PACIFIC ALLIAN ORD USD0 01 : 2015 audited financial statements

7e1535bb-cd31-4a33-af18-b0d0a554d889.pdf PACIFIC ALLIANCE ASIA OPPORTUNITY FUND LIMITED (Incorporated in the Cayman Islands with limited liability) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

The Master Fund achieved a net return of +5.34% for the year ended 31 December 2015. All main strategies were positive as of the end of the year. During 2015, the Investment Manager adjusted the portfolio composition, reduced the cash component and increased overall gross exposure, with higher-returning public market strategies replacing some lower-returning fixed return credit strategies. Overall portfolio liquidity has increased. Accordingly, the Investment Manager believes the Master Fund is well positioned to deliver a strong risk-adjusted return in 2016.

- Main Strategies

The Event Driven/Arbitrage/Relative Value strategy demonstrated strong performance, returning approximately 22% on allocated capital in 2015. Recent events in China created additional dislocations and inefficiencies in the public market that resulted in new investment opportunities, particularly in China A-share arbitrage and relative value. Looking ahead to 2016, extreme price action may provide good entry points for investment. In Japan, the Investment Manager anticipates more relative value investment opportunities as a result of recent policy changes.

In the Event Driven/Hard Catalyst space, we see increased M&A deal activity and widening spreads, and accordingly, a better opportunity set in 2016. At the same time, our book overlays and risk management structure seek to provide downside protection to manage the risk of significant market declines. The portfolio remains market neutral with minimal directional exposure. In 2016, the Investment Manager plans to increase this portfolio to 40%.

The Equity Long/Short allocation performed well in 2015, returning 26% on allocated capital. Focused mainly on South Korea, the portfolio remains conservatively positioned and market neutral. It is expected that this strategy will remain at approximately 5% of the portfolio in 2016.

The Bridge Financing allocation returned 7% on allocated capital in 2015. Bridge Financing opportunities are largely driven by both cyclical factors and government and regulatory action. As mentioned in previous reports, in China, deleveraging and weak GDP growth has reduced overall credit demand. A flight to quality among domestic Chinese lenders has created a bifurcated market where high quality borrowers are able to obtain financing at competitive rates in the range of 4-8% -- well below the Master Fund's target hurdle rate

- while weaker borrowers face significantly higher lending rates. The Investment Manager believes, however, that the risks in a slowing economy are currently too high to lend to smaller counterparties. Accordingly, the Investment Manager has generally not replaced the Master Fund's China loans that have rolled off in 2015. In Australia, the Bridge Financing opportunity remains strong, and the Investment Manager is also seeing select opportunities in South Korea and Japan. In China, relatively tight capital controls in China are creating potentially interesting financing opportunities with respect to outward bound Chinese M&A financing. However, given the decrease in overall China Bridge Financing opportunities, the Investment Manager expects Bridge Financing to reduce from approximately 22% to 15% of the portfolio in 2016.

The Distressed/Secondary strategy returned approximately 9% on capital allocated in 2015. The Investment Manager expects to see some further asset sales from banks as they continue selling assets in Japan and Australia. We are monitoring potential emerging NPL opportunities in China. The Investment Manager stays in close contact with various sellers to source and negotiate deals at steep discounts to intrinsic value. The Investment Manager expects to maintain a full allocation of approximately 15% in 2016 given liquidity considerations as this is the most illiquid strategy in the Master Fund.

(Continued)

Convertible Bond ("CB") Financing returned approximately 4% on capital allocated in 2015. In January and February 2015, the Master Fund experienced a price drop in the investment Project Superstar. The exposure to Project Superstar had been reduced in 2014, but the remaining position was held too long leaving too much exposure. The Investment Manager intends to avoid significant unprotected long exposure in the future by exiting the CBs upon conversion. Project Superstar was exited fully in April 2015 at an IRR of approximately 41%. In 2016, given market volatility, we will require either (1) higher yield or (2) for lower yielding CBs, clearer catalysts. This is an opportunistic strategy, and when markets trade downwards, that can create opportunities to find deep value and ability to earn yield. It is envisioned that the CB strategy will remain at approximately 25% of the portfolio in 2016.

- Summary

The Investment Manager invested further in its public markets team, including hiring a Japan portfolio manager in January 2015 and additional members to the public markets risk team.

The Master Fund's investor base remains extremely strong and as the Master Fund opportunities continue to grow, the Investment Manager is looking to increase capacity to US$2.5 billion over the course of 2016. Thank you for your support.

Investment Manager's Report Portfolio Performance

As at 31 December 2015, the Company's audited net asset value per share ("NAV") was US$1.808, a 4.56% increase from the 31 December 2014 audited consolidated financial statements. The Company's share price closed on 4 September 2015 at US$1.775, a 11.6% increase from 31 December 2014.

The Company invests substantially all of its assets in Pacific Alliance Asia Opportunity Fund L.P., a Cayman Islands exempted limited partnership via Pacific Alliance Asia Opportunity Feeder Fund III Limited (the "Feeder Fund").

US$

1.85

1.75

1.65

1.55

1.45

1.35

1.25

1.15

1.05

0.95

0.85

0.75

Market Price NAV

Realized and Unrealized Income

Total income for the year from 1 January 2015 to 31 December 2015 was US$8,036,343.

Realized Income US$

Deposit Interest -

Foreign Exchange 16,093

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Total 16,093

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Unrealized Appreciation US$

Investment in Master Fund 8,036,343

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Total 8,036,343

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