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Illustrative financial statements:investment funds

International Financial Reporting StandardsMarch 2010


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2010 KPMG IFRG Limited, a UK company, limited by guarantee. All rights reserved.

About this publication

These illustrative nancial 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.

ContentThe purpose of this publication is to assist you in preparing the nancial statements of an investment fund inaccordance with International Financial Reporting Standards (IFRSs). It illustrates one possible format of nancialstatements for fund-speci c entities, based on a ctitious tax-exempt open-ended single-fund investmentcompany which does not form part of a consolidated entity nor holds investments in any subsidiaries, associatesor joint venture entities and whose redeemable shares are classi ed as nancial liabilities; the company isoutside the scope of IFRS 8 Operating Segments and is not a rst-time adopter of IFRSs (see Technical guide ).Appendix I provides an example of disclosures for a fund within the scope of IFRS 8 with multiple reportablesegments. Appendix II provides an example of disclosures for a fund whose puttable instruments are classi edas equity.

This publication re ects IFRSs in issue at 31 December 2009 that are required to be applied by an entity with anannual period beginning on 1 January 2009 (currently effective requirements). Other IFRSs or amendmentsthereto that are effective for annual periods beginning a ter 1 January 2009 (forthcoming requirements) havenot been adopted early in preparing these illustrative nancial statements. This publication focuses on disclosurerequirements which are speci c to funds activities. For other disclosures that might be relevant to an entity,please refer to our publications Illustrative fnancial statements and Illustrative fnancial statements: banks .

This publication illustrates only the nancial statements component of a nancial report and the requirementsof IFRSs as issued by the International Accounting Standards Board (IASB or the Board). However, typically a

nancial report will include at least some additional commentary by management, either in accordance with

local laws and regulations or at the election of the entity (see Technical guide ).

When preparing nancial statements in accordance with IFRSs, an entity should have regard to its local legaland regulatory requirements. This publication does not consider any requirements of a particular jurisdiction.

The IASB established an Expert Advisory Panel (the Panel) to assist the IASB in reviewing best practices inthe area of valuation techniques and formulating any necessary additional guidance on valuation methods for

nancial instruments and related disclosures when markets are no longer active. The panel issued its nalreport Measuring and disclosing the air value o fnancial instruments in markets that are no longer active on31 October 2008. Part 2 of the report contains guidance on disclosures. This publication does not illustratethese disclosures, unless they are also required by IFRS 7 Financial Instruments: Disclosures. For illustrativeexample of disclosures in the Panels report and explanatory notes see our publication Illustrative fnancial statements: banks.

IFRSs and their interpretation change over time. Accordingly, these illustrative nancial statements should notbe used as a substitute for referring to the standards and interpretations themselves.

AcknowledgementsThis publication has been produced jointly by the KPMG International Standards Group (part of KPMG IFRGLimited) and the Financial Services Audit Practice of KPMG in Ireland.

We would like to acknowledge the principal contributors to this publication. Those contributors include EwaBialkowska and Sze Yen Tan of the KPMG International Standards Group, and Barry Winters, Frank Gannon and

Karen Chay of the Financial Services Audit Practice of KPMG in Ireland.


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ReferencesThe illustrative nancial 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. Theillustrative examples, together with the explanatory notes, however, are not intended to be seen as a completeand exhaustive summary of all disclosure requirements that are applicable under IFRSs. For an overview of alldisclosure requirements that are applicable under IFRSs, see our publication IFRS Disclosure Checklist .

To the left of each item disclosed, a reference to the relevant currently effective standard is provided; generallythe references relate only to disclosure requirements. The illustrative nancial statements also containreferences to our publication Insights into IFRS (6 th Edition 2009/10 ).

Other ways KPMG member rm professionals can helpWe have a range of publications that can assist you further, including Insights into IFRS , IFRS: An overview , IFRS Handbook: First-time adoption o IFRS, Disclosure checklist , Illustrative fnancial statements , and Illustrative condensed interim fnancial statements . Technical information is available at www.kpmgifrg.com.

KPMGs Brie ng Sheet Issue 165 provides an overview of newly effective standards that may affect nancialstatements for annual periods ended 31 December 2009. It may serve as a useful reminder for entities withlater reporting periods. It also provides an overview of standards issued but not yet effective for annual periodsended 31 December 2009 that may affect later periods.

For access to an extensive range of accounting, auditing and nancial reporting guidance and literature, visitKPMGs Accounting Research Online. This web-based subscription service can be a valuable tool for anyone whowants to stay informed in todays dynamic environment. For a free 15-day trial, go to www.aro.kpmg.com andregister today.


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Technical guide

Form and content of nancial statements

IAS 1 Presentation o Financial Statements sets out the overall requirements for the presentation of nancialstatements, including their content and structure. Other standards and interpretations deal with the recognition,measurement and disclosure requirements related to speci c transactions and events. IFRSs are not limited toa particular legal framework. Therefore nancial statements prepared under IFRSs often contain supplementaryinformation required by local statute or listing requirements, such as a directors report (see below) and, morespeci cally for funds, an investment managers report and trustee report.

Choice of accounting policiesThe accounting policies disclosed in these illustrative nancial statements re ect the facts and circumstances ofthe ctitious open-ended single-fund investment company on which these nancial statements are based. Theyshould not be relied upon for a complete understanding of the requirements of IFRSs and should not be usedas a substitute for referring to the standards and interpretations themselves. The accounting policy disclosuresappropriate for an entity depend on the facts and circumstances of that entity and may differ from thedisclosures presented in these illustrative nancial statements. The recognition and measurement requirementsof IFRSs are discussed in our publication Insights into IFRS .

Reporting by directorsGenerally local laws and regulations determine the extent of reporting by directors (or similar) in addition to thepresentation of nancial statements. IAS 1 encourages, but does not require, entities to present, outside the

nancial statements, a nancial review by management. The review describes and explains the main featuresof the entitys nancial performance and nancial position, and the principal uncertainties it faces. Such a reportmay include a review of:

the main factors and in uences determining nancial performance, including changes in the environment inwhich the entity operates, the entitys response to those changes and their effect, and the entitys policy forinvestment to maintain and enhance nancial performance, including its dividend policy;

the entitys sources of funding; and the entitys resources not recognised in the statement of nancial position in accordance with IFRSs.

In June 2009 the IASB published Exposure Draft (ED) Management Commentary, which proposes a frameworkfor the preparation of management commentary that accompanies nancial statements prepared in accordancewith IFRSs. The proposals in the ED will not result in an IFRS, and therefore if nalised an entity would not berequired to comply with the framework for the preparation and presentation of management commentary inorder to assert compliance with IFRSs.

First-time adopters of IFRSsThese illustrative nancial statements assume that the entity is not a rst-time adopter of IFRSs. IFRS 1 First- time Adoption o International Financial Reporting Standards applies to an entitys rst nancial statementsprepared in accordance with IFRSs. IFRS 1 requires extensive disclosures explaining how the transition fromprevious GAAP to IFRSs affects the reported nancial position, nancial performance and cash ows of anentity. These disclosures include reconciliations of equity and reported total comprehensive income (or pro tor loss if the entity did not previously report total comprehensive income) at the date of transition to IFRSsand at the end of the comparative period presented in the entitys rst IFRS nancial statements, explainingmaterial adjustments to the statements of nancial position, changes in equity and comprehensive income,and identifying separately the correction of any errors made under previous GAAP. An entity that presenteda statement of cash ows under previous GAAP also explains any material adjustments to its statement of

cash ows.


