 14,694,937 76,246,680 - 90,941,617
Total financial assets at fair value through profit or loss 14,694,937 76,246,680 - 90,941,617
Level 1USD
Level 2USD
Level 3
USD
TotalFair Value
USD
Financial liabilities at fair value through profit or loss
Derivatives Commodity futures (4,180,047) - - (4,180,047)Foreign exchange futures (7,880) - - (7,880)Forward currency contracts - (24,458,178) - (24,458,178)Interest rate futures (3,110,889) - - (3,110,889)Index futures (4,593,242) - - (4,593,242)Commodity forwards - (530,952) - (530,952)Credit default swap - (11,914,479) - (11,914,479)Interest rate swap - (52,240,546) - (52,240,546)Total derivatives (11,892,058) (89,144,155) - (101,036,213)
Total financial liabilities at fair value through profit or loss (11,892,058) (89,144,155) - (101,036,213)
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
18
4. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) As at 30 September 2012
Level 1USD
Level 2USD
Level 3
USD
TotalFair Value
USD
Financial assets at fair value through profit or loss
Derivatives Commodity futures 5,109,560 - - 5,109,560Foreign exchange futures 173,014 - - 173,014Forward currency contracts - 8,803,325 - 8,803,325Interest rate futures 12,061,821 - - 12,061,821Index futures 801,332 - - 801,332Commodity forwards - 6,681,335 - 6,681,335Total derivatives 18,145,727 15,484,660 - 33,630,387
Total financial assets at fair value through profit or loss 18,145,727 15,484,660 - 33,630,387
Level 1
USDLevel 2
USD
Level 3
USD
TotalFair Value
USD
Financial liabilities at fair value through profit or loss
Derivatives Commodity futures (7,302,453) - - (7,302,453)Foreign exchange futures (219,502) - - (219,502)Forward currency contracts - (6,016,610) - (6,016,610)Interest rate futures (4,616,128) - - (4,616,128)Index futures (5,911,118) - - (5,911,118)Commodity forwards - (3,494,628) - (3,494,628)Total derivatives (18,049,201) (9,511,238) - (27,560,439)
Total financial liabilities at fair value through profit or loss (18,049,201) (9,511,238) - (27,560,439)
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
19
5. Financial Risk Management The Company’s investment activities expose it to the various types of risk which are associated with the financial instruments and markets in which it invests. The most important types of financial risks to which the Company is exposed are market risk, credit risk and liquidity risk. Market risk includes security price risk interest rate risk and foreign currency risk. The Investment Manager manages these risks on an aggregate basis along with the risks associated with its investing activities as part of its overall risk management policies. The nature and extent of the financial instruments outstanding at the dates of the statement of the financial position and the risk management policies employed by the Company are discussed below.
Overall risk management The Company seeks to generate returns through investing in the AHL Programme. The Investment Manager distinguishes between two primary risk levels, which are risks at the Company level, and risks at the underlying investment level. Accordingly, the Investment Manager has implemented procedures to manage risks associated with both the Company and its underlying investments.
At the Company level Risk management at the Company level can be segregated into pre and post-investment risk management. Pre-investment risk management involves determining asset allocation and portfolio construction. Thereafter, risk management involves conducting risk and return analysis, monitoring the relevant Company specific portfolio restrictions and investment guidelines and managing currency, interest rate, credit and liquidity risks at the Company level and making relevant adjustments to asset allocation and portfolio construction. Risk considerations or the need to bring the portfolio back in line with product guidelines may trigger a rebalancing of the portfolio, which is typically done on a weekly basis by the Investment Manager's portfolio management team.
AHL In the case of the AHL Programme, the trading activity is managed by AHL. AHL identifies opportunities to profit from price movements in more than 300 diverse international markets through specialised investment techniques, advanced technology and daily risk control. The AHL Programme seeks to identify and take advantage of upward and downward price trends. Trading takes place around-the-clock and real-time price information is used to respond to price movements across a diverse range of global markets. Investment rules are executed within a systematic framework. AHL employs a number of risk measures including proprietary measurement methods similar to the industry standard Value-at-Risk ("VaR") and conducts daily stress testing based on historical data. Depending upon the risks identified, AHL may alter the exposure to different markets it trades in. Substantially, all derivative contracts are transacted on a margin basis. The Investment Manager manages the risk associated with these transactions by maintaining margin deposits in compliance with individual exchange regulations and internal guidelines. The Investment Manager also takes an active role in managing and controlling the Company’s market and counterparty risks, monitoring trading activities and margin levels daily and, as necessary, deposits additional collateral or reduces positions.
Market risk Market risk is the risk that fair value or future cash flows of financial instruments will fluctuate due to changes in market variables such as interest rates, foreign exchange rates and security prices. There are many risk measures used by the Investment Manager, however one generally understood measure is annualised volatility. Annualised volatility is a measure of risk that is calculated as the standard deviation of the returns on the NAV per Redeemable Participating Share from inception up the reporting date. As it is based on the NAV per Redeemable Participating Share, annualised volatility incorporates all performance characteristics of the Company including the impact of interest rate movements and currency exchange differences from inception. Although the direct investments of the Company may change, the investment strategies employed by its underlying investments will not significantly change, meaning that the risk and return characteristics that the Company is exposed to are broadly consistent.
Annualised volatility has limitations as it assumes a normal distribution of periodic returns, which may not be fully representative of hedge fund behaviour. The annualised volatility will also be a more accurate measure where more data points exist. Annualised volatility is based upon historical data. There is no guarantee of trading performance and past performance is no indication of future performance or results. As at 30 September 2013, the annualised volatility for the Company was 11.28% (2012: 10.17%) calculated on a weekly basis.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
20
5. Financial Risk Management (continued)
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. The Company is directly exposed to interest rate risk through its investment strategy, which is deliberately designed to generate returns through trading strategies focussed on exploiting price differentials in rates. The sensitivity of these exposures is modelled through the overall volatility analysis provided in the market risk section. The Company is significantly exposed to interest rate risk on cash at bank and brokers, Interest Rate Futures and Interest Rate Swaps held at 30 September 2013. The following table details the Company's exposure to interest rate risk by the earlier of contractual maturities or re-pricing: As at 30 September 2013
Less than one
monthUSD
One month to one year
USD
Over one yearUSD
Not exposed to interest rate
USD TotalUSD
Current Assets: Cash at bank 366,128,245 - - - 366,128,245Cash with brokers 105,780,701 - - - 105,780,701 Due from brokers 4,282,697 - - - 4,282,697Financial assets at fair value through profit or loss - 7,001,573 39,173,066 44,766,978 90,941,617 Subscription receivable - - - 197,882 197,882Prepayment and other assets - - - 47,969 47,969
Total current assets 476,191,643 7,001,573 39,173,066 45,012,829 567,379,111
Current Liabilities: Due to brokers (2,206,559) - - - (2,206,559)Financial liabilities at fair value through profit or loss - (6,184,864) (49,166,571) (45,684,778) (101,036,213)Redemption payable - - - (3,021,396) (3,021,396)Accounts payable and accrued expenses - - - (2,111,972) (2,111,972)
Total current liabilities (excluding Net Assets Attributable to Holders of Redeemable Participating Shares) (2,206,559) (6,184,864) (49,166,571) (50,818,146) (108,376,140)
Total interest rate sensitivity gap 473,985,084 816,709 (9,993,505) (5,805,317) 459,002,971
Cumulative interest rate sensitivity gap 473,985,084 474,801,793 464,808,288 459,002,971 459,002,971
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
21
5. Financial Risk Management (continued)
Interest rate risk (continued) As at 30 September 2012
Less than one month
USD
One monthto one year
USD
Over one year USD
Not exposed to interest rate
USDTotalUSD
