Triodos Microfinance Fund Audited annual report 2011 potx

The fund increased the number of its investments to 28 microfinance institutions MFIs and one investment fund and further diversified its geographical spread by adding three new countrie

Triodos Microfinance Fund

Audited annual report 2011

Mi crofinance

is the provision of financial services to low-income people in developing countries An inclusive

financial sector, where the majority of people have

access to financial services, provides a sustainable basis for balanced socio-economic development

Société d’Investissement à Capital Variable organised

under the laws of the Grand Duchy of Luxembourg

The value of the investments may fluctuate Past performance is no guarantee of future results

No subscription can be accepted on the basis of financial reports Subscriptions are only valid if they are made on the basis of the latest published prospectus accompanied by the latest annual report and the most recent semi-annual report, if published thereafter The prospectus

is available free of charge at the registered office of Triodos SICAV II in Luxembourg and from Triodos Bank: www.triodos.com

Triodos Investment Management is a 100% subsidiary of Triodos Bank Triodos Investment Management is the Investment Manager of Triodos Microfinance Fund and manages the assets on a day-to-day basis

Triodos SICAV II

-Triodos Microfinance

Fund

Audited annual report 2011

Realised and unrealised results on investments,

swaps and foreign exchange contracts 1,337,110 616,267 -252,222

* The total expense ratio (TER) includes all the costs that are charged to the result during the reporting period

The costs of securities transactions and the interest charges are disregarded

** This share class was launched on April 1, 2010

*** This share class was launched on June 1, 2010

**** This share class was launched on November 1, 2010

Net asset value per share

Return1 based on net asset value per share

Average sinceinception p.a

Source: RBC Dexia and vwd group

1 The return includes reinvestment of dividends and costs

2 The GBP share classes are hedged against the euro

Table of Contents Page

Introduction 7

Report of the réviseur d’entreprises agréé 43

Colophon 47

An estimated 2.7 billion people, or close to half the

world’s population, have no access to formal

financial services They are unable to open a bank

account, negotiate a loan to start a business or buy

insurance Having access to these financial services

has a fundamental impact on the lives of millions of

people It enables them to build their assets

gradually, develop micro-enterprises and improve

their income earning capacity to help them save for

school fees and provide a financial cushion for the

future

While there is still a long way to go to make sure that

everyone everywhere has access to a diverse range

of financial services, the past ten years have seen

tremendous growth in financial services being

offered to poorer people by an increasing number

and variety of financial institutions The industry has

proved that low income populations are bankable

and can be offered financial services in a

sustainable way On the back of the microfinance

industry's success, commercial banks in developing

countries have partnered with microfinance

institutions to reach lower income customers In

some markets, microfinance institutions (MFIs) have

transformed into licensed banks, enabling them to

further expand their services to small and

medium-sized enterprises or provide mortgages

Significant challenges remain however, not least

because millions of people are still excluded As the

microfinance sector becomes integrated into

mainstream financial systems, it also inherits many

of the industry’s existing problems This means that

as the industry matures it must address its

challenges in a balanced way in order to shape an

inclusive financial services industry that keeps the

interests of its low-income clients at its core

Mission

Triodos SICAV II - Triodos Microfinance Fund (Triodos Microfinance Fund) has been designed to offer investors the opportunity to actively contribute to the development of the microfinance sector into an inclusive financial sector in which the majority of people have access to financial services The fund provides loans and equity to banks and microfinance institutions (MFIs) that demonstrate a sustainable approach toward providing financial services to underserved client groups

Triodos Microfinance Fund is an initiative of Triodos Investment Management, a wholly-owned

subsidiary of Triodos Bank NV Triodos Investment Management started investing in developing countries in 1994 because it recognised that sustainable development, and addressing poverty issues in particular, was a global issue Since 1994, assets under management in the microfinance sector have increased to EUR 362 million, making Triodos Investment Management one of the leading investors in the industry As an investor it wishes to contribute to the development of a sustainable financial sector in developing countries based on fair pricing, transparency, access for all and care for the earth

Introduction

Triodos SICAV II - Triodos Microfinance Fund’s net

assets grew by 52.8% to EUR 91.7 million at the end

of 2011, while its portfolio reached a value of

EUR 71.2 million (77.6% of the fund’s net assets)