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Note Re erence Explanatory note

1. IAS 1.10 In these illustrative nancial statements, the titles of the statements, with the exceptionof the statement of changes in net assets attributable to holders of redeemable shares(see explanatory note 3 below), are consistent with the titles used in IAS 1 Presentation o Financial Statements (2007). However, these terms are not mandatory and different titlesare permitted.

2. IAS 1.10(b) A complete set of nancial statements comprises, as one of its statements, a statement of

comprehensive income for the period.

IAS 1.81 Total comprehensive income is the changes in equity during a period other than thosechanges resulting from transactions with owners in their capacity as owners, which ispresented 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 pro t

or loss and displaying components of other comprehensive income).

3. IAS 1.106 A complete set of nancial statements comprises, as one of its statements, a statementof changes in equity. However, as there is no equity in the Fund, no statement of changesin equity is presented. Instead, a statement of changes in net assets attributable to holdersof redeemable shares is presented. Although IFRSs do not require presentation of thisstatement, in our view, it provides users of the nancial statements with relevant and usefulinformation with respect to the components underlying the movements in the net assets ofthe Fund attributable to the holders of redeemable shares during the year.

4. IAS 7.18, 19 In these illustrative nancial statements cash ows from operating activities are presentedusing the direct method, whereby major classes of cash receipts and payments related tooperating activities are disclosed. An entity also may present operating cash ows using theindirect method, whereby pro t or loss is adjusted for the effects of non-cash transactions,accruals and deferrals, and items of income or expense associated with investing or nancingcash ows. For an example statement of cash ows presenting operating cash ows usingthe indirect method see our publications Illustrative fnancial statements or Illustrative fnancial statements: banks .


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Illustrative nancial statements: Investment funds 5 March 2010


Contents

Re erence Page

IAS 1.10, 49 Financial statementsStatement of nancial position 1 7Statement of comprehensive income 1, 2 9Statement of changes in net assets attributable to holders of redeemable shares 3 11Statement of cash ows 1, 4 13Notes to the nancial statements 15

Independent auditors report 87

AppendicesI Segment reporting multiple segment fund 89II Open-ended fund with puttable instruments re-classi ed as equity 99III Schedule of investments unaudited 113IV Currently effective requirements 116V Forthcoming requirements 122


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6 Illustrative nancial statements: Investment funds March 2010



1. IAS 1.45 The presentation and classi cation of items in the nancial statements is retained from oneperiod to the next unless changes are required by a new standard or interpretation, or it isapparent, following a signi cant change to an entitys operations or a review of its nancial

statements, that another presentation or classi cation would be more appropriate. Theentity also considers the criteria for selection and application of accounting policies in IAS 8Accounting Policies, Changes in Accounting Estimates and Errors .

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

of nancial position when such presentation is relevant to an understanding of the entitysnancial 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 andtiming of liabilities. Additional line items may include, for example, other assets for theinclusion of prepayments.

IAS 1.57 IAS 1 does not prescribe the order or format in which an entity presents items. Additional lineitems are included when the size, nature or function of an item or aggregation of similar itemsis such that separate presentation is relevant to an understanding of the entitys nancialposition and the descriptions used, and the ordering of items or aggregation of similaritems may be amended according to the nature of the entity and its transactions to provideinformation that is relevant to an understanding of an entitys nancial position.

IAS 1.32 Assets and liabilities are offset only when required or permitted by a standard or an interpretation. 3. IAS 1.60, 61 In these illustrative nancial statements we have selected the current/non-current presentation

in the statement of nancial position. An entity also may present its assets and liabilitiesbroadly in order of liquidity if such presentation provides reliable and more relevant information.Whichever method of presentation is adopted, for each asset and liability line item thatcombines amounts expected to be recovered or settled within (1) no more than 12 months after

the reporting date, and (2) more than 12 months after the reporting date, an entity discloses inthe notes the amount expected to be recovered or settled after more than 12 months. 4. IFRS 7.8 The carrying amounts of each of the categories of nancial assets and nancial liabilities in

paragraph 8 of IFRS 7 Financial Instruments: Disclosures are required to be disclosed in eitherthe statement of nancial position or the notes. In these illustrative nancial statements thisinformation is presented in the notes.

5. IAS 39.48A, In accordance with IAS 39 Financial Instruments: Recognition and Measurement the best

39.AG72 measure of fair value of a nancial asset and nancial liability is a quoted market price in anactive market. The appropriate quoted market price for an asset held is usually the currentbid price and for a liability held is the asking price. On the other hand, in accordance with theFunds prospectus, the redemption amounts of the redeemable shares are calculated usingthe mid-market prices of the Funds underlying investments/short positions.

Owing to the differences in the measurement bases of the Funds underlying investments/ short positions and the redemption amounts of the redeemable shares, a mismatch resultsin the statement of nancial position giving rise to a presentation issue. In our view, onesolution may be to present the net assets attributable to holders of redeemable shares in atwo-line format. The rst line would be the amount of the net assets attributable to holdersof redeemable shares measured in accordance with the prospectus, which re ects the actualredemption amount at which the redeemable shares would be redeemed at the reportingdate, and the next line would include an adjustment for the difference between this and theamount recognised in the statement of nancial position. This re ects the fact that, for afund with no equity, all recognised income and expense should be attributed to holders of

redeemable shares, which also means that if all the shares are redeemed, then a dilution levyof such amount would be required.

This issue is discussed in our publication Insights into IFRS (3.6.940.60).


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Re erence Statement of nancial position 1, 2

IAS 1.10(a), 60, 113 As at 31 DecemberIn thousands o euro Note 2009 2008

Assets

Current assets 3 IAS 1.54(i) Cash and cash equivalents 4 10 51 71IAS 1.54(d), 39.37(a) Pledged nancial assets at fair value through pro t or loss 4 11 2,691 2,346IAS 1.54(d) Non-pledged nancial assets at fair value through pro t or loss 4 11 24,931 16,471IAS 1.54(d) Balances due from brokers 4 12 8,119 12,621IAS 1.54(d) Receivables from reverse repurchase agreements 4 4,744 3,990IAS 1.54(h) Other receivables 29 46 Total assets 40,565 35,545

Liabilities

Current liabilities 3 IAS 1.54(m) Financial liabilities at fair value through pro t or loss 4 11 3,621 1,446IAS 1.54(m) Balances due to brokers 4 12 1,643 1,775IAS 1.54(m) Payables under repurchase agreements 4 2,563 2,234IAS 1.54(k) Other payables 113 111 Total liabilities (excluding net assets attributable to

holders of redeemable shares) 7,940 5,566 IAS 1.6, 54(m), Net assets attributable to holders of redeemable 32.IE32 shares 5 13 32,625 29,979

Represented by:Net assets attributable to holders of redeemable shares(valued in accordance with prospectus) 5 32,647 29,996Adjustment to the statement of nancial position 5 (22) (17)

32,625 29,979

The notes on pages 15 to 85 orm an integral part o these fnancial statements.


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1. IAS 1.81(a) This illustration is based on a single statement of comprehensive income as the Fund has noother components of other comprehensive income other than pro t or loss for the period.

IFRS 7.20(a), Items of income and expense are offset only when required or permitted by a standard orIAS 1.32 an interpretation. IFRS 7 allows the net presentation of certain gains and losses on nancial

assets and nancial liabilities.