Current Assets: Cash at bank 416,221,077 215,779,000 - - 632,000,077Cash with brokers 97,458,097 - - - 97,458,097Financial assets at fair value through profit or loss - 5,823,477 6,238,344 21,568,566 33,630,387Subscription receivable - - - 201,683 201,683Prepayment and other assets - - - 697,054 697,054
Total current assets 513,679,174 221,602,477 6,238,344 22,467,303 763,987,298
Current Liabilities: Due to brokers (5,625,656) - - - (5,625,656)Financial liabilities at fair value through profit or loss - (4,446,741) (169,387) (22,944,311) (27,560,439)Redemption payable - - - (2,833,408) (2,833,408)Accounts payable and accrued expenses - - - (3,546,500) (3,546,500)
Total current liabilities (excluding Net Assets Attributable to Holders of Redeemable Participating Shares) (5,625,656) (4,446,741) (169,387) (29,324,219) (39,566,003)
Total interest rate sensitivity gap 508,053,518 217,155,736 6,068,957 (6,856,916) 724,421,295
Cumulative interest rate sensitivity gap 508,053,518 725,209,254 731,278,211 724,421,295 724,421,295
Liabilities not exposed to interest rate risk comprise accounts payable and accrued expenses. These amounts normally require contractual settlement within one quarter and, in all cases, within one year. The following tables details the effect on net assets should interest rates have increase/decreased by 50 basis points (bps) with all other variables remaining constant: As at 30 September 2013
Less than one month
USD
One month to one year
USD
Over one year USD
Not exposed to interest rate
USDTotalUSD
Net assets – 50 bps increase 476,355,009 820,793 (10,043,473) (5,805,317) 461,327,012Net assets – 50 bps decrease 471,615,159 812,625 (9,943,537) (5,805,317) 456,678,930
As at 30 September 2012
Less than one month
USD
One month to one year
USD
Over one year USD
Not exposed to interest rate
USDTotalUSD
Net assets – 50 bps increase 510,593,786 218,241,515 6,099,302 (6,856,916) 728,077,687Net assets – 50 bps decrease 505,513,250 216,069,957 6,038,612 (6,856,916) 720,764,903
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
22
5. Financial Risk Management (continued)
Currency risk Currency risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in foreign exchange rates. The Company is exposed to currency risk though its investments in non-USD denominated investments. The Investment Manager has an active procedure to monitor foreign exchange exposures and manages this risk though offsetting non USD denominated balances and entering into offsetting forward foreign exchange contracts. Monetary assets and liabilities denominated in foreign currencies are summarised below: As at 30 September 2013
Amounts are expressed in their USD equivalents USD EUR CAD JPY HKD KRW Other Total
Current Assets: Cash at bank 359,305,069 6,823,176 - - - - - 366,128,245Cash with brokers 67,263,953 17,534,009 2,440,290 3,265,640 1,876,241 4,770,945 8,629,623 105,780,701Due from brokers 3,406,297 876,400 - - - - - 4,282,697Financial assets at fair value through profit or loss 20,093,067 16,057,115 2,395,475 887,536 6,501,005 2,949,369 42,058,050 90,941,617Subscription receivable 197,882 - - - - - - 197,882Prepayments and other assets 47,969 - - - - - - 47,969
Total current assets 450,314,237 41,290,700 4,835,765 4,153,176 8,377,246 7,720,314 50,687,673 567,379,111
Current Liabilities: Due to brokers (2,172,533) (34,026) - - - - - (2,206,559)Financial liabilities at fair value through profit or loss (22,873,841) (12,789,517) (2,261,862) (1,721,027) (8,729,721) (1,633,141) (51,027,104) (101,036,213)Redemption payable (3,021,396) - - - - - - (3,021,396)Accounts payable and accrued expenses (2,111,972) - - - - - - (2,111,972)
Total current liabilities (30,179,742) (12,823,543) (2,261,862) (1,721,027) (8,729,721) (1,633,141) (51,027,104) (108,376,140)
Net assets 420,134,495 28,467,157 2,573,903 2,432,149 (352,475) 6,087,173 (339,431) 459,002,971
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
23
5. Financial Risk Management (continued)
Currency risk (continued) Monetary assets and liabilities denominated in foreign currencies are summarised below. The amounts stated represent the Company’s pre-hedged exposure and do not take account of the significantly reduced sensitivity to foreign currency risk that results from currency hedging techniques used As at 30 September 2012
Amounts are expressed in their USD equivalents USD EUR CAD JPY HKD KRW Other Total
Current Assets: Cash at bank 632,000,075 - - - - - 2 632,000,077Cash with brokers 78,763,000 15,964,715 (500,051) (2,844,601) (1,774,240) 6,733,854 1,115,420 97,458,097Financial assets at fair value through profit or loss 10,144,488 5,128,679 609,902 1,738,707 324,377 2,253,884 13,430,350 33,630,387Subscription receivable 201,683 - - - - - - 201,683 Prepayments and other assets 697,054 - - - - - - 697,054
Total current assets 721,806,300 21,093,394 109,851 (1,105,894) (1,449,863) 8,987,738 14,545,772 763,987,298
Current Liabilities:
Due to brokers (5,625,656) - - - - - - (5,625,656)Financial liabilities at fair value through profit or loss (14,911,613) (6,912,510) (711,881) (936,904) (1,064) (86,356) (4,000,111) (27,560,439)Redemption payable (2,833,408) - - - - - - (2,833,408)Accounts payable and accrued expenses (3,546,500) - - - - - - (3,546,500)
Total current liabilities (26,917,177) (6,912,510) (711,881) (936,904) (1,064) (86,356) (4,000,111) (39,566,003)
Net assets 694,889,123 14,180,884 (602,030) (2,042,798) (1,450,927) 8,901,382 10,545,661 724,421,295
Other price risk Price risk is the risk that the price of a financial instrument will fluctuate due to changes in market conditions influencing, directly or indirectly, the value of the instrument. The Company is exposed to price risk from its investments. Due to the nature of the trading strategies followed by these investments, no direct relationship between any market factors and the expected prices of the investments can be reliably established. Price risk is managed through the overall risk management processes described above.
Credit/Counterparty risk Credit risk is the risk that an issuer or counterparty will be unable to meet a commitment that it has entered into with the Company. The Company's maximum exposure to credit risk (not taking into account the value of any collateral or other security held) in the event that the counterparties fail to perform their obligations as of 30 September 2013 in relation to each class of recognised financial assets, other than derivatives, is the carrying amount of those assets in the statement of financial position. With respect to derivative financial instruments, credit risk arises from the potential failure of counterparties to meet their obligations under the contract or arrangement. Credit risk is mitigated for the AHL Programme through the diversity of counterparties and regular monitoring of concentration risk. With regards to the credit default swaps, the maximum exposure as a result of a potential future credit event is disclosed as the notional amount in Note 4.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
24
5. Financial Risk Management (continued)
Credit/Counterparty risk (continued) The significant exposures are to the Banks and the Brokers. The table below analyses the Company’s exposure of cash at bank and cash at brokers by rating agency category at 30 September 2013. Counterparty Moody’s Rating 2013
USD 2013
% Credit Suisse A1 39,100,100 8.3 Mizuho Bank A1 20,000,078 4.2 ABN Amro A2 100 - Barclays Bank A2 96,602,478 20.5 BNP Paribas A2 93,040,166 19.7 Deutsche Bank A2 12,121,456 2.6 Citibank NA A3 33,387,624 7.1 Royal Bank of Scotland A3 29,456,710 6.2 National Bank of Abu Dhabi Aa3 78,009,327 16.5 J.P Morgan Aa3 23,575,579 5.0 Commerzbank AG Baa1 45,088,467 9.6 Merrill Lynch Baa2 1,526,861 0.3 471,908,946 100 The Investment Manager performs due diligence on all counterparties before they become a service provider or counterparty to the Company, and credit quality checks are part of this process. The credit quality of the Company's Banks, Brokers and any lenders is regularly monitored and factored into allocation decisions.
Liquidity risk Liquidity risk is the risk that the Company will encounter difficulty in meeting obligations associated with financial liabilities. Redeemable participating shareholder redemption requests are the main liquidity risk for the Company. The Company’s Redeemable Participating Shares are redeemable at the redeemable participating shareholder’s option on each Dealing Day with one day written notice. The Company is therefore potentially exposed to periodic redemptions by its redeemable participating shareholders. The exposure to liquidity risk through redeemable participating shareholder redemption requests is managed by specifically setting the redemption notice period to accommodate the expected liquidity of the underlying investments as agreed by the Investment Manager. The Company’s investments include listed securities/exchange-traded futures contracts which are considered readily realisable as they are all listed on major recognised exchanges. The Company’s financial instruments also include investments in derivative contracts traded over-the-counter, which are not quoted in an active public market and which generally may be illiquid. As a result, the Company may not be able to liquidate quickly some of its investments in these instruments at an amount close to their fair value in order to meet its liquidity requirements.