The fund increased the number of its investments

to 28 microfinance institutions (MFIs) and one

investment fund and further diversified its

geographical spread by adding three new countries

to its portfolio, which now totals 19 countries in

Latin America, Asia, Africa and Eastern Europe

Market Developments

The quality of loan portfolios held by microfinance

institutions (MFIs) stabilised or improved in 2011,

leading to an increasing demand for funding The

sustained economic growth in many developing

countries played a distinct role in this A growing

number of institutions aim to provide a broad range

of services including savings and insurance

products and are using innovative distribution

channels to reach their clients MFIs are also

increasingly aiming their services at small and

medium-sized enterprises This is because

successful micro-entrepreneurs have expanded into

this sector, which is also frequently the driving force

for jobs in the economy

growth of net

assets in 2011

All the players in the sector are increasingly aware of

the growing pains that accompany the maturing of

the microfinance sector Overindebtedness among

microfinance clients remains a major concern

Microfinance institutions, microfinance banks, investors, legislators and network organisations are working hard and often collaborating to ensure that the sector develops vigorously and sustainably, with the interests of the end-clients at its core Keying into individual end clients’ needs and circumstances, motivating them to save in combination with offering responsible loans, transparent services, balanced growth and effective regulation and supervision are crucial in all this The challenge for all parties including Triodos Microfinance Fund is continuing to maintain this balance It is encouraging to see that microfinance is increasingly reaching people that were previously unbanked It is important to guard against financial return becoming an end in itself, rather than an instrument for safeguarding the continuity and improvement of services The aim remains to improve these clients’ living conditions Their interests are the focal point The sometimes stormy development of the microfinance sector in recent years with over-stretched growth and profit targets may come along with the risk that such interests fade into the background When MFIs fail

to align their credit methods and services with the needs of their clients, these clients can find themselves saddled with irresponsible and large debts This is exactly the opposite of what microfinance stands for: offering financial services responsibly and transparently to people on low incomes in a way that enables them to improve their living conditions

Microfinance Transparency, the Smart Campaign and the Principles for Investors in Inclusive Finance1

are examples of sector-wide initiatives that take the interests of microfinance clients as their starting point Triodos Microfinance Fund wholeheartedly endorses these initiatives and is actively involved in them The same applies to the Social Performance Taskforce of the Consultative Group to Assist the Poor (CGAP)2 that focuses on further

standardisation of indicators and ratios in order to clearly and unambiguously analyse the social impact

of MFIs

Report of the

Board of Directors

1 For more information: www.mftransparency.org; www.smartcampaign.org and www.unpri.org/piif

2 For more information: www.sptf.info and www.cgap.org

A growing number of MFIs were able to make use of

a credit bureau in 2011 Centralised credit

registration prevents microfinance clients from

taking on too great a debt burden by making it easy

for MFIs to see which financial liabilities the client

has already taken on This is a clear indication that

microfinance is becoming embedded in the

legislation and regulations of a growing number of

developing countries

By 2011 the microfinance industry has established

itself more firmly on a global scale Nonetheless,

there is still a long way to go before everyone in the

world has access to formal financial services, such

as opening a bank or savings account, taking out a

loan to start a business or taking out insurance An

estimated 2.7 billion people, almost half of the

world’s population, is excluded from such services

Triodos Microfinance Fund wants to make a

contribution as an investor to offer a growing

number of people access to these financial services

in a responsible and transparent manner

Investments

Triodos Microfinance Fund’s investment portfolio

expanded to EUR 71.2 million in 2011 or 77.6% of the

fund’s net assets (2010: EUR 50.8 million and

84.7%) The fund made 31 disbursements of both

debt and equity in 2011 (2010: 26) By the end of

2011, Triodos Microfinance Fund had invested in 28

MFIs (2010: 21) and one microfinance investment

fund in 19 different countries (2010: 17) across Latin

America, Asia, Africa and Eastern Europe At

year-end 2011, the fund had outstanding

commitments in relation to five loans and two equity

investments The committed loans are to AMRET in

Cambodia, IMON in Tajikistan, Credinka in Peru,

AzerCredit in Azerbaijan and the disbursement of

the second and third tranches of a loan to Credo in

Georgia The committed equity participations are

follow-on investments in shares of ACLEDA Bank in

Cambodia and the India Financial Inclusion Fund

(IFIF)

The quality of the fund’s loan portfolio remained high and the fund made no provisions for non-performing loans in 2011

