ifrs illustrative financial statements investment funds dec2011 8628

7/27/2019 Ifrs Illustrative Financial Statements Investment Funds Dec2011 8628

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IFRS

Illustrative fnancialstatements:

Investment unds

December 2011

kpmg.com/irs


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ContentsFinancial statements

Statement o nancial position 3

Statement o comprehensive income 5Statement o changes in net assets

attributable to holders o redeemable shares 7

Statement o cash fows 9

Notes to the nancial statements 11

Appendices

I Example disclosures or entities that early adopt

IFRS 9 Financial Instruments(October 2010) 79

II Example disclosures o segment reporting multiple

segment und 91

III Example disclosures o open-ended und with puttable

instruments classied as equity 99

IV Example disclosures o schedule o investments unaudited 109

V Example disclosures o exposure to market risk

Value-at-Risk analysis 113

Technical guide 116

Contact us 118


3/122 2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Whats new?Major changes rom the December 2010 edition o Illustrative fnancial statements: Investment undsare highlighted by a

double line border running down the let margin o the text within this document. The major change rom the December 2010

edition is example disclosures or the early adoption o IFRS 9 Financial instrumentsissued in October 2010.

About this publicationThese illustrative nancial statements have been produced by the KPMG International Standards Group (part o KPMG IFRG

Limited), and the views expressed herein are those o the KPMG International Standards Group.

Content

The purpose o this publication is to assist you in preparing annual nancial statements o an investment und in accordance

with IFRSs. It illustrates one possible ormat o nancial statements or und-specic entities based on a ctitious tax-exempt

open-ended single-und investment company, which does not orm part o a consolidated entity nor holds investments in

any subsidiaries, associates or joint venture entities. The companys redeemable shares are classied as nancial liabilitiesand the management shares meet the denition o equity; the company is outside the scope o IFRS 8 Operating Segments.

The company is not a rst-time adopter o IFRSs (see Technical guide). Appendix I illustrates example disclosures or the

early adoption o IFRS 9. Appendix II provides an example o disclosures or a und within the scope o IFRS 8 with multiple

reportable segments. Appendix III provides an example o disclosures or a und whose puttable instruments are classied as

equity.

This publication refects IFRSs in issue at 20 December 2011 that are required to be applied by an entity with an annual period

beginning on 1 January 2011 (currently eective requirements). IFRSs that are eective or annual periods beginning ater

1 January 2011 (orthcoming requirements) have not been adopted early in preparing these illustrative nancial statements.

However, example disclosures or the early adoption o IFRS 9 are included in Appendix I. This publication ocuses on disclosure

requirements that are specic to unds activities. For other disclosures that might be relevant, please reer to our publicationsIllustrative fnancial statementsand Illustrative fnancial statements: Banks.

This publication illustrates only the nancial statements component o a nancial report. However, typically a nancial reportwill include at least some additional commentary by management, either in accordance with local laws and regulations or at the

election o the und (see Technical guide).

When preparing nancial statements in accordance with IFRSs, a und should have regard to its local legal and regulatory

requirements. This publication does not consider any requirements o a particular jurisdiction.

In response to the Financial Stability Board report Enhancing Market and Institutional Resiliencethe IASB established an Expert

Advisory Panel (the panel) to assist the IASB in reviewing best practices in the area o valuation techniques and ormulating any

necessary additional guidance on valuation methods or nancial instruments and related disclosures when markets are no

longer active. The panel issued its nal report Measuring and disclosing the air value o fnancial instruments in markets that are

no longer activeon 31 October 2008. Part 2 o the report contains guidance on disclosures. This publication does not illustrate

these disclosures, unless they are also required by IFRS 7. For an illustrative example o disclosures in the panels report and

explanatory notes see our publication Illustrative fnancial statements: Bankspublished in July 2011.

IFRSs and their interpretation change over time. Accordingly, these illustrative nancial statements should not be used as a

substitute or reerring to the standards and interpretations themselves.

Reerences

The illustrative nancial statements are contained on the odd-numbered pages o this publication. The even-numbered pagescontain explanatory comments and notes on the disclosure requirements o IFRSs. The illustrative examples, together with the

explanatory notes, however, are not intended to be seen as a complete and exhaustive summary o all disclosure requirements

that are applicable under IFRSs. For an overview o all disclosure requirements that are applicable under IFRSs, see our

publication Disclosure checklist.

To the let o each item disclosed, a reerence to the relevant currently eective standard is provided; generally the reerences

relate only to disclosure requirements, except that note 3 highlights some accounting requirements in relation to signicantaccounting policies. These illustrative nancial statements also contain reerences to our publication Insights into IFRS

(8th Edition).


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2 | Illustrative nancial statements: Investment unds

2011 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

Explanatory note

1. IAS 1.55, 58 Additional line items, headings and subtotals are presented separately in the statement o nancial

position when such presentation is relevant to an understanding o the entitys nancial position. The

judgement used is based on an assessment o the nature and liquidity o the assets, the unction o

assets within the entity, as well as the amounts, nature and timing o liabilities. Additional line items

may include, e.g. prepayments.

IAS 1.57 IAS 1 does not prescribe the order or ormat in which an entity presents items. Additional line

items are included when the size, nature or unction o an item or aggregation o similar items is

such that separate presentation is relevant to an understanding o the entitys nancial position andthe descriptions used, and the ordering o items or aggregation o similar items may be amended

according to the nature o the entity and its transactions to provide inormation that is relevant to an

understanding o an entitys nancial position.

2. IAS 1.60, 61 In these illustrative nancial statements we have presented assets and liabilities broadly in order o

liquidity. An entity also may present its assets and liabilities using a current/non-current classication

i such presentation provides reliable and more relevant inormation. For each asset and liability line

item that combines amounts expected to be recovered or settled within (1) no more than 12 months

ater the end o the reporting period, and (2) more than 12 months ater the end o the reporting

period, an entity discloses in the notes the amount expected to be recovered or settled ater more

than 12 months.

3. IFRS 7.8 The carrying amounts o each o the categories o nancial assets and nancial liabilities are required

to be disclosed in either the statement o nancial position or the notes. In these illustrative nancial

statements this inormation is presented in the notes.

4. It has been assumed or the purpose o these illustrative nancial statements that managementshares issued by the Fund meet the denition o equity. Determination o whether an instrument

meets the denition o equity can be complex and is urther discussed in our publication Insights into

IFRS(7.3.50 310).

5. IAS 32 IE32 In these illustrative nancial statements presentation o the statement o nancial position ollows

the Example 7 in IAS 32.

6. IAS 39.48A,

AG72

In accordance with IAS 39 the best measure o air value o a nancial asset and nancial liability

is a quoted price in an active market. The quoted price or an asset held is usually the current bid

price and or a liability held is the asking price. On the other hand, in accordance with the Funds

prospectus, the redemption amounts o the redeemable shares are calculated using the mid-market

prices o the Funds underlying investments/securities sold short.

Owing to the dierences in the measurement bases o the Funds underlying investments/

securities sold short and the redemption amounts o the redeemable shares, a mismatch results

in the statement o nancial position giving rise to a presentation issue. In our view, one solution

may be to present the net assets attributable to holders o redeemable shares in a two-line ormat.The rst line would be the amount o the net assets attributable to holders o redeemable shares

measured in accordance with the prospectus, which refects the actual redemption amount at

which the redeemable shares would be redeemed at the reporting date, and the next line would

include an adjustment or the dierence between this and the amount recognised in the statement

o nancial position. This refects the act that or a und with no equity all recognised income and

expense is attributed to holders o redeemable shares, which also means that i all the shares are

redeemed, then a dilution levy o such amount would be required. This issue is discussed in our

publication Insights into IFRS(7.6.220.60 75). The treatment in a und with no equity is applied in

these illustrative nancial statements to a und with minimal equity as equity holders are entitled to a

minimal xed monetary amount on liquidation and the remaining net assets are attributed to holderso redeemable shares.