6. Net Gain/(Loss) on Financial Assets and Liabilities at Fair Value through Profit or Loss
2013 USD
2012USD
Realised and unrealised gain/(loss) on investments
Net realised loss on investments (23,637,978) (59,965,520)Net realised currency gain/(loss) on cash 829,751 (1,032,252)Total net realised loss (22,808,227) (60,997,772)
Movement in net unrealised loss on investments (24,256,217) (15,405,984)Movement in net unrealised currency (loss)/gain (386,935) 1,975,749Total net movement in unrealised loss (24,643,152) (13,430,235)
Net loss on financial assets and liabilities at fair value through profit or loss (47,451,379) (74,428,007)
Total realised and unrealised loss on investments (47,894,195) (75,371,504)Total realised and unrealised currency (loss)/gain 442,816 943,497
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
25
7. Fees, commissions and other expenses
Management and incentive fees The Investment Manager will be entitled to a management fee of 3% per annum of the Net Asset Value of the Company (the ‘Management Fee’) accrued daily from 4 September 2012 and weekly prior to 4 September 2012, and calculated on the aggregate Net Asset Value at the immediately preceding Valuation Point. The Management fee is payable monthly in arrears by the Company. Incentive fees are calculated and accrued daily at each Valuation Point and payable annually in arrears at the rate of 20% of any net appreciation (after deduction of the management fee but prior to deduction of the incentive fee) in the Net Asset Value (NAV) per Redeemable Participating Share on the last Valuation Point in the relevant financial year of the Company above any previous highest NAV per Redeemable Participating Share on any preceding Dealing Day on which an incentive fee had previously been paid, multiplied by the number of Redeemable Participating Shares outstanding on the Valuation Point in respect of which the incentive fee is calculated. Where an investor redeems Redeemable Participating Shares part way through a financial year, the incentive fee accrued in respect of those Redeemable Participating Shares is crystallised and paid at the end of the year. There were no incentive fees accrued during the financial year. Management and incentive fees payable in respect of the AHL Programme are paid to Man Investments AG in consideration for marketing advisory and investment management services.
Service Manager and Administration fees Man Valuation Services Limited (“MVSL”) ceased to be the valuation agent for the Company from 29 March 2011 and was appointed as the Administrative Agent (up to 3 September 2012) for which they continued to receive an administration fee and remunerate Citco Fund Services (Hong Kong) Limited who provided valuation agent services for the period from 29 March 2011 to 3 September 2012. Citibank Europe plc (the “Valuation Agent”) was appointed as valuation agent on 4 September 2012. Man Investments AG was appointed as Service Manager (the “Service Manager”) on 4 September 2012 and provides a service manager function to the Company for which it receives a fee of 0.23 basis points of the Net Asset Value, as determined on each Valuation Day (approximately equivalent to 0.23% per annum of the Net Asset Value of the Redeemable Participating Shares). The Service Manager will pay fees to Citibank Europe plc (the “Valuation Agent”) for Valuation services ("Valuation Fees"), Registrar services, Shareholder services and other related administration costs.
Company Secretary fees The Company secretary fees are charged by Citi Fund Services (Bermuda), Ltd., at an annual fixed fee of USD 3,000 payable quarterly in arrears.
Introducing Broker fees Introducing Broker fees of USD 5,974,449 (2012: USD 8,652,448) were paid to Man Investments AG (the “introducing broker”). Institutional charges of USD 1,453,793 (2012: USD 303,617) which cover exchange and other third party costs, which are payable to brokers, have been netted against realised gains/losses and unrealised gains/losses on investments. Introducing Broker fees, excluding institutional charges, are calculated at a rate of 1% per annum of the NAV as determined on each Valuation Point, were paid to the Introducing Broker.
Hong Kong representative fees The Hong Kong representative is paid a fee, calculated monthly at an amount of up to USD 5,000 per annum.
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
26
7. Fees, commissions and other expenses (continued)
Custodian fees The Custodian shall be paid by the Company a fee accruing at each Valuation Point and paid monthly at a rate of up to 0.02% per annum of the NAV subject to a minimum annual fee of USD 15,000. In addition, the Custodian is entitled to be reimbursed for all out-of pocket expenses properly incurred by it in the performance of its duties.
Taxation There is currently no taxation imposed on income or capital gains by the Government of the Bermuda Islands. Under current Bermuda law, the Company is not obligated to pay any taxes in Bermuda on either income or capital gains. The Company has received an undertaking from the Minister of Finance in Bermuda pursuant to the provisions of the Exempted Undertakings Tax Protection Act 1966 which exempts the Company from any such Bermuda taxes, at least until 28 March 2035.
8. Related Party Transactions Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Master Multi-Product Holdings Ltd, a Bermuda incorporated company with directors in common with the Company, is a related party through its 100% holding of the Management Shares in the Company. Master Multi-Product Holdings Ltd is itself owned by Codan Trust Company Limited in its capacity as trustee of the Master Multi-Product Purpose Trust, a special purpose trust formed under the laws of Bermuda. The immediate controlling party of the Company is therefore Master Multi-Product Holdings Ltd. Man Investments Limited is a related party as it is the Investment Manager of the Company. Man Investments Limited is a subsidiary of Man Group plc and therefore all subsidiaries of Man Group plc are also related parties. During the year, the Company has transacted with the following subsidiaries of Man Group plc: Man Investments AG Man Investments Limited Man Investments (Hong Kong) Limited Conyers Dill & Pearman is a related party as Dawn C Griffiths is a director of the Company and a partner of the law firm. The following transactions, which were entered into in the ordinary course of business and on normal commercial terms took place between the Company and its related parties.
For the year ended 30 September 2013 Related party
Type of fee
Total Fees USD
Fees payable at 30 September
2013USD
Conyers Dill & Pearman Limited Legal fees 5,664 -Directors Directors’ fees 14,157 -Man Investments AG Introducing Broker fees 5,974,449 405,925Man Investments AG Management fees 17,923,348 1,217,776Man Investments (Hong Kong) Limited Hong Kong representative fees 6,250 1,250Man Investments AG Service Manager and Administration fees 1,728,185 438,584
For the year ended 30 September 2012 Related party
Type of fee
Total Fees USD
Fees payable at 30 September
2012USD
Conyers Dill & Pearman Limited Legal fees 140,396 133,836 Directors Directors’ fees 10,139 3,365 Man Investments AG Crystallised incentive fee 8,583 8,582 Man Investments AG Introducing Broker fees 8,652,448 -Man Investments AG Management fees 25,958,445 1,934,384 Man Investments AG Service Manager and Administration fees 148,302 -Man Investments (Hong Kong) Limited Hong Kong representative fees 5,000 3,154Man Fund Management (Guernsey) Limited Service Coordination fees 1,887,409 -
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
27
9. Share Capital
Management Shares of the Company The Company has an authorised share capital of USD 762,000 comprising 12,000 Management Shares of par value USD 1, and 75,000,000 Redeemable Participating Shares of par value USD 0.01. The 75,000,000 Redeemable Participating Shares of par value USD 0.01 carry 100% of the voting rights. The Management Shares do not carry voting rights for as long as there are shares of any other class in issue. The Management Shares are owned 100% by Master Multi-Product Holdings Ltd, a Bermuda incorporated company, which is itself owned by Codan Trust Company Limited in its capacity as trustee of the Master Multi-Product Purpose Trust, a special purpose trust formed under the laws of Bermuda pursuant to a Deed of Trust made by Codan Trust Company Limited dated 14 December 2005. The holders of Management Shares are not entitled to any dividend whatsoever in respect of their Management shares. In the event of a winding up or dissolution of the Company, the holders of Management Shares are entitled to an amount equal to the par value thereof, if paid up, and the surplus assets of the Company. However, the holders of the Management Shares have agreed irrevocably to waive their entitlement to any amounts which exceed the par value of their ordinary shares and have authorised the Company to credit any such amounts to the Shares Account for the benefit of the Redeemable Participating Shareholders. The Management Shares have been issued but not called. No amount is recognised until the Management Shares are called.
Redeemable Participating Shares The Redeemable Participating Shares of the Company are divided into two tranches: Tranche A and Tranche B. The Company is offering only Participating Tranche A Shares to investors at the Subscription Price from (and including) 4 September 2012. The Directors have resolved that all Redeemable Participating Shares issued by the Company prior to 4 September 2012 shall be converted to Tranche B Shares on 4 September 2012. Redeemable Participating Shareholders wishing to purchase additional Redeemable Participating Shares from 4 September 2012 onwards must subscribe for Participating Tranche A Shares (unless the Directors may decide otherwise from time to time). Redeemable Participating Shares are redeemable, and written notices to redeem Redeemable Participating Shares should be received by Citibank (Hong Kong) or the Shareholder Services Provider at the contact address referred to in the 'Names and addresses' section of this Prospectus not later than 17:00 pm (Hong Kong time) one Business Day prior to the Dealing Day on which the redemption is to take place, except in the event that the calculation of the Net Asset Value per Redeemable Participating Share has been suspended.
Capital Management As a result of the ability of investors to redeem Redeemable Participating Shares, the capital of the Company can vary depending on the demand for redemptions from and subscriptions to the Company. The Company is not subject to externally imposed capital requirements and has no restrictions on the issue and redemption of Redeemable Participating Shares other than those described in the financial statements. The Company’s objectives for managing capital are:
To invest the capital in investments meeting the description, risk exposure and expected return indicated in the Prospectus; To achieve consistent returns while safeguarding capital by participating in derivative and other advanced capital markets; To maintain sufficient liquidity to meet the expenses of the Company, and to meet redemption requests as they arise; and To maintain sufficient size to make the operation of the Company cost-efficient.
