IFRS IILUSTRATIVE FINANCIAL STATEMENTS: INVESTMENT FUNDS pot

Statement of inancial position 3Statement of comprehensive income 5Statement of changes in net assets attributable to holders of redeemable shares 7 Notes to the inancial statements 11 A

Investment funds

December 2011

kpmg.com/ifrs

Statement of inancial position 3Statement of comprehensive income 5Statement of changes in net assets

attributable to holders of redeemable shares 7

Notes to the inancial statements 11

Appendices

I Example disclosures for entities that early adopt

IFRS 9 Financial Instruments (October 2010) 79

II Example disclosures of segment reporting – multiple

About this publication

These illustrative inancial statements have been produced by the KPMG International Standards Group (part of KPMG IFRG Limited), and the views expressed herein are those of the KPMG International Standards Group

Content

The purpose of this publication is to assist you in preparing annual inancial statements of an investment fund in accordance with IFRSs It illustrates one possible format of inancial statements for fund-speciic entities based on a ictitious tax-exempt open-ended single-fund investment company, which does not form part of a consolidated entity nor holds investments in any subsidiaries, associates or joint venture entities The company’s redeemable shares are classiied as inancial liabilities and the management shares meet the deinition of equity; the company is outside the scope of IFRS 8 Operating Segments The company is not a irst-time adopter of IFRSs (see Technical guide) Appendix I illustrates example disclosures for the early adoption of IFRS 9 Appendix II provides an example of disclosures for a fund within the scope of IFRS 8 with multiple reportable segments Appendix III provides an example of disclosures for a fund whose puttable instruments are classiied as equity

This publication relects 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 effective’ requirements) IFRSs that are effective for annual periods beginning after

1 January 2011 (’forthcoming’ requirements) have not been adopted early in preparing these illustrative inancial statements However, example disclosures for the early adoption of IFRS 9 are included in Appendix I This publication focuses on disclosure requirements that are speciic to funds’ activities For other disclosures that might be relevant, please refer to our publications Illustrative financial statements and Illustrative financial statements: Banks

This publication illustrates only the inancial statements component of a inancial report However, typically a inancial report will include at least some additional commentary by management, either in accordance with local laws and regulations or at the election of the fund (see Technical guide)

When preparing inancial statements in accordance with IFRSs, a fund should have regard to its local legal and regulatory requirements This publication does not consider any requirements of a particular jurisdiction

In response to the Financial Stability Board report Enhancing Market and Institutional Resilience the IASB established an Expert Advisory Panel (the panel) to assist the IASB in reviewing best practices in the area of valuation techniques and formulating any necessary additional guidance on valuation methods for inancial instruments and related disclosures when markets are no longer active The panel issued its inal report Measuring and disclosing the fair value of financial instruments in markets that are

no longer active on 31 October 2008 Part 2 of 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 of disclosures in the panel’s report and explanatory notes see our publication Illustrative financial statements: Banks published in July 2011

IFRSs and their interpretation change over time Accordingly, these illustrative inancial statements should not be used as a substitute for referring to the standards and interpretations themselves

References

The illustrative inancial statements are contained on the odd-numbered pages of this publication The even-numbered pages contain explanatory comments and notes on the disclosure requirements of IFRSs The illustrative examples, together with the explanatory notes, however, are not intended to be seen as a complete and exhaustive summary of all disclosure requirements that are applicable under IFRSs For an overview of all disclosure requirements that are applicable under IFRSs, see our

publication Disclosure checklist

To the left of each item disclosed, a reference to the relevant currently effective standard is provided; generally the references

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

position when such presentation is relevant to an understanding of the entity’s inancial position The judgement used is based on an assessment of the nature and liquidity of the assets, the function of assets within the entity, as well as the amounts, nature and timing of liabilities Additional line items may include, e.g prepayments

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

items are included when the size, nature or function of an item or aggregation of similar items is such that separate presentation is relevant to an understanding of the entity’s inancial position and the descriptions used, and the ordering of items or aggregation of similar items may be amended according to the nature of the entity and its transactions to provide information that is relevant to an understanding of an entity’s inancial position

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

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

if such presentation provides reliable and more relevant information For each asset and liability line item that combines amounts expected to be recovered or settled within (1) no more than 12 months after the end of the reporting period, and (2) more than 12 months after the end of the reporting period, an entity discloses in the notes the amount expected to be recovered or settled after more than 12 months

3. IFRS 7.8 The carrying amounts of each of the categories of inancial assets and inancial liabilities are required

to be disclosed in either the statement of inancial position or the notes In these illustrative inancial statements this information is presented in the notes

4. It has been assumed for the purpose of these illustrative inancial statements that management

shares issued by the Fund meet the deinition of equity Determination of whether an instrument meets the deinition of equity can be complex and is further discussed in our publication Insights into IFRS (7.3.50 – 310)

5. IAS 32 IE32 In these illustrative inancial statements presentation of the statement of inancial position follows

the Example 7 in IAS 32

6. IAS 39.48A,

AG72

In accordance with IAS 39 the best measure of fair value of a inancial asset and inancial liability

is a quoted price in an active market The quoted price for an asset held is usually the current bid price and for a liability held is the asking price On the other hand, in accordance with the Fund’s prospectus, the redemption amounts of the redeemable shares are calculated using the mid-market prices of the Fund’s underlying investments/securities sold short

Owing to the differences in the measurement bases of the Fund’s underlying investments/

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

in the statement of inancial position giving rise to a presentation issue In our view, one solution may be to present the net assets attributable to holders of redeemable shares in a two-line format The irst line would be the amount of the net assets attributable to holders of redeemable shares measured in accordance with the prospectus, which relects the actual redemption amount at which the redeemable shares would be redeemed at the reporting date, and the next line would include an adjustment for the difference between this and the amount recognised in the statement

of inancial position This relects the fact that for a fund with no equity all recognised income and expense is attributed to holders of redeemable shares, which also means that if all the shares are redeemed, then a dilution levy of such amount would be required This issue is discussed in our publication Insights into IFRS (7.6.220.60 – 75) The treatment in a fund with no equity is applied in these illustrative inancial statements to a fund with minimal equity as equity holders are entitled to a minimal ixed monetary amount on liquidation and the remaining net assets are attributed to holders

of redeemable shares

IAS 1.10(a), 113 31 December 31 December

Assets

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

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

IAS 1.54(d) Non-pledged financial assets at fair value through profit or loss 12 26,931 24,471