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Illustrative nancial statements: Investment unds | 3


Statement o nancial position1, 2, 3, 4, 5

IAS 1.10(a), 113 31 December 31 December

In thousands o euro Note 2011 2010

AssetsIAS 1.54(i) Cash and cash equivalents 51 71

IAS 1.54(d) Balances due rom brokers 10 4,619 3,121

IAS 1.54(d) Receivables rom reverse repurchase agreements 11 4,744 3,990

IAS 1.54(h) Other receivables 29 46

IAS 1.54(d) Non-pledged nancial assets at air value through prot or loss 12 26,931 24,471

IAS 1.54(d), 39.37(a) Pledged nancial assets at air value through prot or loss 12 2,691 2,346

Total assets 39,065 34,045

Equity5

Share capital 13 10 10

Total equity 10 10

LiabilitiesIAS 1.54(m) Balances due to brokers 10 143 275

IAS 1.54(m) Payables under repurchase agreements 11 2,563 2,234

IAS 1.54(k) Other payables 103 101

IAS 1.54(m) Financial liabilities at air value through prot or loss 12 3,621 1,446

Total liabilities (excluding net assets attributable to

holders o redeemable shares) 6,430 4,056

IAS 1.6, 54(m), Net assets attributable to holders o redeemable

32.IE32 shares6 14 32,625 29,979

Represented by:

Net assets attributable to holders o redeemable shares

(valued in accordance with prospectus)6

32,647 29,996Adjustment rom mid-market prices to bid/ask-market prices6 14 (22) (17)

32,625 29,979

The notes on pages 11 to 77 are an integral part o these nancial statements.


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Explanatory note

1. IAS 1.81 Total comprehensive income is the changes in equity during a period other than those changes

resulting rom transactions with owners in their capacity as owners, which is presented either in:

one statement, i.e. a statement o comprehensive income; or

two statements, i.e. a separate income statement and a statement beginning with prot or loss and

displaying components o other comprehensive income.

IAS 1.81(a) This illustration is based on a single statement o comprehensive income as the Fund has no other

components o other comprehensive income other than prot or loss or the period. For an example

o the two statements approach, please reer to our publication Illustrative fnancial statements.

IAS 32.IE32 In these illustrative nancial statements presentation o the statement o comprehensive income

ollows the Example 7 in IAS 32.

IFRS 7.20 Items o income and expense are oset only when required or permitted by an IFRS. IFRS 7 allows

the net presentation o certain gains and losses on nancial assets and nancial liabilities. This issue

is discussed in our publication Insights into IFRS(4.1.170).

IAS 1.85 An entity presents additional line items, headings and subtotals when this is relevant to anunderstanding o its nancial perormance.

2. IAS 1.99 An entity presents an analysis o expenses based on unction or nature. Items are classied in

accordance with their nature or unction regardless o materiality. In these illustrative nancial

statements, this analysis is based on the nature o expenses.

IAS 1.87 No items o income or expense may be presented as extraordinary. The nature and amounts o

material items are disclosed as a separate line item in the statement o comprehensive income or in

the notes. This issue is discussed in our publication Insights into IFRS(4.1.84 86).

3. IAS 1.82(a) IFRSs do not speciy whether revenue should be presented only as a single line item in thestatement o comprehensive income, or whether an entity also may include the individual

components o revenue in the statement o comprehensive income, with a subtotal or revenuerom continuing operations. In these illustrative nancial statements, the most relevant measure

o revenue is considered to be the sum o interest income, dividend income, net oreign exchange

loss and net gain rom nancial instruments at air value through prot or loss. However, other

presentations are possible.

4. IFRS 7.20(c)(ii) Fee income and expense arising rom trust and other duciary activities that result in the holding or

investing o assets on behal o individuals, trusts, retirement benet plans and other institutions are

required to be disclosed. In these illustrative nancial statements this disclosure has been given in

the statement o comprehensive income. Alternatively, it may be given in the notes.

5. IAS 32.35, 40 Interest, dividends, gains and losses relating to a nancial instrument or a component that is a

nancial liability are recognised as income or expense in prot or loss. Because redeemable sharesare classied as nancial liabilities, any distributions on these shares are presented as nance costs.Interest expense and dividends payable on securities sold short have been classied as operating

expense, but, depending on the acts and circumstances, presentation as part o nance cost is also

possible.

6. IAS 12.2 In our view, withholding taxes attributable to investment income (e.g. dividends received) should be

recognised as part o tax expense, with the investment income recognised on a gross basis. This

issue is discussed in our publication Insights into IFRS(3.13.420.30).

7. IAS 33.2, 3 An entity with publicly traded ordinary shares or in the process o issuing ordinary shares that are

to be publicly traded, should present basic and diluted earnings per share (EPS) in the statement

o comprehensive income. The requirements to present EPS only apply to those unds whose

ordinary shares are classied as equity. Nevertheless, some unds may wish to or may be required

by local regulations to present EPS. When an entity voluntarily presents EPS data, that data should

be calculated and presented in accordance with IAS 33. This issue is discussed in our publicationInsights into IFRS(5.3.370).


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Statement o comprehensive income1, 2

IAS 1.10(b), 81(a) For the year ended 31 December


Interest income3 7 603 429

IAS 18.35(b)(v) Dividend income3 272 229IAS 1.35 Net oreign exchange loss

3 (19) (16)

IFRS 7.20(a) Net gain rom nancial instruments at air value through

prot or loss3 8 3,251 2,397

IAS 1.82(a) Total revenue3 4,107 3,039

IAS 1.99 Investment management ees4 (478) (447)

IAS 1.99 Custodian ees4 (102) (115)

IAS 1.99 Administration ees4 (66) (62)

IAS 1.99 Directors ees (26) (15)

IAS 1.99 Transaction costs (54) (73)

IAS 1.99 Audit and legal ees (74) (67)

IFRS 7.20(b) Interest expense5

(75) (62)Dividend expense on securities sold short5 (45) (19)

IAS 1.99 Other operating expenses (8) (41)

Total operating expenses (928) (901)

IAS 1.85 Operating prot beore nance costs 3,179 2,138

IAS 32.40 Dividends to holders o redeemable shares5 14 (178) (91)

IAS 1.82(b) Total nance costs (178) (91)

IAS 1.85 Increase in net assets attributable to holders o redeemable

shares beore tax 3,001 2,047

IAS 1.82(d) Withholding tax expense6 9 (45) (39)

IAS 1.6, 1.82(), Increase in net assets attributable to holders o

32.IE32 redeemable shares 2,956 2,008



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Explanatory note

1. IAS 1.106 A complete set o nancial statements comprises, as one o its statements, a statement o

changes in equity. However, as equity in the Fund is minimal and there were no changes in equity

balances, no statement o changes in equity is presented. Instead, a statement o changes in net

assets attributable to holders o redeemable shares is presented. Although IFRSs do not require

presentation o this statement, it may provide users o the nancial statements with relevant anduseul inormation with respect to the components underlying the movements in the net assets o

the Fund attributable to the holders o redeemable shares during the year.

2. IAS 1.110 When a change in accounting policy, either voluntarily or as a result o the initial application o astandard, has an eect on the current period or any prior period, an entity presents the eects o

retrospective application or retrospective restatement recognised in accordance with IAS 8 in the

statement o changes in equity. These illustrative nancial statements do not demonstrate example

o IAS 8 disclosures; or an example o such disclosures, please reer to our publication Illustrative

fnancial statements.


