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AYERS ALLIANCE QUANTUM FUND Offering Memorandum OFFERING MEMORANDUM A segregated portfolio of AYERS ALLIANCE SPC an exempted company incorporated with limited liability under the laws of the Cayman Islands with registration number HS-281646 AYERS ALLIANCE QUANTUM FUND SP March 2014 AYERS ALLIANCE ASSET MANAGEMENT LIMITED Manager STI ASSET MANAGEMENT LIMITED Hong Kong Investment Advisor AYERS ALLIANCE LIMITED Australian Investment Advisor AYERS ALLIANCE QUANTUM FUND 2 Ayers Alliance SPC IMPORTANT NOTICES TO POTENTIAL INVESTORS The Company is an exempted company incorporated with limited liability and registered as a segregated portfolio company under the Companies Law. This Memorandum relates to the offering of shares attributable to the Fund, a segregated portfolio of the Company. Responsibility statement The Directors, whose names appear in the Directory, accept responsibility for the information contained in this Memorandum. To the best of the knowledge and belief of the Directors who have taken reasonable care to ensure that the information contained in this Memorandum is in accordance with the facts and, contains such information as is necessary to enable a prospective investor to make an informed decision as to whether or not to subscribe for the Shares. Reliance on this Memorandum The Shares are offered only on the basis of the information contained in this Memorandum. Any further information or representations given or made by any dealer, broker or other person should be disregarded and accordingly, should not be relied upon. No person has been authorised to give any information or to make any representations in connection with the offering of the Shares other than those contained in this Memorandum and, if given or made, such information or representations must not be relied on as having been authorised by the Directors. Certain information contained in this Memorandum constitutes “forward-looking statements”, which can be identified by the use of forward-looking terminology such as “may”, “will”, “should”, “expect”, “anticipate”, “project”, “estimate”, “intend”, “believe”, the negatives thereof, other variations thereon or comparable terminology. Due to various risks and uncertainties, including those described in the sections headed “Risk Factors” and “Conflicts of Interest”, actual events or results or the actual performance of the Fund may differ materially from that anticipated in such forward-looking statements. Statements in this Memorandum are based on the law and practice in force in the Cayman Islands at the date of this Memorandum and are therefore subject to change should that law or practice change. Neither the delivery of this Memorandum nor the issue of the Shares shall under any circumstances create any implication or constitute any representation that the affairs of the Company have not changed since the date of this Memorandum. AYERS ALLIANCE QUANTUM FUND 3 Ayers Alliance SPC Regulation The Company is a “regulated mutual fund” for the purposes of the Mutual Funds Law and is registered with CIMA pursuant to section 4(3) of the Mutual Funds Law. This Memorandum has been filed with CIMA. Such registration does not imply that CIMA or any other regulatory authority in the Cayman Islands has approved this Memorandum or the offering of the Shares. Distribution and selling Neither this Memorandum nor the Shares described in it have restrictions been qualified for offer, sale or distribution under the laws of any jurisdiction governing the offer or sale of mutual fund equity interests or other securities. The distribution of this Memorandum and the offering or purchase of the Shares may be restricted in certain jurisdictions. This Memorandum does not constitute an offer, solicitation or invitation to subscribe for Shares in any jurisdiction in which such offer, solicitation or invitation is not authorised, or to any person to whom it would be unlawful to make such an offer, solicitation or invitation. It is the responsibility of any person in possession of this Memorandum, and any person wishing to apply for Shares pursuant to this Memorandum, to inform themselves of and to observe all applicable laws and regulations of any jurisdiction relevant to them. Please review the selling restrictions set out in the Appendix. Confidentiality This Memorandum is strictly confidential and is to be read only by the person to whom it has been delivered to enable that person to evaluate an investment in the Fund. It is not to be reproduced or distributed to any other persons except that a potential investor may provide a copy to its professional advisers. Investor responsibility No representations or warranties of any kind are intended or should be inferred with respect to the economic return from, or the tax consequences of, an investment in the Fund. No assurance can be given that existing laws will not be changed or interpreted adversely. Potential investors should not construe this Memorandum as legal, tax or financial advice. The above information is for general guidance only. Before making an investment in the Fund prospective investors should review this Memorandum