IAS 1.87 No items of income or expense may be presented as extraordinary. The nature and amountsof material items are disclosed as a separate line item in the statement of comprehensiveincome or in the notes. In our view, it is preferable for separate presentation to be made in thestatement of comprehensive income only when necessary for an understanding of the entitys

nancial performance. This issue is discussed in our publication Insights into IFRS (4.1.82).

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

2. IAS 1.99, 104 This analysis of expenses is based on the nature of the expenses. The analysis of expenses

also may be presented based on the functions within the entity, with additional disclosureof information about the nature of the expenses, if this provides information that is reliableand more relevant. Individual material items are classi ed in accordance with their natureor function, consistent with the classi cation of items that are not material individually. Thisissue is discussed in our publication Insights into IFRS (4.1.30).

3. IAS 1.82(a) IAS 1 requires revenue to be disclosed as a separate line item in the statement of

comprehensive income. However, IFRSs do not specify whether revenue can be presentedonly as a single line item in the statement of comprehensive income, or whether an entityalso may include the individual components of revenue in the statement of comprehensiveincome, with a subtotal for revenue from continuing operations. In these illustrative nancial

statements, the most relevant measure of revenue is considered to be the sum of interestincome, dividend income, net foreign exchange loss and net gain from nancial instrumentsat fair value through pro t or loss. However, other presentations are possible.

4. IFRS 7.20(c)(ii) IFRS 7.20(c)(ii) requires disclosure of fee income and expense arising from trust and other

duciary activities that result in the holding or investing of assets on behalf of individuals,trusts, retirement bene t plans and other institutions. In these illustrative nancial statementsthis disclosure has been given in the statement of comprehensive income. Alternatively, itmay be given in the notes.

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

a nancial liability are recognised as income or expense in pro t or loss. Because redeemableshares are classi ed as nancial liabilities, any distributions on these shares are presentedas nance costs. Interest expense and dividends payable on securities sold short have beenclassi ed as operating expense, but presentation as part of nance cost is also possible,depending on the facts and circumstances.

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

should be recognised as part of income tax expense, with the investment income recognisedon a gross basis. This issue is discussed in our publication Insights into IFRS (3.13.420.30).

7. IAS 33.2, 3, 5 An entity with publicly-traded ordinary shares or potential ordinary shares, or in the process

of issuing ordinary shares or potential ordinary shares that are to be publicly traded, shouldpresent basic and diluted earnings per share (EPS) in the statement of comprehensiveincome. The requirements to present EPS only apply to those funds whose ordinary shares

are classi ed as equity. Nevertheless, some funds may wish to or may be required by localregulations to present EPS. When an entity voluntarily presents EPS data, that data shouldbe calculated and presented in accordance with IAS 33 Earnings per Share . This issue isdiscussed in our publication Insights into IFRS (5.3.10.10).


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Re erence Statement of comprehensive income 1, 2

IAS 1.10(b), 81(a) For the year ended 31 December In thousands o euro Note 2009 2008

Interest income 3 7 603 429

IAS 18.35(b)(v) Dividend income 3 272 229IAS 1.35 Net foreign exchange loss 3 (19) (16)IFRS 7.20(a) Net gain from nancial instruments at fair value through

pro t or loss 3 8 3,251 2,397IAS 1.82 Total revenue 3 4,107 3,039 IAS 1.99, 102 Investment management fees 4 (448) (478)IAS 1.99, 102 Custodian fees 4 (112) (84)IAS 1.99, 102 Administration fees 4 (66) (62)IAS 1.99, 102 Directors fees (26) (15)IAS 1.99, 102 Transaction costs (64) (73)IAS 1.99, 102 Audit fees (32) (29)IAS 1.99, 102 Legal fees (42) (38)IFRS 7.20(b) Interest expense 5 (75) (62)IAS 1.99, 102 Dividend expense on short securities positions 5 (45) (19)IAS 1.99, 102 Other operating expenses (18) (41)IAS 1.82(b) Total operating expenses (928) (901)

IAS 1.85 Operating proft be ore fnance costs 3,179 2,138 IAS 32.40 Dividends to holders of redeemable shares 5 (178) (91)

IAS 1.82(b) Total fnance costs (178) (91) Proft be ore tax 3,001 2,047

Withholding tax expense 6 9 (45) (39)

IAS 1.6, 1.82( ), Increase in net assets attributable to holders o32.IE32 redeemable shares 2,956 2,008



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1. IAS 1.106 A complete set of nancial statements comprises, as one of its statements, a statementof changes in equity. However, as there is no equity in the Fund, no statement of changesin equity is presented. Instead, a statement of changes in net assets attributable to holdersof redeemable shares is presented. Although IFRSs do not require presentation of thisstatement, in our view, it provides users of the nancial statements with relevant and usefulinformation with respect to the components underlying the movements in the net assets ofthe Fund attributable to the holders of redeemable shares during the year.


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Re erence Statement of changes in net assets attributable to holders ofredeemable shares 1

For the year ended 31 December

In thousands o euro 2009 2008

Balance at 1 January 29,979 18,461

Increase in net assets attributable to holders of redeemableshares 2,956 2,008Contributions and redemptions by holders of redeemableshares:

Issue of redeemable shares during the year 6,668 15,505Redemption of redeemable shares during the year (6,978) (5,995)

Transactions with holders o redeemable shares (310) 9,510

Balance at 31 December 32,625 29,979



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1. IAS 7.18, 19 In these illustrative nancial statements cash ows from operating activities are presentedusing the direct method, whereby major classes of cash receipts and payments related tooperating activities are disclosed. An entity also may present operating cash ows using the

indirect method, whereby pro t or loss is adjusted for the effects of non-cash transactions,accruals and deferrals, and items of income or expense associated with investing or nancingcash ows. For an example statement of cash ows presenting operating cash ows usingthe indirect method see our publications Illustrative fnancial statements or Illustrative fnancial statements: banks .

IAS 7.43 When applicable, an entity discloses investing and nancing transactions that are excludedfrom the statement of cash ows because they do not require the use of cash or cashequivalents in a way that provides all relevant information about these activities.

IAS 7.50(c) An entity is encouraged, but not required, to disclose the aggregate amount of cash owsthat represent increases in operating capacity separately from those cash ows that arerequired to maintain operating capacity.

2. IAS 7.31 IFRSs do not specify the classi cation of cash ows from interest and dividends received

and paid, and an entity elects an accounting policy for classifying interest and dividendspaid as either operating or nancing activities, and interest and dividends received as eitheroperating or investing activities. The presentation selected is applied consistently. This issue isdiscussed in our publication Insights into IFRS (2.3.50).

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

to acquire, investment securities have been classi ed as components of cash ows fromoperating activities as they form part of the Funds dealing operations.

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

as part of either investing or nancing activities, provided that they are not held for dealing ortrading purposes, in which case they are presented as part of operating activities. However,when a contract is accounted for as a hedge of an identi able position, the cash ows of thecontract are classi ed in the same manner as the cash ows 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, then it is preferable that the gainsor losses on the derivative instrument are not presented as an adjustment to line items relatedto the hedged item, even if the derivative instrument is intended to be an economic hedge ofthese items. However, in our view derivative gains and losses may be shown in the statementof comprehensive income as either operating or nancing items depending on the nature ofthe item being economically hedged. In our view, the possibilities for the presentation in thestatement of comprehensive income also apply to the presentation in the statement of cash

ows. This issue is discussed in our publication Insights into IFRS (5.6.670.70 and 80).

