POWERFUND - SEGREGATED PORTFOLIO OF ......POWERFUND - SEGREGATED PORTFOLIO OF SPECTRA SPC...

POWERFUND - SEGREGATED PORTFOLIO OF SPECTRA SPC(Incorporated as an exempted company with limited liability in the Cayman Islands)

REPORT AND FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2013


CONTENTS

Page

Management and administration 1

Independent auditor's report 2

Statement of financial position 3

Statement of comprehensive income 4

Statement of changes in net assets attributable to holders of redeemable shares 5

Statement of cash flows 6

Notes to the financial statements 7 - 21


MANAGEMENT AND ADMINISTRATION

1

DirectorsClement TungTin Wai Leung

Investment AdvisorSTI Asset Management Limited3rd Floor100 Queen’s Road CentralHong Kong

Registered OfficeP.O. Box 309Ugland HouseGrand Cayman, KY1-1104Cayman Islands

AuditorPricewaterhouseCoopersP.O. Box 258Strathvale House, GeorgetownGrand Cayman, KY1-1109Cayman Islands

Investment ManagerSTI Wealth Management (Cayman) LimitedP.O. Box 309Ugland HouseGrand Cayman, KY1-1104Cayman Islands

Legal AdvisorsAs to matters of the Cayman Islands law:Maples and Calder53rd Floor The Center99 Queen's Road CentralCentral, Hong Kong

As to matters of Hong Kong and Taiwan laws:K & L Gates44th Floor, Edinburgh TowerThe Landmark15 Queen's RoadCentral, Hong Kong

AdministratorMaples Fund Services (Cayman) LimitedP.O. Box 1093Boundary Hall, Cricket SquareGrand Cayman, KY1-1102Cayman Islands

Administrator's DelegateMaples Fund Services (Asia) Limited5301, 53rd Floor The Center99 Queen's Road CentralCentral, Hong Kong

Independent Auditor's Report

To the Board of Directors of Spectra SPC

We have audited the accompanying financial statements of Powerfund (the "Fund"), a segregatedportfolio of Spectra SPC, set out on pages 3 to 21, which comprise the statement of financial position asat 31 December 2013, and the statements of comprehensive income, changes in net assets attributableto holders of redeemable shares and cash flows for the year then ended, and notes, comprising asummary of significant accounting policies and other explanatory information.

Management's Responsibility for the Financial Statements

Management is responsible for the preparation of financial statements that give a true and fair view inaccordance with International Financial Reporting Standards, and for such internal control asmanagement determines is necessary to enable the preparation of financial statements that are freefrom material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. Weconducted our audit in accordance with International Standards on Auditing. Those standards requirethat we comply with ethical requirements and plan and perform the audit to obtain reasonableassurance about whether the financial statements are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosuresin the financial statements. The procedures selected depend on the auditor's judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud orerror. In making those risk assessments, the auditor considers internal control relevant to the entity'spreparation of financial statements that give a true and fair view in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the entity's internal control. An audit also includes evaluating the appropriateness ofaccounting policies used and the reasonableness of accounting estimates made by management, aswell 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 forour audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Fundas at 31 December 2013, and of its financial performance and its cash flows for the year then ended inaccordance with International Financial Reporting Standards.

5 June 2014

PricewaterhouseCoopers, PO Box 258, Strathvale House, Grand Cayman KY1-1104, Cayman IslandsT: +1 (345) 949 7000, F: +1 (345) 949 7352, www.pwc.com/ky


STATEMENT OF COMPREHENSIVE INCOME


4

Note2013US$

2012US$

Income

Net gains on investments 6 12,793,019 11,210,556

Other income 78 71

Total income 12,793,097 11,210,627

Expenses

Management fee 8.1 2,147,725 1,911,417

Administration fee 8.3 157,615 143,746

Audit fee 35,650 33,350

Performance fee 8.2 25,917 346

Legal and professional fees 18,120 20,281

Other operating expenses 6,000 5,000

Total expenses 2,391,027 2,114,140

Operating profit 10,402,070 9,096,487

Finance costs 4,750 4,630

Increase in net assets attributable to holders of redeemable shares from operations 10,397,320 9,091,857

The notes on pages 7 to 21 form an integral part of these financial statements.