carefully and in its entirety. Prospective investors should consult with their legal, tax and financial advisers as to any legal, tax, financial or other consequences of subscribing for, purchasing, holding, redeeming or disposing of Shares in their country of citizenship, residence and/or domicile. AYERS ALLIANCE QUANTUM FUND 4 Ayers Alliance SPC Risks Investment in the Fund carries substantial risk. There can be no assurance that the Fund’s investment objective will be achieved and investment results may vary substantially over time. An investment in the Fund is only suitable for sophisticated investors who are able to bear the loss of a substantial portion or even all of their investment in the Fund. An investment in the Fund is not intended to be a complete investment programme for any investor. There is no public market for the Shares, nor is a public market expected to develop in the future. Potential investors should carefully consider the risk factors set out in the section headed “Risk Factors” when considering whether an investment in the Fund is suitable for them in light of their circumstances and financial resources. Investors are advised to seek independent professional advice on the implications of investing in the Fund. AYERS ALLIANCE QUANTUM FUND 5 Ayers Alliance SPC DIRECTORY AYERS ALLIANCE SPC Registered Office Manager 4th Floor, Harbour Place Ayers Alliance Asset Management Limited 103 South Church Street 4th Floor, Harbour Place 103 South Church Street PO Box 10240 Grand Cayman KY1-1002 Grand Cayman KY1-1002 Cayman Islands Cayman Islands Directors Administrator and Transfer Agent Wen Cyrus Jun-Ming Citi Fund Services (Asia) Limited Lee Chin-Chang 50/F Citibank Tower Citibank Plaza, 3 Garden Road Central Hong Kong Auditors Deloitte & Touche One Capital Place PO Box 1787 Grand Cayman KY1-1109 Cayman Islands Prime Broker UBS AG, London Branch 1 Finsbury Avenue London EC2M 2PP Hong Kong Investment Advisor STI Asset Management Limited 3rd Floor, QRC100 100 Queen’s Road Central Central Hong Kong Australian Investment Advisor Ayers Alliance Limited Level 2, Exchange House 10 Bridge Street Sydney NSW 2000 Australia Legal Adviser as to Cayman Islands law Harney Westwood & Riegels 3601 Two Exchange Square 8 Connaught Place Central Hong Kong Legal and Tax Adviser as to Australian law DLA Piper Australia 201 Elizabeth Street Sydney NSW 2000 Australia AYERS ALLIANCE QUANTUM FUND 6 Ayers Alliance SPC CONTENT Definitions 9 Summary 13 The Company and the Fund 17 Structure 17 Shares 17 Dealing currency 17 Additional information 18 Investment Objective, Strategies and Restrictions 19 Investment objective 19 Investment strategies 19 Investment restrictions 21 Leverage 21 Currency hedging and trading 22 Distribution policy 22 Changes to investment objective, investment strategies and restrictions 22 Side Pocket Investments 23 Management and Administration 25 Board of Directors 25 Manager 26 Investment Advisors 27 Administrator and Transfer Agent 29 Prime Broker 30 Distributor 31 Change of service providers 31 Fees and Expenses 32 Fees payable to the Manager 32 Fees payable to the Investment Advisors 33 Administration fees 33 Prime brokerage fees 33 Fees payable to the Directors 33 Expenses 33 Subscriptions 35 Offer 35 Subscription price and issuance 35 Subscription fee 35 Minimum investment 35 Eligible Investors 35 Payment 36 Non-cash subscriptions 36 Subscription procedure 36 Issue of Shares 37 Prevention of money laundering 37 AYERS ALLIANCE QUANTUM FUND 7 Ayers Alliance SPC Form of Shares 38 New issue securities 38 Redemption and Transfer 39 Procedure for the redemption of Shares 39 Redemption price and redemption proceeds 39 Redemption fee 39 Deferral of redemptions 40 Settlement 40 Prevention of money laundering 41 Rights following the Redemption Day 41 Compulsory redemption 41 Transfer of Shares 41 Net Asset Value 43 Determination of Net Asset Value 43 Valuation of assets 43 Suspensions 44 Risk Factors 46 Risks associated with the structure of the Company and the Fund 46 Risks associated with the investment strategies 48 Conflicts of Interest 57 Manager and Investment Advisors 57 Directors 57 Soft dollar arrangements 58 Taxation 59 General 59 Cayman Islands 59 Hong Kong 59 Australia 62 European Union Savings Directive 63 US Foreign Account Tax Compliance Act 63 Other jurisdictions 64 Financial Information and Reports 65 Financial year 65 Financial statements 65 Auditors 65 Reports to Shareholders 65 General 66 The Company 66 Share capital of the Company 66 Segregated portfolios 66 Rights of the Management Shares 67 Rights of the Shares 67 Rights of the side pocket shares 68 Modification of rights attaching to a Class 68 Side letters 69 AYERS ALLIANCE QUANTUM FUND 8 Ayers Alliance SPC Consolidation of series 69 Amendments to the Articles 69 Winding up and termination 69 General meetings 70 Directors’ report 70 Regulation 70 Material contracts 70 Documents available for inspection 71 Enquiries 71 APPENDIX – RESTRICTIONS ON DISTRIBUTION 72 AYERS ALLIANCE QUANTUM FUND 9 Ayers Alliance SPC DEFINITIONS In this Memorandum capitalised terms have the meanings set out below unless the context otherwise requires: Administrator Citi Fund Services (Asia) Limited, providing the services of fund administrator and transfer agent, and a reference to the Administrator in this Memorandum shall be deemed to be a reference to the Administrator either in its capacity as fund administrator or transfer agent, as the context requires. Articles the memorandum and articles of association of the Company, as amended from time to time. Auditors Deloitte & Touche. Australian Investment Advisor Ayers Alliance Limited. Australian Investment an agreement between the Manager and the Australian Advisory Agreement Investment Advisor pursuant to which the Australian Investment Advisor will act as investment advisor to the Manager. Business Day a day (other than a Saturday or a Sunday) on which banks in Hong Kong are authorised to open for normal banking business and/or such other day or days as the Directors may determine, either generally or in any particular case, provided that where, as a result of a typhoon signal number 8 or above, black rainstorm warning or similar event, the period during which banks in Hong Kong are open on any day are reduced, such day shall not be a Business Day. Calculation Period a period of 12 months commencing on each 1 January, provided that the first Calculation Period in respect of any series will be the period commencing on the date such series is issued and ending on the next following 31 December. CIMA the Cayman Islands Monetary Authority. Class any class of Shares or Side Pocket Shares designated by the Directors pursuant to the Articles. Class A Share a Share designated as a Class A Share. Companies Law the Companies Law of the Cayman Islands, as amended or re-enacted from time to time. Company Ayers Alliance SPC an exempted company incorporated with limited liability and registered as a segregated portfolio company under the Companies Law with registration number HS-281646. AYERS ALLIANCE QUANTUM FUND 10 Ayers Alliance SPC Dealing Currency in respect of any Class, the currency determined by the Directors on the establishment of the Class as the currency in which the Subscription Price, Redemption Price and Net Asset Value per Share of such Class will be calculated. Directors the directors of the Company from time to time. Eligible Investor a person to whom the Company can lawfully make an invitation to subscribe for Shares without compliance with any registration or other legal requirements, who is able to acquire and hold Shares without breaching the law or requirements of any country, regulatory body or government authority and who satisfies such additional eligibility requirements as may be determined by the Directors from time to time. Fund Ayers Alliance Quantum Fund SP, a segregated portfolio of the Company. High Water Mark in relation to any series, the highest Net Asset Value of that series (after payment of any Performance Fees) as at the last Valuation Day in any previous Calculation Period or, if higher, the Net Asset Value of the relevant series immediately following the issue of such series. Hong Kong Investment Advisor STI Asset Management Limited. Hong Kong Investment an agreement between the Manager and the Hong Kong Advisory Agreement Investment Advisor pursuant to which the Hong Kong Investment Advisor will act as investment advisor to the Manager. Hurdle Rate in relation to any Share, the High Water Mark for that Share multiplied by 1.08. IFRS International Financial Reporting Standards issued by the International Accounting Standards Board. Initial Offer Period in relation to any Class, the period determined by the Directors during which Shares of that Class are first offered for subscription, which ended at 5:00 p.m. (Hong Kong time) on 28 January 2014. Initial Series in relation to any Class, the series issued on the close of the Initial Offer Period or any series substituted for such series. Investment Advisors the Hong Kong Investment Advisor and the Australian Investment Advisor and each, an Investment Adviso.r Investment Advisory Agreements the Hong Kong Investment Advisory Agreement and the Australian Investment Advisory Agreement and each, an Investment Advisory Agreement. AYERS ALLIANCE QUANTUM FUND 11 Ayers Alliance SPC Lock-up Period in respect of a Class A Share, a period of 6 months commencing on the issue of such Share or such shorter period as the Directors may determine. Management Agreement an agreement between the Fund and the Manager pursuant to which the Manager will provide investment management services. Management Fee the management fee payable by the Company, out of the assets of the Fund, to the Manager pursuant to the Management Agreement. Management Share a non-participating, non-redeemable, voting share of par value US$0.01 in the capital of the Company designated as a Management Share. Manager Ayers Alliance Asset Management Limited. Memorandum this offering memorandum, as amended or supplemented from time to time. Minimum Holding Shares with an aggregate Net Asset Value of not less than US$100,000 or such lesser amount as the Directors may determine, either generally or in any particular case. Mutual Funds Law the Mutual Funds Law of the Cayman Islands, as amended or re-enacted