IAS 1.54(d), 39.37(a) Pledged financial assets at fair value through profit or loss 12 2,691 2,346

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

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

Total liabilities (excluding net assets attributable to holders of redeemable shares) 6,430 4,056

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

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

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

• one statement, i.e a statement of comprehensive income; or

• two statements, i.e a separate income statement and a statement beginning with proit or loss and displaying components of other comprehensive income

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

components of other comprehensive income other than proit or loss for the period For an example

of the two statements approach, please refer to our publication Illustrative financial statements

IAS 32.IE32 In these illustrative inancial statements presentation of the statement of comprehensive income

follows the Example 7 in IAS 32

IFRS 7.20 Items of income and expense are offset only when required or permitted by an IFRS IFRS 7 allows

the net presentation of certain gains and losses on inancial assets and inancial 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 an

understanding of its inancial performance

2. IAS 1.99 An entity presents an analysis of expenses based on function or nature Items are classiied in

accordance with their nature or function regardless of materiality In these illustrative inancial statements, this analysis is based on the nature of expenses

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

material items are disclosed as a separate line item in the statement of 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 specify whether revenue should be presented only as a single line item in the

statement of comprehensive income, or whether an entity also may include the individual components of revenue in the statement of comprehensive income, with a subtotal for revenue from continuing operations In these illustrative inancial statements, the most relevant measure

of revenue is considered to be the sum of interest income, dividend income, net foreign exchange loss and net gain from inancial instruments at fair value through proit or loss However, other presentations are possible

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

investing of assets on behalf of individuals, trusts, retirement beneit plans and other institutions are required to be disclosed In these illustrative inancial statements this disclosure has been given in the statement of comprehensive income Alternatively, it may be given in the notes

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

inancial liability are recognised as income or expense in proit or loss Because redeemable shares are classiied as inancial liabilities, any distributions on these shares are presented as inance costs Interest expense and dividends payable on securities sold short have been classiied as operating expense, but, depending on the facts and circumstances, presentation as part of inance 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 of 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 of issuing ordinary shares that are

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

of comprehensive income The requirements to present EPS only apply to those funds whose ordinary shares are classiied as equity Nevertheless, some funds 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 publication Insights into IFRS (5.3.370)

In thousands of euro Note 2011 2010

IFRS 7.20(a) Net gain from financial instruments at fair value through

IAS 1.99 Investment management fees4 (478) (447)

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

IAS 1.85 Operating profit before finance costs 3,179 2,138

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

IAS 1.85 Increase in net assets attributable to holders of redeemable

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

The notes on pages 11 to 77 are an integral part of these financial statements.

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1. IAS 1.106 A complete set of inancial statements comprises, as one of its statements, a statement of

changes in equity However, as equity in the Fund is minimal and there were no changes in equity balances, no statement of changes in equity is presented Instead, a statement of changes in net assets attributable to holders of redeemable shares is presented Although IFRSs do not require presentation of this statement, it may provide users of the inancial statements with relevant and useful information with respect to the components underlying the movements in the net assets of the Fund attributable to the holders of redeemable shares during the year

2. IAS 1.110 When a change in accounting policy, either voluntarily or as a result of the initial application of a

standard, has an effect on the current period or any prior period, an entity presents the effects of retrospective application or retrospective restatement recognised in accordance with IAS 8 in the statement of changes in equity These illustrative inancial statements do not demonstrate example

of IAS 8 disclosures; for an example of such disclosures, please refer to our publication Illustrative financial statements

IAS 1.106 For the year ended 31 December

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

Redemption of redeemable shares during the year (6,978) (5,995) Total contributions and redemptions by holders of

The notes on pages 11 to 77 are an integral part of these financial statements.

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1. IAS 7.18, 19 In these illustrative inancial statements cash lows from operating activities are presented using the

direct method, whereby major classes of cash receipts and payments related to operating activities are disclosed An entity also may present operating cash lows using the indirect method, whereby proit or loss is adjusted for the effects of non-cash transactions, accruals and deferrals, and items

of income or expense associated with investing or inancing cash lows For an example statement

of cash lows presenting operating cash lows using the indirect method see our publications Illustrative financial statements or Illustrative financial statements: Banks

IAS 7.43 When applicable, an entity discloses investing and inancing transactions that are excluded from the

statement of cash lows because they do not require the use of cash or cash equivalents in a way that provides all relevant information about these activities

2. IAS 7.33, 34 Interest paid and interest and dividends received are usually classiied as operating cash lows for

a inancial institution Dividends paid may be classiied as a inancing cash low as they represent

a cost of obtaining inancial resources The Fund has adopted this classiication for dividends paid

to the holders of redeemable shares In these illustrative inancial statements dividends paid on securities sold short are classiied as operating cash lows as they result directly from holding short positions as part of the operating activities of the Fund

3. IAS 7.14(g), 15 In these illustrative inancial statements gross receipts from the sale of, and gross payments to

acquire, investment securities have been classiied as components of cash lows from operating activities as they form part of the Fund’s dealing operations

IAS 7.16(g), (h) Receipts from and payments for futures, forwards, options and swap contracts are presented as

part of either investing or inancing activities, provided that they are not held for dealing or trading purposes, in which case they are presented as part of operating activities However, when a hedging instrument is accounted for as a hedge of an identiiable position, the cash lows of the hedging instrument are classiied in the same manner as the cash lows of the positions being hedged This issue is discussed in our publication Insights into IFRS (2.3.60.10)

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

comprehensive income as either operating or inancing items depending on the nature of the item being economically hedged In our view, the possibilities for the presentation in the statement of comprehensive income also apply to the presentation in the statement of cash lows This issue is discussed in our publication Insights into IFRS (7.8.220 – 225)

4. IAS 7.22 Cash lows from operating, investing or inancing activities may be reported on a net basis if the

cash receipts and payments are on behalf of customers and the cash lows relect the activities of the customer, or when the cash receipts and payments for items concerned turn over quickly, the amounts are large and the maturities are short

In thousands of euro Note 2011 2010

IAS 7.10 Cash flows from operating activities

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

IAS 7.15 Proceeds from sale of investments3 9,382 8,271

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

IAS 7.15 Acquisition of 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) from derivative activities4 1,581 (3)

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

and reverse repurchase agreements4 (428) 299

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

IAS 7.10, 21 Cash flows from financing activities

IAS 7.17 Proceeds from issue of redeemable shares 14 6,668 15,505

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

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

Net cash (used in)/from financing 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 Effect of exchange rate fluctuations on cash and cash equivalents (3) (2)

Cash and cash equivalents at 31 December 51 71

The notes on pages 11 to 77 are an integral part of these financial statements.