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Statement o changes in net assets attributable to holders oredeemable shares1

IAS 1.106 For the year ended 31 December

In thousands o euro Note 2011 2010 Balance at 1 January 14 29,979 18,461

Increase in net assets attributable to holders o redeemable

shares 2,956 2,008

Contributions and redemptions by holders o redeemable

shares:

Issue o redeemable shares during the year 6,668 15,505

Redemption o redeemable shares during the year (6,978) (5,995)

Total contributions and redemptions by holders o

redeemable shares (310) 9,510

Balance at 31 December 14 32,625 29,979



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Explanatory note

1. IAS 7.18, 19 In these illustrative nancial statements cash fows rom operating activities are presented using the

direct method, whereby major classes o cash receipts and payments related to operating activities

are disclosed. An entity also may present operating cash fows using the indirect method, whereby

prot or loss is adjusted or the eects o non-cash transactions, accruals and deerrals, and items

o income or expense associated with investing or nancing cash fows. For an example statemento cash fows presenting operating cash fows using the indirect method see our publications

Illustrative fnancial statementsor Illustrative fnancial statements: Banks.

IAS 7.43 When applicable, an entity discloses investing and nancing transactions that are excluded rom the

statement o cash fows because they do not require the use o cash or cash equivalents in a way

that provides all relevant inormation about these activities.

2. IAS 7.33, 34 Interest paid and interest and dividends received are usually classied as operating cash fows or

a nancial institution. Dividends paid may be classied as a nancing cash fow as they represent

a cost o obtaining nancial resources. The Fund has adopted this classication or dividends paid

to the holders o redeemable shares. In these illustrative nancial statements dividends paid on

securities sold short are classied as operating cash fows as they result directly rom holding short

positions as part o the operating activities o the Fund.

3. IAS 7.14(g), 15 In these illustrative nancial statements gross receipts rom the sale o, and gross payments to

acquire, investment securities have been classied as components o cash fows rom operatingactivities as they orm part o the Funds dealing operations.

IAS 7.16(g), (h) Receipts rom and payments or utures, orwards, options and swap contracts are presented as

part o either investing or nancing activities, provided that they are not held or dealing or trading

purposes, in which case they are presented as part o operating activities. However, when a hedging

instrument is accounted or as a hedge o an identiable position, the cash fows o the hedging

instrument are classied in the same manner as the cash fows o the positions being hedged. This

issue is discussed in our publication Insights into IFRS(2.3.60.10).

I hedge accounting is not applied to a derivative instrument that is entered into as an economichedge, then in our view derivative gains and losses may be shown in the statement o

comprehensive income as either operating or nancing items depending on the nature o the item

being economically hedged. In our view, the possibilities or the presentation in the statement o

comprehensive income also apply to the presentation in the statement o cash fows. This issue is

discussed in our publication Insights into IFRS(7.8.220 225).

4. IAS 7.22 Cash fows rom operating, investing or nancing activities may be reported on a net basis i the

cash receipts and payments are on behal o customers and the cash fows refect the activities othe customer, or when the cash receipts and payments or items concerned turn over quickly, the

amounts are large and the maturities are short.


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Statement o cash fows1

IAS 1.10(d), 113 For the year ended 31 December


IAS 7.10 Cash ows rom operating activities

IAS 7.31, 33 Interest received2 619 454

IAS 7.31, 33 Interest paid2 (73) (63)

IAS 7.31, 33 Dividends received2 227 228

IAS 7.31, 33 Dividends paid on securities sold short2 (45) (19)

IAS 7.15 Proceeds rom sale o investments3 9,382 8,271

IAS 7.15 Purchase o investments3 (10,613) (17,713)

IAS 7.15 Acquisition o investments3 (10,613) (17,713)

IAS 7.22(b) Net non-dividend receipts/(payments) on securities sold short4 629 (2)

IAS 7.22(b) Net receipts/(payments) rom derivative activities4 1,581 (3)

IAS 7.22(b) Net non-interest (payments)/receipts rom repurchase

and reverse repurchase agreements4 (428) 299

IAS 7.14 Operating expenses paid (808) (848)

Net cash rom/(used in) operating activities 471 (9,396)

IAS 7.10, 21 Cash ows rom fnancing activities

IAS 7.17 Proceeds rom issue o redeemable shares 14 6,668 15,505

IAS 7.17 Payments on redemption o redeemable shares 14 (6,978) (5,995)

IAS 7.34 Dividends paid to holders o redeemable shares2 14 (178) (91)

Net cash (used in)/rom nancing activities (488) 9,419

Net (decrease)/increase in cash and cash equivalents (17) 23

Cash and cash equivalents at 1 January 71 50

IAS 7.28 Eect o exchange rate fuctuations on cash and cash equivalents (3) (2)

Cash and cash equivalents at 31 December 51 71



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Explanatory note

1. IAS 1.7 The notes include narrative descriptions or break-downs o amounts disclosed in the primary

statements. They also include inormation about items that do not qualiy or recognition in the

nancial statements.


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Notes to the nancial statements1

Page

1. Reporting entity 13

2. Basis o preparation 13

3. Signicant accounting policies 15

4. Financial risk management 27

5. Use o estimates and judgements 55

6. Classications and air values o nancial assets and liabilities 63

7. Interest income 65

8. Net gain rom nancial instruments at air value through prot or loss 65

9. Withholding tax expense 65

10. Balances due rom/to brokers 67

11. Receivables rom reverse repurchase agreements and payables

under repurchase agreements 67

12. Financial assets and nancial liabilities at air value through prot or loss 69

13. Equity 69

14. Net assets attributable to holders o redeemable shares 71

15. Related parties and other key contracts 75

16. Subsequent events 77


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Explanatory note

1. I nancial statements are prepared on the basis o national accounting standards that are modied

or adapted rom IFRSs and are made publicly available by publicly traded companies, then the

International Organization o Securities Commissions (IOSCO) has recommended including the

ollowing minimum disclosures:

a clear and unambiguous statement o the reporting ramework on which the accounting policies

are based;

a clear statement o the entitys accounting policies on all material accounting areas;

an explanation o where the respective accounting standards can be ound;

a statement explaining that the nancial statements are in compliance with IFRSs as issued by the

IASB, i this is the case; and

a statement explaining in what regard the standards and the reporting ramework used dier rom

IFRSs as issued by the IASB, i this is the case.

2. IAS 1.36 When the entity changes the end o its reporting period and annual nancial statements are

presented or a period longer or shorter than one year, it discloses the reason or the change and the

act that comparative amounts presented are not entirely comparable.

In this and other cases an entity may wish to present pro ormainormation that is not required by

IFRSs, e.g. pro ormacomparative nancial statements prepared as i the change in the end o the

reporting period were eective or all periods presented. The presentation o pro ormainormation is

discussed in our publication Insights into IFRS(2.1.80).

3. IAS 1.19, 20, 23 In the extremely rare circumstances in which management concludes that compliance with a

requirement o a standard or an interpretation would be so misleading that it would confict with the

objective o nancial statements set out in the Conceptual Framework or Financial Reporting, an

entity may depart rom the requirement i the relevant regulatory ramework requires or otherwise

does not prohibit such a departure. Extensive disclosures are required in these circumstances.

4. IAS 10.17 An entity discloses the date when the nancial statements were authorised or issue and who gave

that authorisation. I the entitys owners or others have the power to amend the nancial statementsater their issue, then the entity discloses that act.

5. IAS 1.25, 10.16 Taking account o specic requirements in its jurisdiction, an entity discloses any material

uncertainties related to events or conditions that may cast signicant doubt upon the entitys ability

to continue as a going concern, whether they arise during the period or ater the end o the reporting

period.

6. IAS 21.53, 54 I the nancial statements are presented in a currency dierent rom the entitys unctional currency,

then the entity discloses that act, its unctional currency, and the reason or using a dierent

presentation currency. I there is a change in the unctional currency, then the entity discloses thatact together with the reason or the change.

7. IAS 1.122124 An entity discloses the judgements, apart rom those involving estimations, that management has

made in the process o applying the entitys accounting policies and that have the most signicant

eect on the amounts recognised in the nancial statements. The examples that are provided in

IAS 1 indicate that such disclosure is based on qualitative data.