from time to time. Net Asset Value the net asset value of the Fund, the relevant Class, the relevant series or a Share, as the case may be, determined as described in the section headed “Net Asset Value”. Net Asset Value per Share in respect of a Share of any series, the Net Asset Value of the relevant series divided by the number of Shares of such series in issue. Performance Fee the performance fee payable by the Company, out of the assets of the Fund, to the Manager pursuant to the Management Agreement. Prime Broker one or more financial institutions that may be appointed as a prime broker in respect of the Fund from time to time. Redemption Day the first Business Day of each month and/or such other day or days as the Directors may determine, either generally or in any particular case. Redemption Gate Shares representing in aggregate 10 per cent or more (or such higher percentage as the Directors determine, either generally or in respect of any particular Redemption Day) of the Net Asset Value of the Fund. AYERS ALLIANCE QUANTUM FUND 12 Ayers Alliance SPC Redemption Notice a request for the redemption of Shares which shall be in such form as the Directors may determine from time to time. Redemption Price the price per Share at which Shares of the relevant Class may be redeemed, calculated in the manner described in the section headed “Redemption and Transfer”. Share a participating, redeemable, non-voting share of par value US$0.01 in the capital of the Company attributable to the Fund and being offered for subscription under the terms of this Memorandum. Shareholder a holder of one or more Shares or Side Pocket Shares. Side Pocket Investment an asset which is determined by the Directors to be designated as a Side Pocket Investment, as more particularly described under “Side Pocket Investments” in this Memorandum. Side Pocket Share a participating, non-redeemable, non-voting share of par value US$0.01 in the capital of the Company attributable to the Fund and designated as a Side Pocket Share. Subscription Agreement an application to subscribe for Shares which shall be in such form as the Directors may determine from time to time. Subscription Day the first Business Day of each month and/or such other day or days as the Directors may determine, either generally or in any particular case. Subscription Price the price per Share at which Shares of the relevant Class may be issued, calculated in the manner described in the section headed “Subscriptions”. United States or US the United States of America, its territories and possessions including the States and the District of Columbia. US Dollar, USD or US$ the lawful currency of the United States. US Person a citizen or resident of the United States, a corporation, partnership or other entity created or organised in or under the laws of the United States or any person falling within the definition of the term “United States Person” under Regulation S promulgated under the United States Securities Act of 1933, as amended. Valuation Day in respect of each Class, the Business Day immediately preceding each Redemption Day and each Subscription Day and/or such other day or days as the Directors may determine, either generally or in any particular case. Valuation Point the close of business in the last market relevant to the Fund to close on the relevant Valuation Day, or such other time as the Directors may determine. AYERS ALLIANCE QUANTUM FUND 13 Ayers Alliance SPC SUMMARY The following summary should be read in conjunction with the remainder of this Memorandum, the Articles and the other documents referred to in this Memorandum and is qualified in its entirety by reference to such documents. The Company and the Fund Ayers Alliance SPC is an exempted company incorporated with limited liability and registered as a segregated portfolio company in the Cayman Islands under the Companies Law. A segregated portfolio company is permitted to create one or more segregated portfolios in order to segregate the assets and liabilities of the company held in respect of one segregated portfolio from the assets and liabilities of the company held in respect of any other segregated portfolio and/or the general assets and liabilities of the company. Under Cayman Islands law, the assets of one segregated portfolio will not be available to meet the liabilities of another segregated portfolio. Notwithstanding the segregation of assets and liabilities between segregated portfolios, a segregated portfolio company is a single legal entity and no segregated portfolio constitutes a legal entity separate from the company itself. This Memorandum relates only to Ayers Alliance Quantum Fund SP, a segregated portfolio of the Company. The Directors may at any time create additional segregated portfolios without notice to, or the consent of, the Shareholders. Each segregated portfolio may have, and is expected to have, different investment strategies from those of other segregated portfolios of the Company. The Company may issue participating shares of one or more classes in respect of a segregated portfolio. The Shares The Directors have initially created and designated one Class in respect of the