The equity portfolio increased from EUR 11.1 million

in 2010 to EUR 15.5 million in 2011, EUR 2.8 million of which related to amounts invested during the year.The fund finalised one new equity investment in Mibanco in Peru during the last quarter of 2011 Mibanco is a successful microfinance bank that plays an innovative role in the Latin American microfinance sector The institution issues working capital and loans to micro-entrepreneurs and small and medium-sized businesses In addition, it offers current accounts, savings and deposit accounts to private individuals A few years ago, Mibanco also added insurance products to its product range The fund’s equity investment in ACLEDA Bank performed well, as the Cambodian institution

Portfolio data, 31 December 2011Net Asset Value EUR 91.7 millionMicrofinance portfolio EUR 71.2 million

Source: Triodos Investment Management

Portfolio allocation by assets (as % of NAV),

Overview of microfinance institutions financed by Triodos Microfinance Fund

as per 31 December 2011 and 2010

Number of borrowers Percentage women Loan portfolio (EUR x 1,000) Average loan (EUR)

Percentage clients

in rural areas Number of saving clients

Overview of microfinance institutions financed by Triodos Microfinance Fund

as per 31 December 2011 and 2010

Number of borrowers Percentage women Loan portfolio (EUR x 1,000) Average loan (EUR)

Percentage clients

in rural areas Number of saving clients

continued its strong growth

In India, the microfinance sector continues to face a number of challenges triggered by legislation implemented in the state of Andhra Pradesh in 2010

This legislation restricted MFIs in their ability to effectively engage with their clients to collect outstanding loans, resulting in deterioration of the quality of their loan portfolios The situation in Andhra Pradesh gave rise to concerns also in other parts of the country and made it more difficult for the Indian microfinance sector to attract funding for (re-)financing the loan portfolio In 2011, nation-wide legislation brought increased clarity for the sector

While it could not revive the sector in Andhra Pradesh, it led to renewed access to funding for the national microfinance sector and to improving performance of some MFIs outside of Andhra

Pradesh Triodos Microfinance Fund revalued its two equity investments in India Bhartiya Samruddhi Finance, mainly active in Andhra Pradesh, was hit the hardest The India Financial Inclusion Fund (IFIF), which holds a more diversified portfolio of new and established MFIs and other organisations that provide financial services to low-income people

in India, proved more resilient

A quantitative description of the activities of the MFIs in the Triodos Microfinance Fund portfolio can

be found in the table on pages 10 and 11 The table shows the loan portfolio, number of loan clients, average loan amount, number of saving clients, percentage of women and rural outreach of each MFI A short description of all MFIs in the fund’s portfolio can also be found under the header ‘Know where your money goes’ at www.triodos.com

countries

in the portfolio

CENTENARy BANK IN UGANDA

Centenary Bank is the market leader in microfinance in Uganda and is also active in rural areas At year end 2011, the bank had 130 thousand loan clients and 700 thousand clients with savings accounts One of them is Kakembo Florence Najjuka, who has been able to expand her poultry farm with a new shed and a well thanks to a loan from Centenary Bank

Exposure by country (as % of NAV),

Source: Triodos Investment Management

Exposure by currency (as % of NAV),

31 December 2011

48.3% USD 98.9% is hedged 1.1% is unhedged

29.9% EURO

21.8% LOCAL CURRENCY 53.5% is hedged 46.5% is unhedged

Source: Triodos Investment Management

Five largest outstanding positions (as % of NAV),

31 December 2011Institution Country PercentageACLEDA Bank Cambodia 12.4%Financiera Crear Peru 7.0%

AccessBank Azerbaijan 4.2%FINCA Azerbaijan Azerbaijan 4.1%

Source: Triodos Investment Management

Triodos Microfinance Fund is committed to keeping individual investments below 15% of the fund’s assets The largest investment represents 12.4% of the fund’s assets and is in ACLEDA Bank in

Cambodia

Financial results

The net result of Triodos Microfinance Fund for 2011

is EUR 4.6 million (2010: EUR 2.5 million)