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

statements They also include information about items that do not qualify for recognition in the inancial statements

Page

6 Classifications and fair values of financial assets and liabilities 63

8 Net gain from financial instruments at fair value through profit or loss 65

11 Receivables from reverse repurchase agreements and payables

12 Financial assets and financial liabilities at fair value through profit or loss 69

14 Net assets attributable to holders of redeemable shares 71

15 Related parties and other key contracts 75

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1. If inancial statements are prepared on the basis of national accounting standards that are modiied

or adapted from IFRSs and are made publicly available by publicly traded companies, then the International Organization of Securities Commissions (IOSCO) has recommended including the following minimum disclosures:

• a clear and unambiguous statement of the reporting framework on which the accounting policies are based;

• a clear statement of the entity’s accounting policies on all material accounting areas;

• an explanation of where the respective accounting standards can be found;

• a statement explaining that the inancial statements are in compliance with IFRSs as issued by the IASB, if this is the case; and

• a statement explaining in what regard the standards and the reporting framework used differ from IFRSs as issued by the IASB, if this is the case

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

presented for a period longer or shorter than one year, it discloses the reason for the change and the fact that comparative amounts presented are not entirely comparable

In this and other cases an entity may wish to present pro forma information that is not required by IFRSs, e.g pro forma comparative inancial statements prepared as if the change in the end of the reporting period were effective for all periods presented The presentation of pro forma information 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 of a standard or an interpretation would be so misleading that it would conlict with the objective of inancial statements set out in the Conceptual Framework for Financial Reporting, an entity may depart from the requirement if the relevant regulatory framework 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 inancial statements were authorised for issue and who gave

that authorisation If the entity’s owners or others have the power to amend the inancial statements after their issue, then the entity discloses that fact

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

uncertainties related to events or conditions that may cast signiicant doubt upon the entity’s ability

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

6. IAS 21.53, 54 If the inancial statements are presented in a currency different from the entity’s functional currency,

then the entity discloses that fact, its functional currency, and the reason for using a different presentation currency If there is a change in the functional currency, then the entity discloses that fact together with the reason for the change

7. IAS 1.122–124 An entity discloses the judgements, apart from those involving estimations, that management has

made in the process of applying the entity’s accounting policies and that have the most signiicant effect on the amounts recognised in the inancial 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 future, and other major sources

of estimation uncertainty at the reporting date, that have a signiicant risk of resulting in a material adjustment to the carrying amounts of assets and liabilities within the next inancial year The examples that are provided in IAS 1 indicate that such disclosure is based on quantitative data, e.g appropriate discount rates

(b), 1.138(a), (b)

[Name] (the ‘Fund’) is a company domiciled in [country] The address of the Fund’s registered office

is [address] The Fund’s shares are not traded in a public market and it does not file its financial

statements with a securities commission or other regulatory organisation for the purpose of issuing any class of instruments in a public market

The Fund is an open-ended investment fund primarily involved in investing in a highly diversified portfolio of equity securities issued by companies listed on major European stock exchanges and on the New York Stock Exchange (NYSE), unlisted companies, unlisted investment funds, international derivatives and investment grade debt securities with the objective of providing shareholders with above average returns over the medium to long term

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

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

IAS 1.112(a) 2 Basis of preparation1

(a) Statement of compliance

IAS 1.16 The financial statements of the Fund as at and for the year ended 31 December 20112 have been

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

IAS 10.17 The financial statements were authorised for issue by the board of directors on [date].4

(b) Basis of measurement5

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

instruments at fair value through profit or loss, which are measured at fair value

(c) Functional and presentation currency 6

IAS 1.51(d), (e) These financial statements are presented in euro, which is the Fund’s functional currency All financial

information presented in euro has been rounded to the nearest thousand

(d) Use of estimates and judgements7

The preparation of the financial statements in conformity with IFRSs requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses Actual results may differ from 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 future periods affected

IAS 1.122, 125 Information about assumptions and estimation uncertainties that have a significant risk of resulting

in a material adjustment within the next financial year, as well as critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are included in notes 4 and 5

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

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

an entity nonetheless should comply with the disclosure requirements of 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 for voluntary changes in accounting policy, we believe that they are necessary in order to give a fair presentation This issue is discussed in our publication Insights into IFRS (2.8.10) For an example

of disclosures relating to a change in accounting policy see our publication Illustrative inancial statements

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

standard, has an effect on the current period or any prior period, an entity discloses, among other things, the amount of the adjustment for each inancial statement line item affected

IAS 8.49 If any prior period errors are corrected in the current year’s inancial statements, then an entity

discloses:

• the nature of the prior period error;

• to the extent practicable, the amount of the correction for each inancial statement line item affected, and, if IAS 33 applies to the entity, basic and diluted earnings per share for each prior period presented;

• the amount of the correction at the beginning of the earliest prior period presented; and

• if retrospective restatement is impracticable for a particular prior period, then the circumstances that led to the existence of that condition and a description of how and from when the error has been corrected

3. IAS 1.117(b) The accounting policies describe each speciic accounting policy that is relevant to an understanding

of the inancial statements

IAS 8.5 Accounting policies are the speciic principles, bases, conventions, rules and practices that an entity

applies in preparing and presenting inancial statements

4. The accounting policies disclosed in these illustrative inancial statements relect the facts and

circumstances of the ictitious open-ended single-fund investment company on which these inancial statements are based They should not be relied upon for a complete understanding of IFRSs and should not be used as a substitute for referring to the standards and interpretations themselves The accounting policy disclosures appropriate for an entity depend on the facts and circumstances of that entity, including the accounting policy choices an entity makes, and may differ from the disclosures illustrated in these illustrative inancial statements

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

whether net gains and losses of inancial assets and liabilities measured at fair value through proit or loss include interest and dividend income