Fund, being Class A Shares, which are being offered under the terms of this Memorandum. At any time the Directors may establish and designate additional Classes without notice to, or the consent of, the Shareholders. The Directors may differentiate between Classes on various bases, including as to the Dealing Currency, the fees payable, the level of information provided and redemption rights. Regulation The Company is registered with CIMA as a regulated mutual fund pursuant to section 4(3) of the Mutual Funds Law. Accordingly, the Company is subject to regulatory supervision by CIMA. AYERS ALLIANCE QUANTUM FUND 14 Ayers Alliance SPC Investment objective and strategies The investment objective of the Fund is capital appreciation. There can be no assurance that the investment objective will be achieved. The Manager will seek to achieve the investment objective of the Fund by utilising the investment strategies set out in the section headed “Investment Objective, Strategies and Restrictions”. Management The Directors have overall responsibility for the management and administration of the Company. However, the Directors have delegated responsibility for day-to-day administrative functions to the Administrator and responsibility for making day-to-day investment decisions to the Manager. Under Cayman Islands law, a person acting as an investment manager is not required to be licensed if it carries on such business exclusively for sophisticated persons or high net worth persons which the Manager intends to do. The Manager has appointed or will appoint the Investment Advisors to provide investment advisory services to the Manager in relation to the management and investment of the assets of the Fund. It is anticipated that the central management and control of the Company will be exercised by the Directors outside the jurisdictions in which the Investment Advisors operate. Subscriptions Shares are available for subscription on each Subscription Day at the relevant Subscription Price. Subscription fee A subscriber for Class A Shares may be required to pay a subscription fee of up to 5 per cent of the subscription amount. Minimum subscription The minimum initial investment per subscriber is US$100,000, exclusive of any subscription fee). The Directors may waive or reduce the minimum initial investment either generally or in any particular case. However, for so long as the Company is registered under section 4(3) of the Mutual Funds Law, the minimum initial investment cannot be less than US$100,000 (or its equivalent in the relevant Dealing Currency) (exclusive of any subscription fee). Redemptions Shares may be redeemed at the option of the Shareholder on any Redemption Day falling after the expiry of the relevant Lock-up Period. A completed Redemption Notice must be received by the Administrator no later than 5:00 p.m. (Hong Kong time) on a Business Day falling at least 3 Business days (or such lesser period as the Directors may permit, either generally or in any particular case) before the relevant Redemption Day. AYERS ALLIANCE QUANTUM FUND 15 Ayers Alliance SPC Restrictions on redemptions The Directors may temporarily suspend the redemption of Shares in certain circumstances. If Redemption Notices are received in respect of any Redemption Day which, if satisfied in full, would result in redemptions in excess of the Redemption Gate, the Directors may limit redemptions to the Redemption Gate. Any such limitation will be applied on a pro ratabasis amongst all Shareholders seeking to redeem Shares on the relevant Redemption Day. Redemption Notices which are not satisfied in full will be carried forward to the next Redemption Day. Payment of redemption proceeds Redemption proceeds will normally be paid in cash by electronic transfer at the Shareholder’s risk and expense. However, in certain circumstances, the Company may effect the payment of redemption proceeds by way of a transfer of assets or partly in cash and partly by way of a transfer of assets. Valuations The Net Asset Value and the Net Asset Value per Share of each Class will be calculated as at the Valuation Point on each Valuation Day. The Directors may temporarily suspend the calculation of the Net Asset Value and/or the Net Asset Value per Share of any Class in certain circumstances. Restrictions on sale and transfer Shares will only be issued to, and may only be transferred to, persons who are Eligible Investors. Shares may not be transferred without the prior written consent of the Directors. Dividends It is not envisaged that any income or gains will be distributed by way of dividend. This does not preclude the Directors from declaring a dividend at any time in the future if they consider it appropriate to do so. Management Fee The Company will pay the Manager a Management Fee, out of the assets of the Fund, in respect of each calendar quarter, of an amount equal to one quarter (1/4) of 2 per cent of the average Net Asset Value of each series of Class A Shares during the relevant quarter. The average Net Asset Value of a series will be determined by reference to the Net Asset Value of the relevant series (before making any deduction for any accrued Management Fee and