Triodos Microfinance Funds’ largest source of income is the interest generated on loans Interest

on loans amounted to EUR 4.3 million in 2011 (2010: EUR 2.7 million) The growth of interest income is in line with the growth of the fund’s loan portfolio In addition, Triodos Microfinance Fund received EUR 250,000 in dividend from one of its equity participations (2010: EUR 0) The increase in the value of investments (as a result of changes in equity valuation and/or foreign exchange rate fluctuations) was EUR 2.8 million in 2011 (2010: EUR 1.2 million) The fund made losses of EUR 1.6 million on foreign exchange contracts during the same period in 2011 (2010: a loss of EUR 739,000) Foreign currencies in the fund’s portfolio tend to depreciate against the euro Triodos Microfinance Fund therefore adds a premium on the interest rate charged on foreign currency loans to compensate for the expected depreciation loss When investing

in equity the fund takes the expected depreciation into account and assesses whether the investment

meets a minimum expected return in euro

Total expenses were EUR 1.6 million in 2011 (2010:

EUR 1.2 million) The bulk of these expenses

comprise management, distribution and service

fees, which rose to EUR 1.3 millon (2010:

EUR 926,000) This rise is in line with the increase in

the fund’s net assets under management

The returns on all Triodos Microfinance Fund share

classes continued to improve in 2011 Differences in

financial performance between share classes are

mainly attributable to the different cost base, as

explained in the section on ‘Costs’ below

Triodos Microfinance Fund aims to retain 10% in

cash or cash equivalents for liquidity management

purposes The fund received sizeable investor

inflows during the last quarter of 2011, which

explains the relatively large cash position at year

end

Sustainability as core value

Triodos Microfinance Fund makes use of its Sustainability Management System to effectively and unambiguously analyse and assess how the MFIs in the fund’s portfolio have embedded its mission and social objectives in their organisations The system clearly sets out MFIs’ social and environmental performance and shows their attitude to issues such as transparency and preventing overindebtedness

The table on pages 10 and 11 assigns a number of social indicators to each financial institution in the Triodos Microfinance Fund portfolio, such as the number of loan and savings clients, average loan and the percentage of female clients and clients in rural areas These and other indicators are shown at fund level in the table on the next page

The system also provides information on the range and diversity of products that MFIs offer, the sectors

in which their loan clients are active, which activities

Return1 based on net asset value per share, 31 December 2011

Average sinceinception p.a

Source: RBC Dexia and vwd group

1 The return includes reinvestment of dividends and costs

2 The GBP share classes are hedged against the euro

the MFI initiates in order to make care for the

environment a priority and the way they pursue

transparency and fair pricing More information and

examples from the portfolio are given below

Group loans in combination with supplementary

training courses are a good way for low-income

people to enter the financial system for the first

time In the Triodos Microfinance Fund portfolio,

Small Enterprise Foundation in South Africa and

Kenya Women Finance Trust DMT are among those

offering such loans, especially to women Triodos

Microfinance Fund considers it important that MFIs

grow at the same pace as these

micro-entrepreneurs so that the latter can take on

individual loans tailored to their needs and ability to

repay In many countries, small and medium-sized

enterprises are the driving force for jobs in the

economy Triodos Microfinance Fund finances a

growing number of banks that serve this sector,

such as BRAC Bank in Bangladesh

Trade traditionally forms a large part of MFIs’ portfolios and this is also true of the MFIs in the Triodos Microfinance Fund portfolio However, the fund greatly values a diversified portfolio with the agricultural sector as focal point This sector is often regarded as more risky and clients are in areas that are sometimes difficult to reach Nonetheless, this is just the sector a number of MFIs in the portfolio are focusing on The Colombian institution FMM Popayán received an award in 2011 for being the ‘best rural microfinance institution’ in Latin America This institution has developed an agricultural loan for small-scale farmers At Centenary Bank in Uganda, 16% of its loan portfolio

is invested in agriculture, while national banks allocate only 6% of total lending to this sector This

is a conscious choice by the bank, as over 50% of the population depends on agriculture for their livelihood

Portfolio allocation to lending methodologies

56%

INDIVIDUAL LENDING

20%

SME LENDING19%

Portfolio allocation to sectors

43%

TRADE & COMMERCE

20%

AGRICULTURE17%

Key social indicators on fund level

Total number of loan clients reached by MFIs in the portfolio 5.1 million 4.7 millionTotal number of saving clients reached by MFIs in the portfolio 4.4 million 3.9 million