IFRS 7.20(b) In these illustrative statements interest income for inancial assets at fair value through proit or

loss is presented separately from net gain from inancial instruments at fair value through proit or loss However, other presentations, e.g inclusion of interest income with the gain from inancial instruments at fair value through proit or loss, are permitted

6. The method of calculating the effective interest rate is discussed in our publication Insights into IFRS

(7.6.290)

(e) Changes in accounting policies1, 2

There were no changes in the accounting policies of the Fund during the year

IAS 1.112(a), 3 Significant accounting policies3, 4

117(a), (b)

The accounting policies set out below have been applied consistently to all periods presented in these financial statements

(a) Foreign currency

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

transactions Monetary assets and liabilities denominated in foreign 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 foreign currencies that are measured at fair value

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

Foreign currency differences arising on retranslation are recognised in profit or loss as net foreign exchange loss, except for those arising on financial instruments at fair value through profit or loss, which are recognised as a component of net gain from financial instruments at fair value through profit or loss

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

IAS 18.35(b)(iii) Interest income and expense, including interest income from non-derivative financial assets at fair

value through profit or loss, are recognised in profit or loss, using the effective interest method

The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial instrument (or, when appropriate, a shorter period)

to the carrying amount of the financial instrument When calculating the effective interest rate, the Fund estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses Interest received or receivable, and interest paid or payable are recognised in profit 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 profit 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 of a dividend Dividend income from equity securities designated as at fair value through profit or loss is recognised

in profit 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 profit or loss as operating expense when the shareholders’ right to receive payment is established

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

Dividends payable to holders of redeemable shares are recognised in profit or loss as finance costs

when they are authorised and no longer at the discretion of the Fund [Provide more detail to reflect

the circumstances of the particular fund].

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1. IFRS 7.B5(e) In these illustrative inancial statements net gain from inancial instruments at fair value through

proit or loss includes:

• gains and losses, other than interest and dividend income, on inancial assets and inancial liabilities designated as at fair value through proit or loss;

• gains and losses, other than dividends payable on securities sold short classiied as held for 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 of

inancial assets sold that are part of a homogeneous portfolio (e.g average cost or in, out) The selected method should be applied consistently This issue is discussed in our publication Insights into IFRS (7.5.290.50 – 60)

irst-3. IFRS 7.28 An entity discloses the following in respect of any day one gain or loss:

• an accounting policy; and

• the aggregate difference still to be recognised in proit or loss, and a reconciliation between the opening and closing balance thereof

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

initial recognition as at fair value through proit or loss, in any of the following circumstances, if they:

• eliminate or signiicantly reduce a measurement or recognition inconsistency (‘accounting mismatch’) that would otherwise arise from measuring assets and liabilities or recognising the gains

or losses on them on different bases;

• are part of a group of inancial assets and/or inancial liabilities that is managed and for which performance is evaluated and reported to key management on a fair 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 fair value through proit or loss

IAS 39.AG4B These illustrative inancial statements demonstrate the fair value option for debt securities and

equity investments that are managed and evaluated on a fair value basis as part of the Fund’s documented investment strategy

IFRS 7.21, B5(e) (e) Net gain from financial instruments at fair value through profit or loss1

Net gain from financial instruments at fair value through profit or loss includes all realised and unrealised fair value changes and foreign exchange differences, but excludes interest and dividend income, and dividend expense on securities sold short

Net realised gain from financial instruments at fair value through profit or loss is calculated using the average cost method.2

IFRS 7.21 (f) Fees and commission expenses

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

(g) Tax

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

from paying income taxes The Fund has received an undertaking from [insert name of the relevant

government body] of [insert name of the country of domicile] exempting it from tax for a period of [insert number of] years up till [insert year of expiry]

However, some dividend and interest income received by the Fund are subject to withholding tax imposed in certain countries of origin Income that is subject to such tax is recognised gross of the taxes and the corresponding withholding tax is recognised as tax expense

IFRS 7.21 (h) Financial assets and financial liabilities

IAS 39.14, 38 (i) Recognition and initial measurement3

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

date, which is the date that the Fund becomes a party to the contractual provisions of the instrument Other financial assets and liabilities are recognised on the date they are originated

Financial assets and financial liabilities at fair value through profit or loss are recognised initially at fair value, with transaction costs recognised in profit or loss Financial assets or financial liabilities not

at fair value through profit or loss are recognised initially at fair value plus transaction costs that are directly attributable to their acquisition or issue

(ii) ClassificationThe Fund classifies financial assets and financial liabilities into the following categories:

Financial assets at fair value through profit or loss:

● Held for trading – derivative financial instruments

● Designated as at fair value through profit or loss – debt securities and equity investments.4

Financial assets at amortised cost:

● Loans and receivables – cash and cash equivalents, balances due from brokers, receivables from reverse repurchase agreements and other receivables

Financial liabilities at fair value through profit or loss:

● Held for trading – securities sold short and derivative financial 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 financial liabilities (continued)

(ii) Classification (continued)

IAS 39.9, AG15 A financial instrument is classified as held for trading, if:

● it is acquired or incurred principally for the purpose of selling or repurchasing it in the near term;

● on initial recognition it is part of a portfolio that is managed together and for which there is evidence of a recent pattern of short-term profit taking; or

● it is a derivative, other than a designated and effective hedging instrument

IAS 39.9 The Fund has designated certain financial assets as at fair value through profit or loss when the

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

A non-derivative financial asset with fixed or determinable payments may be classified as a loan and receivable unless it is quoted in an active market, or it is an asset for which the holder may not recover substantially all of its initial investment, other than because of credit deterioration

Note 6 provides a reconciliation of line items in the statement of financial position to the categories

of financial instruments, as defined by IAS 39

IAS 39.58 (iii) Amortised cost measurement

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment

IAS 39.48 (iv) Fair value measurement

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date

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

market for that instrument A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis

If a market for a financial instrument is not active, then the Fund establishes fair value using a valuation technique Valuation techniques include using recent arm’s length transactions between knowledgeable, willing parties (if available), reference to the current fair value of other instruments that are substantially the same, discounted cash flow analyses and option pricing models The chosen valuation technique makes maximum use of market inputs, relies as little as possible on estimates specific to the Fund, incorporates all factors that market participants would consider in setting a price, and is consistent with accepted economic methodologies for pricing financial instruments Inputs

to valuation techniques reasonably represent market expectations and measures of the risk-return factors inherent in the financial instrument The Fund calibrates valuation techniques and tests them for validity using prices from observable current market transactions in the same instrument or based

on other available observable market data

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(h) Financial assets and financial liabilities (continued)