4. IAS 7.22 Cash ows from operating, investing or nancing activities may be reported on a net basisif the cash receipts and payments are on behalf of customers and the cash ows re ect theactivities of the customer, or when the cash receipts and payments for items concerned turnover quickly, the amounts are large and the maturities are short.

5. IAS 7.21 Major classes of gross cash receipts and gross cash payments arising from investing and

nancing activities are disclosed separately, except to the extent that the cash ows arereported on a net basis (see explanatory note 2 above).

6. IAS 7.45 When applicable, an entity presents a reconciliation of cash and cash equivalents reported

in its statement of cash ows with those presented in the statement of nancial position. Inthese illustrative nancial statements the amounts presented in the statement of nancialposition match the amounts presented in the statement of cash ows and therefore noreconciliation is presented.


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Re erence Statement of cash ows 1

IAS 1.10(d), 113 For the year ended 31 DecemberIn thousands o euro Note 2009 2008

IAS 7.10 Cash ows rom operating activitiesIAS 7.31, 33 Interest received 2 619 454IAS 7.31, 33 Interest paid 2 (73) (63)IAS 7.31, 33 Dividends received 2 272 267IAS 7.31, 33 Dividends paid on short securities positions 2 (45) (19)IAS 7.15 Proceeds from sale of investments 3 9,382 8,271IAS 7.15) Purchase of investments 3 (10,613) (17,713)IAS 7.22(b) Net non-dividend receipts/(payments) on securities

sold short 4 629 (2)IAS 7.22(b) Net receipts/(payments) from derivative activities 4 1,581 (3)IAS 7.22(b) Net non-interest (payments)/receipts from repurchase

and reverse repurchase agreements 4 (428) 299IAS 7.14 Operating expenses paid (808) (848)IAS 7.35 Tax paid (45) (39) Net cash rom/(used in) operating activities 471 (9,396) IAS 7.10 Cash ows rom fnancing activities 5

IAS 7.17(c), 21 Proceeds from issue of redeemable shares 6,668 15,505IAS 7.17(d), 21 Payments on redemption of redeemable shares (6,978) (5,995)

Dividends paid to holders of redeemable shares (178) (91) Net cash (used in)/ rom fnancing activities (488) 9,419

Net (decrease)/increase in cash and cash equivalents (17) 23Cash and cash equivalents at 1 January 71 50IAS 7.28 Effect of exchange rate uctuations on cash and cash

equivalents (3) (2) Cash and cash equivalents at 31 December 6 10 51 71



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1. IAS 1.7 The notes to the nancial statements include narrative descriptions or analysis of amountsdisclosed in the primary statements. They also include information about items that do notqualify for recognition in the nancial statements.


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Notes to the nancial statements 1

Page

1. Reporting entity 17

2. Basis of preparation 17

3. Signi cant accounting policies 23

4. Financial risk management 37

5. Use of estimates and judgements 63

6. Financial assets and liabilities 71

7. Interest income 73

8. Net gain from nancial instruments at fair value through pro t or loss 73

9. Withholding tax expense 73

10. Cash and cash equivalents 75

11. Financial assets and nancial liabilities at fair value through pro t or loss 75

12. Balances due from/to brokers 77

13. Net assets attributable to holders of redeemable shares 79

14. Related parties and other key contracts 85


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1. IAS 1.25, Taking account of speci c requirements in its jurisdiction, an entity discloses any material10.16(b) uncertainties related to events or conditions that may cast signi cant doubt upon the entitys

ability to continue as a going concern, and whether they arise during the period or after the

reporting date.

2. IAS 1.136 When an entitys reporting date changes and annual nancial statements are presented for aperiod longer or shorter than one year, the entity discloses the reason for the change and thefact that comparative amounts presented are not entirely comparable.

In this and other cases an entity may wish to present pro orma information that is notrequired by IFRSs, for example pro orma comparative nancial statements prepared as ifthe change in reporting date were effective for all periods presented. The presentation of pro

orma information is discussed in our publication Insights into IFRS (2.1.80). 3. IAS 1.19, In extremely rare circumstances in which management concludes that compliance with a

20, 23 requirement of a standard or an interpretation would be so misleading that it would con ictwith the objective of nancial statements set out in the Framework or the Preparation and Presentation o Financial Statements , an entity may depart from the requirement if therelevant regulatory framework requires or otherwise does not prohibit such a departure.Extensive disclosures are required in these circumstances.

4. If nancial statements are prepared on the basis of national accounting standards that are

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

a clear and unambiguous statement of the reporting framework on which the accountingpolicies are based;

a clear statement of the entitys accounting policies on all material accounting areas; an explanation of where the respective accounting standards can be found; a statement explaining that the nancial 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. 5. IAS 10.17 An entity discloses the date when the nancial statements were authorised for issue and

who gave that authorisation. If an entitys owners or others have the power to amend thenancial statements after their issue, then the entity discloses that fact.

6. IAS 21.53 If the nancial statements are presented in a currency different from the entitys functional

currency, then an entity discloses that fact, its functional currency, and the reason for using adifferent presentation currency.

IAS 21.54 If there is a change in the functional currency of either the entity or a signi cant foreign

operation, then the entity discloses that fact together with the reason for the change. 7. IAS 1.122 An entity discloses the judgements, apart from those involving estimations, that management

has made in the process of applying the entitys accounting policies and that have the mostsigni cant effect on the amounts recognised in the nancial statements. The examples thatare provided in paragraphs 123 and 124 of IAS 1 Presentation o Financial Statements (2007)indicate that such disclosure is based on qualitative data.

IAS 1.125 An entity discloses the assumptions it makes about the future, and other major sources

of estimation uncertainty at the end of the reporting period, that have a signi cant risk ofresulting in a material adjustment to the carrying amounts of assets and liabilities within thenext nancial year. The examples that are provided in paragraph 129 of IAS 1 (2007) indicatethat such disclosure is based on quantitative data (e.g. appropriate discount rates).


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Re erence Notes to the nancial statements

1. Reporting entityIAS 1.138(a), (b) [Name] (the Fund) is a company domiciled in [country]. The address of the FundsIAS 1.51(a)-(c) registered of ce is [address]. The Funds redeemable shares are not traded in a public market

and it does not le its nancial statements with a securities commission or other regulatoryorganisation 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 diversi edportfolio of equity securities issued by European listed and unlisted companies, internationalderivatives and investment grade debt securities with the objective of providing shareholders withabove 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 InvestmentManager) and the administration of the Fund is delegated to ABC Fund Services Limited (theAdministrator).

IAS 1.112(a) 2. Basis o preparation 1

(a) Statement o complianceIAS 1.16 The nancial statements of the Fund as at and for the year ended 31 December 20092 have

been prepared in accordance with International Financial Reporting Standards (IFRSs) as issuedby the International Accounting Standards Board (IASB). 3, 4

IAS 10.17 The nancial statements were authorised for issue by the board of directors on [date]. 5

(b) Basis o measurementIAS 1.117(a) The nancial statements have been prepared on the historical cost basis except for nancial

instruments at fair value through pro t or loss which are measured at fair value.

(c) Functional and presentation currency 6

IAS 1.51(d), (e) These nancial statements are presented in euro, which is the Funds functional currency. Allnancial information presented in euro has been rounded to the nearest thousand.