Number of people employed by MFIs in the portfolio 50,482 NA

% of MFIs providing other financial services

Saving products 59%

Insurance products 52%

Money transfer services 52%

The transformation into fully-licensed banks is an

important step for MFIs, as it opens up the

opportunity to offer savings products Access to

reliable savings can help people on low incomes to

reduce their vulnerability to major budget shocks

and invest in the education of their children

Introducing savings allows MFIs to diversify their

funding base to include less expensive, more stable

funding with no foreign exchange risk Among the

MFIs in the portfolio of Triodos Microfinance Fund

are some that reach more savings clients than loan

clients, including AccèsBanque Madagascar, BRAC

Bank in Bangladesh, Banco FIE in Bolivia and

XacBank in Mongolia

A broad range of financial services is important

because clients are in great need of ways to save,

transfer money and take out insurance ACLEDA

Bank in Cambodia, for example, introduced a service

in 2006 to enable domestic and international

transfers of funds In a few years the number of

domestic transfers grew from 230,000 to 2 million a

year: an increase of over 700%

of female

loan clients

% of MFIs focusing on the environment

Green credit products 44%

Environment training to clients 15%

Green office procedures 41%

Environmental donations 7%

Exclusion list 78%

A growing number of MFIs are focusing on the environment Kompanion in Kyrgyzstan, for instance, gives training courses in sustainable farming practices that lead to healthier crops and better harvests PRASAC in Cambodia offers a special loan for purchasing small biogas installations and Mibanco in Peru considers sustainability to be of paramount importance when offices are being remodeled

7 For more information: www.smartcampaign.org

MICROFINANCE PORTFOLIO

TRIODOS MICROFINANCE FUND

31 DECEMBER 2011

BOSNIA hERzEGOVINA l

BOLIVIA l

Banco FIE

PARAGUAy l

Visión Banco COLOMBIA l

FMM Popayán

AccessBankFINCA Azerbaijan

INDIA l

Bhartiya Samruddhi Finance Ltd

India Financial Inclusion Fund

SRI LANKA l

LOLC Micro CreditCommercial Leasing company

CAMBODIA l

ACLEDA BankPRASACSathapanaAmret

KyRGyzSTAN l

Bai TushumKompanion

KAzAKhSTAN l

KazMicroFinance

Management fee

The largest item in the cost structure of Triodos

Microfinance Fund is the management fee paid to

the investment manager, Triodos Investment

Management Triodos Investment Management uses

this fee primarily to cover staff costs, including

travel expenses incurred in connection with

providing new finance facilities and managing

existing finance facilities This is generally quite an

intensive process, especially the management of the

fund’s equity investments, requiring frequent trips

to the countries where investments are made

Triodos Investment Management receives an annual

fee for investment management and support

services, calculated as a percentage of the net

asset value of the relevant share class For

institutional share classes this management fee

amounts to 1.75% For the other share classes, this

management fee amounts to 2.5%, of which a

maximum of 0.75% can be granted to distributors

Total Expense Ratio

The total expense ratio (TER), which includes the

management fee, ranged from 2.02% to 2.13% for

institutional share classes and from 2.62% to 3.05%

for the other share classes More detailed

information can be found on page 41

Risk

Triodos Microfinance Fund has a relatively high risk

profile, mainly due to its sector-specific focus The

main risks as identified are described in detail in the

fund’s prospectus Some of the risks are highlighted

below

Country and political risk

Triodos Microfinance Fund invests in countries that

sometimes entail substantial political risks,

countries that might be in an economic recession,

with perhaps high and rapidly fluctuating inflation, countries that often have a poorly developed legal system and countries where the standards for financial auditing and reporting may not always be

in line with internationally accepted standards The risk of unfavourable political intervention

materialised in Andhra Pradesh, India in the fourth quarter of 2010 and had a negative impact on the value of most Indian microfinance assets in 2010 and 2011 To limit the country risk, Triodos Microfinance Fund has set an upper limit of 30% of its assets for investments in one particular country Please refer to the table on page 14 for the

diversification across different countries

Liquidity risk

Triodos Microfinance Fund invests in assets that are not listed on a stock exchange and that are relatively illiquid In view of its open end structure (enabling subscription and redemption of shares on a monthly basis), this could potentially lead to a situation in which the fund needs to temporarily close for redemptions There is also the risk that at some point in time the fund may be unable to obtain sufficient resources to fulfil its financial obligations This risk is limited by the fund’s commitment to invest at least 10% of its capital in liquid assets or arrange sufficient other guarantees