Refer to Note 5, 'Financial risk management,' for the policies and processes applied by the Company in managing its capital.
Redemption fees In case Tranche B Redeemable Participating Shares are redeemed before they have been in issue for the periods shown below, the current Net Asset Value per Redeemable Participating Share redeemed will be paid by the Company to the Shareholder after deduction of a fee for early redemption, which will, in turn be paid to the Introducing Broker primarily to compensate it for the costs of marketing the Redeemable Participating Shares, as follows:
Man AHL Diversified Futures Ltd
Notes to the financial statements (continued)
For the year ended 30 September 2013
28
9. Share Capital (continued)
Tranche B Redeemable Participating Shares redeemed on a Dealing Day before they have been in issue for: Fee for early redemption: 2 years 4.0 % of redemption price per Redeemable Participating Share 4 years 2.5 % of redemption price per Redeemable Participating Share 6 years 1.0 % of redemption price per Redeemable Participating Share There will be no redemption fee applied on Tranche B Redeemable Participating Shares which are redeemed after they have been in issue for six years. No redemption fees will be applied for redemptions of Tranche A Redeemable Participating Shares.
Performance table Total NAV NAV per redeemable
participating shareHighest redeemable
participating share Lowest redeemable participating share
at year end issue price during the redemption price year during the year USD USD USD USD2013 459,002,971 30.07 37.72 30.362012 724,421,295 34.50 39.70 34.02 2011 1,060,996,444 38.72 40.81 37.052010 1,279,584,383 38.54 38.54 34.432009 1,553,254,539 37.74 42.59 36.462008 1,291,193,256 35.39 40.45 31.592007 651,269,454 31.59 33.61 27.422006 643,458,025 28.02 30.68 25.432005 443,272,796 25.70 25.70 21.232004 402,168,856 21.34 24.35 20.482003 279,686,621 21.66 23.05 17.082002 168,310,686 19.88 19.63 14.872001 88,496,120 18.22 18.11 12.032000 38,606,292 12.15 13.04 11.301999 62,879,308 12.35 12.76 11.24
10. Events during the year There were no significant events during the year.
11. Subsequent events Subsequent to the year end subscriptions of USD 4,600,605 and redemptions of USD 52,046,958 were applied to the Company, up to 9 January 2014. There were no other significant events since the year end.
12. Contingent Liabilities and Commitments There were no contingent liabilities or commitments as at 30 September 2013 (2012: none).
13. Soft Commission Arrangements There were no soft commission arrangements in place during the year.
A member firm of Ernst & Young Global Limited
Ernst & Young Ltd. #3 Bermudiana Road Hamilton HM 11, Bermuda P.O. Box HM 463 Hamilton, HM BX, Bermuda Tel: +1 441 295 7000 Fax: +1 441 295 5193 www.ey.com/bermuda
www.ey.com
INDEPENDENT AUDITORS' REPORT TO THE BOARD OF DIRECTORS AND SHAREHOLDERS MAN AHL DIVERSIFIED FUTURES LTD We have audited the accompanying financial statements of Man AHL Diversified Futures Ltd (the “Company”) which comprise the statement of financial position as at 30 September 2013 and the statement of changes in equity, the statement of comprehensive income and the statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, the relevant disclosure provisions of the Memorandum and Articles of Association of the Company and the relevant disclosure requirements set out in Appendix E to the Hong Kong Code on Unit Trusts and Mutual Funds of the Securities and Futures Commission of Hong Kong (the “Code”), 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.
Auditors’ Responsibility
Our report is made solely to you, as a body, and for no other purpose. We do not assume responsibility towards or accept liability to any other person for the contents of this report. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement, and whether the financial statements are in accordance with the relevant disclosure provisions of the Memorandum and Articles of Association of the Company and the disclosure requirements of the Code. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors' judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the accompanying financial statements present fairly, in all material respects, the financial position of Man AHL Diversified Futures Ltd as at 30 September 2013 and its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards. Report on Other Legal and Regulatory Requirements We report that the financial statements have been properly prepared in accordance with the relevant disclosure provisions of the Memorandum and Articles of Association of the Company and the disclosure requirements of Appendix E of the Code.
23 January 2014
Man AHL Diversified Futures Ltd
Unaudited interim financial statements For the period ended 31 March 2014
Man AHL Diversified Futures Ltd Table of Contents
2
Page
Corporate information 3 Statement of financial position (unaudited) 4 Statement of changes in equity (unaudited) 5 Statement of comprehensive income (unaudited) 6 Statement of cash flows (unaudited) 7 Notes to the financial statements (unaudited) 8
Man AHL Diversified Futures Ltd Corporate information
3
Directors Investment Manager Michael B Collins Man Investments Limited Argonaut Limited Riverbank House Argonaut House 2 Swan Lane 5 Park Road London EC4R 3AD Hamilton HM 09 United Kingdom Bermuda
Introducing Broker and Marketing Adviser Shirelle Jones is an alternate director to Man Investments AG Mr Collins. Huobstrasse 3
8808 Pfäffikon SZ Dawn C Griffiths Switzerland Conyers Dill & Pearman Limited Clarendon House Services Manager 2 Church Street Man Investments AG Hamilton HM 11 Huobstrasse 3 Bermuda 8808 Pfäffikon SZ
Switzerland David Smith Equus Asset Management Partners Valuation Service Provider 27 Queen Street Citibank Europe plc Hamilton HM11 1 North Wall Quay Bermuda Dublin Ireland Company Secretary and Registered Office of the Company Legal advisor as to matters of Bermudian law Christine Perinchief Conyers Dill & Pearman Limited Citi Fund Services (Bermuda), Ltd. Clarendon House 5 Reid Street 2 Church Street Hamilton HM 11 Hamilton HM 11 Bermuda Bermuda Principal Paying Agent Custodian Citi Fund Services (Bermuda), Ltd. HSBC Institutional Trust Services (Asia) Limited 5 Reid Street HSBC Main Building Hamilton HM 11 1 Queen’s Road Central Bermuda Hong Kong Hong Kong Representative Registrar Man Investments (Hong Kong) Limited Citi Fund Services (Bermuda), Ltd. Suite 1301 Chater House 5 Reid Street 8 Connaught Road Central Hamilton HM 11 Hong Kong Bermuda Auditors Shareholder Services Provider Ernst & Young Ltd. Citibank Europe plc 3 Bermudiana Road 1 North Wall Quay Hamilton HM 11 Dublin 1 Bermuda Ireland
Man AHL Diversified Futures Ltd Statement of changes in equity (unaudited) For the period ended 31 March 2014
The accompanying notes form an integral part of the financial statements. 5
Period ended 31 March
2014 USD
Period ended31 March
2013USD
Net Assets Attributable to Holders of Redeemable Participating Shares at beginning of period 459,002,971 724,421,295 Net income for the period attributable to Redeemable Participating Shareholders 11,724,501 4,129,442 Issue of 244,294 (2013: 704,100) Redeemable Participating Shares 7,605,479 23,884,853Redemption of 2,773,666 (2013: 4,314,771) Redeemable Participating Shares (86,134,722) (146,416,720) Net Assets Attributable to Holders of Redeemable Participating Shares at end of period
392,198,229 606,018,870
Man AHL Diversified Futures Ltd Statement of comprehensive income (unaudited) For the period ended 31 March 2014
The accompanying notes form an integral part of the financial statements. 6
Notes
Period ended
31 March 2014 USD
Period ended31 March
2013USD
Income Interest income 2 329,481 1,251,714 Net gain on financial assets and liabilities at fair value through profit or loss 7 20,384,475 17,926,318 Net gain/(loss) on foreign exchange 7 737,382 (864,022)
21,451,338 18,314,010
Expenses Management and incentive fees 8 (6,456,484) (9,611,384)Introducing broker fees 8 (2,152,161) (3,226,776)Custody fees (43,043) (65,108)Auditor fees (11,500) (13,500)Legal and Other Professional fees (7,498) (132,655)Bank charges (8,120) (33,528)Other connected person expenses 8 (630,030) (924,336)Other expenses 2 (410,824) (127,953)Interest expense 2 (7,177) (49,328)
(9,726,837) (14,184,568)
Net income for the period attributable to Redeemable Participating Shareholders 11,724,501 4,129,442
The Company had no recognised gains or losses in the financial period other than those dealt with in the statement of comprehensive income. All results arose from continuing activities.