Performance Fee) on the last Valuation Day in each month in the relevant quarter. AYERS ALLIANCE QUANTUM FUND 16 Ayers Alliance SPC Performance Fee The Manager will also be entitled to receive a Performance Fee from the Fund in respect of each series of Shares in issue. For each Calculation Period, the Performance Fee in respect of each series will be equal to 20 per cent of the appreciation in the Net Asset Value of the series (adjusted for any redemptions and distributions) during the Calculation Period above the High Water Mark which is in excess of the Hurdle Rate. The Performance Fee will be calculated as at each Valuation Day in respect of each series by reference to the Net Asset Value of such series before deduction for any accrued Performance Fee. Other fees and expenses All the costs of the operation and management of the Fund, including the organisational expenses, the fees and expenses payable to service providers and all expenses related to the investment programme will be paid out of the assets of the Fund. To the extent that any fees and expenses incurred by the Company do not relate to a specific segregated portfolio, such fees and expenses will be apportioned to each segregated portfolio on a pro ratabasis. Risk factors and conflicts of interest An investment in the Fund entails risk. Potential investors should review carefully the discussions under the sections headed “Risk Factors” and “Conflicts of Interest”. Reporting Each Shareholder will be provided with access to a copy of an annual report that will include audited financial statements within six months of the end of each financial year of the Fund. Shareholders will also be provided with access to a monthly report on the investment performance of the Fund. It is envisaged that access will be provided by uploading the relevant reports to an online facility such as a website. The financial year of the Fund will end on 31 December in each year, with the first financial year ending on 31 December 2014. Tax The Company is not subject to tax in the Cayman Islands (other than annual filing fees and an annual registration fee) under the current laws of the Cayman Islands. Potential investors should consult their own advisers as to the particular tax consequences to them of their proposed investment in the Fund. AYERS ALLIANCE QUANTUM FUND 17 Ayers Alliance SPC THE COMPANY AND THE FUND STRUCTURE The Company is an exempted company incorporated with limited liability and registered as a segregated portfolio company in the Cayman Islands under the Companies Law. The Company was incorporated on 4 October 2013. A segregated portfolio company is permitted to create one or more segregated portfolios in order to segregate the assets and liabilities of the company held in respect of one segregated portfolio from the assets and liabilities of the company held in respect of any other segregated portfolio and/or the general assets and liabilities of the company. Under Cayman Islands law, the assets of one segregated portfolio will not be available to meet the liabilities of another segregated portfolio. Notwithstanding the segregation of assets and liabilities between segregated portfolios, a segregated portfolio company is a single legal entity and no segregated portfolio constitutes a legal entity separate from the company itself. This Memorandum relates only to the Fund, a segregated portfolio of the Company. The Directors may at any time created additional segregated portfolios without notice to, or the consent of, the Shareholders. Each segregated portfolio may have, and is expected to have, different investment strategies from those of other segregated portfolios of the Company. The Company may issue participating shares of one or more classes in respect of a segregated portfolio. The Fund is open-ended and not structured as a closely held investment vehicle. The Fund was established with a view to accepting wide participation by Eligible Investors. It is anticipated that the central management and control of the Company will be exercised by the Directors outside the jurisdictions in which the Investment Advisors operate. SHARES The Directors have initially created and designated one Class in respect of the Fund, being Class A Shares, which are being offered under the terms of this Memorandum. At any time the Directors may establish and designate additional Classes without notice to, or the consent of, the Shareholders. The Directors may differentiate between Classes on various bases, including as to the Dealing Currency, the fees payable, the level of information provided and redemption rights. Shares do not carry voting rights except in relation to a modification of the rights attaching to a Class. The Management Shares, which are the voting shares in the Company, are held by the Manager. DEALING CURRENCY The base currency of the Fund is the US Dollar and the financial statements of the Fund will be presented in US Dollars. The Directors may designate a Dealing Currency for any Class and in the absence of any such designation, the Dealing Currency will be the US Dollar. Subscriptions for, and redemptions of, Shares of a Class will be processed in the relevant