IAS 1.125, 129 An entity discloses the assumptions that it has made about the uture, and other major sources

o estimation uncertainty at the reporting date, that have a signicant risk o resulting in a materialadjustment to the carrying amounts o assets and liabilities within the next nancial year. The

examples that are provided in IAS 1 indicate that such disclosure is based on quantitative data, e.g.

appropriate discount rates.


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Notes to the nancial statements

IAS 1.10(e), 51(a), 1. Reporting entity(b), 1.138(a), (b)

[Name](the Fund) is a company domiciled in [country]. The address o the Funds registered oce

is [address].The Funds shares are not traded in a public market and it does not le its nancial

statements with a securities commission or other regulatory organisation or the purpose o issuingany class o instruments in a public market.

The Fund is an open-ended investment und primarily involved in investing in a highly diversied

portolio o equity securities issued by companies listed on major European stock exchanges and on

the New York Stock Exchange (NYSE), unlisted companies, unlisted investment unds, international

derivatives and investment grade debt securities with the objective o providing shareholders with

above average returns over the medium to long term.

IAS 1.138(a), (b) The investment activities o the Fund are managed by XYZ Capital Limited (the investment manager)

and the administration o the Fund is delegated to ABC Fund Services Limited (the administrator).

IAS 1.112(a) 2. Basis o preparation1

(a) Statement o compliance

IAS 1.16 The nancial statements o the Fund as at and or the year ended 31 December 20112 have been

prepared in accordance with International Financial Reporting Standards (IFRSs).3

IAS 10.17 The nancial statements were authorised or issue by the board o directors on [date].4

(b) Basis o measurement5

IAS 1.117(a) The nancial statements have been prepared on the historical cost basis except or nancial

instruments at air value through prot or loss, which are measured at air value.

(c) Functional and presentation currency 6

IAS 1.51(d), (e) These nancial statements are presented in euro, which is the Funds unctional currency. All nancial

inormation presented in euro has been rounded to the nearest thousand.

(d) Use o estimates and judgements7

The preparation o the nancial statements in conormity with IFRSs requires management to

make judgements, estimates and assumptions that aect the application o accounting policies and

the reported amounts o assets, liabilities, income and expenses. Actual results may dier rom

these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting

estimates are recognised in the period in which the estimates are revised and in any uture

periods aected.

IAS 1.122, 125 Inormation about assumptions and estimation uncertainties that have a signicant risk o resulting

in a material adjustment within the next nancial year, as well as critical judgements in applying

accounting policies that have the most signicant eect on the amounts recognised in the nancial

statements are included in notes 4 and 5.


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Explanatory note

1. When a change in accounting policy is the result o the adoption o a new, revised or amended

IFRS, an entity applies the specic transitional requirements in that IFRS. However, in our view

an entity nonetheless should comply with the disclosure requirements o IAS 8 to the extent that

the transitional requirements do not include disclosure requirements. Even though it could be

argued that the disclosures are not required because they are set out in the IAS 8 requirements orvoluntary changes in accounting policy, we believe that they are necessary in order to give a air

presentation. This issue is discussed in our publication Insights into IFRS(2.8.10). For an example

o disclosures relating to a change in accounting policy see our publication Illustrative nancial

statements.

2. IAS 8.28, 29 When a change in accounting policy, either voluntarily or as a result o the initial application o a

standard, has an eect on the current period or any prior period, an entity discloses, among other

things, the amount o the adjustment or each nancial statement line item aected.

IAS 8.49 I any prior period errors are corrected in the current years nancial statements, then an entity

discloses:

the nature o the prior period error;

to the extent practicable, the amount o the correction or each nancial statement line item

aected, and, i IAS 33 applies to the entity, basic and diluted earnings per share or each prior period

presented;

the amount o the correction at the beginning o the earliest prior period presented; and

i retrospective restatement is impracticable or a particular prior period, then the circumstances

that led to the existence o that condition and a description o how and rom when the error has

been corrected.

3. IAS 1.117(b) The accounting policies describe each specic accounting policy that is relevant to an understandingo the nancial statements.

IAS 8.5 Accounting policies are the specic principles, bases, conventions, rules and practices that an entityapplies in preparing and presenting nancial statements.

4. The accounting policies disclosed in these illustrative nancial statements refect the acts and

circumstances o the ctitious open-ended single-und investment company on which these nancial

statements are based. They should not be relied upon or a complete understanding o IFRSs and

should not be used as a substitute or reerring to the standards and interpretations themselves. The

accounting policy disclosures appropriate or an entity depend on the acts and circumstances o that

entity, including the accounting policy choices an entity makes, and may dier rom the disclosures

illustrated in these illustrative nancial statements.

5. IFRS 7.B5(e) An entity discloses how the statement o comprehensive income amounts are determined, e.g.

whether net gains and losses o nancial assets and liabilities measured at air value through prot orloss include interest and dividend income.

IFRS 7.20(b) In these illustrative statements interest income or nancial assets at air value through prot or

loss is presented separately rom net gain rom nancial instruments at air value through prot or

loss. However, other presentations, e.g. inclusion o interest income with the gain rom nancialinstruments at air value through prot or loss, are permitted.

6. The method o calculating the eective interest rate is discussed in our publication Insights into IFRS(7.6.290).


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2. Basis o preparation (continued)

(e) Changes in accounting policies1, 2

There were no changes in the accounting policies o the Fund during the year.

IAS 1.112(a), 3. Signifcant accounting policies3, 4

117(a), (b) The accounting policies set out below have been applied consistently to all periods presented in

these nancial statements.

(a) Foreign currency

IAS 21.21, 23(a) Transactions in oreign currencies are translated into euro at the exchange rate at the dates o the

transactions. Monetary assets and liabilities denominated in oreign currencies at the reporting date

are retranslated into euro at the exchange rate at that date.

IAS 21.23 Non-monetary assets and liabilities denominated in oreign currencies that are measured at air value

are retranslated into euro at the exchange rate at the date that the air value was determined.

Foreign currency dierences arising on retranslation are recognised in prot or loss as net oreign

exchange loss, except or those arising on nancial instruments at air value through prot or loss,

which are recognised as a component o net gain rom nancial instruments at air value through

prot or loss.

IFRS 7.B5(e) (b) Interest5, 6

IAS 18.35(b)(iii) Interest income and expense, including interest income rom non-derivative nancial assets at air

value through prot or loss, are recognised in prot or loss, using the eective interest method.

The eective interest rate is the rate that exactly discounts the estimated uture cash payments and

receipts through the expected lie o the nancial instrument (or, when appropriate, a shorter period)

to the carrying amount o the nancial instrument. When calculating the eective interest rate, the

Fund estimates uture cash fows considering all contractual terms o the nancial instrument, butnot uture credit losses. Interest received or receivable, and interest paid or payable are recognised in

prot or loss as interest income and interest expense, respectively.

IFRS 7.21, B5(e) (c) Dividend income and dividend expense Dividend income is recognised in prot or loss on the date that the right to receive payment is

established. For quoted equity securities this is usually the ex-dividend date. For unquoted equity

securities this is usually the date when the shareholders have approved the payment o a dividend.

Dividend income rom equity securities designated as at air value through prot or loss is recognised

in prot or loss as a separate line item.

The Fund incurs expenses on short positions in equity securities equal to the dividends due on these

securities. Such dividend expense is recognised in prot or loss as operating expense when the

shareholders right to receive payment is established.

IFRS 7.B5(e) (d) Dividends to holders o redeemable shares

Dividends payable to holders o redeemable shares are recognised in prot or loss as nance costs

when they are authorised and no longer at the discretion o the Fund. [Provide more detail to refect

the circumstances o the particular und].


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Explanatory note

1. IFRS 7.B5(e) In these illustrative nancial statements net gain rom nancial instruments at air value through

prot or loss includes:

gains and losses, other than interest and dividend income, on nancial assets and nancial liabilities

designated as at air value through prot or loss;

gains and losses, other than dividends payable on securities sold short classied as held or trading;

and

gains and losses on all derivatives.