STATEMENT OF CHANGES IN NET ASSETS ATTRIBUTABLE TO HOLDERS OF REDEEMABLE SHARES


5

Note2013US$

2012US$

Net assets attributable to holders of redeemable shares at the beginning of the year 97,586,333 93,658,857

Issue of redeemable shares 7 32,905,921 23,439,716

Redemption of redeemable shares 7 (30,135,632) (28,604,097)

Net increase/(decrease) from share transactions 2,770,289 (5,164,381)


Net assets attributable to holders of redeemable shares at the end of the year 110,753,942 97,586,333



STATEMENT OF CASH FLOWS


6

2013US$

2012US$

Cash flows from operating activities


Adjustments for:

(Increase)/decrease in other assets (10,457) 9,575

Increase in other accrued expenses and liabilities 89,541 65,811

Net cash generated from operating activities 10,476,404 9,167,243

Cash flows from financing activities

Proceeds from redeemable shares issued 31,388,993 24,751,274

Payments on redeemable shares redeemed (26,076,864) (28,914,250)

Net cash generated from/(used in) financing activities 5,312,129 (4,162,976)

Net increase in cash and cash equivalents 15,788,533 5,004,267

Cash and cash equivalents at the beginning of the year 101,502,081 96,497,814

Cash and cash equivalents at the end of the year 117,290,614 101,502,081



NOTES TO THE FINANCIAL STATEMENTS


7

1 General information

Powerfund (the “Fund”) is a segregated portfolio of Spectra SPC (the “Company”), an exempted company incorporated in the CaymanIslands with limited liability on 7 February 2005. The Company is registered as a segregated portfolio company on 27 August 2007. TheFund had no employees during the period from 27 August 2007 to 31 December 2013. The registered office of the Fund is P.O. Box309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands.

The Fund’s investment activities are managed by STI Wealth Management (Cayman) Limited (the “Investment Manager”). The Fund’sobjective is to achieve a high risk-adjusted return mainly from trading in foreign exchange and secondarily in other asset classes suchas equities, options and index futures.

2 Summary of significant accounting policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have beenconsistently applied for all the years presented, unless otherwise stated.

2.1 Basis of preparation

The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”). Thefinancial statements have been prepared under the historical cost convention, as modified by the revaluation of financial assetsand liabilities (including derivatives) at fair value through profit or loss.

The preparation of financial statements in conformity with IFRS requires the use of accounting estimates. It also requires theboard of directors to exercise its judgment in the process of applying the Fund’s accounting policies. The areas involving ahigher degree of judgement or complexity, or areas where assumptions and estimates are significant to the financial statementsare disclosed in Note 4.

Standards and amendments to existing standards effective 1 January 2013

Amendments to IFRS 7, “Disclosures – Offsetting financial assets and financial liabilities” require additionaldisclosures to enable users of financial statements to evaluate the effect or the potential effects of nettingarrangements, including rights of set-off associated with an entity’s recognised financial assets and recognisedfinancial liabilities, on the entity’s financial position. As the Fund does not have any offsetting arrangements in place,the standard is not expected to have a significant impact on the Fund’s financial position or performance.




2 Summary of significant accounting policies (continued)

8

2.1 Basis of preparation (continued)

IFRS 13, effective for annual periods beginning on or after 1 January 2013. The standard improves consistency andreduces complexity by providing a precise definition of fair value and a single source of fair value measurement anddisclosure requirements for use across IFRSs. The requirements do not extend the use of fair value accounting butprovide guidance on how it should be applied where its use is already required or permitted by other standards withinIFRS. If an asset or a liability measured at fair value has a bid price and an ask price, the standard requires valuationto be based on a price within the bid-ask spread that is most representative of fair value and allows the use ofmid-market pricing or other pricing conventions that are used by market participants as a practical expedient for fairvalue measurement within a bid-ask spread. On adoption of the standard, the Fund recognised its valuation inputs forlisted financial assets and liabilities at last traded prices. The use of last traded prices is recognised as a standardpricing convention within the industry. The standard is not expected to have a significant impact on the Fund’sfinancial position or performance.