IAS 39.48 (iv) Fair value measurement (continued)

IFRS 7.28(a) The best evidence of the fair value of a financial instrument at initial recognition is the transaction

price, i.e the fair value of the consideration given or received, unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e without modification or repackaging) or based on a valuation technique whose variables include only data from observable markets When transaction price provides the best evidence of fair value at initial recognition, the financial instrument is initially measured at the transaction price and any difference between this price and the value initially obtained from a valuation model is subsequently recognised in profit or loss on an appropriate basis over the life of 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 fair value, other than interest and dividend income and expense, are recognised in

profit or loss as part of net gain from financial instruments at fair value through profit or loss

(v) Impairment

IFRS 7.B5(f) A financial asset not classified at fair value through profit or loss is assessed at each reporting date to

determine whether there is objective evidence of impairment A financial asset or a group of financial assets is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset(s), and that loss event(s) had an impact on the estimated future cash flows of that asset(s) that can be estimated reliably

IAS 39.65 Objective evidence that financial assets are impaired includes significant financial difficulty of the

borrower or issuer, default or delinquency by a borrower, restructuring of amount due on terms that the Fund would not consider otherwise, indications that a borrower or issuer will enter bankruptcy, or adverse changes in the payment status of the borrowers

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

difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate Losses are recognised in profit or loss and reflected in an allowance account against receivables Interest on the impaired asset continues to

be recognised When an event occurring after the impairment was recognised causes the amount of impairment loss to decrease, the decrease in impairment loss is reversed through profit or loss

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1. IAS 1.35 Gains and losses arising from a group of similar transactions are reported on a net basis, e.g foreign

currency gains and losses or gains and losses arising on inancial instruments held for trading However, such gains and losses are reported separately if they are material

(h) Financial assets and financial liabilities (continued)

IAS 39.15–42 (vi) Derecognition

The Fund derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Fund neither transfers nor retains substantially all the risks and rewards of ownership and does not retain control of the financial asset Any interest in such transferred financial assets that is created or retained by the Fund is recognised as a separate asset or liability

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognised), and consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss

The Fund enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or

a portion of them If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised Transfers of assets with retention of all or substantially all risks and rewards include securities lending and repurchase transactions

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

or expire

(vii) Offsetting

IAS 32.42 Financial assets and liabilities are offset and the net amount presented in the statement of financial

position when, and only when, the Fund has a legal right to offset 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 for gains and losses arising from a group of similar transactions, such as gains and losses from financial instruments at fair value through profit or loss.1

(viii) Specific instruments

IAS 7.46 Cash and cash equivalents

Cash and cash equivalents comprise deposits with banks and highly liquid financial assets with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Fund in the management of short-term commitments, other than cash collateral provided in respect of 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 financial asset and simultaneously enters into an agreement to resell the

same or substantially similar asset at a fixed price on a future date (‘reverse repo’), the arrangement

is accounted for as a loan and receivable, recognised in the statement of financial position as receivables from reverse repurchase agreements, and the underlying asset is not recognised in the Fund’s financial statements

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

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

effect on the inancial statements of the entity, it is not necessary to list them as such a disclosure will not be material

2. See Appendix I for example disclosures on the early adoption of IFRS 9

3. The following standards, interpretations and amendments have been issued with effective dates

relating to periods beginning on or after 1 January 2011

● In October 2010 the IASB issued Disclosures – Transfers of Financial Assets (Amendments to IFRS 7) with an effective date of 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 effective date of the standard to annual period beginning on or after

1 January 2015 and modiied its transitional provisions so that entities that initially apply IFRS 9 in periods beginning:

– before 1 January 2012 need not restate prior periods and are not required to provide alternative disclosures speciied in the standard;

– on or after 1 January 2012 and before 1 January 2013 must elect to either restate prior periods or

to provide alternative disclosures; or – on or after 1 January 2013 must provide alternative disclosures and do not need to restate prior periods

See Appendix I for an illustrative example of the early adoption of IFRS 9

● In December 2010 the IASB issued Deferred Tax: Recovery of Underlying Assets – Amendments

to IAS 12 with an effective date of 1 January 2012

● In May 2011 the IASB issued IFRS 10 Consolidated Financial Statements, IFRS 11 Joint Arrangements, IFRS 12 Disclosure of Interests in Other Entities and IFRS 13 Fair Value Measurement, which all have an effective date of 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 effective date of 1 January 2013

● In June 2011 the IASB issued Presentation of Items of Other Comprehensive Income (Amendments to IAS 1 Presentation of Financial Statements) with an effective date of 1 July

2012 For example disclosures for entities that early adopt the amendments, please refer to Appendix III in our publication Illustrative financial statements

● In June 2011 the IASB issued an amended IAS 19 Employee Benefits, with an effective date of

1 January 2013

(h) Financial assets and financial liabilities (continued)

(viii) Specific instruments (continued)

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

When the Fund sells a financial asset and simultaneously enters into an agreement to repurchase the same or similar asset at a fixed price on a future date (‘repo’), the arrangement is accounted for as a borrowing, recognised in the statement of financial position as payables under repurchase agreements, and the underlying asset continues to be recognised in the Fund’s financial statements.Securities borrowed by the Fund are not recognised in the statement of financial position If the Fund subsequently sells the borrowed securities, the arrangement is accounted for as a short sold position, recognised in the statement of financial position as financial liabilities at fair value through profit or loss, classified as held for trading and measured at fair value through profit or loss Cash collateral for borrowed securities is included within balances due from brokers

IAS 39.AG51(a) Securities lent by the Fund are not derecognised from the Fund’s statement of financial 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 reclassifies them in the statement of financial position as pledged financial assets at fair value through profit or loss

Receivables from reverse repurchase agreements and payables under repurchase agreements are subsequently measured at amortised cost

value proportionate to the investor’s share in the Fund’s net assets, after deduction of the nominal

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

event of the Fund’s liquidation

The redeemable shares are classified as financial liabilities and are measured at the present value

of the redemption amounts In accordance with the Fund’s prospectus, the redemption amounts of the individual redeemable shares are calculated using the mid-market prices of the Fund’s underlying investments/securities sold short However, in accordance with the Fund’s 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 from mid-market prices basis to bid-ask prices is included in computing the total redemption amount of the redeemable shares and is presented as an adjustment in the statement of financial position