(d) Use o estimates and judgements 7

The preparation of the nancial statements in conformity with IFRSs requires management tomake judgements, estimates and assumptions that affect the application of accounting policiesand the reported amounts of assets, liabilities, income and expenses. Actual results may differfrom these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions toaccounting estimates are recognised in the period in which the estimates are revised and inany future periods affected.

IAS 1.122, 125 Information about signi cant areas of estimation uncertainty and critical judgements in applyingaccounting policies that have the most signi cant effect on the amounts recognised in the

nancial statements are described 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 oramended IFRS an entity applies the speci c transitional requirements in that IFRS. However,in our view an entity nonetheless should comply with the disclosure requirements of IAS 8to the extent that the transitional requirements do not include disclosure requirements. Eventhough it could be argued that the disclosures are not required because they are set outin the IAS 8 requirements for voluntary changes in accounting policy, we believe that theyare necessary in order to give a fair presentation. This issue is discussed in our publicationInsights into IFRS (2.8.20.10 - 30).

2. IAS 1.10( ) 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, amongother things, the amount of the adjustment for each nancial statement line item affected.An entity presents a statement of nancial position as at the beginning of the earliestcomparative period when it applies an accounting policy retrospectively. For an example of

the presentation of such a statement of nancial position see Appendix II.

IAS 8.49 If any prior period errors are corrected in the current years nancial statements, then anentity discloses:

the nature of the prior period error; to the extent practicable, the amount of the correction for each nancial statement line

item affected, and 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 andfrom when the error has been corrected.

3. IAS 8.5 Accounting policies are the speci c principles, bases, conventions, rules and practices that an

entity applies in preparing and presenting nancial statements.


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2. Basis o preparation (continued)(e) Changes in accounting policies 1, 2, 3

There were no changes in accounting policies which had an impact on the Funds nancialstatements during the year.

( ) Other accounting developments(i) Disclosures pertaining to air values and liquidity risk or fnancial instruments

The Fund has applied Improving Disclosures about Financial Instruments (Amendmentsto IFRS 7), issued in March 2009, that require enhanced disclosures about fair valuemeasurements and liquidity risk in respect of nancial instruments.

The amendments require that fair value measurement disclosures use a three-level fair valuehierarchy that re ects the signi cance of the inputs used in measuring fair values of nancialinstruments. Speci c disclosures are required when fair value measurements are categorised

as Level 3 (signi cant unobservable inputs) in the fair value hierarchy. The amendmentsrequire that any signi cant transfers between Level 1 and Level 2 of the fair value hierarchy bedisclosed separately, distinguishing between transfers into and out of each level. Furthermore,changes in valuation techniques from one period to another, including the reasons therefore,are required to be disclosed for each class of nancial instruments.

Revised disclosures in respect of fair values of nancial instruments are included in note 5.

Further, the de nition of liquidity risk has been amended and it is now de ned as the risk thatan entity will encounter dif culty in meeting obligations associated with nancial liabilities thatare settled by delivering cash or another nancial asset.

The amendments require disclosure of a maturity analysis for non-derivative and derivativenancial liabilities, but contractual maturities are required to be disclosed for derivative nancial

liabilities only when contractual maturities are essential for an understanding of the timing of cashows. For issued nancial guarantee contracts, the amendments require the maximum amount

of the guarantee to be disclosed in the earliest period in which the guarantee could be called.

Revised disclosures in respect of liquidity risk are included in note 4.


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1. IAS 1.IN7 Another change as a result of IAS 1 (2007) is the requirement to present a statementof nancial position as at the beginning of the earliest comparative period if a change inaccounting policy is applied retrospectively, or the nancial statements contain a retrospectiverestatement or reclassi cation.

2. IAS 1.106 IAS 27 Consolidated and Separate Financial Statements (2008) resulted in an amendment

to IAS 1 (2007) with respect to the presentation of the statement of changes in equity.The amendment requires that for each component of equity a reconciliation be presentedbetween the carrying amount at the beginning and at the end of the period, and disclosesseparately changes resulting from:

pro t or loss each item of comprehensive income transactions with owners in their capacity as owners, showing separately contributions by

and distributions to owners, and changes in ownership interests in subsidiaries that do notresult in a loss of control.

IAS 1.139A The transitional requirements of IAS 1 (2007) require an entity to apply the amendment toparagraph 106, effective for annual periods beginning on or after 1 July 2009, for an earlierperiod if IAS 27 (2008) also is applied for an earlier period.


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2. Basis o preparation (continued)( ) Other accounting developments (continued)(ii) Presentation o fnancial statements

IAS 8.28 Effective 1 January 2009, the Fund has applied revised IAS 1 Presentation o Financial Statements (2007). The revised standard requires all owner changes in equity to be presentedin the statement of changes in equity, whereas all non-owner changes in equity are presentedin the statement of comprehensive income. 1, 2

The application of the revised standard did not have any impact on the Funds nancialstatements as the Fund has no equity and no components of comprehensive income otherthan pro t or loss for the period.

(iii) Puttable fnancial instruments and obligations arising on liquidationIAS 8.28( ) Effective 1 January 2009, the Fund has applied amendments to IAS 32 Financial Instruments:

Presentation and IAS 1 Presentation o Financial Statements Puttable Financial Instruments and Obligations Arising on Liquidation that provide exemptions from nancial liabilityclassi cation for:

puttable nancial instruments that meet certain conditions; and certain instruments, or components of instruments, that impose on the entity an obligation

to deliver to another party a pro rata share of the net assets of the entity only on liquidation.

The application of the amended requirements did not have any impact on the Funds nancialstatements. While the redeemable shares issued by the Fund are puttable instruments, theycontinue to be classi ed as nancial liabilities as they do not meet the conditions for equity

classi cation under the amendments.


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1. IAS 1.117(b) The summary of signi cant accounting policies describes each accounting policy that isrelevant to an understanding of the nancial statements.

2. Accounting policies in these illustrative nancial statements re ect the facts and

circumstances of the ctitious open-ended single fund investment company on which thesenancial statements are based. They should not be relied upon for a complete understanding

of IFRS requirements and should not be used as a substitute for referring to the standardsand interpretations themselves. Accounting policy disclosures appropriate for an entitydepend on the facts and circumstances of that entity and may differ from the disclosuresillustrated in this publication. The recognition and measurement requirements of IFRSs arediscussed in our publication Insights into IFRS .

3. IFRSs allow signi cant scope for an entity to select its presentation of items of income and

expense relating to nancial assets and liabilities as either interest or other line items.

The manner of presentation of components of interest income and expense in theseillustrative nancial statements is not mandatory other presentations are possible.


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IAS 1.112(a), 3. Signifcant accounting policies 1, 2 117(a), (b) The accounting policies set out below have been applied consistently to all periods presented

in these nancial statements.

(a) Foreign currencyTransactions in foreign currencies are translated into euro at the spot exchange rate at the dateof the transaction. Monetary assets and liabilities denominated in foreign currencies at thereporting date are retranslated into euro at the spot exchange rate at that date. Non-monetaryassets and liabilities denominated in foreign currencies that are measured at fair value throughpro t or loss are retranslated into euro at the spot exchange rate at the date that the fair valuewas determined. Non-monetary assets and liabilities that are measured in terms of historicalcost in a foreign currency are translated using the exchange rate at the date of the transaction.

Foreign currency differences arising on retranslation are recognised in pro t or loss in the

net foreign exchange loss line, except for those arising on nancial instruments at fair valuethrough pro t or loss which are recognised in pro t or loss in the net gain from nancialinstruments at fair value through pro t or loss line.