Credit risk and market risk

The global economic downturn combined with competitive pressures in key microfinance markets led to the quality of MFI loan portfolios deteriorating

in most countries up to 2010 MFI Portfolio At Risk or PAR ratios (the percentage of non-performing loans over the total loan portfolio) typically stabilised or improved in 2011, aided by continued economic growth in many developing markets and solid credit management by the MFIs in the fund’s porfolio Credit risk continues to be closely monitored as it remains the most fundamental risk to which the lending industry in general and the microfinance industry in particular is exposed

Currency risk

Triodos Microfinance Fund is exposed to possible

losses as a result of fluctuations in the value of or

income from assets denominated in foreign

currencies The fund may invest up to 90% of its

total assets in non-euro denominated investments

with a maximum exposure of 60% in unhedged local

currency investments Triodos Microfinance Fund

actively manages its currency exposure risk by

hedging its net foreign currency exposure to the

extent deemed appropriate and possible At the end

of December 2011, 21.8% of the fund’s net assets

were invested in local currencies while only 10.7% of

the fund’s net assets were exposed to open currency

risk

The British Pound Sterling share classes are hedged

against the euro It should be noted, however, that

share class returns and investor inflows are hedged

with a time difference, which may lead to

performance differences between British Pound

Sterling share classes and their equivalent Euro

share classes

Outlook

The outlook for 2012 is generally positive MFI loan

portfolios are expected to grow further, although

there will be differences between regions and

countries The greatest growth is expected to be in

Asia

Competition from other microfinance investment

vehicles is expected to remain strong and the fund

expects interest rates to remain under pressure in

2012 and the return on loans to remain the same or

become a little lower than in 2011 Exchange rates

are expected to remain volatile

Triodos Microfinance Fund intends to increasingly

finance non-traditional MFIs such as leasing

companies or specialist banks that focus on the

lower income segments in the market and have

sustainability as a driving force

Triodos Microfinance Fund expects to be able to

grow to EUR 110 million in 2012 The fund expects a positive return in 2012 comparable to the return in

2011 This will partly depend on the change in value

of participations, provisions and exchange rate results on un-hedged local currencies The total expense ratio is expected to remain at the same level as in 2011

Luxembourg, April 5, 2012The Board of Directors of Triodos SICAV II

Mr Jan Ariëns (Chairman, until April 27, 2011)

Mr Pierre Aeby (Chairman as of April 27, 2011)

Ms Marilou van Golstein Brouwers

Mr Patrick Goodman

Mr Olivier Marquet

Mr Alexander Schwedeler (as of April 27, 2011)

Triodos Microfinance Fund was launched in March

2009 as a sub-fund of Triodos SICAV II, the first

Luxembourg investment company to be launched by

Triodos Bank The fund has an open end fund

structure and is not quoted on any stock market

Triodos Microfinance Fund has Euro as well as

British Pound Sterling share classes for retail,

private banking and institutional investors

Triodos Microfinance Fund is managed by Triodos

Investment Management BV, which is a

wholly-owned subsidiary of Triodos Bank NV

Triodos Microfinance Fund was awarded the

LuxFLAG Microfinance Label in September 2010

The purpose of the Label is to promote the raising of

capital for microfinance by reassuring investors that

the MIV (Management Investment Vehicle) actually

invests in microfinance The LuxFLAG Microfinance

Label is intended for MIVs with a commercial

objective

The Annual General Meeting of Shareholders takes

place in the city of Luxembourg, at a place specified

in the notice of the meeting, each year on the last

Wednesday in April If that day is not a business day

then the meeting will be held on the next business

day Notice of any General Meeting of Shareholders

will be mailed to each registered Shareholder at

least eight days prior to the meeting and will be

published to the extent required by Luxembourg law

in the Mémorial Triodos SICAV II publishes an

integrated detailed audited report annually in

Luxembourg Triodos SICAV II also publishes an

integrated detailed semi-annual report in

Luxembourg Separate reports for each sub-fund of

Triodos SICAV II are published by Triodos Investment

Management Copies may be obtained free of charge

from the registered office of Triodos SICAV II and can

be downloaded from Triodos Bank:

www.triodos.com

Investment policy

Triodos Microfinance Fund invests, directly or indirectly, in microfinance institutions (MFIs) and other applicable financial institutions with a track record that have gone through the first phase of rapid growth and are financially sustainable The fund is also allowed to invest in greenfield MFIs In most cases these institutions will be supervised by relevant local government authorities