Dealing Currency, and the Net Asset Value per Share of the Class will be calculated and quoted in such Dealing Currency. The Dealing Currency of the Class A Shares is the US Dollar. AYERS ALLIANCE QUANTUM FUND 18 Ayers Alliance SPC ADDITIONAL INFORMATION This Memorandum does not purport to be and should not be construed as a complete description of the Articles, the Subscription Agreement or the contracts entered into by the Company in respect of the Fund. Before investing in the Fund each potential investor should examine this Memorandum, the Subscription Agreement and the Articles and satisfy itself that an investment in the Fund is appropriate. In the event that there is any conflict between this Memorandum and the Articles, the Articles shall prevail. Additionally, and prior to a potential investor purchasing any Shares, the Company will make available to the potential investor the opportunity to ask questions of and receive written answers from representatives of the Company concerning the terms and conditions of an investment in the Fund. An investment in the Fund may be considered speculative. It is not intended as a complete investment programme. It is designed only for experienced and sophisticated investors who are able to bear the risk that all or a substantial part of their investment in the Fund may be lost. AYERS ALLIANCE QUANTUM FUND 19 Ayers Alliance SPC INVESTMENT OBJECTIVE, STRATEGIES AND RESTRICTIONS INVESTMENT OBJECTIVE The Fund is managed with the aim to deliver absolute returns for investors on a twelve month basis under any market conditions. The Fund primarily aims to systematically capture statistical arbitrage and market neutral arbitrage opportunities in the equity and currency markets. The Fund may use derivative instruments for risk management purposes and use leverage to enhance returns. There can be no assurance that the investment objective will be achieved. INVESTMENT STRATEGIES 1 The Fund’s principal currency strategies include: (a) Spot arbitrage strategy: the Fund’s system connects to different price feeds of banks and brokers and takes advantage of price discrepancies; (b) Convergence strategy: the Fund’s system enters into trades when divergence is spotted between US Dollar Index futures and the spot prices of its underlying pairs, and takes profit when convergence occurs; (c) Price action strategy: when FX pairs move irrationally due to position adjustments or sudden sizable trades, the Fund’s system enters into short-term trades in the opposite direction; (d) Trend following strategy: when the Fund’s system detects a trend, the Fund’s system enters into a short-term position in the same direction, while longing options to protect its downside risks; and (e) Dynamic option strategy: when the Fund’s system detects a consolidated market it will sell calls and puts and place spot stop orders to protect its downside risks. 2 The Fund’s principal equities strategies include: (a) Cross listings and depositary receipts arbitrage Opportunities: dual listed securities against each other and depositary receipts against the underlying securities Dual or multiple listed securities: As many companies are traded on multiple markets there are times when trading happens simultaneously on multiple markets on the same security and so it will be possible to buy the securities for one price in one market and sell the same security at a higher price in another market simultaneously and unwind the trades later. Depositary receipts: A depositary receipt (DR) is a negotiable financial instrument issued by a bank to represent a foreign company’s publicly traded securities. DRs make it easier to buy shares in foreign companies because the shares of the company do not have to leave the home jurisdiction. Most DRs are exchangeable into the original security known as fungible and should have the same value as the underlying security. However, there are often spreads between the two where value can be extracted. AYERS ALLIANCE QUANTUM FUND 20 Ayers Alliance SPC (b) Exchange traded fund (ETF) versus underlying arbitrage Opportunities: ETFs versus their underlying securities ETFs allow authorized participants to exchange back and forth between shares in underlying securities (ETF creation and redemption) held by the fund and shares in the fund itself, rather than allowing the buying and selling of shares in the ETF directly with the fund sponsor. An ETF may trade at a premium or discount to the value of the underlying assets. When a significant enough premium appears, the Fund will buy the underlying securities, convert them to shares in the ETF through authorized participants (i.e. create an ETF), and sell the ETFs in the open market. When a discount appears the Fund will do the reverse, buy the ETF, convert them to shares of the underlying securities through authorized participants (i.e. redeem the ETF) and sell the underlying securities in open market. (c) Single stock cash versus futures arbitrage Opportunities: Futures versus underlying securities and futures versus underlying share options The Fund takes profit between the difference of the futures price and cash price of a security. Futures versus underlying