IFRS 7.21,B5(e) (b) InterestIAS 18.35(a) Interest income and expense, including interest income from non-derivative nancial assets

at fair value through pro t or loss, are recognised in pro t or loss using the effective interestmethod. The effective interest rate is the rate that exactly discounts the estimated future cashpayments and receipts through the expected life of the nancial asset or liability (or, whereappropriate, a shorter period) to the carrying amount of the nancial asset or liability. Whencalculating the effective interest rate, the Fund estimates future cash ows considering all

contractual terms of the nancial instrument, but not future credit losses.

The calculation of the effective interest rate includes all fees and points paid or received thatare an integral part of the effective interest rate. Transaction costs include incremental coststhat are directly attributable to the acquisition or issue of a nancial asset or liability.

Interest is presented in the following lines in the statement of comprehensive income: 3

interest receivable in Interest income line interest payable in Interest expense line.


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1. In these illustrative nancial statements net gain from nancial instruments at fair valuethrough pro t or loss includes:

the gains and losses, other than interest and dividend income, on nancial assets andnancial liabilities designated as such upon initial recognition;

the gains and losses, other than dividends payable, on short positions in securitiesclassi ed as trading; and

the gains and losses on all derivatives.

However, other presentations are possible.


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Reference Notes to the nancial statements

3. Signifcant accounting policies (continued)IFRS 7.21, (c) Dividend income and dividend expenseB5(e) Dividend income is recognised when the right to receive income is established. Usually this is

the ex-dividend date for equity securities. Dividend income from equity securities designated atfair value through pro t or loss is recognised in the dividend income line in the statement ofcomprehensive income.

The Fund incurs expense on short positions in securities equal to the dividends due on thesesecurities. Such dividend expense is recognised in pro t or loss as operating expense whenthe shareholders right to receive payment is established.

IFRS 7.21, (d) Net gain rom fnancial instruments at air value through proft or loss 1

B5(e) Net gain from nancial instruments at fair value through pro t or loss includes all realised andunrealised fair value changes and foreign exchange differences, but excludes interest and

dividend income, and dividend expense on short positions.

IFRS 7.21 (e) Fees, commission and other expensesFees, commission and other expenses are recognised in pro t or loss on an accrual basis.

( ) Income tax expenseUnder the current system of taxation in [insert name of the country of domicile] the Fund isexempt 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 fromtax for a period of [insert number of] years up till [insert year of expiry] .

Dividend and interest income received by the Fund may be subject to withholding taximposed in the country of origin. Investment income is recorded gross of such taxes and thecorresponding withholding tax is recognised as tax expense.

(g) Dividends to holders o redeemable sharesDividends to holders of redeemable shares are recognised in pro t or loss as nance costswhen they are authorised and no longer at the discretion of the Fund. [Provide more detail to re ect the circumstances of the particular fund].

IFRS 7.21 (h) Financial assets and fnancial liabilities(i) Recognition

IFRS 7.B5(c) The Fund initially recognises nancial assets and nancial liabilities measured at amortisedcost on the date at which they are originated. All other nancial assets and liabilities are initiallyrecognised on the trade date at which the Fund becomes a party to the contractual provisionsof the instrument.

A nancial asset or nancial liability is measured initially at fair value plus, for an item not atfair value through pro t or loss, transaction costs that are directly attributable to its acquisitionor issue.


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1. IAS 39.9, 11A Financial assets or liabilities (other than those classi ed as held for trading) may bedesignated upon initial recognition at fair value through pro t or loss, in any of the followingcircumstances, if they:

eliminate or signi cantly reduce a measurement or recognition inconsistency (accountingmismatch) that would otherwise arise from measuring assets and liabilities orrecognising the gains or losses on them on different bases;

are part of a group of nancial assets and/or nancial liabilities that is managed and forwhich performance is evaluated and reported to key management on a fair value basis inaccordance with a documented risk management or investment strategy; or

are hybrid contracts where an entity is permitted to designate the entire contract at fairvalue through pro t or loss.

These illustrative nancial statements demonstrate the fair value option for debt securities

and equity securities that are managed and evaluated on a fair value basis as part of theFunds documented investment strategy.


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3. Signifcant accounting policies (continued)IFRS 7.21 (h) Financial assets and fnancial liabilities (continued)

(ii) ClassifcationThe Fund has adopted the following classi cations for nancial assets and nancial liabilities:

Financial assets:

Trading derivative nancial instruments Designated as at fair value through pro t or loss debt and equity securities 1

Loans and receivables cash and cash equivalents, balances due from brokers, receivablesfrom reverse repurchase agreements and other receivables.

Financial liabilities:

Trading short positions in securities and derivative nancial instruments Other liabilities balances due to brokers, payables under repurchase agreements,

redeemable shares and other payables.

A nancial instrument is classi ed as held for trading, if:

it is acquired or incurred principally for the purpose of selling or repurchasing in the nearterm;

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

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

A non-derivative nancial asset with xed or determinable payments may be classi ed asa loan and receivable unless it is quoted in an active market, or it is an asset for whichthe holder may not recover substantially all of its initial investment, other than because ofcredit deterioration.

IFRS 7.21, B5(a) The Fund has designated certain nancial assets at fair value through pro t or loss when theassets are managed, evaluated and reported internally on a fair value basis.

Note 6 provides a reconciliation of line items in the statement of nancial position to thecategories of nancial instruments, as de ned by IAS 39.

The categories of nancial instruments are further discussed in accounting policies 3 (i), (j), (k),(l) and (m).

(iii) DerecognitionThe Fund derecognises a nancial asset when the contractual rights to the cash ows fromthe nancial asset expire, or when it transfers the nancial asset in a transaction in whichsubstantially all the risks and rewards of ownership of the nancial asset are transferredor in which the Fund neither transfers nor retains substantially all the risks and rewards ofownership and does not retain control of the nancial asset. Any interest in transferred nancialassets that qualify for derecognition that is created or retained by the Fund is recognised as aseparate asset or liability in the statement of nancial position. On derecognition of a nancial

asset, the difference between the carrying amount of the asset (or the carrying amountallocated to the portion of the asset derecognised), and the consideration received (includingany new asset obtained less any new liability assumed) is recognised in pro t or loss.


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(iii) Derecognition (continued)The Fund enters into transactions whereby it transfers assets recognised on its statementof nancial position, but retains either all or substantially all of the risks and rewards ofthe transferred assets or a portion of them. If all or substantially all risks and rewards areretained, then the transferred assets are not derecognised. Transfers of assets with retentionof all or substantially all risks and rewards include, for example, securities lending andrepurchase transactions.

The Fund derecognises a nancial liability when its contractual obligations are discharged orcancelled or expire.

(iv) O setting

Financial assets and liabilities are offset and the net amount presented in the statement ofnancial position when, and only when, the Fund has a legal right to set off the recognised

amounts and it intends either to settle on a net basis or to realise the asset and settle theliability simultaneously.

(v) Amortised cost measurement

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

(vi) Fair value measurementFair value is the amount for which an asset could be exchanged, or a liability settled, betweenknowledgeable, willing parties in an arms length transaction on the measurement date.

IFRS 7.27 When available, the Fund measures the fair value of an instrument using quoted prices in anactive market for that instrument. A market is regarded as active if quoted prices are readilyand regularly available and represent actual and regularly occurring market transactions on anarms length basis.