New standards and amendments to standards that are relevant to the Fund, but are not yet effective and have not been earlyadopted by the Fund

IFRS 9 “Financial instruments”. The standard addresses the classification, measurement and recognition of financialassets and financial liabilities. IFRS 9 was issued in November 2009 and amended in October 2010. It replaces theparts of IAS 39 that relate to the classification and measurement of financial instruments. IFRS 9 requires financialassets to be classified into two measurement categories: those measured at fair value and those measured atamortised cost. The determination is made at initial recognition. The classification depends on the entity’s businessmodel for managing its financial instruments and the contractual cash flow characteristics of the instrument. Forfinancial liabilities, the standard retains most of the IAS 39 requirements. The main change is that, in cases where thefair value option is taken for financial liabilities, the part of a fair value change due to an entity’s own credit risk isrecorded in other comprehensive income rather than the income statement, unless this creates an accountingmismatch. The Fund is yet to fully consider the impact of the issued standard. The Fund will do so when theremaining phases of IFRS 9 are issued by the International Accounting Standards Board.





9

2.2 Foreign currency translation

(i) Functional and presentation currency

Items included in the Fund’s financial statements are measured using the currency of the primary economicenvironment in which it operates (the “functional currency”). This is the United States dollar, which reflects thecurrency in which the Fund issues its redeemable shares and pays its fees.

The Fund has adopted the United States dollar as its presentation currency as the Fund reports its performance in thatcurrency.

(ii) Transactions and balances

Foreign currency transactions are translated into United States dollars using the exchange rates prevailing at the datesof the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rates of financial assets and liabilities denominated in foreign currencies arerecognised in the statement of comprehensive income.

2.3 Financial assets and liabilities at fair value through profit or loss

(i) Classification

The Fund classifies its investments in derivatives as financial assets or liabilities at fair value through profit or loss.These financial assets and liabilities are classified as held for trading.

Financial assets or liabilities held for trading are acquired or incurred principally for the purpose of selling orrepurchasing in the short term. Derivatives are also categorised as held for trading, as the Fund does not designate anyderivatives as hedges in a hedging relationship.





2.3 Financial assets and liabilities at fair value through profit or loss (continued)

(i) Classification (continued)

10

The Fund makes short sales in which a borrowed security is sold in anticipation of a decline in the market value of thatsecurity, or it may use short sales for various arbitrage transactions. Short sales are financial liabilities at fair valuethrough profit or loss.

(ii) Recognition/de-recognition

Regular-way purchases and sales of investments are recognised on the trade date – the date on which the Fundcommits to purchase or sell the investment. Investments are de-recognised when the rights to receive cash flowsfrom the investments have expired or the Fund has transferred substantially all risks and rewards of ownership.

(iii) Measurement

Investments are initially recognised at fair value, and transaction costs for all financial assets and liabilities at fair valuethrough profit or loss are expensed as incurred.

Subsequent to initial recognition, all financial assets and liabilities at fair value through profit or loss are measured at fairvalue.

Gains and losses arising from changes in the fair value of financial assets or liabilities at fair value through profit or lossare recognised in the statement of comprehensive income in the period in which they arise.

(iv) Fair value estimation

The fair value of financial instruments traded in active markets (such as publicly traded derivatives and tradingsecurities) is based on quoted market prices at the reporting date. The quoted market price used for financial assetsand financial liabilities held by the Fund is the last traded price. When the Fund holds derivatives with offsetting marketrisks, it uses mid-market prices as a basis for establishing fair value for the offsetting risk positions and applies the bidor ask price to the net open position, as appropriate. In circumstances where the last traded price is not within thebid-ask spread, management will determine the point within the bid-ask spread that is most representative of fair value.

2.4 Offsetting financial instruments

Financial assets and liabilities are offset and the net amount reported in the statement of financial position where the Fundcurrently has a legally enforceable right to set-off the recognised amounts and there is an intention to settle on a net basis orrealise the asset and settle the liability simultaneously.

2.5 Cash and cash equivalents

Cash comprises cash on hand and demand deposits held with brokers. Cash equivalents are short-term, highly liquidinvestments that are readily convertible into known amounts of cash and which are subject to insignificant changes in value.