However, other presentations are possible, e.g. this line also could include interest and dividend

income, interest expense and dividends on securities sold short.

2. In our view, an entity may apply any reasonable cost allocation method to determine the cost o

nancial assets sold that are part o a homogeneous portolio (e.g. average cost or rst-in, rst-

out). The selected method should be applied consistently. This issue is discussed in our publication

Insights into IFRS(7.5.290.50 60).

3. IFRS 7.28 An entity discloses the ollowing in respect o any day one gain or loss:

an accounting policy; and

the aggregate dierence still to be recognised in prot or loss, and a reconciliation between the

opening and closing balance thereo.

4. IAS 39.9, 11A Financial assets or liabilities (other than those classied as held or trading) may be designated upon

initial recognition as at air value through prot or loss, in any o the ollowing circumstances, i they:

eliminate or signicantly reduce a measurement or recognition inconsistency (accounting

mismatch) that would otherwise arise rom measuring assets and liabilities or recognising the gains

or losses on them on dierent bases;

are part o a group o nancial assets and/or nancial liabilities that is managed and or which

perormance is evaluated and reported to key management on a air value basis in accordance with a

documented risk management or investment strategy; or

are hybrid contracts in which an entity is permitted to designate the entire contract at air valuethrough prot or loss.

IAS 39.AG4B These illustrative nancial statements demonstrate the air value option or debt securities and

equity investments that are managed and evaluated on a air value basis as part o the Funds

documented investment strategy.


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3. Signifcant accounting policies (continued)

IFRS 7.21, B5(e) (e) Net gain rom fnancial instruments at air value through proft or loss1

Net gain rom nancial instruments at air value through prot or loss includes all realised andunrealised air value changes and oreign exchange dierences, but excludes interest and dividend

income, and dividend expense on securities sold short.

Net realised gain rom nancial instruments at air value through prot or loss is calculated using the

average cost method.2

IFRS 7.21 () Fees and commission expenses

Fees and commission expenses are recognised in prot or loss as the related services are

perormed.

(g) Tax

IAS 12.2 Under the current system o taxation in [insert name o the country o domicile]the Fund is exempt

rom paying income taxes. The Fund has received an undertaking rom [insert name o the relevantgovernment body]o [insert name o the country o domicile]exempting it rom tax or a period o

[insert number o]years up till [insert year o expiry].

However, some dividend and interest income received by the Fund are subject to withholding tax

imposed in certain countries o origin. Income that is subject to such tax is recognised gross o the

taxes and the corresponding withholding tax is recognised as tax expense.

IFRS 7.21 (h) Financial assets and fnancial liabilities

IAS 39.14, 38 (i) Recognition and initial measurement3

IFRS 7.B5(c) Financial assets and liabilities at air value through prot or loss are recognised initially on the trade

date, which is the date that the Fund becomes a party to the contractual provisions o the instrument.

Other nancial assets and liabilities are recognised on the date they are originated.

Financial assets and nancial liabilities at air value through prot or loss are recognised initially at air

value, with transaction costs recognised in prot or loss. Financial assets or nancial liabilities not

at air value through prot or loss are recognised initially at air value plus transaction costs that are

directly attributable to their acquisition or issue.

(ii) Classifcation

The Fund classies nancial assets and nancial liabilities into the ollowing categories:

Financial assets at air value through prot or loss:

Held or trading derivative nancial instruments

Designated as at air value through prot or loss debt securities and equity investments. 4

Financial assets at amortised cost:

Loans and receivables cash and cash equivalents, balances due rom brokers, receivables rom

reverse repurchase agreements and other receivables.

Financial liabilities at air value through prot or loss:

Held or trading securities sold short and derivative nancial instruments.

Financial liabilities at amortised cost:

Other liabilities balances due to brokers, payables under repurchase agreements, redeemable

shares and other payables.


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(h) Financial assets and fnancial liabilities (continued)

(ii) Classifcation (continued)IAS 39.9, AG15 A nancial instrument is classied as held or trading, i:

it is acquired or incurred principally or the purpose o selling or repurchasing it in the near term;

on initial recognition it is part o a portolio that is managed together and or which there is

evidence o a recent pattern o short-term prot taking; or

it is a derivative, other than a designated and eective hedging instrument.

IAS 39.9 The Fund has designated certain nancial assets as at air value through prot or loss when the

assets are managed, evaluated and reported internally on a air value basis.

A non-derivative nancial asset with xed or determinable payments may be classied as a loan

and receivable unless it is quoted in an active market, or it is an asset or which the holder may not

recover substantially all o its initial investment, other than because o credit deterioration.

Note 6 provides a reconciliation o line items in the statement o nancial position to the categories

o nancial instruments, as dened by IAS 39.

IAS 39.58 (iii) Amortised cost measurement

The amortised cost o a nancial asset or liability is the amount at which the nancial asset or

liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative

amortisation using the eective interest method o any dierence between the initial amount

recognised and the maturity amount, minus any reduction or impairment.

IAS 39.48 (iv) Fair value measurement

Fair value is the amount or which an asset could be exchanged, or a liability settled, between

knowledgeable, willing parties in an arms length transaction on the measurement date.

IAS 39.48A When available, the Fund measures the air value o an instrument using quoted prices in an active

market or that instrument. A market is regarded as active i quoted prices are readily and regularly

available and represent actual and regularly occurring market transactions on an arms length basis.

I a market or a nancial instrument is not active, then the Fund establishes air value using a

valuation technique. Valuation techniques include using recent arms length transactions between

knowledgeable, willing parties (i available), reerence to the current air value o other instruments

that are substantially the same, discounted cash fow analyses and option pricing models. The chosen

valuation technique makes maximum use o market inputs, relies as little as possible on estimates

specic to the Fund, incorporates all actors that market participants would consider in setting a price,

and is consistent with accepted economic methodologies or pricing nancial instruments. Inputs

to valuation techniques reasonably represent market expectations and measures o the risk-returnactors inherent in the nancial instrument. The Fund calibrates valuation techniques and tests them

or validity using prices rom observable current market transactions in the same instrument or based

on other available observable market data.


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IAS 39.48 (iv) Fair value measurement (continued)IFRS 7.28(a) The best evidence o the air value o a nancial instrument at initial recognition is the transaction

price, i.e. the air value o the consideration given or received, unless the air value o that

instrument is evidenced by comparison with other observable current market transactions in the

same instrument (i.e. without modication or repackaging) or based on a valuation technique

whose variables include only data rom observable markets. When transaction price provides the

best evidence o air value at initial recognition, the nancial instrument is initially measured at

the transaction price and any dierence between this price and the value initially obtained rom a

valuation model is subsequently recognised in prot or loss on an appropriate basis over the lie o

the instrument but not later than when the valuation is supported wholly by observable market data

or the transaction is closed out.

Assets and long positions are measured at a bid price; liabilities and securities sold short are

measured at an asking price.

IFRS 7.B5E All changes in air value, other than interest and dividend income and expense, are recognised in

prot or loss as part o net gain rom nancial instruments at air value through prot or loss.

(v) Impairment

IFRS 7.B5() A nancial asset not classied at air value through prot or loss is assessed at each reporting date to

determine whether there is objective evidence o impairment. A nancial asset or a group o nancial

assets is impaired i there is objective evidence o impairment as a result o one or more events

that occurred ater the initial recognition o the asset(s), and that loss event(s) had an impact on the

estimated uture cash fows o that asset(s) that can be estimated reliably.

IAS 39.65 Objective evidence that nancial assets are impaired includes signicant nancial diculty o the

borrower or issuer, deault or delinquency by a borrower, restructuring o amount due on terms thatthe Fund would not consider otherwise, indications that a borrower or issuer will enter bankruptcy, or

adverse changes in the payment status o the borrowers.