securities: When a single security futures contract drops below the price of the underlying security, the Fund will long the single security futures and simultaneously short the security. The profit is the difference between the price of the futures contract purchased and the underlying security sold. Futures versus underlying share option: If the Fund believes an option is overpriced or under- priced it will also establish positions in that option and simultaneously take an opposite position in the single security futures contract. (d) Volatility arbitrage Opportunities: Implied volatility of an option versus the future volatility of its underlying security Since options pricing is determined by the volatility of the underlying security, if the forecasted and implied volatilities differ, there will be a discrepancy between the expected price of the option and the option’s actual market price. When the Fund spots a higher volatility of the underlying security than the implied volatility of the option the Fund will buy the option and hedge its underlying security, the strategy becomes profitable if the underlying security’s realized volatility eventually proves to be higher than that of the option. In contrast, a short position in an option combined with a long position in the underlying security will be profitable if the realized volatility of the underlying security is lower than the option’s implied volatility. (e) Risk arbitrage Opportunities: Risk arbitrage (also known as merger arbitrage) tries to identify companies targeted for merger or acquisition. Cash merger: the acquirer proposes to purchase the shares of the target for a certain price in cash. Until the acquisition is completed, the shares of the target trade below the purchase price. The Fund could buy the securities of the target and make a gain if the transaction completes. AYERS ALLIANCE QUANTUM FUND 21 Ayers Alliance SPC Stock merger: the acquirer proposes to buy the target by exchanging its own shares for the shares of the target. The Fund could short sell the acquirer’s shares and buy the shares of the target. After the merger is completed, the target’s shares will be converted into shares of the acquirer based on the exchange ratio determined by the merger agreement. The Fund would then deliver the converted securities into its short position to complete the arbitrage. The Fund may from time to time participate in risk-reward special situation opportunities which fall outside the above investment strategies. These include, but are not limited to private investments in public equities, special convertible issues and other privately negotiated or other less liquid transactions. INVESTMENT RESTRICTIONS The following investment restrictions will apply in respect of the investment of the assets of the Fund: (a) in respect of its equities strategies the Fund will not invest in unlisted securities; (b) not more than 15 per cent of the latest available Net Asset Value will be invested in special situation opportunities; and (c) not more than 15 per cent of the latest available Net Asset Value will be invested in the securities of any one issuer. The above restrictions will apply as at the date of the relevant transaction or commitment to invest. Accordingly the restrictions will not be breached, and changes in the portfolio of the Fund will not have to be effected if any limits are exceeded merely because of any appreciation or depreciation in the value of any investment or because of changes in exchange rates. However, no further relevant investments will be acquired until the limits are again complied with. In the event that the Manager breaches any of the above restrictions, the Manager will take such steps as it considers appropriate to rectify the breach, taking due account of the interests of the Shareholders, but shall not be under any further liability in respect of the breach. Although the Company will generally make direct investments, the above restrictions will not prevent the Company from investing the assets of the Fund indirectly through one or more wholly-owned subsidiaries or other vehicles or through the use of swaps where the Manager considers that this would be commercially beneficial and/or tax efficient and/or provide the only practicable means of access to the relevant instrument or strategy. LEVERAGE When deemed appropriate, the Company may employ leverage in respect of the Fund for working capital and/or as part of the investment strategies. Such leverage may include, without limitation, borrowing cash, securities and other instruments, purchasing futures and entering into derivative transactions and repurchase agreements. The Company may pledge assets of the Fund as security for borrowings. The use of leverage will increase the risk of an investment in the Fund. The total leverage in the Fund will not normally exceed 200 per cent of the latest Net Asset Value of the Fund. The Company may borrow for the purposes of satisfying Redemption Notices or paying expenses, if required. The Company will not borrow for the purposes of on-lending. AYERS ALLIANCE QUANTUM FUND 22 Ayers Alliance SPC
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