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2.6 Receivables and payables

Receivables and payables are initially recognised at fair value and subsequently stated at amortised cost using the effectiveinterest method. A provision for impairment of receivables is established when there is objective evidence that the Fund will notbe able to collect all amounts due.

2.7 Redeemable shares

The Fund issues redeemable shares, which are redeemable at the holders’ option and are classified as financial liabilities. Nodistributions are paid on redeemable shares.

Redeemable shares are issued and redeemed at the holders’ option at prices based on the Fund’s net asset value per shareattributable to holders of redeemable shares at the time of issue or redemption. The Fund’s net asset value per share iscalculated by dividing the net assets attributable to holders of redeemable shares with the total number of outstandingredeemable shares. In accordance with the provisions of the Fund’s regulations, investment positions are valued based on thelast traded market prices for the purpose of determining the net asset value per share for subscriptions and redemptions and forfees calculation.

2.8 Income and expenses

Interest income and expense are recognised on a time-proportion basis using the effective interest method.

Other expenses are accounted for on an accruals basis in the statement of comprehensive income.

2.9 Taxation

Investment income and capital gains are recorded gross of any withholding tax in the statement of comprehensive income.Withholding tax, if any, is shown as a separate item in the statement of comprehensive income.

2.10 Related party transactions

Related parties are individuals and companies where the individual, company or group has the ability, directly or indirectly, tocontrol the other party or exercise significant influence over the other party in making financial and operating decisions.Parties are also considered to be related if they are subject to common control or common significant influence.

3 Financial risk management

3.1 Strategy in using financial instruments

The Investment Manager adopted the following investment objectives, policies and processes.

(i) Investment objective

The principal investment objective of the Fund is to produce a high risk-adjusted return mainly from derivatives markets.




3 Financial risk management (continued)

3.1 Strategy in using financial instruments (continued)

12

(ii) Investment policy

The Fund's primary objective is to produce a high risk-adjusted return mainly from trading in foreign exchange, andsecondary in other asset classes such as equities, options and index futures. Investment strategies with different stylesand competitive advantages may provide diversification benefits to traditional asset mixes such as global equity andfixed income portfolios.

(iii) Investment processes

The Investment Manager adopts investment strategies with different styles and competitive advantages, which mayprovide diversification benefits to traditional asset mixes such as global equity and fixed income portfolios.

The Fund adopts the following strategies:

Tug of warSpot currency swappingThree point arbitrageForeign exchange trading accountsStrategic and tactical trading in other asset classes such as equity, options and futuresMoney market instruments

The risks and the respective risk management policies employed by the Fund to manage these risks are discussedbelow.

3.2 Market risk

(i) Market price risk

Market price risk is the risk that the value of a financial instrument will fluctuate as a result of changes in market prices,whether those changes are caused by factors specific to the individual instrument or factors affecting all instruments inthe market.

All securities investments present a risk of loss of capital. The Fund’s investment activities expose it to various types ofmarket price risk which are associated with the markets in which it invests. The Fund’s trading derivatives aresusceptible to market price risk arising from uncertainties about future prices of the instruments.

The Investment Manager moderates this risk through a selection of securities and other financial instruments withinspecified limits. It is the intent of management and the Fund’s policy to monitor the Fund’s overall portfolio on aperiodic basis by the Investment Manager and the directors.

Most of the transactions carried out by the Fund are intra-day trading in foreign currency markets. Therefore, theunderlying assets of the Fund are exposed to limited market price risk.





3.2 Market risk (continued)

13

(i) Market price risk (continued)

As the directors believe that the Fund has no significant market price risk exposure, no market price risk sensitivityanalysis is disclosed.

(ii) Market price risk management program

The Fund currently adopts three systematic trading programs: SOFX, DOS (Dynamic Option Strategy) and STF(Systematic Trend Following). The objective of each trading program is to achieve capital appreciation through tradingin spot currencies and over-the-counter currency derivatives while taking reasonable steps to reduce volatility andprotect capital. No assurance can be given that this objective will be met and the SOFX, DOS and STF cannot beregarded as a shield to any substantial asset loss. These strategies are elaborated below.