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

A number of new standards, amendments to standards and interpretations are effective for annual periods beginning after 1 January 2011, and have not been applied in preparing these financial statements None of these are expected to have a significant effect on the measurement of the amounts recognised in the financial statements of the Fund However, IFRS 9 will change the classification of financial assets

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1. IFRS 7.1, 31 An entity discloses information that enables users of its inancial statements to evaluate the nature

and extent of risks arising from inancial instruments to which it is exposed at the end of 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 of risk, an entity discloses:

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

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

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

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

to link related disclosures and hence form an overall picture of the nature and extent of risks arising from financial instruments Interaction between qualitative and quantitative disclosures contributes

to disclosure of information in a way that better enables users to evaluate an entity’s exposure to risks

IFRS 7.B6 The disclosures required by IFRS 7.31–41 in respect of the nature and extent of risks arising from

inancial instruments are either presented in the inancial statements or incorporated by reference from the inancial statements to another statement, such as a management commentary

cross-or risk repcross-ort, that is available to users of the inancial statements on the same terms as the inancial statements and at the same time The location of these disclosures may be guided by local laws

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

IFRS 7 requires only risk disclosures for inancial instruments Financial risk exposures from inancial instruments, e.g credit risk from operating leases, are disclosed separately if an entity chooses to disclose its entire inancial risk position

non-IFRS 7.35, IG20 If the quantitative data at the reporting date are not representative of an entity’s risk exposure during

the year, then an entity provides further information that is representative, e.g the entity’s average exposure to risk during the year For example, the IFRS 7 implementation guidance indicates that

if 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 inancial statements the disclosures in respect of inancial risk management have

been presented to illustrate different potential scenarios and situations that an entity may encounter

in practice An entity tailors its respective disclosures for the speciic facts and circumstances relative to its business and risk management practices, and also takes into account the signiicance

of its exposure to risks from the use of inancial instruments

3. IFRS 7.3, 5 The disclosure requirements of IFRS 7 are limited to inancial instruments that fall within the scope

of that standard; therefore, operational risks that do not arise from the entity’s inancial instruments are excluded from the requirements

4. IAS 1.134 The entity discloses information that enables users of its inancial statements to evaluate its

objectives, policies and processes for managing capital

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 of the financial assets since the majority of the Fund’s financial assets are measured at fair value through profit or loss

IFRS 9 deals with recognition, derecognition, classification and measurement of financial assets and financial liabilities Its requirements represent a significant change from the existing requirements in IAS 39 in respect of financial assets The standard contains two primary measurement categories for financial assets: at amortised cost and fair value A financial asset would be measured at amortised cost if it is held within a business model whose objective is to hold assets in order to collect contractual cash flows, and the asset’s contractual terms give rise on specified dates to cash flows that are solely payments of principal and interest on the principal outstanding All other financial assets would be measured at fair value The standard eliminates the existing IAS 39 categories of held to maturity, available for sale and loans and receivables

For an investment in an equity instrument that is not held for trading, the standard permits an irrevocable election, on initial recognition, on an individual share-by-share basis, to present all fair value changes from the investment in other comprehensive income No amount recognised in other comprehensive income would ever be reclassified to profit or loss However, dividends on such investments are recognised in profit or loss, rather than other comprehensive income unless they clearly represent a partial recovery of the cost of the investment Investments in equity instruments

in respect of which an entity does not elect to present fair value changes in other comprehensive income would be measured at fair value with changes in fair value recognised in profit or loss

The standard requires that derivatives embedded in contracts with a host that is a financial asset within the scope of the standard are not separated; instead the hybrid financial instrument is assessed in its entirety as to whether it should be measured at amortised cost or fair value

IFRS 9.B5.7.5, IFRS 9 requires that the effects of changes in credit risk of liabilities designated as at fair value

B5.7.8 through profit or loss are presented in other comprehensive income unless such treatment

would create or enlarge an accounting mismatch in profit or loss, in which case all gains or losses on that liability are presented in profit or loss Other requirements of IFRS 9 relating to classification and measurement of financial liabilities are unchanged from IAS 39

The requirements of IFRS 9 relating to derecognition are unchanged from IAS 39

The standard is effective for annual periods beginning on or after 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 following risks from financial instruments:

● credit risk

● liquidity risk

● market risk

● operational risk. 3

IFRS 7.33 This note presents information about the Fund’s exposure to each of the above risks, the Fund’s

objectives, policies and processes for measuring and managing risk, and the Fund’smanagement of capital.4

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

provided internally to the entity’s key management personnel, as deined in IAS 24, e.g the entity’s board of directors or chief 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 speciic additional disclosures to be made unless covered by the information provided to management

IFRS 7.35, IG20 If the quantitative data at the reporting date are not representative of an entity’s risk exposure during

the year, then an entity provides further information that is representative, e.g the entity’s average exposure to risk during the year

The example shown in these illustrative inancial statements in relation to credit risk assumes that the primary bases for reporting to key management personnel on credit risk is monitoring of credit ratings of counterparties to debt securities, reverse repurchase and derivatives transactions, brokers and bankers and industry concentration of debt securities However, other presentations are possible

(a) Introduction and overview (continued)

(i) Risk management framework

IFRS 7.31 The Fund maintains positions in a variety of derivative and non-derivative financial instruments in

accordance with its investment management strategy [Insert description of the Fund’s investment

strategy as outlined in the Fund’s prospectus] The Fund’s investment portfolio comprises listed

and unlisted equity and debt securities, derivative financial instruments and investments in unlisted investment funds

The Fund’s investment manager has been given a discretionary authority to manage the assets in line with the Fund’s investment objectives Compliance with the target asset allocations and the

composition of the portfolio is monitored by the board of directors on a [daily/weekly/monthly] basis

In instances where the portfolio has diverged from target asset allocations, the Fund’s investment manager is obliged to take actions to rebalance the portfolio in line with the established targets, within prescribed time limits

During 2011 higher levels of market volatility persisted across all asset classes Uncertainty over the levels of borrowing by governments in the major economies and concerns over the performance of sovereign debt in the Eurozone substantially increased market volatility The largest impact resulted from the general widening of credit spreads The Fund sought to mitigate the market and credit risk

by diversifying away from exposures to countries with the highest uncertainty and volatility and through increased diversification of its investment portfolio