If a market for a nancial instrument is not active, the Fund establishes fair value using avaluation technique. Valuation techniques include using recent arms length transactionsbetween knowledgeable, willing parties (if available), reference to the current fair value of otherinstruments that are substantially the same, discounted cash ow analyses and option pricingmodels. The chosen valuation technique makes maximum use of market inputs, relies as littleas possible on estimates speci c to the Fund, incorporates all factors that market participantswould consider in setting a price, and is consistent with accepted economic methodologiesfor pricing nancial instruments. Inputs to valuation techniques reasonably represent marketexpectations and measures of the risk-return factors inherent in the nancial instrument. TheFund calibrates valuation techniques and tests them for validity using prices from observablecurrent market transactions in the same instrument or based on other available observablemarket data.


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(vi) Fair value measurement (continued)IFRS 7.28(a) The best evidence of the fair value of a nancial instrument at initial recognition is the

transaction price, i.e. the fair value of the consideration given or received, unless the fairvalue of that instrument is evidenced by comparison with other observable current markettransactions in the same instrument (i.e. without modi cation or repackaging) or based ona valuation technique whose variables include only data from observable markets. Whentransaction price provides the best evidence of fair value at initial recognition, the nancialinstrument is initially measured at the transaction price and any difference between this priceand the value initially obtained from a valuation model is subsequently recognised in pro tor loss on an appropriate basis over the life of the instrument but not later than when thevaluation 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 short positions aremeasured at an asking price.

(vii) Identifcation and measurement o impairmentIFRS 7.B5( ) At each reporting date the Fund assesses whether there is objective evidence that nancial

assets not carried at fair value through pro t or loss are impaired. A nancial asset or a groupof nancial assets is (are) impaired when objective evidence demonstrates that a loss eventhas occurred after the initial recognition of the asset(s), and that the loss event has an impacton the future cash ows of the asset(s) that can be estimated reliably.

Objective evidence that nancial assets are impaired can include signi cant nancial dif culty

of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan oradvance by the Fund on terms that the Fund would not otherwise consider, indications thata borrower or issuer will enter bankruptcy or other observable data relating to a group ofassets such as adverse changes in the payment status of borrowers or issuers in the group, oreconomic conditions that correlate with defaults in the group.

Impairment losses on assets carried at amortised cost are measured as the differencebetween the carrying amount of the nancial asset and the present value of estimated futurecash ows discounted at the assets original effective interest rate. Impairment losses arerecognised in pro t or loss and re ected in an allowance account against loans and receivables.Interest on impaired assets continues to be recognised through the unwinding of the discount.When a subsequent event causes the amount of impairment loss to decrease, the decrease inimpairment loss is reversed through pro t or loss.

The Fund writes off nancial assets carried at amortised cost when they are determined tobe uncollectible.

IAS 7.46 (i) Cash and cash equivalentsCash and cash equivalents comprise deposits with banks with original maturities of less thanthree months, other than cash collateral provided in respect of derivatives, securities sold shortand securities borrowing transactions.


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1. IAS 32.15, 18 The issuer of a nancial instrument classi es the instrument, or its component parts, as anancial liability, a nancial asset or an equity instrument in accordance with the substance of

the contractual arrangements and the de nitions in IAS 32 Financial Instruments: Presentation .

The issues associated with the classi cation of nancial instruments are discussed in ourpublication Insights into IFRS (3.11.10).


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3. Signifcant accounting policies (continued)IFRS 7.21 (j) Financial assets and fnancial liabilities at air value through proft or loss

Financial assets and nancial liabilities at fair value through pro t or loss are initially recognisedand subsequently measured at fair value in the statement of nancial position, withtransaction costs recognised in pro t or loss. All changes in fair value are recognised in Netgain from nancial instruments at fair value through pro t or loss line of the statement ofcomprehensive income.

IFRS 7.21 (k) Balances due rom brokers, receivables rom reverse repurchase agreements andsecurities borrowedWhen the Fund purchases a nancial asset and simultaneously enters into an agreement to resellthe asset (or a substantially similar asset) at a xed price on a future date (reverse repo), thearrangement is accounted for as a loan and receivable (receivables from reverse repurchaseagreements), and the underlying asset is not recognised in the Funds nancial statements.

Securities borrowed are not recognised in the statement of nancial position, unless the Fundsubsequently sells the borrowed securities, in which case the arrangement is accounted for asa short sold position ( nancial liabilities at fair value through pro t or loss). The cash collateralon the borrowed securities is separately presented as a balance due from brokers.

Balances due from brokers and receivables from reverse repurchase agreements are initiallymeasured at fair value plus incremental direct transaction costs, and subsequently measuredat their amortised cost using the effective interest method.

IFRS 7.21 (l) Balances due to brokers, payables under repurchase agreements and securities lent

When the Fund sells a nancial asset and simultaneously enters into an agreement torepurchase the asset (or a similar asset) at a xed price on a future date (repo), thearrangement is accounted for as a borrowing (payables under repurchase agreements), andthe underlying asset continues to be recognised in the Funds nancial statements.

Securities lent are not derecognised from the Funds statement of nancial position as theFund retains substantially all the risks and rewards of ownership. The Fund recognises cashreceived as collateral with a corresponding obligation to return it (balances due to brokers).When the counterparty has the rights to sell or repledge the securities, the Fund reclassi esthose securities in the statement of nancial statement to Pledged nancial assets at fairvalue through pro t or loss.

Balances due to brokers and payables under repurchase agreements are initially measuredat fair value less incremental direct transaction costs, and subsequently measured at theiramortised cost using the effective interest method.

(m) Redeemable sharesThe Fund classi es nancial instruments issued as nancial liabilities or equity instruments inaccordance with the substance of the contractual terms of the instruments. 1

The Fund has two classes of redeemable shares in issue: Class A and Class B. Both are themost subordinate classes of nancial instruments in the Fund and rank pari passu in all materialrespects and have the same terms and conditions other than [list down the di erences in

terms between the Class A shares and Class B shares, e.g. management ee rate, incentive ees etc]. The redeemable shares provide investors with the right to require redemption for

cash at a value proportionate to the investors share in the Funds net assets at each monthly[daily/quarterly] redemption date and also in the event of the Funds liquidation.


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1. Appendix V lists the standards and interpretations in issue at 31 December 2009 that areeffective for annual reporting periods beginning a ter 1 January 2009.

2. IAS 1.31 In these illustrative nancial statements, IFRSs that have been issued but not yet effective

for the nancial reporting period have not been early adopted. It is assumed that these IFRSs(as detailed in Appendix V) are not applicable to, or do not have an effect on the Fund in theperiod of initial adoption. When new standards, amendments to standards and interpretationswill have no effect on the nancial statements of the entity, we believe that it is notnecessary to list them as such a disclosure will not be material. However, these illustrative

nancial statements disclose amendments to IFRSs and new interpretations which do nothave an effect on the Fund, but where a user could believe a material effect might result fromthe new pronouncements considering the nature of the Funds business, its transactions andother information presented in the nancial statements.


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3. Signifcant accounting policies (continued)(m) Redeemable shares (continued)

The redeemable shares are classi ed as nancial liabilities and are measured at the presentvalue of the redemption amounts.