In general, the SOFX, DOS and STF rely on technical analysis and are not based on anticipated supply and demand,macro-economic or political study. Technical analysis operates on the theory that market prices at any given point intime reflect all known factors affecting supply and demand for a particular commodity, currency or financial instrument.With the analysis base, trading instructions would be generated by the systematic trading programs. All currency tradesare pair trades with profits derived from arbitrage in spot currency prices. These systematic trading programs wouldnot generate an instruction to sell/purchase a currency derivative unless an instruction to purchase/sell a correspondingcurrency derivative could be secured.

Generally, most of the generated instructions will be followed without further analysis. If it is necessary, the InvestmentManager may exercise its discretionary authority, based on its expertise, to fine tune the program generatedinstructions regarding aspects of trading volume, such as execution time. In periods of market disruptions, theInvestment Manager may even suspend the program generated instructions or determine the most appropriate way tohandle the program generated instructions. However, such a period is not expected to be commonly seen and theInvestment Manager will endeavor not to individualise any program generated instruction so that personalisedinvestment management is expected to be minimal.

(iii) Interest rate risk

Interest rate risk is the risk that the value or future cash flows of a financial instrument will fluctuate as a result ofchanges in market interest rates.

The majority of the Fund’s financial assets and liabilities are non-interest bearing as the Fund mainly invests in currencyderivatives. As disclosed in Note 5, 94% (2012: 96%) of the Fund’s cash and cash equivalents at 31 December 2013were held in non-interest bearing accounts at brokers. Similar level of cash and cash equivalents has been held at therespective brokers during the year for the purpose of trading in foreign currency markets. The directors consider theinterest rate risk on the Fund’s remaining cash at banks to be minimal as it represents a small part of the Fund’s cashand cash equivalents and is in a demand deposit account with interest rate set on a daily basis. As a result, the Fund isnot subject to significant amounts of risk due to fluctuations in the prevailing levels of market interest rates.

It is the intent of management and the Fund’s policy to monitor the Fund’s overall interest rate sensitivity on a periodicbasis by the Investment Manager and the directors. As the directors believe that the Fund has no significant interestrate risk exposure, no interest rate risk sensitivity analysis is disclosed.





3.2 Market risk (continued)

14

(iv) Currency risk

Currency risk is the risk that the value or future cash flows of a financial instrument will fluctuate as a result of changesin foreign exchange rates.

The Fund is exposed to currency risk from investments which are denominated in, or which derive revenues and incurcosts in currencies other than the United States dollar. For the year ended 31 December 2013, the majority of the netgains on investments have been derived from currency derivatives. Furthermore, at 31 December 2013 and 2012, all ofthe Fund’s financial assets and liabilities were denominated in the United States dollar.

As described in Note 3.2(i), most of the transactions carried out by the Fund are intra-day trading in foreign currencymarkets. As such, the currency exposure at the end of the day may not be representative of the currency exposureduring the day and the currency exposure before a position is closed could be significant. For the year ended 31December 2013, the average trading volume in Euro and Japanese yen currency derivatives amounted toapproximately US$31,070,000 and US$30,000,000 per day on the days that the Fund trades respectively. For the yearended 31 December 2012, the average trading volume in Euro, Japanese yen and Great British pound currencyderivatives amounted to approximately US$33,580,000, US$26,837,000 and US$30,000,000 respectively.

It is the intent of management and the Fund’s policy to monitor the Fund’s overall currency exposure on a periodic basisby the Investment Manager and the directors. As the directors believe that the Fund has no significant currency riskexposure at the reporting date, no currency risk sensitivity analysis is disclosed.

3.3 Credit and counterparty risk

Credit and counterparty risk is the risk that one party to a financial instrument is unable or unwilling to discharge its obligationand cause the other party to incur a financial loss.

All investment transactions are settled/paid for upon delivery using approved brokers. The risk of default is consideredminimal since delivery of securities sold is only made when the broker has received payment. On a purchase, payment is madewhen the broker has received the securities. If either party fails to meet its obligation, the trade will fail. Credit and counterpartyrisk also arises from deposit accounts at banks and brokers and investments held at brokers. The Fund limits its exposure tothis risk by transacting the majority of its investment and contractual commitment activities with broker-dealers, banks andregulated exchanges with high credit ratings and that the Fund considers to be well established.