Man AHL Diversified Futures Ltd Statement of cash flows (unaudited) For the period ended 31 March 2014
The accompanying notes form an integral part of the financial statements. 7
Period ended
31 March 2014 USD
Period ended31 March
2013USD
Cash flows from operating activities Net income for the period attributable to Redeemable Participating Shareholders 11,724,501 4,129,442 Adjustments to reconcile net income for the period to net cash used in operating activities: Financial assets and liabilities at fair value through profit or loss (19,035,526) (3,291,056)Due from brokers 3,880,114 -Due to brokers (686,685) (4,440,889)Prepayment and other assets 47,969 530,834 Accounts payable and accrued expenses (186,773) (1,120,429)Net cash used in operating activities (4,256,400) (4,192,098) Cash flows from financing activities Proceeds on issue of Redeemable Participating Shares 7,763,497 23,856,452 Payments on redemption of Redeemable Participating Shares (88,332,198) (147,440,126)Net cash used in financing activities (80,568,701) (123,583,674) Net change in cash and cash equivalents (84,825,101) (127,775,772)Cash and cash equivalents at beginning of period 471,908,946 729,458,174 Cash and cash equivalents at end of period 387,083,845 601,682,402 Cash and cash equivalents consist of: Cash at bank 322,235,062 480,086,507 Cash with brokers 64,848,783 121,596,113 Bank overdraft - (218) 387,083,845 601,682,402 Supplemental disclosure of cash flow information: Interest paid (7,177) (73,423)Interest received 377,449 1,782,548
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) For the period ended 31 March 2014
8
1. General Man AHL Diversified Futures Ltd (the “Company”) was incorporated under the laws of Bermuda on 11 September 1997 and carries on business as an open-ended investment company, trading a diversified portfolio of international interbank currency and financial futures. The Company commenced trading on 12 May 1998. Terms defined in the Prospectus shall, unless the context otherwise requires, have the same meaning in these financial statements.
2. Summary of Significant Accounting Policies a) Accounting convention The financial statements are prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and where relevant, in accordance with the provisions of the Hong Kong Securities & Futures Commission Code on Unit Trusts and Mutual Funds pursuant to the Securities and Futures Ordinance (Cap 571) April 2003 (as amended effective 25 June 2010). The financial statements have been prepared on the historical cost basis except for financial assets and liabilities held at fair value through profit or loss that have been accounted for based on fair value. b) Changes in Accounting Policy and Disclosure The principle accounting policies and estimation techniques are consistent with those applied to the previous annual financial statements except as follows: Statement of compliance
The financial statements are prepared in accordance with IAS 34 Interim Financial Reporting. The condensed interim financial report does not include all the information required for full annual financial statements prepared in accordance with International Financial Reporting Standards. IAS 1 – Presentation of Financial Statements
The Company adopted, for the first time, amendments to IAS 1 Presentation of Financial Statements. The amendments to IAS 1 introduce a grouping of items presented in other comprehensive income (“OCI”). Items that could be reclassified (or recycled) to profit or loss at a future point in time now have to be presented separately from items that will never be reclassified. The amendment had no impact on the presentation of the Company’s financial statements, or on its financial position or performance, since no items have been classified as OCI.
IAS 27 – Separate Financial Statements (as revised in 2011)
As a consequence of the new IFRS 10 and IFRS 12, what remains in IAS 27 is limited to accounting for subsidiaries, jointly controlled entities, and associates in separate financial statements. This amendment became effective as of 1 January 2013 and has no impact on the Company‘s financial position or performance. IFRS 7 – Financial Instruments: Disclosure
The IFRS requires disclosure of the significance of financial instruments for an entity's financial position and performance, as well as qualitative and quantitative information about exposure to risks arising from financial instruments, including specified minimum disclosures about credit risk, liquidity risk, and market risk. Specifically, an entity shall disclose information to enable the users of its financial statements to evaluate the effect or potential effect of netting arrangements on the entity's financial position. This includes the effect or potential effect of rights of set-off associated with the entity's recognised financial assets and recognised financial liabilities. The amendment became effective for annual periods beginning on or after 1 January 2013.
IFRS 10 – Consolidated Financial Statements
IFRS 10 replaces the portion of IAS 27 Consolidated and Separate Financial Statements that addresses the accounting for consolidated financial statements. It also replaces SIC-12 Consolidation — Special Purpose Entities. IFRS 10 establishes a single control model that applies to all entities including ‘special purpose entities’. The changes introduced by IFRS 10 will require management to exercise significant judgement to determine which entities are controlled, and therefore required to be consolidated by a parent, compared with the requirements that were in IAS 27. This standard becomes effective for annual periods beginning on or after 1 January 2013. This amendment has no impact on the Company‘s financial position or performance.
IFRS 13 – Fair Value measurement
IFRS 13 establishes a single source of guidance under IFRS for all fair value measurements. IFRS 13 does not change when an entity is required to use fair value, but rather provides guidance on how to measure fair value under IFRS when fair value is required or permitted. The Company has assessed the impact that this standard will have on the financial position and performance of the Company and the Directors do not believe it will materially impact the current measurement techniques being employed. This standard became effective for annual periods beginning on or after 1 January 2013.
If an asset or a liability measured at fair value has a bid price and an ask price, the standard requires valuation to be based on a price within the bid-ask spread that is most representative of fair value and allows the use of mid-market pricing or other pricing conventions that are used by market participants as a practical expedient for fair value measurement within a bid-ask spread. In accordance with IFRS 13, financial assets and financial
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
9
2. Summary of Significant Accounting Policies (continued)
b) Changes in Accounting Policy and Disclosure (continued)
IFRS 13 – Fair Value measurement (continued)
liabilities can be measured at the last traded price per the Company’s Offering Memorandum, where the last traded price falls within the bid-ask spread.
At the date of authorisation of the financial statements there were a number of Standards and Interpretations which were in issue. The Directors anticipate that the adoption of these Standards and Interpretations have had no material impact on the financial statements of the Company. c) Use of Accounting Judgements and Estimates The preparation of financial statements in accordance with IFRS requires management to make judgements, estimates and assumptions that affect the amounts reported and disclosures made in these financial statements and accompanying notes, including certain valuation assumptions. Uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or liabilities in the future. d) Going Concern The Company’s management has made an assessment of the Company’s ability to continue as a going concern and is satisfied that the Company has resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Company’s ability to continue as a going concern, therefore, the financial statements continue to be prepared on a going concern basis. e) Revenue Recognition Interest on financial assets held at fair value through profit or loss for the period are credited to net gain or loss on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income on an accruals basis.
f) Financial Assets and Liabilities at Fair Value through Profit or Loss Valuation of investments This category has two sub-categories: (i) financial assets and liabilities held for trading; and (ii) those designated by management at fair value through profit or loss at initial recognition. Financial assets or liabilities held for trading are acquired or incurred principally for the purpose of selling or repurchasing in the short term. Derivatives are also categorised as held for trading by definition. After initial measurement, the Company measures financial instruments, which are classified as at fair value through profit or loss, at their fair values. Financial instruments are designated at fair value through profit and loss because they are managed on a fair value basis. The fair value of financial instruments traded in active markets (such as publicly traded derivatives and trading securities) is based on quoted market prices at the statement of financial position date. Prior to 1 January 2013, the quoted market price used for financial assets held by the Company was the current bid price; the quoted market price for financial liabilities was the current asking price. However, IFRS 13 Fair Value Measurement became effective from 1 January 2013, and as a result of that the Company changed its fair valuation input to utilise the last traded market price for both financial assets and financial liabilities where the last traded price falls within the bid-ask spread. In circumstances where the last traded price is not within the bid-ask spread, management will determine the point within the bid-ask spread that is most representative of fair value. Regular-way purchases and sales of investments are recognised on the trade date, which is the date on which the Company commits to purchase or sell the asset. Investments are initially recognised at fair value. Investments are derecognised when the rights to receive cash flows from the investments have expired or the Company has transferred substantially all risks and rewards of ownership. The Company may from time to time invest in financial instruments that are not traded in an active market (for example over-the-counter derivatives and private placements of both equities and fixed income securities). The fair value of these financial instruments is determined based on observable inputs such as current interest and currency rates, where applicable. Where active markets do not exist, or the market values are unreliable or not considered to reflect the current market value, fair valuation techniques that most accurately reflect the investments’ fair value as established by Man Investments Limited (the “Investment Manager”) are used. g) Securities Sold Short The Company may engage in securities sold short. A short sale is a transaction in which the Company sells a security it does not own. The proceeds received for short sales are recorded as liabilities and the Company records an unrealised gain or loss to the extent of the difference between the proceeds received and the value of the open short position. The Company records a realised gain or loss when the short position is closed. By entering into short sales, the Company bears the market risk of an unfavourable change in the price of the security sold short in excess of the proceeds received. Short sales expose the Company to potentially unlimited liability. h) Derivatives The Company may trade derivative financial instruments, including futures and forwards whose values are based upon an underlying asset, index, currency or interest rate. The unrealised gains or losses, rather than contract or notional amounts, represent the approximate future cash flows from trading.