Triodos Microfinance Fund invests in equity, subordinated debt, convertible debt, senior debt and debt instruments in qualifying investments The fund investment amount per investment project is assumed to be typically between EUR 1 million and EUR 10 million, but is bound by single client exposure and other investment restrictions as presented in the prospectus The fund will generally take minority equity positions in its investees Triodos Microfinance Fund will mainly invest in non-listed securities and investment instruments other than transferable securities However, the fund may also, on an ancillary basis, invest in stock-listed companies The equity investments of Triodos Microfinance Fund will primarily be in local currency, i.e any currency other than US dollars and euros For debt financing, the investments will be a mixture

of local currency and investments in US dollars and euros Investments in euros and in US dollars will be hedged to a large extent against the share classes’ reference currencies (perfect hedges of the interest and principal flows may not be economical)

Investments in local currencies may be hedged where possible and where deemed appropriate Cash and liquid assets will be mainly invested in euros or US dollars

Triodos Microfinance Fund may enter into syndicated finance agreements with other funds managed by Triodos Group or managed by other entities

General information

Fiscal aspects

According to the law in force and current practice,

Triodos Microfinance Fund is not subject to any

Luxembourg tax on income and capital gains

Dividends paid by Triodos Microfinance Fund are not

subject to any Luxembourg withholding tax Since

January 1, 2010 Triodos Microfinance Fund is no

longer subject to any subscription tax In addition,

the issue of shares in the SICAV is not subject to any

registration duties or other taxes in Luxembourg

Some dividend and interest income from Triodos

Microfinance Fund’s portfolio may be subject to

withholding taxes at variable rates in the countries

of origin

As holders of shares in Triodos Microfinance Fund,

shareholders do not have to pay any income and

capital gains tax, any withholding tax, or any other

form of tax in the Grand Duchy of Luxembourg

(except with regard to (I) shareholders domiciled,

resident or having a permanent establishment in

Luxembourg, (II) some non-residents of Luxembourg

who own 10% or more of the capital of the fund and

who sell all or part of their shares within six months

of their acquisition and (III) in some limited cases,

some categories of former residents of Luxembourg

if they own 10% or more of the capital of the SICAV)

The above information is based on the law in force

and current practice and is subject to change

Investors should be aware that income or dividends

received or profits realised may lead to additional

taxation in their country of origin, residence or

domicile

Triodos sustainability reporting

Triodos Microfinance Fund is managed by Triodos

Investment Management BV, which is a

wholly-owned subsidiary of Triodos Bank NV

All investment funds report separately on their

financial performance in an annual report The

co-workers involved in the management of these

funds are employed by Triodos Bank All social policy

aspects, including the remuneration policy, are described in Triodos Bank’s annual report

The 2011 Annual Report of Triodos Bank is an integral sustainability report produced in line with the Global Reporting Initiative (GRI) sustainability reporting guidelines These guidelines provide an internationally consistent format for information about a company’s performance, particularly with regard to social and environmental issues

For reporting in 2011, Triodos Bank used the third generation of GRI guidelines published in October

2006 and the GRI Financial Services Sector Supplements published in 2008 More about the GRI and its reporting guidelines can be found at

www.globalreporting.org

Further information on the social and environmental performance of Triodos Bank and its investment funds can be found in the Annual Report of Triodos Bank

Triodos Investment Management BV became a member of the Stichting Klachteninstituut Financiële Dienstverlening (KiFiD) in 2011

Climate-neutral operations

Triodos Bank takes responsibility for its CO2emissions The bank’s environmental policy comprises a three-step approach: firstly, to reduce energy consumption as much as possible, secondly, what cannot be saved is sourced from renewable energy providers, and thirdly, residual emissions (from gas consumption, paper usage, business travel and commuting) are compensated for by buying CO2 credits CO2 emissions in 2011 will be compensated for by renewable energy projects The use of volatile organic compounds and compounds that destroy the ozone layer are avoided

The management of funds, including Triodos Microfinance Fund, that invest worldwide involves a lot of travelling, including intercontinental flights This has a direct impact on the environment The resulting CO2 emissions were fully compensated for

Statement of net assets 25

Statement of changes in the number of shares outstanding 30

Summary of annual accounts 2011 Page