(i) Banks

Through executing an omnibus account agreement with the Fund dated 6 September 2007, MaplesFS Limited holds asegregated account with Bank of New York Mellon in its own name for the use and benefit of the Fund. Moody’s hasassigned a credit rating of A1 (2012: Aa3) to Bank of New York Mellon at 31 December 2013. No external credit ratingis available for MaplesFS Limited. At 31 December 2013, cash amounting to US$6,836,443 (2012: US$3,840,929) washeld in the omnibus account by MaplesFS Limited.





3.3 Credit and counterparty risk (continued)

15

(ii) Brokers

The currency trades have been carried out with a licensed broker, City Credit Capital (Labuan) Limited, which has noexternal credit ratings available. At 31 December 2013, cash amounting to US$110,454,171 (2012: US$97,661,152)was held with a single broker (2012: a single broker). There is no history of default and hence the directors do notexpect any losses from non-performance by this broker.

3.4 Liquidity risk

Liquidity risk is the risk that the Fund will encounter difficulty in settling a financial liability, including a redemption request, orselling a financial asset quickly at close to its fair value.

The Fund is exposed to cash redemptions of redeemable shares in accordance with its offering memorandum. Therefore, themajority of its investments are traded in an active market and can be readily disposed of. The directors consider that themajority of the Fund’s financial assets are liquid as they are in the form of demand deposits at banks and brokers. The Fundmay, from time to time, invest in derivatives traded over the counter, which are not traded in an organised market and may beilliquid. As a result, the Fund may not be able to realise quickly its investments in these instruments at an amount close to theirfair value to meet its liquidity requirements or to respond to specific events such as deterioration in the creditworthiness of acounterparty.

At 31 December 2013 and 2012, all of the Fund’s financial liabilities, including net assets attributable to holders of redeemableshares, had contractual maturity less than one month, with redemptions subject to a redemption gate that can be imposed bythe directors as discussed in Note 3.6.

At 31 December 2013, the Fund held cash and cash equivalents of US$117,290,614 (2012: US$101,502,081) that areexpected to be able to immediately generate cash inflows for managing liquidity risk.

At 31 December 2013, 1 investor (2012: 1 investor) held interests in more than 10% and in aggregate 40% (2012: 48%) of theFund’s net assets attributable to holders of redeemable shares.

3.5 Fair value estimation

The Fund classifies fair value measurements using a fair value hierarchy that reflects the significance of the inputs used inmaking the measurements. The fair value hierarchy has the following levels:

Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities.

Level 2: Inputs other than quoted prices included within level 1 that are observable for the asset or liability, eitherdirectly (that is, as prices) or indirectly (that is, derived from prices).

Level 3: Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs).





3.5 Fair value estimation (continued)

16

The level in the fair value hierarchy within which the fair value measurement is categorised in its entirety is determined on thebasis of the lowest level input that is significant to the fair value measurement in its entirety. For this purpose, the significance ofan input is assessed against the fair value measurement in its entirety. If a fair value measurement uses observable inputs thatrequire significant adjustment based on unobservable inputs, that measurement is a level 3 measurement. Assessing thesignificance of a particular input to the fair value measurement in its entirety requires judgement, considering factors specific tothe asset or liability.

The determination of what constitutes observable requires significant judgement by the Fund. The Fund considers observabledata to be such market data that is readily available, regularly distributed or updated, reliable and verifiable, not proprietary, andprovided by independent sources that are actively involved in the relevant market.

At 31 December 2013 and 2012, the Fund did not have any investments.

The carrying amount of cash and cash equivalents, other assets, subscriptions in advance, redemption payable and otheraccrued expenses and liabilities approximated their fair values and are presented in the statement of financial position. Thereare no financial assets and liabilities not carried at fair value but for which the fair value is disclosed.

3.6 Capital risk management

The capital of the Fund is represented by the net assets attributable to holders of redeemable shares. The amount of net assetsattributable to holders of redeemable shares can change significantly on a monthly basis as the Fund is open for subscriptionsand redemptions at the discretion of shareholders on two dealing dates each month – the 1st and 15th business day of themonth.