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
10
2. Summary of Significant Accounting Policies (continued) h) Derivatives (continued) Derivative financial instruments are recognised at fair value on the date on which a derivative contract is entered into and are subsequently re-measured at their fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and valuation techniques, including discounted cash flow models and options pricing models, as appropriate. Models are calibrated by back testing to actual transactions to ensure outputs are reliable. Models use observable data to the extent practicable. However, areas such as credit risk (both own and counterparty); volatilities and correlations require the Board of Directors to make estimates. Changes in assumptions about these factors could affect the reported fair value of derivative financial instruments at the valuation date. All derivative financial instruments are carried in assets when amounts are receivable by the Company and in liabilities when amounts are payable by the Company. Changes in the fair values of derivatives are included in the statement of comprehensive income. During the period, when the contract is open, changes in the value of the contracts are recognised as unrealised appreciation or depreciation to reflect the fair value of the contract at the last day of the valuation period. When the contract is settled or offset by other contracts, the Company records a realised gain or loss equal to the difference between the proceeds from (or cost of) the closing transaction and the Company’s basis in the contract. The Company may engage in futures contracts, forward contracts and swap contracts. These are described below: – Futures contracts Futures contracts are recorded on the trade date and are valued at the applicable close prices on the last business day of the period. The difference between the original contract amount and the fair value of the open futures position is reflected as financial assets and liabilities at fair value through profit or loss on the statement of financial position and as net unrealised gains/(loss) on financial assets and liabilities at fair value through profit or loss and foreign exchange in the statement of comprehensive income. Realised gains or losses are recognised on the closing or trade date of the contract and are included in revenue under net realised gain/(loss) on financial assets and liabilities at fair value through profit and loss in the statement of comprehensive income. – Forward currency contracts Forward currency contracts are recorded on the trade date and are valued at the applicable foreign exchange rates on the last business day of the period. The difference between the fair value of the original contract amount and the fair value of the open forward currency contract position is reflected as financial assets and liabilities at fair value through profit or loss on the statement of financial position and as net unrealised gain/(loss) on financial assets and liabilities at fair value through profit or loss and foreign exchange in the statement of comprehensive income. Realised gains or losses are recognised on the maturity or trade date of the contract and are included in net realised gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. – Swap contracts Swaps are contractual agreements between two parties to exchange streams of payments over time based on specified notional amounts. The Company’s main swap contracts consist of interest rate swaps and credit default swaps as detailed below. – Interest Rate Swaps Interest rate swaps relate to contracts taken out by the Company with major brokers in which the Company either receives or pays a floating rate of interest in return for paying or receiving, respectively, a fixed rate of interest. The payment flows are usually netted against each other, with the difference being paid by one party to the other. Changes in the value of the interest rate swap agreements and amounts received or paid in connection with these contracts, are recognised as net gains/(losses) on investments at fair value through profit or loss in the statement of comprehensive income. – Credit Default Swaps The Company may enter into credit default swaps for speculative purposes or to manage its exposure to certain sectors of the market or to reduce credit risk. The Company may enter into credit default swap agreements to provide a measure of protection against the default of an issuer (as buyer of protection) and/or gain credit exposure to an issuer to which it is not otherwise exposed (as seller of protection). Credit default swaps are agreements in which one party pays fixed periodic payments to a counterparty in consideration for a guarantee from the counterparty to make a specific payment should a negative credit event take place (e.g. default, bankruptcy or debt restructuring). The Company may either buy or sell (write) credit default swaps. If a credit event occurs, as a buyer, the Company will either receive from the seller an amount equal to the notional amount of the swap and deliver the referenced security or underlying securities comprising of an index or receive a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising of an index. As a seller (writer), the Company will either pay the buyer an amount equal to the notional amount of the swap and take delivery of the referenced security or underlying securities comprising of an index or pay a net settlement of cash equal to the notional amount of the swap less the recovery value of the security or underlying securities comprising of an index. The periodic payments received or made by the Company are included in financial assets and liabilities at fair value through profit or loss and foreign exchange in the statement of comprehensive income. Swaps are marked-to-market daily and changes in value are recorded as unrealised appreciation/(depreciation). When the swap is terminated, the Company will record a realised gain/(loss) equal to the difference between the proceeds from (or cost of) the closing transaction and the Company’s basis in the contract, if any. Swap transactions involve, to varying degrees, elements of credit and market risk in excess of the amounts recognised in the statement of financial position. Such risks involve the possibility that there will be no liquid market for these agreements, that the counterparty to the agreements may default on its obligation to perform or disagree as to the meaning of the contractual terms in the agreements, and that there may be unfavourable changes in interest rates and/or market values associated with these transactions.
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
11
2. Summary of Significant Accounting Policies (continued)
i) Realised and Unrealised Gains and Losses All realised and unrealised gains and losses on investments and derivatives are recognised as net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. The cost of securities sold is accounted for on a First In – First Out (“FIFO”) basis. The unrealised gain or loss on open derivative contracts is calculated as the difference between the contracted rate and the rate to close out the contract. Realised gains or losses include net gains on contracts which have been settled or offset by other contracts.
j) Functional and Presentational Currency The primary objective of the Company is to generate returns in United States dollars, its capital-raising currency. The liquidity of the Company is managed on a day-to-day basis in United States dollars in order to handle the issue and redemption of the Company’s Redeemable Participating Shares. The Company performance is also evaluated in United States dollars. Therefore, as United States dollars is considered as the currency that most faithfully represents the economic effects of the underlying transactions, events and conditions, the Company’s functional currency is United States dollars. The Directors have also chosen United States dollars as the presentational currency. k) Foreign Currency Transactions during the period denominated in foreign currencies have been translated at the rates of exchange ruling at the dates of transactions. For foreign currency transactions and foreign currency investments held at the period end, the resulting gains or losses are included in the net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. Assets and liabilities denominated in foreign currencies are translated at the rates of exchange in effect at the date of the statement of financial position. l) Interest income and expense Interest income and expense are recognised in the statement of comprehensive income on an accruals basis, in line with the contractual terms. m) Other Expenses All expenses are recognised in the statement of comprehensive income on an accruals basis. n) Reclassification of Prior Period Comparative Figures Certain prior period comparatives have been reclassified to conform to the current period’s presentation. o) Redeemable Participating Shares Redeemable Participating Shares are redeemable at the Redeemable Participating Shareholder’s option. The Redeemable Participating Shares are carried at the redemption amount that is payable at the statement of financial position date if the Redeemable Participating Shareholders exercise their right to redeem their participating shares. p) Distributions It is not the intention of the Directors to make any distribution of net income by way of dividends. Net income will, therefore, effectively be represented in the value of the Redeemable Participating Shares. q) Reclassification of Prior Period Comparative Figures Certain prior period comparatives have been reclassified to conform to the current period’s presentation.
3. Interim Dividend The Directors of the Company chose not to distribute interim dividends and do not intend to do so.
4. Cash at Bank and Due from/(to) Brokers At period end amounts disclosed as Cash at bank and Cash with broker were held at Citibank N.A., Barclays Bank, Mizuho Bank, National Bank of Abu Dhabi, Commerzbank AG and BNP Paribas (the “Banks”), Deutsche Bank, J.P. Morgan, Royal Bank of Scotland, Merrill Lynch and Credit Suisse (the “Brokers”). Cash at bank in the statement of financial position comprises cash on hand, term deposits, demand deposits, short-term deposits in banks and short-term highly liquid investments that are readily convertible to known amounts of cash and which are subject to an insignificant risk of changes in value, with original maturities of three months or less. Cash with broker includes amounts transferred as collateral against open futures and forward contracts and other derivatives. Amounts receivable from short sales and collateral may be restricted in whole or in part until the related securities are purchased. To the extent that securities are purchased on margin, the margin debt may be secured on the related securities. The maturities of the term deposits held by the Company are listed below:
Counterparty Maturity dateCommerzbank AG 01 April 2014National Bank of Abu Dhabi 01 April 2014Barclays Bank 01 April 2014Mizuho Bank 01 April 2014
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
12
5. Financial Assets and Liabilities at Fair Value through Profit or Loss The following tables summarise financial assets and liabilities at fair value through profit or loss as at 31 March 2014 and 30 September 2013. The table also discloses the % of Net Assets for each derivative position and the notional amount at period/year end, with the exception of forward currency contracts, which are disclosed by the payable and receivable legs entered into by the Company.