IAS 39.65, 66 An impairment loss in respect o a nancial asset measured at amortised cost is calculated as the

dierence between its carrying amount and the present value o the estimated uture cash fows

discounted at the assets original eective interest rate. Losses are recognised in prot or loss and

refected in an allowance account against receivables. Interest on the impaired asset continues to

be recognised. When an event occurring ater the impairment was recognised causes the amount o

impairment loss to decrease, the decrease in impairment loss is reversed through prot or loss.


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Explanatory note

1. IAS 1.35 Gains and losses arising rom a group o similar transactions are reported on a net basis, e.g. oreign

currency gains and losses or gains and losses arising on nancial instruments held or trading.

However, such gains and losses are reported separately i they are material.


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IAS 39.1542 (vi) DerecognitionThe Fund derecognises a nancial asset when the contractual rights to the cash fows rom the

asset expire, or it transers the rights to receive the contractual cash fows in a transaction in which

substantially all the risks and rewards o ownership o the nancial asset are transerred or in which

the Fund neither transers nor retains substantially all the risks and rewards o ownership and does

not retain control o the nancial asset. Any interest in such transerred nancial assets that is

created or retained by the Fund is recognised as a separate asset or liability.

On derecognition o a nancial asset, the dierence between the carrying amount o the asset (or

the carrying amount allocated to the portion o the asset derecognised), and consideration received

(including any new asset obtained less any new liability assumed) is recognised in prot or loss.

The Fund enters into transactions whereby it transers assets recognised on its statement o nancial

position, but retains either all or substantially all o the risks and rewards o the transerred assets ora portion o them. I all or substantially all risks and rewards are retained, then the transerred assets

are not derecognised. Transers o assets with retention o all or substantially all risks and rewards

include securities lending and repurchase transactions.

The Fund derecognises a nancial liability when its contractual obligations are discharged, cancelled

or expire.

(vii) Osetting

IAS 32.42 Financial assets and liabilities are oset and the net amount presented in the statement o nancial

position when, and only when, the Fund has a legal right to oset the amounts and it intends either

to settle on a net basis or to realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRSs, e.g. or gains

and losses arising rom a group o similar transactions, such as gains and losses rom nancial

instruments at air value through prot or loss.1

(viii) Specifc instruments

IAS 7.46 Cash and cash equivalents

Cash and cash equivalents comprise deposits with banks and highly liquid nancial assets with

maturities o three months or less rom the acquisition date that are subject to an insignicant risk o

changes in their air value and are used by the Fund in the management o short-term commitments,

other than cash collateral provided in respect o derivatives, securities sold short and securities

borrowing transactions.

Receivables and payables under repurchase agreements and securities lent and borrowed

IAS 39.AG51(a)(c) When the Fund purchases a nancial asset and simultaneously enters into an agreement to resell the

same or substantially similar asset at a xed price on a uture date (reverse repo), the arrangement

is accounted or as a loan and receivable, recognised in the statement o nancial position as

receivables rom reverse repurchase agreements, and the underlying asset is not recognised in the

Funds nancial statements.


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Explanatory note

1. IAS 1.31 When new standards, amendments to standards and interpretations will have no, or no material,

eect on the nancial statements o the entity, it is not necessary to list them as such a disclosure

will not be material.

2. See Appendix I or example disclosures on the early adoption o IFRS 9.

3. The ollowing standards, interpretations and amendments have been issued with eective dates relating to periods beginning on or ater 1 January 2011.

In October 2010 the IASB issued Disclosures Transers o Financial Assets(Amendments to IFRS 7) with an eective date o 1 July 2011. In October 2010 the IASB issued IFRS 9 (2010) which superseded the previous version that was issued in November 2009 (IFRS 9 (2009)). In December 2011 the IASB issued amendment to IFRS 9 that extended the eective date o the standard to annual period beginning on or ater 1 January 2015 and modied its transitional provisions so that entities that initially apply IFRS 9 in periods beginning:

beore 1 January 2012 need not restate prior periods and are not required to provide alternative disclosures specied in the standard;

on or ater 1 January 2012 and beore 1 January 2013 must elect to either restate prior periods or to provide alternative disclosures; or

on or ater 1 January 2013 must provide alternative disclosures and do not need to restate prior periods.

See Appendix I or an illustrative example o the early adoption o IFRS 9.

In December 2010 the IASB issued Deerred Tax: Recovery o Underlying Assets Amendments to IAS 12with an eective date o 1 January 2012.

In May 2011 the IASB issued IFRS 10 Consolidated Financial Statements, IFRS 11 Joint

Arrangements, IFRS 12 Disclosure o Interests in Other Entitiesand IFRS 13 Fair Value Measurement, which all have an eective date o 1 January 2013. The IASB also issued IAS 27 Separate Financial Statements(2011), which supersedes IAS 27 (2008) and IAS 28 Investments in Associates and Joint Ventures(2011), which supersedes IAS 28 (2008). All these standards have an eective date o 1 January 2013. In June 2011 the IASB issued Presentation o Items o Other Comprehensive Income (Amendments to IAS 1 Presentation o Financial Statements) with an eective date o 1 July 2012. For example disclosures or entities that early adopt the amendments, please reer to Appendix III in our publication Illustrative fnancial statements. In June 2011 the IASB issued an amended IAS 19 Employee Benefts, with an eective date o 1 January 2013.


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(viii) Specifc instruments (continued)Receivables and payables under repurchase agreements and securities lent and borrowed

(continued)

When the Fund sells a nancial asset and simultaneously enters into an agreement to repurchase

the same or similar asset at a xed price on a uture date (repo), the arrangement is accounted

or as a borrowing, recognised in the statement o nancial position as payables under repurchase

agreements, and the underlying asset continues to be recognised in the Funds nancial statements.

Securities borrowed by the Fund are not recognised in the statement o nancial position. I the

Fund subsequently sells the borrowed securities, the arrangement is accounted or as a short sold

position, recognised in the statement o nancial position as nancial liabilities at air value through

prot or loss, classied as held or trading and measured at air value through prot or loss. Cash

collateral or borrowed securities is included within balances due rom brokers.IAS 39.AG51(a) Securities lent by the Fund are not derecognised rom the Funds statement o nancial position.

The Fund discloses cash collateral pledged by the borrower in note 11. When the counterparty has

the rights to sell or repledge the securities, the Fund reclassies them in the statement o nancial

position as pledged nancial assets at air value through prot or loss.

Receivables rom reverse repurchase agreements and payables under repurchase agreements are

subsequently measured at amortised cost.

Redeemable shares

The Fund classies nancial instruments issued as nancial liabilities or equity instruments in

accordance with the substance o the contractual terms o the instruments.

The Fund has two classes o redeemable shares in issue: Class A and Class B that rank pari passuinall material respects and have the same terms and conditions other than [list down the dierences

in terms between the Class A shares and Class B shares, e.g. management ee rate, incentive ees

etc.]. The redeemable shares provide investors with the right to require redemption or cash at a

value proportionate to the investors share in the Funds net assets, ater deduction o the nominal

amount o equity share capital, at each monthly [daily/quarterly]redemption date and also in the

event o the Funds liquidation.

The redeemable shares are classied as nancial liabilities and are measured at the present value

o the redemption amounts. In accordance with the Funds prospectus, the redemption amounts o

the individual redeemable shares are calculated using the mid-market prices o the Funds underlying

investments/securities sold short. However, in accordance with the Funds accounting policies, assets

and long positions are measured at a bid price and liabilities and securities sold short are measured at

the asking price (see note 3(h)(iv)). The adjustment rom mid-market prices basis to bid-ask prices isincluded in computing the total redemption amount o the redeemable shares and is presented as an

adjustment in the statement o nancial position.

IAS 8.30, 31 (i) New standards and interpretations not adopted1, 2, 3

A number o new standards, amendments to standards and interpretations are eective or annual

periods beginning ater 1 January 2011, and have not been applied in preparing these nancial

statements. None o these are expected to have a signicant eect on the measurement o the

amounts recognised in the nancial statements o the Fund. However, IFRS 9 will change the

classication o nancial assets.