The Fund’s objectives when managing capital are to safeguard its ability to continue as a going concern in order to providereturns for shareholders and benefits for other stakeholders and to maintain a strong capital base to support the investmentactivities of the Fund. In the event that redemption requests are received for redeemable shares representing in aggregatemore than 10% of the latest available net asset value of the Fund, the directors may declare that no redeemable shares inexcess of 10% of the net asset value of the Fund shall be redeemed on that redemption day and the remaining redemptionrequests shall be carried forward for redemption on the next redemption day, or such later day as the directors may determine(being not more than one calendar month).

3.7 Financial instruments by category

All financial assets as disclosed in the statement of financial position, including cash and cash equivalents and other assets, arecategorised as “loans and receivables”.

All financial liabilities as disclosed in the statement of financial position, including subscriptions in advance, redemption payableand other accrued expenses and liabilities, are categorised as “other financial liabilities”.




17

4 Critical accounting estimates and judgements

Management makes estimates and assumptions concerning the future. The resulting accounting estimates may, by definition, not equalthe related actual results. The estimates and assumptions that have a risk of causing a material adjustment to the carrying amounts ofassets and liabilities within the next financial year are outlined below.

Fair value of derivatives

The Fund may, from time to time, hold financial instruments that are not quoted in active markets, such as over-the-counter derivatives.Fair values of such instruments are obtained from broker quotes.

5 Cash and cash equivalents

2013US$

2012US$

Cash at banks 6,836,443 3,840,929

Cash at brokers 110,454,171 97,661,152

117,290,614 101,502,081

6 Net gains on investments

2013US$

2012US$

Realised gains 14,113,895 11,418,624

Realised losses (1,320,876) (208,068)

12,793,019 11,210,556




7 Share capital

18

The Company has an authorised share capital of US$100, divided into 100 management shares of US$1 par value each.

At 31 December 2013 and 2012, the Fund had an authorised share capital of US$49,900 divided into 499,000,000 non-votingredeemable shares of US$0.0001 par value each.

Issued and fully paid

Class ANumber of

shares

Class BNumber of

shares

At 1 January 2012 56,882,662 4,000,058

Issue of redeemable shares 14,267,332 185,844

Redemption of redeemable shares (15,949,731) (1,718,096)

At 31 December 2012 55,200,263 2,467,806

Issue of redeemable shares 18,841,251 -

Redemption of redeemable shares (16,731,426) (334,175)

At 31 December 2013 57,310,088 2,133,631

Holders of Class A and B shares have the same rights and entitlement to Fund returns and expenses. The only difference is that ClassA shares are subject to subscription fees while Class B shares are subject to redemption fees.

Class A shares are subject to a subscription fee of up to 5% of the net asset value per Class A share subscribed, and the subscriptionprice is inclusive of the subscription fee which is paid to the Investment Manager. Class B shares are subject to a redemption fee of 2%of the net asset value per Class B share for shares redeemed from the 4th to the 12th month (both days inclusive) from the date onwhich the holders subscribed for the Class B shares. The redemption fee is reduced to 1% of the net asset value per Class B share forshares redeemed after 12 months but within 24 months from the date on which the holders subscribed for the Class B shares. Theredemption price is inclusive of the redemption fee which is paid to the Investment Manager.

Where any resolution varies, abrogates or otherwise alters the rights attaching to the shares of the Fund or any class of redeemableshares attributable to the Fund, or for purposes of winding up the Fund, the holders of redeemable shares of such class have the rightto receive notice of, attend and vote at the relevant meeting. Shareholders are entitled to vote either personally or by proxy.

At 31 December 2013, the net asset value per share was US$1.8632 (2012: US$1.6922) for Class A and B shares.




19

8 Related party transactions

The Fund has entered into the following related party transactions in the ordinary course of business.

8.1 Management fee

The Fund is managed by STI Wealth Management (Cayman) Limited. Under the management agreement dated 30 August2007, the Investment Manager provides management services to the Fund and in return receives a management fee calculatedat 2% per annum of the net asset value of the Fund on each valuation day, payable quarterly in arrears.

Management fee charged for the year ended 31 December 2013 was US$2,147,725 (2012: US$1,911,417). The amountpayable to the Investment Manager in respect of accrued management fee at 31 December 2013 was US$560,656 (2012:US$491,043).