In accordance with the Funds prospectus, the redemption amounts of the redeemableshares are calculated using the mid-market prices of the Funds underlying investments/shortpositions. On the other hand, in accordance with the Funds accounting policies, assets andlong positions are measured at a bid price and liabilities and short positions are measured atthe asking price (see note 3(h)(vi)). The differences in the measurement bases of the Fundsunderlying investments/short positions and the redemption amounts of the redeemable shareshave been presented as an adjustment in the statement of nancial position.

IAS 8.30, 31 (n) New standards and interpretations not yet adopted 1, 2

A number of new standards, amendments to standards and interpretations in issue are not yeteffective for the year ended 31 December 2009, and have not been applied in preparing these

nancial statements. None of these will have an effect on the nancial statements of the Fund,with the possible exception of IFRS 9 Financial Instruments, published on 12 November 2009as part of phase I of the IASBs comprehensive project to replace IAS 39.

IFRS 9 deals with classi cation and measurement of nancial assets and its requirementsrepresent a signi cant change from the existing requirements in IAS 39 in respect of nancialassets. The standard contains two primary measurement categories for nancial assets:amortised cost and fair value. A nancial asset would be measured at amortised cost if it isheld within a business model whose objective is to hold assets in order to collect contractual

cash ows, and the assets contractual terms give rise on speci ed dates to cash ows thatare solely payments of principal and interest on the principal outstanding. All other nancialassets would be measured at fair value. The standard eliminates the existing IAS 39 categoriesof held to maturity, available or sale and loans and receivables . For an investment in an equityinstrument which is not held for trading, the standard permits an irrevocable election, on initialrecognition, on an individual share-by-share basis, to present all fair value changes from theinvestment in other comprehensive income. No amount recognised in other comprehensiveincome would ever be reclassi ed to pro t or loss. However, dividends on such investmentsare recognised in pro t or loss, rather than other comprehensive income unless they clearlyrepresent a partial recovery of the cost of the investment. Investments in equity instruments inrespect of which an entity does not elect to present fair value changes in other comprehensiveincome would be measured at fair value with changes in fair value recognised in pro t or loss.

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

The standard is effective for annual periods beginning on or after 1 January 2013. Earlierapplication is permitted.

The Fund is currently in the process of evaluating the potential effect of this standard. Thestandard is not expected to have a signi cant impact on the nancial statements since the

majority of the Funds nancial assets are designated at fair value through pro t or loss.


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1. IAS 1.122, 125 Disclosures in respect of areas of estimation uncertainty and critical accounting judgementsare included within the text of note 4, but are not referenced to paragraphs 122 and 125 ofIAS 1 (2007). Further disclosure is contained in note 5.

2. IFRS 7.31 An entity discloses information that enables users of its nancial statements to evaluate thenature and extent of risks arising from nancial instruments to which it is exposed at thereporting date. Those risks typically include, but are not limited to, credit risk, liquidity risk andmarket risk.

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

the exposures to risk and how they arise; its objectives, policies and processes for managing the risk and the methods used to

measure the risk; and any changes in (1) or (2) from the previous period.

IFRS 7.B6 The disclosures required by IFRS 7.31 - 42 in respect of the nature and extent of risks arisingfrom nancial instruments are either presented in the nancial statements or incorporatedby cross-reference from the nancial statements to some other statement, such as amanagement commentary or risk report, that is available to users of the nancial statementson the same terms as the nancial statements and at the same time. The location of thesedisclosures may be limited by local laws.

In these illustrative nancial statements, these disclosures have been presented in thenancial statements.

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

IAS 1.134 The entity discloses information that enables users of its nancial statements to evaluate theentitys objectives, policies and processes for managing capital.

3. IFRS 7.33 The nature and extent of information provided by an entity in this section will depend to asigni cant extent on the nature and extent of its activities with nancial instruments.

4. Operational risk is not a risk from nancial instruments that is speci cally required to be

disclosed by IFRS 7. However, operational risk in an investment fund commonly is managedand reported internally in a formal framework similar to nancial risks.


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4. Financial risk management 1, 2, 3

(a) Introduction and overviewIFRS 7.31, 32 The Fund has exposure to the following risks from nancial instruments:

credit risk liquidity risk market risk operational risk. 4

IFRS 7.33 This note presents information about the Funds exposure to each of the above risks, theFunds objectives, policies and processes for measuring and managing risk, and the Funds

IAS 1.134 management of capital.

Risk management rameworkIFRS 7.31 The Fund maintains positions in a variety of derivative and non-derivative nancial instruments

in accordance with its investment management strategy. [Insert description o the Funds investment strategy as outlined in the Funds prospectus]. The Funds investment portfoliocomprises quoted and non-quoted equity investments and debt securities, derivative nancialinstruments and investments in non-quoted investment funds that it intends to hold for aninde nite period of time.

Asset purchases and sales are determined by the Funds Investment Manager, who has beengiven discretionary authority to manage the distribution of the assets to achieve the Fundsinvestment objectives. Compliance with the target asset allocations and the composition of theportfolio 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 Funds Investment Manageris obliged to take actions to rebalance the portfolio in line with the established targets, withinprescribed time limits.

IFRS 7.33 (b) Credit risk Credit risk is the risk that a counterparty to a nancial instrument will fail to discharge an obligation

or commitment that it has entered into with the Fund, resulting in a nancial loss to the Fund. Itarises principally from debt securities held, and also from derivative nancial assets, cash and cashequivalents, balances due from brokers and receivables from reverse repurchase agreements.

For risk management reporting purposes the Fund considers and consolidates all elements ofcredit risk exposure (such as individual obligor default risk, country and sector risk).

Management o credit riskIFRS 7.33(b) The Funds 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 outin the Funds prospectus and by taking collateral. [Insert specifc risk management policies and investment guidelines relating to credit risks as outlined in the Funds prospectus].

IFRS 7.33(b) Credit risk is monitored on a daily basis by the Investment Manager in accordance with policiesand procedures in place. [Insert specifc risk management procedures. This should include how the risk is managed and measured] . The Funds credit risks are monitored on a [monthly,quarterly, other] basis by the board of directors. Where the credit risks are not in accordance

with the investment policy or guidelines of the Fund, the Investment Manager is obliged torebalance the portfolio within [state number o days] days of each determination that theportfolio is not in compliance with the stated investment parameters.


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1. IFRS 7.34, IFRS 7 requires disclosure of information on each risk in a format based on the information 36-38 provided internally to key management personnel of the entity (as de ned in IAS 24 Related

Party Disclosures ), e.g. the entitys board of directors or chief executive.

The standard also requires speci c additional disclosures to be made unless covered by theinformation provided to management.

The example shown in these illustrative nancial statements in relation to credit risk assumesthat the primary bases for reporting to key management personnel on credit risk is monitoringof credit ratings of counterparties to debt securities, reverse repurchase and derivativestransactions, brokers and bankers and industry concentration of debt securities. However,other presentations are possible.


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4. Financial risk management (continued)(b) Credit risk (continued)

Exposure to credit risk 1

IFRS 7.36(a), (b) The Funds maximum credit risk exposure (before collateral and other credit enhancements)at the statement of nancial position date is represented by the respective carrying amountsof the nancial assets in the statement of nancial position. The risks on some of theseexposures, such as receivables from reverse repurchase agreements, are mitigated bycollateral held.

Investments in debt securitiesCredit risk arising on debt securities is mitigated by investing primarily in investment-graderated instruments, principally with credit ratings of at least AA/P2 as determined by [ credit rating agency ]. The Investment Man

Download - IFRS Illustrative Financial Statements March 2010

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