Notional
31 March 2014
Fair ValueUSD
% of Net
Assets Notional
30 September 2013
Fair ValueUSD
% of Net
AssetsFinancial assets at fair value through profit or loss
Derivatives Commodity futures 193,153,353 6,506,460 1.66 156,837,385 6,295,922 1.37Foreign exchange futures - - - - 205,277 0.04Forward currency contracts 3,136,116,622 18,333,950 4.67 2,760,258,974 16,713,953 3.64Interest rate futures 1,844,798,994 4,988,152 1.27 2,453,949,712 6,146,005 1.34Index futures 232,083,145 2,812,701 0.72 536,367,420 2,047,733 0.45Commodity forwards 36,341,162 438,755 0.11 29,531,603 406,209 0.09Credit default swaps 1,699,542,500 77,562,406 19.78 281,127,000 19,097,884 4.16Interest rate swaps 3,513,063,164 37,289,347 9.51 3,925,679,071 40,028,634 8.72Total derivatives 10,655,098,940 147,931,771 37.72 10,143,751,165 90,941,617 19.81
Total financial assets at fair value through profit or loss 10,655,098,940 147,931,771 37.72 10,143,751,165 90,941,617 19.81
Notional
31 March 2014
Fair ValueUSD
% of Net
Assets Notional
30 September 2013
Fair ValueUSD
% of Net
AssetsFinancial liabilities at fair value through profit or loss
Derivatives Commodity futures (162,929,293) (3,954,574) (1.01) (220,680,732) (4,180,047) (0.91)Foreign exchange futures (14,846,990) (86,943) (0.03) (16,466,215) (7,880) -Forward currency contracts (3,134,703,465) (16,920,792) (4.31) (2,768,003,199) (24,458,178) (5.32)Interest rate futures (776,739,104) (2,370,962) (0.60) (550,105,165) (3,110,889) (0.68)Index futures (45,977,801) (1,591,052) (0.41) (17,199,993) (4,593,242) (1.00)Commodity forwards (36,693,312) (790,905) (0.20) (29,656,346) (530,952) (0.12)Credit default swaps (2,062,909,000) (68,318,171) (17.42) (851,646,999) (11,914,479) (2.60)Interest rate swaps (4,075,115,797) (44,957,442) (11.46) (4,013,733,028) (52,240,546) (11.38)Total derivatives (10,309,914,762) (138,990,841) (35.44) (8,467,491,677) (101,036,213) (22.01)
Total financial liabilities at fair value through profit or loss (10,309,914,762) (138,990,841) (35.44) (8,467,491,677) (101,036,213) (22.01) The Company invests in a range of derivative securities, as detailed above. The derivatives are cleared through the following brokers, who are situated in the following countries; Deutsche Bank, England, J.P. Morgan Chase Bank, Scotland, The Royal Bank of Scotland plc, Scotland and Credit Suisse, Australia. The Company’s Swap notional amounts should be reviewed on a net basis. The Company’s Foreign exchange futures held at 30 September 2013 consisted only of short positions which have been split by Market Value gain or loss in the above table.
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
13
5. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) The following table details the movements in notional values of the portfolio since the end of the preceding accounting period.
Opening Net Additions/Realisations ClosingFinancial assets at fair value through profit or loss
Commodity futures 156,837,385 36,315,968 193,153,353 Forward currency contracts 2,760,258,974 375,857,648 3,136,116,622 Interest rate futures 2,453,949,712 (609,150,718) 1,844,798,994Index futures 536,367,420 (304,284,275) 232,083,145 Commodity forwards 29,531,603 6,809,559 36,341,162 Credit default swaps 281,127,000 1,418,415,500 1,699,542,500Interest rate swaps 3,925,679,071 (412,615,907) 3,513,063,164
Total 10,143,751,165 511,347,775 10,655,098,940
Opening Net Additions/Realisations ClosingFinancial liabilities at fair value through profit or loss
Commodity futures (220,680,732) 57,751,439 (162,929,293)Foreign exchange futures (16,466,215) 1,619,225 (14,846,990)Forward currency contracts (2,768,003,199) (366,700,266) (3,134,703,465)Interest rate futures (550,105,165) (226,633,939) (776,739,104)Index futures (17,199,993) (28,777,808) (45,977,801)Commodity forwards (29,656,346) (7,036,966) (36,693,312)Credit default swaps (851,646,999) (1,211,262,001) (2,062,909,000)Interest rate swaps (4,013,733,028) (61,382,769) (4,075,115,797)Total (8,467,491,677) (1,842,423,085) (10,309,914,762) Derivative financial instruments The Company trades derivative financial instruments, including futures, swaps and currencies whose values are based upon an underlying asset, index, currency or interest rate. The net unrealised gains or losses, rather than contract or notional amounts, represent the Company’s approximate future cash flows from trading activities. Forward contracts As part of its portfolio management techniques, the Company may use forward contracts to economically hedge its non-functional currency liability to Redeemable Participating Shareholders (although formal hedge accounting is not used). The Company may also use forward contracts for speculative trading purposes. Forward contracts entered into by the Company represent a firm commitment to buy or sell an underlying asset, or currency at a specified value and point in time based upon an agreed or contracted quantity. The realised/unrealised gain or loss is equal to the difference between the value of the contract at the commencement and the value of the contract at settlement date/period end date and are included in the statement of comprehensive income. Futures contracts The Company may use exchange-traded futures for speculative trading purposes or to maintain the appropriate exposure to stock markets in accordance with the Investment Manager’s recommended overall asset allocation. Futures are contracts for delayed delivery of commodities, securities or money market instruments in which the seller agrees to make delivery at a specified future date of a specified commodity or instrument, at a specified price or yield. Gains and losses on futures are recorded by the Company based upon market fluctuations and are recorded as net gain/(loss) on financial assets and liabilities at fair value through profit or loss in the statement of comprehensive income. Swap contracts At 31 March 2014, the Company was exposed, via its investments in IRS and CDS swap contracts, to the underlying positions representing financial instruments for which notional amounts are summarised on page 12. Fair value of financial instruments The Company classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used in determining the measurements in line with IFRS 13. The fair value hierarchy has the following levels:
Level 1 - Quoted market price in an active market for an identical instrument. Level 2 - 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.
Level 3 - 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.
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
14
5. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued) When fair values of listed equity and debt securities at the reporting date, as well as, publicly traded derivatives, are based on quoted market prices or binding dealer price quotations, without any deduction for transaction costs, the instruments are included within Level 1 of the hierarchy. For all other financial instruments, fair value is determined using valuation techniques. Valuation techniques include net present value techniques, comparison to similar instruments for which market observable prices exist, options pricing models and other relevant valuation models. The Company uses widely recognised valuation models for determining fair values of over-the-counter derivatives. For these financial instruments, inputs into models are market observable and are, therefore, included within Level 2. The Company has no Level 3 financial instruments. The following tables analyse the fair value hierarchy of the Company’s financial assets and liabilities measured at fair value at 31 March 2014 and 30 September 2013: As at 31 March 2014
Level 1USD
Level 2USD
Level 3
USD
TotalFair Value
USDFinancial assets at fair value through profit or loss
Derivatives Commodity futures 6,506,460 - - 6,506,460 Forward currency contracts - 18,333,950 - 18,333,950 Interest rate futures 4,988,152 - - 4,988,152 Index futures 2,812,701 - - 2,812,701 Commodity forwards - 438,755 - 438,755 Credit default swaps - 77,562,406 - 77,562,406 Index futures - 37,289,347 - 37,289,347 Total derivatives 14,307,313 133,624,458 - 147,931,771
Total financial assets at fair value through profit or loss 14,307,313 133,624,458 - 147,931,771
Level 1USD
Level 2USD
Level 3
USD
TotalFair Value
USDFinancial liabilities at fair value through profit or loss
Derivatives Commodity futures (3,954,574) - - (3,954,574)Foreign exchange futures (86,943) - - (86,943)Forward currency contracts - (16,920,792) - (16,920,792)Interest rate futures (2,370,962) - - (2,370,962)Index futures (1,591,052) - - (1,591,052)Commodity forwards - (790,905) - (790,905)Credit default swaps - (68,318,171) - (68,318,171)Interest rate swaps - (44,957,442) - (44,957,442)Total derivatives (8,003,531) (130,987,310) - (138,990,841)
Total financial liabilities at fair value through profit or loss (8,003,531) (130,987,310) - (138,990,841) Investments are reviewed at each financial reporting point to ensure that they are correctly classified between level 1, 2 and 3 in accordance with the fair value hierarchy outlined above. Where an investment’s characteristics change during the year and investments no longer meet the criteria of a given level, they are transferred into a more appropriate level at the end of relevant financial reporting period. For the period ended 31 March 2014, there were no transfers between levels.