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Explanatory note

1. IFRS 7.1, 31 An entity discloses inormation that enables users o its nancial statements to evaluate the nature

and extent o risks arising rom nancial instruments to which it is exposed at the end o and during

the reporting period. Those risks typically include, but are not limited to, credit risk, liquidity risk and

market risk.

IFRS 7.33 For each type o risk, an entity discloses:

(1) the exposures to risk and how they arise;

(2) its objectives, policies and processes or managing the risk and the methods used to measure

the risk; and

(3) any changes in (1) or (2) rom the previous period.

IFRS 7.32A An entity makes qualitative disclosures in the context o quantitative disclosures that enables users

to link related disclosures and hence orm an overall picture o the nature and extent o risks arising

rom nancial instruments. Interaction between qualitative and quantitative disclosures contributes

to disclosure o inormation in a way that better enables users to evaluate an entitys exposure to

risks.

IFRS 7.B6 The disclosures required by IFRS 7.3141 in respect o the nature and extent o risks arising romnancial instruments are either presented in the nancial statements or incorporated by cross-reerence rom the nancial statements to another statement, such as a management commentary

or risk report, that is available to users o the nancial statements on the same terms as the nancial

statements and at the same time. The location o these disclosures may be guided by local laws.

In these illustrative nancial statements, these disclosures have been presented in the nancial

statements.

IFRS 7 requires only risk disclosures or nancial instruments. Financial risk exposures rom non-

nancial instruments, e.g. credit risk rom operating leases, are disclosed separately i an entity

chooses to disclose its entire nancial risk position.

IFRS 7.35, IG20 I the quantitative data at the reporting date are not representative o an entitys risk exposure during

the year, then an entity provides urther inormation that is representative, e.g. the entitys averageexposure to risk during the year. For example, the IFRS 7 implementation guidance indicates that

i an entity typically has a large exposure to a particular currency but unwinds that position at the

reporting date, then it might present a graph that shows the currency exposure at various times

during the period, or disclose the highest, lowest and average exposures.

2. In these illustrative nancial statements the disclosures in respect o nancial risk management havebeen presented to illustrate dierent potential scenarios and situations that an entity may encounter

in practice. An entity tailors its respective disclosures or the specic acts and circumstances

relative to its business and risk management practices, and also takes into account the signicance

o its exposure to risks rom the use o nancial instruments.

3. IFRS 7.3, 5 The disclosure requirements o IFRS 7 are limited to nancial instruments that all within the scope

o that standard; thereore, operational risks that do not arise rom the entitys nancial instrumentsare excluded rom the requirements.

4. IAS 1.134 The entity discloses inormation that enables users o its nancial statements to evaluate its

objectives, policies and processes or managing capital.


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IAS 8.30, 31 (i) New standards and interpretations not adopted (continued)

The standard is not expected to have an impact on the measurement basis o the nancial assetssince the majority o the Funds nancial assets are measured at air value through prot or loss.

IFRS 9 deals with recognition, derecognition, classication and measurement o nancial assets and

nancial liabilities. Its requirements represent a signicant change rom the existing requirements in

IAS 39 in respect o nancial assets. The standard contains two primary measurement categories or

nancial assets: at amortised cost and air value. A nancial asset would be measured at amortised

cost i it is held within a business model whose objective is to hold assets in order to collect

contractual cash fows, and the assets contractual terms give rise on specied dates to cash fows

that are solely payments o principal and interest on the principal outstanding. All other nancial

assets would be measured at air value. The standard eliminates the existing IAS 39 categories o

held to maturity, available or sale and loans and receivables.

For an investment in an equity instrument that is not held or trading, the standard permits an

irrevocable election, on initial recognition, on an individual share-by-share basis, to present all airvalue changes rom the investment in other comprehensive income. No amount recognised in other

comprehensive income would ever be reclassied to prot or loss. However, dividends on such

investments are recognised in prot or loss, rather than other comprehensive income unless they

clearly represent a partial recovery o the cost o the investment. Investments in equity instruments

in respect o which an entity does not elect to present air value changes in other comprehensive

income would be measured at air value with changes in air value recognised in prot or loss.

The standard requires that derivatives embedded in contracts with a host that is a nancial asset

within the scope o the standard are not separated; instead the hybrid nancial instrument is

assessed in its entirety as to whether it should be measured at amortised cost or air value.

IFRS 9.B5.7.5, IFRS 9 requires that the eects o changes in credit risk o liabilities designated as at air valueB5.7.8 through prot or loss are presented in other comprehensive income unless such treatment would create or enlarge an accounting mismatch in prot or loss, in which case all gains or

losses on that liability are presented in prot or loss. Other requirements o IFRS 9 relating toclassication and measurement o nancial liabilities are unchanged rom IAS 39.

The requirements o IFRS 9 relating to derecognition are unchanged rom IAS 39.

The standard is eective or annual periods beginning on or ater 1 January 2015. Earlier application is

permitted. The Fund does not plan to adopt this standard early.

IFRS 7.31 4. Financial risk management1, 2

(a) Introduction and overview

IFRS 7.31, 32 The Fund has exposure to the ollowing risks rom nancial instruments:

credit risk

liquidity risk

market risk

operational risk. 3

IFRS 7.33 This note presents inormation about the Funds exposure to each o the above risks, the Funds

objectives, policies and processes or measuring and managing risk, and the Funds

management o capital.4


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Explanatory note

1. IFRS 7.34 IFRS 7 requires the disclosure o summary quantitative data on credit risk to be based on inormation

provided internally to the entitys key management personnel, as dened in IAS 24, e.g. the entitys

board o directors or chie executive. An entity explains how those data are determined. This issue is

discussed in our publication Insights into IFRS(7.8.340).

The standard also requires specic additional disclosures to be made unless covered by the

inormation provided to management.

IFRS 7.35, IG20 I the quantitative data at the reporting date are not representative o an entitys risk exposure during

the year, then an entity provides urther inormation that is representative, e.g. the entitys average

exposure to risk during the year.

The example shown in these illustrative nancial statements in relation to credit risk assumes

that the primary bases or reporting to key management personnel on credit risk is monitoring o

credit ratings o counterparties to debt securities, reverse repurchase and derivatives transactions,

brokers and bankers and industry concentration o debt securities. However, other presentations

are possible.


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4. Financial risk management(continued)

(a) Introduction and overview (continued)

(i) Risk management rameworkIFRS 7.31 The Fund maintains positions in a variety o derivative and non-derivative nancial instruments in

accordance with its investment management strategy. [Insert description o the Funds investment

strategy as outlined in the Funds prospectus]. The Funds investment portolio comprises listed

and unlisted equity and debt securities, derivative nancial instruments and investments in unlisted

investment unds.

The Funds investment manager has been given a discretionary authority to manage the assets in

line with the Funds investment objectives. Compliance with the target asset allocations and the

composition o the portolio is monitored by the board o directors on a [daily/weekly/monthly]basis.

In instances where the portolio has diverged rom target asset allocations, the Funds investment

manager is obliged to take actions to rebalance the portolio in line with the established targets,

within prescribed time limits.

During 2011 higher levels o market volatility persisted across all asset classes. Uncertainty over thelevels o borrowing by governments in the major economies and concerns over the perormance osovereign debt in the Eurozone substantially increased market volatility. The largest impact resultedrom the general widening o credit spreads. The Fund sought to mitigate the market and credit riskby diversiying away rom exposures to countries with the highest uncertainty and volatility andthrough increased diversication o its investment portolio.