The Fund does not have a direct exposure to the sovereign risk of Eurozone countries Exposures to other Eurozone counterparties are as follows:

IFRS 7.33 (b) Credit risk1

Credit risk is the risk that a counterparty to a financial instrument will fail to discharge an obligation

or commitment that it has entered into with the Fund, resulting in a financial loss to the Fund It arises principally from debt securities held, and also from derivative financial assets, cash and cash equivalents, balances due from brokers and receivables from reverse repurchase agreements For risk management reporting purposes the Fund considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk)

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

disclosure of the maximum exposure to credit risk ignores any collateral held or other credit enhancement This disclosure is not required for inancial 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 of the inancial asset, net of

any amounts offset in accordance with IAS 32 and any impairment losses recognised in accordance with IAS 39

IFRS 7.36,

B1–B3

The disclosures in respect of credit risk apply to each ‘class’ of inancial asset, which is not deined

in IFRS 7 Classes are distinct from the categories of inancial instruments speciied in IAS 39 In determining classes of inancial instruments, an entity at a minimum distinguishes instruments measured at amortised cost from those measured at fair value, and treats as a separate class or classes those inancial instruments outside the scope of IFRS 7

IFRS 7.IG21–

IG29

The IFRS 7 implementation guidance provides additional guidance on the disclosures without specifying a minimum standard disclosure

(b) Credit risk (continued)

(i) Management of credit risk

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

higher risk of default by dealing only with counterparties meeting the credit standards set out in the

Fund’s prospectus and by taking collateral [Insert specific risk management policies and investment

guidelines relating to credit risk as outlined in the Fund’s 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 specific risk management procedures This should

include how the risk is managed and measured] The Fund’s credit risk is monitored on a [monthly, quarterly, other] basis by the board of directors Where the credit risk is not in accordance with

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

the portfolio within [state number of days] days of each determination that the portfolio is not in

compliance with the stated investment parameters

(ii) Exposure to credit risk1

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

enhancements) at the reporting date is represented by the respective carrying amounts of the relevant financial assets in the statement of financial position The risk on some of these exposures, principally receivables from reverse repurchase agreements, is mitigated by collateral held (see note 11)

(iii) Investments in debt securities

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

enhancements) at the reporting date is represented by the respective carrying amounts of the relevant financial assets in the statement of financial position The risk on some of these exposures, principally receivables from 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 following credit quality:

(iv) Derivative financial instruments

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

over-the-counter (OTC) derivatives Credit risk arising from exchange-traded derivatives is mitigated by margin requirements OTC derivatives expose the Fund to the risk that the counterparties to the derivative financial instruments might default on their obligations to the Fund

IFRS 7.36(b), (c) Derivative financial 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 for the net settlement of contracts with the same counterparty in the event of default As a result of master netting agreements, at 31 December

2011, the Fund would be entitled to offset derivative assets of €451 thousand (2010: €299 thousand) against derivative liabilities in the event of counterparty defaults For the purposes of reporting in the statement of financial position, the derivative financial assets and liabilities have not been offset, as they do not meet the offsetting criteria The net exposure to credit risk mitigated by master netting arrangements may change significantly within a short period of time due to the highly volatile nature

of the fair value of the derivatives

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

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

enhancements and their inancial effect in respect of the amount that best represents maximum exposure to credit risk

2. IFRS 7.B8, IG18,

IG19

The identiication of concentrations of risk requires judgement taking into account the circumstances

of the entity For example, concentrations of credit risk may arise from industry sectors, credit rating or other measures of credit quality, geographical distribution or a limited number of individual counterparties Therefore, the disclosure of risk concentrations includes a description of the shared characteristics

(b) Credit risk (continued)

(iv) Derivative financial instruments (continued)The following table sets out the fair values and the notional amount of derivative assets and liabilities held by the Fund as at the reporting date:

-Interest rate swaps (464) (5,900) (372) (4,000) Total derivative liabilities (2,837) (44,700) (1,234) (20,200)

(v) Balances due from brokers

IFRS 7.36(c) Balances due from brokers represent margin accounts, cash collateral for 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 of the brokers used As

at the reporting date 72% (2010: 69%) of the balances due from brokers are concentrated amongst three brokers (2010: four brokers) whose credit rating was AA (2010: AA) The investment manager monitors the financial position of the brokers on a quarterly basis

(vi) Cash and cash equivalents

IFRS 7.36(c) The Fund’s 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 financial position of XYZ

Bank on a quarterly basis

(vii) Receivables from 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 fulfil its contractual obligations to the Fund, and the collateral value decreases rapidly and is insufficient to cover the amount due At 31 December

2011 the fair value of debt securities held as collateral against receivables from reverse repurchase agreements was €4,999 thousand (2010: €4,190 thousand) In instances in which the value of the collateral decreases below the predetermined collateral coverage, the agreement requires the counterparty to post additional collateral In addition, the Fund minimises its credit risk by monitoring counterparty creditworthiness (see note 11)

(viii) Concentration of credit risk2

IFRS 7.34(c) The investment manager reviews credit concentration of debt securities held based on counterparties

and industries [and geographical location].

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1. IFRS 7.37(a) An entity discloses an ageing analysis of inancial assets that are past due at the reporting date, but

not impaired This disclosure is required for all classes of inancial assets These illustrative inancial statements do not demonstrate such disclosures; for an example please refer to our publications Illustrative financial statements and Illustrative financial statements: Banks

2. IFRS 7.34(a),

B10A

IFRS 7 requires the disclosure of summary quantitative data on liquidity risk to be based on information provided internally to the entity’s key management personnel, as deined in IAS 24, e.g the entity’s board of directors or chief executive An entity explains how those data are determined The standard also requires speciic additional disclosures to be made unless covered by the information provided to management

IFRS 7.35, IG20 If the quantitative data at the reporting date are not representative of an entity’s risk exposure during

the year, then an entity provides further information that is representative, e.g the entity’s average exposure to risk during the year

The example shown in these illustrative inancial statements in relation to liquidity risk assumes that the primary basis for reporting to key management personnel on liquidity risk is the ratio of liquid assets to anticipated redemptions and monthly redemption levels The example also assumes that this is the entity’s approach to managing liquidity risk However, other presentations are possible