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
15
5. Financial Assets and Liabilities at Fair Value through Profit or Loss (continued)
Fair value of financial instruments (continued) As at 30 September 2013
Level 1USD
Level 2USD
Level 3
USD
TotalFair Value
USDFinancial assets at fair value through profit or loss
Derivatives Commodity futures 6,295,922 - - 6,295,922Foreign exchange futures 205,277 - - 205,277Forward currency contracts - 16,713,953 - 16,713,953Interest rate futures 6,146,005 - - 6,146,005Index futures 2,047,733 - - 2,047,733Commodity forwards - 406,209 - 406,209Credit default swaps - 19,097,884 - 19,097,884Interest rate swaps - 40,028,634 - 40,028,634Total derivatives 14,694,937 76,246,680 - 90,941,617
Total financial assets at fair value through profit or loss 14,694,937 76,246,680 - 90,941,617
Level 1USD
Level 2USD
Level 3
USD
TotalFair Value
USDFinancial liabilities at fair value through profit or loss
Derivatives Commodity futures (4,180,047) - - (4,180,047)Foreign exchange futures (7,880) - - (7,880)Forward currency contracts - (24,458,178) - (24,458,178)Interest rate futures (3,110,889) - - (3,110,889)Index futures (4,593,242) - - (4,593,242)Commodity forwards - (530,952) - (530,952)Credit default swaps - (11,914,479) - (11,914,479)Interest rate swaps - (52,240,546) - (52,240,546)Total derivatives (11,892,058) (89,144,155) - (101,036,213)
Total financial liabilities at fair value through profit or loss (11,892,058) (89,144,155) - (101,036,213)
The financial instruments not measured at fair value through profit or loss are short term financial assets and liabilities whose carrying amounts approximate fair value and have been classed as Level 2 as at 31 March 2014 and 30 September 2013.
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
16
6. Offsetting Financial Assets and Financial Liabilities As at 31 March 2014, no financial instruments of the Company are being presented net within the statement of financial position of the Company. The following tables provide information on the financial impact of netting for instruments subject to an enforceable master netting arrangement or similar agreement in the event of default as defined under such agreements. The following table summarises the net financial assets per counterparty as at 31 March 2014: Offsetting of Financial Assets, Derivatives Assets and Collateral pledged by counterparty
(i)
(ii) (iii)=(i)-(ii)
Gross assets not offset in the statement of
financial position
Counterparty
Net Amounts of Assets in the
Statement of Financial Position
USD
Financial Instruments
USD
Cash Collateral Received
USD Net Amount
USDDeutsche Bank AG 15,645,927 9,934,310 - 5,711,617Royal Bank of Scotland plc 65,395,989 52,734,830 - 12,661,159Credit Suisse AG 86,787,623 54,127,637 - 32,659,986JP Morgan Chase Bank NA 41,301,215 17,716,260 4,914,957 18,669,998Merrill Lynch & Co., Inc 4,052,383 1,082,721 - 2,969,662 Total 213,183,137 135,595,758 4,914,957 72,672,422 The following table summarises the net financial liabilities per counterparty as at 31 March 2014:
Offsetting of Financial Liabilities, Derivatives Liabilities and Collateral pledged by counterparty (i) (ii) (iii)=(i)-(ii)
Gross liabilities not offset in the statement
of financial position
Counterparty
Net Amounts of Liabilities in the
Statement of Financial Position
USD
Financial Instruments
USD
Cash Collateral Pledged
USD Net Amount
USD
Deutsche Bank AG 9,934,310 9,934,310 - -Royal Bank of Scotland plc 52,734,830 52,734,830 - -
Credit Suisse AG 54,127,637 54,127,637 - -JP Morgan Chase Bank NA 22,631,217 22,631,217 - -
Merrill Lynch & Co., Inc 1,082,721 1,082,721 - -
Total 140,510,715 140,510,715 - -
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
17
6. Offsetting Financial Assets and Financial Liabilities (continued)
The following table summarises the net financial assets per counterparty as at 30 September 2013: Offsetting of Financial Assets, Derivatives Assets and Collateral pledged by counterparty
(i) (ii) (iii)=(i)-(ii)
Gross assets not offset in the statement of financial position
Counterparty
Net Amounts of Assets in the Statement of
Financial PositionUSD
Financial Instruments
USD
Cash Collateral Received
USD Net Amount
USD
Deutsche Bank AG 18,154,892 11,134,558 - 7,020,334
Royal Bank of Scotland plc 80,572,067 66,095,118 - 14,476,949
Credit Suisse AG 57,629,873 15,265,230 - 42,364,643
JP Morgan Chase Bank NA 39,235,537 1,710,588 8,034,068 29,490,881
Merrill Lynch & Co., Inc 5,412,646 1,003,210 - 4,409,436 Total 201,005,015 95,208,704 8,034,068 97,762,243 The following table summarises the net financial liabilities per counterparty as at 30 September 2013: Offsetting of Financial Liabilities, Derivatives Liabilities and Collateral pledged by counterparty
(i) (ii) (iii)=(i)-(ii)
Gross liabilities not offset in the statement of financial position
Counterparty
Net Amounts of Liabilities in the
Statement of Financial Position
USD
Financial Instruments
USD
Cash Collateral Pledged
USD Net Amount
USDDeutsche Bank AG 11,134,558 11,134,558 - -Royal Bank of Scotland plc 66,095,118 66,095,118 - -Credit Suisse AG 15,265,230 15,265,230 - -JP Morgan Chase Bank NA 9,744,656 9,744,656 - -Merrill Lynch & Co., Inc 1,003,210 1,003,210 - - Total 103,242,772 103,242,772 - -
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
18
7. Net Gain/(Loss) on Financial Assets and Liabilities at Fair Value through Profit or Loss
31 March 31 March
2014 USD
2013USD
Realised and unrealised gain/(loss) on investments
Net realised (loss)/gain on investments (3,875,858) 18,304,447Net realised currency gain on cash 2,085,335 1,031,214Total net realised (loss)/gain (1,790,523) 19,335,661
Movement in net unrealised gain/(loss) on investments 24,260,333 (378,129)Movement in net unrealised currency (loss) (1,347,953) (1,895,236)Total net movement in unrealised gain/(loss) 22,912,380 (2,273,365)
Net gain on financial assets and liabilities at fair value through profit or loss 21,121,857 17,062,296
Total realised and unrealised gain on investments 20,384,475 17,926,318Total realised and unrealised currency (loss)/gain 737,382 (864,022)
8. Connected Person Transactions
Parties are considered to be connected if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions.
Master Multi-Product Holdings Ltd, a Bermuda incorporated company with directors in common with the Company, is a connected party through its 100% holding of the Management Shares in the Company. Master Multi-Product Holdings Ltd is itself owned by Codan Trust Company Limited in its capacity as trustee of the Master Multi-Product Purpose Trust, a special purpose trust formed under the laws of Bermuda. The immediate controlling party of the Company is therefore Master Multi-Product Holdings Ltd. Man Investments Limited is a connected party as it is the Investment Manager of the Company. Man Investments Limited is a subsidiary of Man Group plc and therefore all subsidiaries of Man Group plc are also connected parties. During the period, the Company has transacted with the following subsidiaries of Man Group plc: Man Investments AG. Man Investments (Hong Kong) Limited Conyers Dill & Pearman Limited is a connected party as Dawn C Griffiths is a director of the Company and a partner of the law firm. The following transactions, which were entered into in the ordinary course of business and on normal commercial terms took place between the Company and its connected parties:
For the period ended 31 March 2014 Connected party
Type of fee
Total Fees USD
Fees payable at 31 March 2014
USD
Man Investments AG Introducing broker fees 2,152,161 337,431 Man Investments AG Management and incentive fees 6,456,484 1,012,266 Man Investments (Hong Kong) Limited Hong Kong representative fees - 5,000 Man Investments AG Service Manager and Administration fees 630,030 547,113
For the period ended 31 March 2013 Connected party
Type of fee
Total Fees USD
Fees payable at 31 March 2013
USD
Directors Directors’ fees - 3,365Man Investments AG Introducing broker fees 3,226,776 468,120Man Investments AG Management and incentive fees 9,611,384 1,404,359Man Investments (Hong Kong) Limited Hong Kong representative fees - 3,154Man Investments AG Service Manager and Administration fees 924,336 470,439
Man AHL Diversified Futures Ltd Notes to the financial statements (unaudited) (continued) For the period ended 31 March 2014
19
9. Events during the Period A supplement to the Prospectus was issued on 7 November 2013.
10. Subsequent Events Subsequent to the period end subscriptions of USD 2,039,270 and redemptions of USD 15,330,404 were applied to the Company, up to 15 May 2014. There were no other significant events since the period end.
11. Contingent Liabilities and Commitments There were no contingent liabilities or commitments as at 31 March 2014 (2013: none).
12. Soft Commission Arrangements There were no soft commission arrangements in place during the period.