The Fund does not have a direct exposure to the sovereign risk o Eurozone countries. Exposures toother Eurozone counterparties are as ollows:

Debt EquityIn thousands o euro securities investments Derivatives Total

2011 Germany 4,568 3,789 156 8,513France 3,038 2,145 82 5,265Spain 1,154 2,282 26 3,462Portugal 925 115 16 1,056 9,685 8,331 280 18,296 Debt EquityIn thousands o euro securities investments Derivatives Total

2010 Germany 4,489 2,825 136 7,450

France 2,039 2,125 56 4,220 Spain 3,138 1,311 24 4,473

Portugal 915 114 9 1,038 10,581 6,375 225 17,181

IFRS 7.33 (b) Credit risk1

Credit risk is the risk that a counterparty to a nancial instrument will ail to discharge an obligation

or commitment that it has entered into with the Fund, resulting in a nancial loss to the Fund. It

arises principally rom debt securities held, and also rom derivative nancial assets, cash and cash

equivalents, balances due rom brokers and receivables rom reverse repurchase agreements. For

risk management reporting purposes the Fund considers and consolidates all elements o credit risk

exposure (such as individual obligor deault risk, country and sector risk).


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Explanatory note

1. IFRS 7.36(a) An entity discloses inormation about the nature and extent o its exposure to credit risk. The

disclosure o the maximum exposure to credit risk ignores any collateral held or other credit

enhancement. This disclosure is not required or nancial instruments whose carrying amount best

represents the maximum exposure to credit risk.

IFRS 7.B9, B10 The maximum credit risk exposure typically is the gross carrying amount o the nancial asset, net o

any amounts oset in accordance with IAS 32 and any impairment losses recognised in accordance

with IAS 39.

IFRS 7.36,

B1B3

The disclosures in respect o credit risk apply to each class o nancial asset, which is not dened

in IFRS 7. Classes are distinct rom the categories o nancial instruments specied in IAS 39. In

determining classes o nancial instruments, an entity at a minimum distinguishes instrumentsmeasured at amortised cost rom those measured at air value, and treats as a separate class or

classes those nancial instruments outside the scope o IFRS 7.

IFRS 7.IG21

IG29

The IFRS 7 implementation guidance provides additional guidance on the disclosures without

speciying a minimum standard disclosure.


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4. Financial risk management (continued)

(b) Credit risk (continued)(i) Management o credit risk

IFRS 7.33(b) The Funds policy over credit risk is to minimise its exposure to counterparties with perceived

higher risk o deault by dealing only with counterparties meeting the credit standards set out in the

Funds prospectus and by taking collateral. [Insert specic risk management policies and investment

guidelines relating to credit risk as outlined in the Funds prospectus].

IFRS 7.33(b) Credit risk is monitored on a [daily/weekly/monthly]basis by the investment manager in accordance

with policies and procedures in place. [Insert specic risk management procedures. This should

include how the risk is managed and measured]. The Funds credit risk is monitored on a [monthly,

quarterly, other]basis by the board o directors. Where the credit risk is not in accordance with

the investment policy or guidelines o the Fund, the investment manager is obliged to rebalance

the portolio within [state number o days]days o each determination that the portolio is not in

compliance with the stated investment parameters.

(ii) Exposure to credit risk1

IFRS 7.36(a), (b) The Funds maximum credit risk exposure (without taking into account collateral and other credit

enhancements) at the reporting date is represented by the respective carrying amounts o the

relevant nancial assets in the statement o nancial position. The risk on some o these exposures,

principally receivables rom reverse repurchase agreements, is mitigated by collateral held (see

note 11).

(iii) Investments in debt securities

IFRS 7.36(a), (b) The Funds maximum credit risk exposure (without taking into account collateral and other credit

enhancements) at the reporting date is represented by the respective carrying amounts o the relevant

nancial assets in the statement o nancial position. The risk on some o these exposures, principally

receivables rom reverse repurchase agreements, is mitigated by collateral held (see note 11).IFRS 7.34(c) At 31 December, the Fund was invested in debt securities with the ollowing credit quality:

IFRS 7.36(c) Rating 2011 2010

AAA/Aaa 12.8% 35.8%

AA/Aa 83.1% 61.1%BBB/Baa 4.1% 3.1%

Total 100.0% 100.0%

(iv) Derivative fnancial instruments

IFRS 7.36(c) The Fund enters in two types o derivative transactions: exchange-traded derivatives and over-the-

counter (OTC) derivatives. Credit risk arising rom exchange-traded derivatives is mitigated by margin

requirements. OTC derivatives expose the Fund to the risk that the counterparties to the derivativenancial instruments might deault on their obligations to the Fund.

IFRS 7.36(b), (c) Derivative nancial instruments are transacted with counterparties that are rated at least AA based

on rating agency [X]ratings, within predetermined limits, and with whom the Fund has signed master

netting agreements. Master netting agreements provide or the net settlement o contracts with the

same counterparty in the event o deault. As a result o master netting agreements, at 31 December

2011, the Fund would be entitled to oset derivative assets o 451 thousand (2010: 299 thousand)

against derivative liabilities in the event o counterparty deaults. For the purposes o reporting in the

statement o nancial position, the derivative nancial assets and liabilities have not been oset, as

they do not meet the osetting criteria. The net exposure to credit risk mitigated by master netting

arrangements may change signicantly within a short period o time due to the highly volatile nature

o the air value o the derivatives.


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Explanatory note

1. IFRS 7.37(b) An entity discloses a description o collateral held by the entity as security and other credit

enhancements and their nancial eect in respect o the amount that best represents maximum

exposure to credit risk.

2. IFRS 7.B8, IG18,

IG19

The identication o concentrations o risk requires judgement taking into account the circumstanceso the entity. For example, concentrations o credit risk may arise rom industry sectors, credit

rating or other measures o credit quality, geographical distribution or a limited number o individual

counterparties. Thereore, the disclosure o risk concentrations includes a description o the shared

characteristics.


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4. Financial risk management (continued)

(b) Credit risk (continued)

(iv) Derivative fnancial instruments (continued)The ollowing table sets out the air values and the notional amount o derivative assets and liabilities

held by the Fund as at the reporting date:

2011 2011 2010 2010

In thousands o euro Fair value Notional Fair value Notional

Derivative assets

Listed equity index options 249 5,000 29 400Foreign currency orward contracts 219 2,000 300 2,700Equity indices utures contracts 54 7,500 - -Foreign currency utures contracts 23 2,500 106 1,500

Total derivative assets 545 17,000 435 4,600

2011 2011 2010 2010 In thousands o euro Fair value Notional Fair value Notional

Derivative liabilities

Listed equity index options (1,066) (16,000) (756) (15,000)

Foreign currency orward contracts (822) (10,000) (106) (1,200)

Credit deault swaps (485) (12,800) - -

Interest rate swaps (464) (5,900) (372) (4,000)

Total derivative liabilities (2,837) (44,700) (1,234) (20,200)

(v) Balances due rom brokers

IFRS 7.36(c) Balances due rom brokers represent margin accounts, cash collateral or borrowed securities and

sale transactions awaiting settlement. Credit risk relating to unsettled transactions is considered

small due to the short settlement period involved and the high credit quality o the brokers used. As

at the reporting date 72% (2010: 69%) o the balances due rom brokers are concentrated amongst

three brokers (2010: our brokers) whose credit rating was AA (2010: AA). The investment manager

monitors the nancial position o the brokers on a quarterly basis.

(vi) Cash and cash equivalents

IFRS 7.36(c) The Funds cash and cash equivalents are held mainly with XYZ Bank, which is rated AA (2010: AA)

based on rating agency [X]ratings. The investment manager monitors the nancial position o XYZ

Bank on a quarterly basis.

(vii) Receivables rom reverse repurchase agreements1

IFRS 7.36(b) The Fund enters into reverse repurchase agreements that may result in credit loss in the event that

the counterparty to the transaction is unable to ull its contractual obligations to the Fund, andthe collateral value decreases rapidly and is insucient to cover the amount due. At 31 December

2011 the air value o debt securities held as collateral against receivables rom reverse repurchase

ifrs illustrative financial statements investment funds dec2011 8628

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