8.2 Performance fee

(i) Calculation basis

Under the management agreement dated 30 August 2007, the Investment Manager provides management services tothe Fund and in return receives a performance fee calculated at 20% of the excess of the annual return of the Fundover 10% per annum (the "Hurdle Rate").

Any performance fee which becomes payable will be paid annually within 30 days after the Fund’s fiscal year end. Theperformance fee is calculated in respect of each period of 12 months ending on 31 December in each year (the“Calculation Period”).

(ii) Adjustments to performance fee

Performance fee charged for the year ended 31 December 2013 was US$25,917 (2012: US$346). The amount payableto the Investment Manager in respect of accrued performance fee at 31 December 2013 was US$25,917 (2012:US$346).

Adjustments are made to the performance fee charged to each shareholder in cases where the redeemable shareswere subscribed at a time when the net asset value per share is different from the Peak Net Asset Value Per Share(“PNAVPS”), which is defined as the greater of US$1 being the price at which redeemable shares were first issued,taking into the effect of share split and the highest net asset value per share of the relevant class on the last valuationday of any preceding Calculation Period.

If redeemable shares are subscribed at a time when the net asset value per share is less than the PNAVPS, theshareholder is required to pay performance fee with respect to any subsequent appreciation in the value of thoseredeemable shares above the Hurdle Rate at 20%. This performance fee is charged at the end of each CalculationPeriod, i.e. at 31 December.




8 Related party transactions (continued)

8.2 Performance fee (continued)

(ii) Adjustments to performance fee (continued)

20

If redeemable shares are subscribed at a time when the net asset value per share is greater than the PNAVPS, theshareholder is issued additional redeemable shares equal to 20% of the difference between the net asset value pershare at subscription (before accrual for performance fee) and the PNAVPS increased by the Hurdle Rate. At 31December 2013, nil was accrued for equalisation credits (2012: Nil).

8.3 Administration fee

Maples Fund Services (Cayman) Limited (the “Administrator”) is entitled to receive a fee for providing services to the Fund. Thisfee is based on the net asset value of the Fund and charged at a rate as agreed in the agreement entered into between theFund and the Administrator dated 6 September 2007.

Such fee is accrued daily and calculated at each valuation day of the Fund. The fee is charged on a scale as described below,subject to a monthly minimum fee of US$8,000.

Net asset value in US$Fee rate

per annum

> 200 million 0.08%

Administration fee charged for the year ended 31 December 2013 was US$157,615 (2012: US$143,746). The amount payableto the Administrator in respect of accrued administration fee at 31 December 2013 was US$80,856 (2012: US$36,565).

8.4 Related party shareholdings

At 31 December 2013, Spectra Nominee Company, a fellow subsidiary of the Company, held 21,785,224 (2012: 25,968,435)Class A shares amounted to US$40,589,645 (2012: US$43,943,967) and 1,753,139 (2012: 1,890,621) Class B sharesamounted to US$3,266,402 (2012 US$3,199,322).

Spectra Nominee Company held shares on behalf of investors with subscription amount less than US$100,000, the minimumsubscription amount.




21

9 Taxation

The Fund is domiciled in the Cayman Islands. Under the current laws of the Cayman Islands, there is no income, estate, corporation,capital gains or other taxes payable by the Fund. As a result, no provision for income taxes has been made in these financialstatements.

The Fund would only be exposed to Hong Kong profits tax if it is:

(i) not exempted under the Hong Kong Revenue (Profits Tax Exemption for Offshore Funds) Ordinance 2006 (the “Ordinance”);and

(ii) treated as carrying on a trade or business in Hong Kong either on its own account or through any person as an agent.

If the Fund is not exempted under the Ordinance and is treated as carrying on a trade or business in Hong Kong, a liability to profitstax, currently at the rate of 16.5% (2012: 16.5%), would arise in respect of any profits which arise in or are derived from Hong Kong andwhich are not capital profits or exempt profits. No provision for Hong Kong profits tax has been made as the directors believe that theFund is exempted under the Ordinance and is not carrying on a trade or business in Hong Kong.

10 Approval of the financial statements

The financial statements were approved and authorised for issue by the board of directors on 5 June 2014.

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