(b) Credit risk (continued)

(viii) Concentration of credit risk (continued)

IFRS 7.B8(a) As at the reporting date, the Fund’s debt securities exposures were concentrated in the following

For the majority of transactions the Fund mitigates this risk by conducting settlements through

a broker to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations Settlement limits form part of the credit approval and limit monitoring processes described earlier

IFRS 7.37 (x) Past due and impaired assets1

No financial assets carried at amortised cost were past due or impaired either at 31 December 2011

or 31 December 2010

IFRS 7.39 (c) Liquidity risk2

Liquidity risk is the risk that the Fund will encounter difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset

IFRS 7.39(c) (i) Management of liquidity risk

The Fund’s policy and the investment manager’s approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stress conditions, including estimated redemptions of shares, without incurring unacceptable losses or risking damage to the Fund’s reputation

The Fund’s prospectus provides for the monthly [daily/quarterly] creation and cancellation of

shares and it is therefore exposed to the liquidity risk of meeting shareholder redemptions at each

redemption date [at any time].

The Fund’s financial assets include unlisted equity investments, which generally are illiquid In addition, the Fund holds investments in unlisted open-ended investment funds, which may be subject

to redemption restrictions such as side pockets or redemption gates As a result, the Fund may not

be able to liquidate some of its investments in these instruments in due time in order to meet its liquidity requirements

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

1. IFRS 7.39 In addition to disclosures based on information provided internally to key management personnel, an

entity also discloses:

• a maturity analysis for non-derivative inancial liabilities;

• a maturity analysis for derivative inancial liabilities, which should include those instruments for which contractual maturities are essential for an understanding of the timing of the cash lows; and

• a description of how it manages the liquidity risk inherent in the above

2. IFRS 7.B11D The contractual amounts disclosed in this analysis are gross undiscounted cash lows and therefore

may not agree with the carrying amounts in the statement of inancial position

IFRS 7 does not deine contractual maturities It therefore leaves open to interpretation the amounts that need to be included in the analysis for certain types of inancial liabilities, such as derivatives and perpetual instruments In our view, both the interest and principal cash lows should be included

in the analysis, as this best represents the liquidity risk being faced by the entity This issue is discussed in our publication Insights into IFRS (7.8.390.70)

IFRS 7.B11 In preparing the contractual maturity analyses for inancial liabilities, an entity uses its judgement to

determine an appropriate number of time bands This issue is further discussed in our publication Insights into IFRS (7.8.390.80)

IFRS 7.B11E An entity discloses how it manages liquidity risk inherent in its maturity analyses for derivative and

non-derivative inancial liabilities An entity also discloses a maturity analysis of inancial assets that

it holds for managing liquidity risk, if such information is necessary to enable users of its inancial statements to evaluate the nature and extent of liquidity risk

3. IFRS 7.B11B In these illustrative inancial statements it is assumed that disclosure of contractual maturities for all

derivative inancial liabilities held by the Fund is essential for an understanding of the timing of the cash lows

(c) Liquidity risk (continued)

(i) Management of liquidity risk (continued)The Fund’s investments in listed securities are considered to be readily realisable as they are actively traded on major European stock exchanges and on the NYSE

IFRS 7.33(b), 39(c), The Fund’s liquidity risk is managed on a daily basis by the investment manager in accordance

B11E with policies and procedures in place [Insert specific risk management policies and investment

guidelines relating to liquidity risk as outlined in the Fund’s prospectus as well as the risk management procedures This should include how the risk is managed and measured]

The Fund’s overall liquidity risk is monitored on a [monthly, quarterly, other] basis by the board of

directors The Fund’s redemption policy only allows for redemptions on the last day of each month

[quarter, other] and shareholders must provide 14 days’ notice It is the investment manager’s policy

to have liquid assets comprising cash and cash equivalents and investments for which there is an

active and liquid market equal to at least 105% of [monthly, quarterly, other] anticipated redemptions.

The board of directors is empowered to impose a redemption gate should redemption levels exceed 10% of the net assets value of the Fund in any redemption period

IFRS 7.B11F(a), In addition, the Fund maintains the lines of credit of €300 thousand that it can access to meet

50(a) liquidity needs If the line of credit is drawn, interest would be payable at the rate of Euribor plus

160 basis points (2010: Euribor plus 150 basis points) The Fund has no restrictions on the use of this facility

IFRS 7.39(a), (b) (ii) Maturity analysis for financial liabilities1, 2

The following are the contractual maturities of financial liabilities, including estimated interest payments

Carrying inflow/ Less than 1 to 3 3 months

IFRS 7.B11 In thousands of euro amount (outflow) 1 month months to 1 year

31 December 2011 Non-derivative liabilities

Securities sold short (784) (784) (784) -

-Balances due to brokers (143) (143) (143) -

-Payables under repurchase

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

1. IFRS 7 34(a) IFRS 7 requires the disclosure of summary quantitative data on market risk to be based on

information provided internally to the entity’s key management personnel, as deined in IAS 24, e.g the entity’s board of directors or chief 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 speciic additional disclosures to be made unless covered by the information provided to management

IFRS 7.35, IG20 If the quantitative data at the reporting date are not representative of an entity’s risk exposure during

the year, then an entity provides further information that is representative, e.g the entity’s average exposure to risk during the year

In these illustrative inancial statements, the following primary basis for market risk reporting to key management personnel is assumed:

• for interest rate risk – gap analysis and the weighted average number of days to maturity

• for foreign exchange risk – analysis of concentration risk in relation to individual currencies arising from both monetary and non-monetary assets and liabilities

• for other price risk – analysis of the portfolio diversiication by asset type and industry concentration

of equity investments

However, other presentations are possible

2. IFRS 7.40(a) An entity discloses how proit or loss and net assets attributable to holders of redeemable shares

would have been affected by changes in a relevant risk variable that were reasonably possible at the reporting date Such a sensitivity analysis is disclosed for each type of market risk to which the entity

is exposed at the reporting date

IFRS 7.41 In these illustrative inancial statements it is assumed that the Fund does not prepare a sensitivity

analysis such as a Value-at-Risk analysis (VaR) that relects the interdependencies between risk variables However, we have illustrated in Appendix V an example disclosure for a fund that uses a VaR analysis